The ABC Gap of High Growth

The ABC Gap Dilemma

Somametrics abc-gapEvery company has some form of an ABC Gap: ‘A’ is where a company is today, ‘C’ is where it wants to be, and ‘B’ is its bridge (what it needs to do) to get from A to C.

The idea is that to the extent that a company is able to chip away at the gap between ‘A’ and ‘C’, then it is likely meeting its growth objectives on a consistent basis. Managing this gap and successfully moving closer to ‘C’ is what all executives spend most of their time doing, especially CEOs.

One important question is: when companies find it difficult to meet their growth objectives, is that because they don’t have a good plan ‘B’, or are they having difficulty executing on ‘B’?

What our research and experience shows is that it is more often the latter. Execution is the key challenge primarily due to resource constraints. Sometimes, a company doesn’t have certain skills it needs to execute the plan. But more often the case is that its people are already busy doing what today demands and don’t have the time to do the work that tomorrow demands.

In other words, when today (‘A’) competed with tomorrow (‘C’) for the same resources, almost always, it is ‘A’ that wins.

The reasons for this are well documented in books such as The Innovator’s Dilemma by Michael Clayton of Columbia University as well as in books by marketing consultant Geoffrey Moore (Dealing with Darwin and Escape Velocity).

We believe, however, that the reasons documented by these noted experts primarily apply to larger companies, and that smaller companies face a different ABC Gap challenge. This article discusses this issue from the perspective of a small company and attempts to provide a practical solution.

The Nature of ABC Gap

soma-generic-bus-mondelRegardless of industry, almost all companies must handle three generic business operations: they must continuously innovate and bring out new products and services, they must take these products and services to market, and they must fulfill the demand they created (manufacturing, delivering, supporting, and so on). While they don’t have to do all three internally (and indeed that is not the best option), they must execute all three better than competitors to achieve high growth.

The assumption here is that a company continues to innovate and bring out new products and services, which it markets/sells, and then delivers and supports.

However, what seems to happen to most companies is that ‘today’ wins over ‘tomorrow’. In other words, the customers of today, who use the products of today, get the lion share of the company’s resources—both in number and talent—first.

Geoffrey Moore, in his book, Dealing with Darwin, outlines this issue—what he calls “Core” vs. “Context”. According to Moore, Core, which is what differentiates a company, must be continually renewed in order to maintain competitive advantage and grow at a high rate. However, most of the company’s key resources are allocated to “Context”—those things that if not done will result in really bad things happening, but doing them well will not increase growth.

While Context work must be done, it confers no competitive advantage. For example, paying taxes or meeting regulatory requirements are necessary in that the consequences of not doing them can be serious. However, neither enables a company to achieve high growth.

Differences in Small and Large Companies

The Large Companies Go-to-Market Dilemma

When it comes to large enterprises, their greatest challenge is that their new innovations do not see the light of day in time before competitors beat them to it.

Most of these large companies have very good labs and innovation centers where they develop many new products. However, the revenues that would come from these new products are so dwarfed by the overall revenues from existing products that they get little or no top management attention.Eventually, they die at birth from lack of attention.

A case in point is Apple’s infamous Newton. When Apple launched its first Macintosh computer, it celebrated the day it passed the million-dollar mark with champagne.

The Newton, however, did not get the same treatment. Although it generated far more dollars than the first Macintosh ever did, it was considered a dismal failure and scrapped. Why? Because by then, Apple was a multi-billion-dollar company and their existing products were generating many tens of millions if not hundreds of millions of dollars in revenues.

For big companies, the challenge is not that they don’t innovate sufficiently, Typically, it is that they never get enough “go-to-market”resources for these innovations to take off and become successful.

Small companies, however, face a different challenge.

The Small Company’s Innovation Dilemma

For smaller companies, the challenge is quite different. Typically, it is finding the resources to build new products. The visionary founders are never short of ideas. However, bringing these ideas to fruition seems to be the challenge.

The reason for this is pretty much the same as for large companies. All available resources are used to support the existing products and the existing customers that use them. In fact, their best engineers often work to fix issues for important customers, rather than working on new products.

And since support people are usually less expensive than engineers, they tend to have very large support organizations compared to their engineering department. It is common to have a ratio close to as much as ten support people for each engineer they have. As more support people are hired, there is less money to hire engineers, requiring more support people to patch together products, etc.

Every CEO of a small company knows this problem too well. But where to find a practical solution that takes care of today as well as tomorrow?

Outsource what’s Context

There is one strategy that small companies can use effectively to free up scarce capital so they can close their ABC gap:

Hire for Core and outsource as much context as possible.

This strategy enables a company to get two benefits in one fell swoop: free capital for Core and improve the quality of Context work, both at the same time.

Outsourcing Benefit 1: Focus

The problem with Context is that it tends to take over and create a distraction. Employees are human beings with lives, and lives are complex. The more employees a manager has reported to her, the more time she spends dealing with “people” problems separate from the functional or business problem over which she has responsibility.

By definition, context is work that must be done since not doing it will create very bad problems. However, doing context work in no way improves the competitiveness of a company.

Think of it context as a bad headache. You can’t ignore it when you have one. But not having a headache does not mean you don’t have any other problems. It just makes it harder to solve other problems with a bad headache.

Outsourcing context work is essentially outsourcing the headache so you can focus on solving the real problems you need to solve without the distraction of the headache.

Outsourcing Benefit 2: Flexible Spending

Another important benefit of outsourcing Context is enabling a company to pay for what it needs when it needs it and at a higher level of expertise, instead of committing to “bulk purchase” of resources it can’t fully utilize.

For example, a typical B2B marketing operation may consist of the following tasks: building and managing campaign lists; developing new content; maintaining the company website and its social media properties; managing outbound and inbound campaigns, and more.

Each of these tasks is a specialty area with its own best practices. Hiring a specialist for each task is usually overkill for a small company. So, what typically happens is that smaller companies hire a couple of people in their marketing department and have them basically divide the tasks.

Since each marketing staffer cannot reasonably master more than one area, he or she will end up learning just enough to complete the task, but not enough to do it exceptionally well. That is all he or she can do given the amount of learning required and the limited time they have to master each area.

Compare that with an agency that has several specialists, each focused on a single area of expertise. Because each is an expert, whatever work they do is done at a higher level of effectiveness. At the same time, the client company only pays for what it needs when it needs it.

This enables the company to utilize a small portion of its available resources for Context work, and have it done even more efficiently and at a higher level of competency than it would internally.

How to Decide what to Outsource

The chart below provides a short analysis for making a decision to hire versus to outsource.

Function Category / Decision Analysis
Sales Core/Hire Sales needs to partner with buyers in order to effectively sell products and services. The more complex the solution, the more strategic the relationship and the more it needs to be in-house. Winning a deal greatly depends on the sales rep’s ability to forge trust and build partnership with the buyer.
Business Development Context / Outsource This is a very high-volume short-relationship engagement. Potential buyers will remember if this goes bad, but will not remember if it goes well. No company wins customers because the person who first called them and set an appointment with a sales rep impressed them.
Marketing Context / Outsource While the development of a marketing strategy should never be outsourced—it is what the top level management does—the execution of the marketing strategy is largely context and confers no competitive advantage to the company.

Most often, companies mistake strategy and execution. Execution on the strategy requires expertise that most companies do not need to develop—content creation, messaging, list management, campaign management, etc. There are many firms that have both the expertise and the advanced systems to do this work more efficiently than any company could or should internally.

Innovation / Development Core/Hire For most product companies, this is where their competitive advantage lies. While there are aspects of product development that are context (quality assurance, release management, etc.), the actual design and development of products should be an in-house operation.

We should make the distinction between a product company developing in-house versus say a financial firm outsourcing the development of an App to an independent agency.

Customer Support Context / Outsource Many companies can get away with outsourcing their customer support operations. The key is to make sure that the company to which they outsource would provide at least the same level of support to customers as they would.

In reality, however, many companies do not feel comfortable outsourcing this operation and tend to hire in-house.

Finance, Accounting, HR, IT Context / Outsource Generally, these areas of operation can safely be outsourced. The key is to have a very senior and strategic head with a very thin in-house operation managing by results the efforts of the outsourced team.
Legal / compliance Context / Outsource For companies that are in a highly regulated industry, the consequence of getting on the wrong side of the law can be very grave. Therefore, although this is clearly context, it is so mission critical that most companies will have a hard time outsourcing this function. The key is to really understand the risk and manage it in the least costly way for the firm.

 

Why B2B Sales is No Longer Working

Overview

A fundamental shift we see in Business-to-Business (B2B) sales is that prospecting and sales results seem to have turned for the worse. Lead conversion rates are lower; sales cycles are longer; and closing ratios are not what they used to be.

We hear many Sales and Marketing executives complain that “solution selling” and other sales methodologies are no longer as effective as they were in the past.  We are also hearing that sales reps are losing control of the sales process, and that prospects just aren’t picking up their phones or returning calls.

We don’t believe these changes occurred overnight. Rather, they have been evolving over the past two decades to the point where they are now impossible to ignore.

What our customers are complaining about is the shift in the control over the flow of information—a shift in control from seller to buyer.

In past decades, sales people were conduits of highly valuable information for prospective buyers. They might open a sales call by saying, “…if you are anything like my typical customers, you probably have these challenges that are costing you a great deal of money. We have been very successful at solving those kinds of problems and I would like to share with you how we do that”.

Twenty years ago, that opening was pretty effective. Short of buying and reading books on how to address such challenges or occasionally talking to their peers at conventions and trade shows, buyers had few sources of information, insights, or new ideas. Talking with a highly informed consultative sales rep was critical to their finding viable solutions to their challenges.

In fact, once they found such an informed sales person, many customers didn’t even make other purchases before talking to their sales rep. Such were the powers that sales rep had back in the day.

Not so true anymore.

This article discusses why sales people have lost their great influence and power, and what they can do to get it back. It makes the clear case that without effective B2B Marketing, B2B Sales will continue to ineffective and costly. The article also explains what we mean by “effective” B2B Marketing—one that provides highly valuable information to customers, rather than self-serving advertising.

So what changed?

The Internet changed everything—it is the ubiquitous, free, and on-demand information resource available to anyone who has access to the Internet and knows how to search. This is what has shifted control of the flow of information from sellers to buyers.

As buyers, we not only know this, but we take advantage of it.  What we don’t appreciate as sellers is the degree to which it has changed the entire B2B sales model—from a primarily seller-controlled process, to one almost entirely controlled by the buyer.

Let’s illustrate with a couple of simple examples.  Let’s look at a prospective buyer (let’s call her Jane) with some pressing business need, and a sales rep (let’s call him Tom) for a company that provides solutions.  Lets explore two scenarios, one that would have played out twenty years ago in 1996, and another that would play out today, in 2016.

Back In the Day

In 1996, Tom would attempt to reach Jane, and when he connected, would say something like, “Hello Jane, my name is Tom and I am calling from ABC Company where we help companies like yours solve their ‘xyz’ problems. We have been very successful at that and I would like 30 minutes of your time to share with you how we have done that.”

Tom doesn’t really know if Jane has the ‘xyz’ problem. If she does though, there is a good chance she will agree to a first meeting because, frankly, where else would Jane get ideas on how to solve her ‘xyz problem’?  If Jane doesn’t have a “xyz” problem, she may want to meet with Tom to see if he has information regarding how to solve the problem she does have.  Jane is willing to spend 30 minutes to find out.

In 2016…

How about In 2016? Is Tom a unique source of valuable information, or is he a self-serving, time-sucking nuisance?

In 2016 (and indeed, for a number of years now) all Jane has to do is to experiment with some key search phrases and immediately has access to all sorts of blogs, discussions, articles, presentations and more–to review at her convenience.

And, it makes no sense for her to see a sales rep until she has made her selection, a short list of candidate to speak with.

Jane has now has gathered the data she needs, and decides to contact Tom to schedule a time to speak specifically about her needs and challenges. Jane is in control of the buyer’s journey, not Tom.

If Tom and his company still think and sell like it’s 1996, they will send Jane emails and call her to schedule an appointment.  Jane won’t respond because the subject line is something irrelevant to her, like “I’ll be in your area in the next few weeks” or “Wanted to talk to you about our Product Q”.

Jane will simply look at the caller id, and since she doesn’t recognize Tom’s or his company name, Jane doesn’t even pick up. If Tom leaves a  voice mail, Jane will delete it as soon as she hears, “Hi, this is Tom, from ABC Company, the leading provider…”

As long as Tom continues to sell like it’s still 1996, he is a time-sucking nuisance rather than a valuable resource for Jane.

Is this the End of B2B Selling?

We are not saying that B2B selling is no longer relevant.

Rather, we are saying that selling today the way we did twenty or thirty years ago will no longer work.  In the next sections, we will explore why that is and how to fix this problem.

The problem with B2B Sales is B2B Marketing

The real problem with B2B Sales, why companies continue to sell like it is 1996, is B2B Marketing.

The typical B2B marketing campaign is unabashedly self-serving with few, if any, new ideas or perspectives in solving customer problems. Go to the average B2B website and it is hard to find anything that is not about the company or its products, with a link here and there that says” Learn More”.

To make matters worse, clicking on the “Learn More” button takes you to a form where you have to provide your contact information to get more information. It is basically transactional–first you, “valued” prospect, give me something I want (your contact information) and then I will give you something you want.

A great deal of  ‘white paper’ that is provided has little in the way of new ideas. It is mostly several pages of generally available information, with more advertising for the company and its products, than valuable and informative content.

But you already know that. So what do you do? You enter some bogus information where you can’t be reached (you know how to play that game too). Because, if you actually entered your real contact information, you can count on receiving a call—during business hours when you are busy—from someone trying to setup an appointment with a sales rep so you can “…get all your questions answered”.

It’s the old1996 B2B sales and marketing model that says, “Let’s setup an appointment and I will dazzle you—trust me.”

Does anything so far inspire you to have confidence that you will be dazzled?

Fix B2B Marketing and you will fix B2B Sales

Let’s imagine that Tom and his Company sell like it is 2016. What if Tom dazzled Jane before asking anything from her? Would Jane then give him 30 minutes?  It seems more probable since Tom has already proved his worth.

How to Dazzle

Let’s look at an example. Say your current selling cost is about 40% of revenues, and your CEO says you have to get it down to below 30% and increase revenues by 20% at the same time. I think we can agree that you will be doing some key word searches as soon as you leave that meeting.

Your search will return a lot of stuff you already know and are probably already doing.   Some of the searches will land you at a site where you are required give up your contact details to obtain the information. From time to time, you play that game to get something you think might be useful.

But, say you found some really interesting articles with some really good ideas. And, you weren’t asked to provide your contact info to access this content. Here is how I think that scenario would play out:

  • You quickly scan, select, and assemble resources for further reading later
  • You block a few hours—maybe for the evening or early next morning—to read what you bookmarked
  • You read the articles more carefully and take notes
  • You then setup a meeting with some key members of your team to discuss what you found
  • Based on your meeting, you will assign some action items for the team to further review the information.
  • Your team will report their findings back to you at the scheduled time
  • During your next meeting, you will review all findings and then decide on a short list of potential vendors you want to contact
  • You assign someone to schedule discovery call meetings

Does this sound sensible to you as a buyer?

As a buyer, yes. But you see how the table is turned upside down from the seller’s perspective. The buyer is the one doing the discovery call, not the seller.

How 2016 B2B Marketing Enables 2016 B2B Sales

When B2B Marketing is adjusted for the 2016 buyer’s process, it enables B2B Sales as follows:

  1. B2B Marketing provides a deep information resource for which the Buyer is looking
  2. Therefore, the Seller is now a valuable resource rather than a self-serving, time-sucking nuisance
  3. Due to both the quality and depth of the information found, the Buyer feels confident that this Seller knows the Buyer’s challenges and can potentially provide a viable solution
  4. Confidence is established, which is a prerequisite to trust, and trust is a necessary condition for making buying decisions
  5. Buyers find the Seller’s open approach a welcome change compared to other vendors that seem to want the Buyer to first commit to something before giving anything
  6. The Buyer want to make sure this Seller is on the short list of potential vendors and reaches out to the Seller to schedule time for a presentation, probably before the Seller contacts her.
  7. This is what we call an “A” lead that is highly qualified with the buyer seeking a solution for a real and current need.  Marketing has done its job; providing an inbound lead.

Now, it’s up to Sales to convert this high quality lead into a long-term customer.

The Fear and Frenzy of Demand Scarcity

We believe Sales and Marketing executives agree, in principle, that what we outlined so far makes sense.

So, why isn’t the above how most companies market and sell today?

The single most common reason we get is, “If we had the time and luxury to do it that way, we would, but it takes too long to do it that way, and we have to meet our numbers now. Besides, we can’t wait for customers to come to us. We must go after them and win before our competitors do.”

At first glance, this sounds like a rational and savvy statement to make.

However, its underlying assumptions are flawed:

  • A lot of companies are either missing their revenue targets, or their selling costs are way too high (40% or more) as they cut prices to win deals, or hire more sales reps to generate more sales. Neither approach solves their fundamental problems—not enough Sales Pipeline; sales cycles are too long and too few opportunities exist to close.
  • We are not suggesting that the Seller’s organization should simply wait for prospects to call them. On the contrary, we advocate the use of highly targeted lead generation and nurturing campaigns that increase inbound leads. In fact, we advocate that B2B marketing should be responsible for at least 50% of all new revenues generated in any year.

The B2B Marketing-Sales Model

The 2016 B2B Marketing-Sales Model is a single continuum that starts with highly targeted potential customers at one end and long-lasting customers at the other end. In other words, Marketing and Sales must have a single goal and mission—to build and deliver a Predictable Revenue Model for the company.

We refer to this B2B Marketing-Sales Model as the Four Funnels Framework—four nested funnels, each feeding the next with what it needs to result in the fourth, the Sales Funnel. Each funnel is responsible for delivering measurable results that are inputs for the next funnel.

Funnel 1: Reach

Funnel 1 has two fundamental objectives:

  • Identify a clearly defined and targeted group of potential buyers about which Marketing knows quite a bit
    • Who they are and what they do
    • What are the most critical challenges they face in increasing/improving what they offer or cutting the costs and risks of making their offer or how to improve their business processes
    • Who the decision makers are and how to access them
    • Which are the key competitors (direct and alternative) to beat, and how to beat them
    • Reach out to these potential buyers with a clear and compelling message
      • What are the issues that must be addressed for each stakeholder
      • How to address these in a convincing way
      • Where to place the information so these stakeholders can easily find them

Funnel 2: Educate

As we discussed above, Buyers are now doing their own research to solve problems. What they are looking for, first and foremost, are ideas on how to solve problems in this fast-paced and changing world.

Therefore, they not only are searching for solutions to their current problems, but they are also looking for a partner who is a thought leader, and will continue to be a viable long term partner who can be counted on to offer new solutions for new problems, in the future.

Funnel 2 is responsible for nurturing potential buyers by deeply engaging them with valuable content, always pointing to additional relevant information (“If you were looking at this article, you probably also want to look at this article…”)

Funnel 3: Qualify

Once the prospect has shown clear interest in the Seller’s resources, the Seller’s Business Development Rep will be provided with a lead to qualify the following:

  1. Is there a current pressing need or is the prospect merely doing research for future projects (that’s fine too, but that will continue to be a nurture campaign)
  2. What is the compelling event that has caused the search
  3. Who is driving the initiative for this research and why
  4. Has a budget and timeframe been determined for this initiative
  5. Is the business driver ready to speak with a solution expert at the Seller’s company, and if so, when is a good time

Funnel 4: Convert

Funnel 4’s job is to work with the prospect to generate/explore viable ideas and work with the prospective buyer to architect a solution, of which the Seller is playing some part (perhaps a central one).

With continued demonstration of partnership and consultation, the Seller naturally converts the prospective Buyer into a long-term Customer.

The previous statement strongly implies the need to continue to consultatively partner with the customer in order to keep that customer for the long term. Sellers that think the selling is done when the contract is signed find themselves out with no reorder or renewal of future contracts.  Which only increases the fear and frenzy, leading back to selling like it is 1996.

Market likes it 2016

With that said, all of the Marketing and Sales automation tools continue to not only be relevant, but essential since none of what we outlined, above, can be done without true automation. What we are advocating is the following order of events:

  • First get the fundamentals of sales and marketing right (strategy)
  • Then build in automation to accelerate and improve on the accuracy of your marketing and selling efforts (operations)
  • Next plan to provide potential buyers with informative content, on an ongoing basis–“Always be Closing” is now “Always be a Resource”.

the goal of 2016 B2B marketing is to create highly qualified inbound leads that B2B Sales converts into long term customers.  Your prospect now sees your company as a viable and trustworthy thought leader.  When prospects are ready to buy, they will contact your company for an appointment. When we do these things in the right way and order, you will end up with a Predictable Revenue Model that will result in a sustainable high rate of growth.

Next Steps

If you found this article useful, perhaps moving to 2016 B2B Selling is easier than you think.

Do some Internal Assessments to see where the gaps may be.

Contact us if there is any way we can help.

 

 

 

Why Conducting Internal Assessments Could be What You Need to Get Ahead

the power of internal assessments

The Importance of Internal Assessments

Every CEO wants to achieve Predictable Revenue Growth. And the companies that are struggling with achieving their revenue targets are often baffled by why as they continue to do more of the wrong things.

Here are some of the issues we have seen some of our clients struggle with:

  1. A simple change in workflow would save 40% of the time a team was spending to fulfill customer orders
  2. A company that generated 57% of its revenues from just 2% of its customers was spending 80% of its sales team’s efforts going after exactly the wrong types of customers
  3. A company that was meeting its sales targets was baffled by how cash flow was always a problem. It found out that 18% of the closed deals never converted into invoices because newly signed up customers canceled after being frustrated with protracted onboarding processes.
  4. A ten person sales team that received on average 3,000 leads per month was complaining that they were not receiving enough leads. Interviewing the team revealed that the team was getting such bad leads that they had stopped even looking at them.
  5. A sales team that was expected to meet its quarterly revenue goals with an average of 50 deals was not meeting its revenue goals after turning in over 100 signed contracts per quarter. The sales team thought it was working hard and doing well.
  6. A company that was struggling to meet its revenue objectives repeatedly said that the number one predictor of a closed deal was a site visit by a prospect. Yet, the company didn’t have a single program for drawing prospects to its site or in any way increasing site visits by a prospect.
  7. A company that repeatedly told its sales team to focus 80% of their efforts in selling a new product saw no progress until they walked through the process of selling this product and found a number of roadblocks that had to be removed.

You may look at the above and say, “Well those should have been easy to prevent in the first place. Our problems are more complicated than those”. And perhaps they are.

Yet, in each of the above cases, the company had a smart hard working management team in place.

So, why did these relatively straightforward issues slip through and persist for months, sometimes years, before being discovered?

One major reason is that all of the above issues are deeply baked into the day-to-day activities of everyone at the company. Things used to work well that way in the past, but as the company added more products and went after different kinds of customers, or as customers themselves changed, as they often do, what used to work well no longer does.

Those that have been with the company for a while will find it difficult to notice because what is routine becomes the background no one notices.

That is why internal assessments made by an outsider are imperative. Outsiders are needed to ask the “obvious” questions to which no one has any good answers. People in the room start looking at each other, waiting for someone to provide a decent response. You will find here some of the kinds of questions you should be asking.

Don’t spend more money doing more of what is evidently not providing you with the results you expect.

Get outside perspective. Do thorough investigative internal assessments of your company–starting with Sales, then Marketing, then Customer Service, and finally with products.  These should be completed in about a week so as to maximize the learning and better connect the dots.

It will be hard to impossible for your Management Team to set aside a whole week to do thorough internal assessments. It will be even harder for your team to stay objective and intellectually honest in asking tough questions, and especially in explaining why they continue to do what they do.

If you seriously want to achieve Predictable Revenue Goal, you must know what is preventing you from doing that. To find out, you must conduct thorough internal assessments. Get outside help to come in, interview, review, analyze, and report back to you within a week.

SOMAmetrics has the expertise to conduct a thorough assessment of your company’s systems, processes, and people. Call us at 510 206 9263 for a free initial consultation.

Why Predictable Revenue Growth is Vital and How to Get It

predictable revenue growth

What is Predictable Revenue Growth

When we have Predictable Revenue Growth, we can set our revenue targets each year and achieve it within a narrow margin of error (no more than 5%). Not only that, we also determine that each year’s growth rate will increase by an accelerator amount (20% for example), continually stretching our capabilities towards a high performance company.

To illustrate, let’s assume that our revenues are $10,000,000 for the year.

To attain Predictable Revenue Growth, let’s say we set our first year growth rate to 15% and decide to accelerate that rate by 20% each year, which is another way of saying we will commit to a 20% incremental improvement each year over the prior year. Here is what the first five years will look like:

Year 1 Year 2 Year 3 Year 4 Year 5
15.00% 18.00% 21.60% 25.92% 31.10%
 $11,500,000  $13,570,000  $16,501,120  $20,778,210  $27,241,065

Five years later, we will be growing at 31% rate and our revenue per year would have grown 270% to $27.2million per year.

 

Let’s assume we were able to extend this through year ten. The numbers would look as follows:

Year 6 Year 7 Year 8 Year 9 Year 10
37.32% 44.79% 53.75% 64.50% 77.40%
 $37,408,738  $54,164,022  $83,275,944  $136,986,642  $243,009,789

Now, a number of companies have shown growth rates even higher than this, year-over- year. But let’s say that growth rates cap at around 50% per year after the eighth year. The revenue growth in the tenth year is still remarkable as illustrated below, is a whopping $182million per year.

Year 6 Year 7 Year 8 Year 9 Year 10
37.32% 44.79% 50.00% 50.00% 50.00%
 $37,408,738  $54,164,022  $81,246,033  $121,869,049  $182,803,573

This is the power of Predictable Revenue Growth—it enables a transformation of a company into its true potential.

There is a reason for setting the acceleration rate, rather than just specifying a growth rate. Companies do not become great overnight. It takes a great deal of hard work and discipline, not to mention capital and talent, to grow at a high rate. The acceleration rate is the rate at which a company commits to improving its best practices, its processes and systems, its products and services, and its people.  Each year provides the fundamentals for the next year while at the same time stretching a company’s capabilities further than the year before.

To be sure, setting a flat growth rate of even 15% a year and achieving that is an admirable enough accomplishment. However, adding an accelerator rate on top of that 15% while at the same time setting the targets for improvements over the prior year’s, is the difference between a good and a great company.

Setting these two numbers is only the starting point. The real question is how will we execute on these numbers. And that depends on two fundamental changes that must happen. As these are the most challenging hurdles that a CEO faces, it is important to first be clear on why Predictable Revenue Growth is vital to the future of a company.

Why Predictable Revenue Growth is Vital

Without Predictable Revenue Growth, a company’s future is always uncertain.

Predictable Revenue Growth is the difference between precarious survival and a sustained leadership position in the company’s chosen market space.

Companies that do not strive to achieve a predictable revenue growth (and do not know what levels of revenue they achieve by year end) are leaving their destiny in the hands of outside powers. A hiccup in the economy, a new regulatory requirement, a new competitor, and or loss of a major customer—any and or all of these can happen and do happen. When they do, they can have a devastating impact on company revenues.

When companies commit to achieving Predictable Revenue Growth, they are forced to ask and answer some very fundamental questions that will enable them to improve their competitive advantage and market standing, which will, in turn, provide powerful protection from the adverse effects of outside threats.

Since setting Predictable Revenue Growth requires detailed planning to achieve that growth rate, the company is always prepared for the future. Instead of being a victim to the vagaries of unpredictable future, it creates its own knowable future and makes it far more predictable.

The next section describes the process for achieving Predictable Revenue Growth and transforming into a high-performance company.

How do we Achieve Predictable Revenue Growth

Setting the targets for Predictable Revenue Growth is the first important step, but how do we achieve this growth rate? What is a practical and process of transformation for a company that has not yet achieved Predictable Revenue Growth?

In transitioning from non-predictable to Predictable Revenue Growth, a company essentially goes through four stages of performance changes—Internal Assessments, Optimization,  Strategic Refocus, and Strategic Expansion.

Stage 1: Internal Assessment

The first step towards achieving Predictable Revenue Growth is to understand why we are not currently achieving that.  You will find some useful resources here to help you get started on assessing your sales, marketing, customer service, and product innovation capabilities.

This step is discussed in more detail in this article.

Stage 2:  Optimization

No matter what we believe, we all have more untapped resources and capabilities than we think, as very few companies systematically work to efficiently use their full potential.

Once we understand what the hurdles are that are preventing us from achieving Predictable Revenue Growth, the next step is to focus on the low hanging fruits where we can make immediate gains, typically within the next 60 days.

Once we have taken inventory of what we do and don’t have, the process of Optimization continues to clean out what is no longer relevant, focus on what we can actually accomplish, and free up time and resource enabling us to move to Stage 3.

Stage 3: Strategic Refocus

The next step is to examine the various market segments our company currently is pursuing and select the one we can most likely dominate within the next 24 months. Too often, we see on company websites or email communications the statement, “Company ‘X’, the leading provider of…” However, this is a self-proclaimed status rather than one awarded by the market.

What we are advocating for is true leadership as evidenced by: near-total name recognition and market share, acquisition of key accounts for which all competitors vie, and clear leadership in revenues and profitability.

The rewards that come from focusing on a specific niche are well documented and astonishing. Every leading company in any sector achieved that status by manically focusing on one (and only one) niche market.

Yet, for various reasons, this is the hardest thing to do for most companies. Choosing to focus on a single market niche can be scary, to say the least.

However, while we hesitate to pick one niche and focus on it, our competitors that do just that will outperform us in sales, profitability, and overall market leadership. Not only do these competitors have more focused messaging that is clearer and more compelling to customers, but they also have more targeted products and services that truly address their client’s needs.  This focus turns each client into a great testimonial—which is far more effective at winning new customers that self-proclaimed statements of leadership.

As customers, we get this. It makes sense to us when a vendor is focused and specializes in a narrow area, and has exactly what we need. For example, when we are a healthcare company looking for an accounting system, we want a vendor that has strong leadership providing accounting systems to the healthcare industry.

And yet, when we are the vendors, we forget that customers want a specialist, not a generalist. If we sell accounting system, we minimize the difference between a healthcare and a mining company, and try to tell each we have exactly what they need.

We would be more successful if we start with one, win a strong leadership position, and then leverage that to enter the next market segment. If we were to do that, our sales, marketing, product and support organizations all would be more differentiated and more effective. This then results in better closing ratios and shorter sales cycles, which result in both high revenue and profit growth rates.

As scary as it seems to focus on only one niche, it is the strategy that works. Preparation is the key to addressing that fear of focusing on a single niche, and the company assessment we conducted in Stage 1 becomes the raw material for analyzing the best niche market for us to serve at this time.   The commitment is to win a dominant position within this niche—at least 35-40% market share—within 24 months.

As counter-intuitive as it means, the danger typically is choosing too big a segment, not one of choosing a small one. We should take care to choose a niche where we can be the biggest fish in that pond–we don’t want to be  a minnow with no power.

Once you pick our niche, we can now apply The Four Funnels Framework discipline to align marketing and sales and run our operations by the numbers.

Niche marketing is the necessary and sufficient condition that must satisfied to attain Predictable Revenue Growth. And the answer as to which niche to pick is available to us once we have conducted an internal assessment.

Stage 4: Strategic Expansion

Once we successfully complete Stage 2 and have become a much more focused company, we should now be acquiring new customers at a higher speed than ever before. Sooner or later, we will reach a saturation point, as we have picked all of the ripe fruits off that tree. Whatever is left is likely not worth picking.

So, how can we continue to grow, much less at a higher rate than before, when we have no more fruit left to pick?

To continue with that metaphor–by planting more trees, of the right kind, and by allowing sufficient time for these to mature and bear plenty of fruit. In other words, we must allow 2-3 years of strong investment in any given niche to realize strong harvest at the end.

The work in the second year of Predictable Revenue Growth is to systematically analyze potential new market segments and ask some important questions:

  1. Where do we see market segments where our core competency appears to address the challenges these markets face?
  2. Which of these market segments has a compelling need that we can fully address with a reasonable level of investment on our end, where competition is relatively light, are adequately well funded to afford our products and services, and the decision-making team and process is accessible to us?
  3. How do we verify these segments?
  4. Which are the marquee accounts we must win to create a domino effect in that niche?
  5. Which key partners do we need to start working together?

The work starts in the second year (even though we are still committed to a two-year single-minded focus on our current niche) because it takes time to do this work and come to strong agreement and commitment on each subsequent niche.

In each niche, we must continue to implement The Four Funnels Framework to continually acquire new customers into a dominant position.

This third phase must become an ongoing conversation within the company, year after year, so that we continuously and systematically explore new market segments we can enter. The Four Quadrants of High Growth provides some of the internal processes for efficiently moving from Stage 2 to Stage 3.

Some examples of companies that are excellent at this are Amazon and Google, who continually look for other markets that could use their core capabilities, always pushing the limits of their influence and capabilities in highly disciplined and targeted ways.

Hurdles to Achieving Predictable Revenue Growth

Let’s say we are convinced that Predictable Revenue Growth is vital to our company, and that the three implementation Stages made sense to us, and that we are ready to start. What are the hurdle(s) we must overcome?

The single most difficult hurdle to overcome in order to achieve Predictable Revenue Growth is the commitment to change.

  • Internally, change means changing the culture of the company towards one that values and rewards performance, perhaps over loyalty and personal friendships.
  • Externally, it means moving away from a broad marketing and sales efforts to one that is focused on a specific niche that has been judiciously chosen after well-thought out analysis.

There are other hurdles–such as lack of capital or talent required to make needed changes. However, any company that is able to commit to the two changes above will find a way to procure the talent and the capital needed to make the necessary changes.

Cultural Change

Every CEO knows that changing the culture of a company is the hardest thing to do. Still, no company can significantly improve its performance without making fundamental changes to the status quo.

At its core, changing the culture of the company really translates into the way things are done at the company, how power and influence works, what is rewarded and recognized, and what is not.

If some in leadership positions today lack either the willingness or capability to drive a high-growth agenda, they may need to replaced by others who can drive performance.  While this may sound logical, for many CEOs–especially founder CEOs–this is the hardest part. Many in leadership positions are personal and loyal friends who have been with the company since the beginning. Removing them from positions of power and influence can be very difficult for a CEO to do.

There are many excellent books on how to manage change and transition, and the thesis seem to be consistent:

  • Be clear, yourself, on why the company culture must change. Things must change in order to secure the future of your company, as well as the livelihoods of those who work for you. One cannot continue to do the same thing and expect a different outcome.
  • Communicate this need for change to everyone in the company. Everyone must clearly understand why this is critical and inevitable. Either they are onboard with the change or they need to get off the bus.
  • Require each manager to provide a written plan of action stating what, how, and by when they will achieve key metrics that roll up to contribute towards the Predictable Revenue Growth Rate that has been determined. This is the first step towards creating a Performance Based Culture.
  • Work with each leader to agree on how he or she will be measured—what the metrics and milestones are, when they must be reached, what the rewards are for achieving them, and what the consequences are for missing them. Make sure that this is in writing and is signed by you and the responsible leader.
  • Each leader then would do the same for their top subordinates, who then would do the same all the way down to the individual contributor.

While “Management by Objectives” (MBO), a well established management philosophy, many companies do not use it. A Performance Based Culture is a prerequisite to achieving Predictable Revenue Growth. Such a culture has to start at the top, but must then permeate every nook and cranny within the company to take hold and flourish.

Market Focus Change

The next major hurdle for a company attempting to achieve Predictable Revenue Growth on a consistent basis is to accept that such sustained and predictable growth comes from focusing on a specific niche, and NOT from casting a wide net.

As discussed above, focusing on a single niche provides a number of important benefits, including 50% or more increase in revenue growth; doubling or tripling profitability; high degree of customer satisfaction and retention; near 100% name recognition in that niche; 50% or more market share within that niche, resulting in ability to attract the best customers, vendors, and talents.

Although the benefits are well known and ample evidence exists to support this principle, many companies continue to fear “putting all their eggs in one basket” and prefer to go after multiple market segments at one time.

It is hard to find an example of any major company today that started without a single minded focus on solving a particular problem for a particular group of customers—Amazon did only books until it built its infrastructure and customer base that it later adopted to other products; Google did only search, which led to highly targeted advertising; Apple dominated certain profitable markets with computers, but didn’t explode into what it is today until it solved a single consumer problem—ability to carry all of your music with you on a device that is smaller than a phone. It later did the same with its iPhone. Other examples of companies that focused on only one thing and did it well include Dominos Pizza, Salesforce.com, Uber, and Southwest Airlines.

The second cultural change required is to Focus on a niche and Dominate it. Then leverage profits, name recognition, and market leadership attend in that niche to repeat the performance in the next adjacent niche. Repeat the process to continue to grow. Each niche will require at least two years, and perhaps up to five years, to fully develop. Be patient and stay the course until you have won at least 40% of that market so you are in the top two suppliers to that market segment.

Conclusion

This article has attempted to make the case for why Predictable Revenue Growth is vital to the future of a business entity. It has also tried to show that a company must not only set clear growth and acceleration rate targets, but it must commit to changing its culture to one of high performance and must commit to a niche market strategy.

SOMAmetrics helps companies achieve Predictable Revenue Growth through the application of best practices, automations, powerful analytics, and expert resources. Please contact us so we may help you achieve Predictable Revenue Growth.

Revenue Growth with Certainty: Predictable Revenue Model

The Revenue Growth Model

A Predictable Revenue Model (PRM) enables a company to achieve 20% or more revenue growth year over year, sustainably and profitably.

Its key benefits are:

  • Sustainable high growth of over 20% per year
  • At least a 30% increase in profitability
  • At least a 30% increase in customer satisfaction

A Predictable Revenue Model is characterized by five traits that are necessary for delivering the above results:

  1. Specific and purposeful focus – when focus and specificity are lacking, people tend to do what comes naturally to them. The end result is that you have people rowing in many different directions and when it feels right to them. As a result, the boat tends not to move much. When specificity and purpose are added, people know in what direction they must row, and at what speed.
  2. A detailed yet simple Execution Plan – It is one thing to say we will grow at 20% a year. It is another thing to work that backwards so that people know what they have to do this week and next to get there. The execution plan is what ties the day-to-day efforts of everyone with the strategic focus so everyone rows in the same direction and at the specified speed.
  3. Systems and processes that are optimized to support the plan – rowing in the same direction and speed implies tools and processes that track and enforce these. Giving people different sizes and shapes of rows will make it harder to row at the same speed and direction. Making the rows the same size and shape, adding a navigation system, having a boat that is streamlined, all these aid in getting to the destination faster and with more certainty. Tools and processes that enforce the plan are a crucial element of a high growth plan.
  4. The right skills and reward system that execute the plan – it now becomes obvious that getting the right people and providing them with the right incentives increases the chance of rowing in the same direction, at the specified speed. You want people that have the natural inclination to do the things you want done and like to be recognized and rewarded for achieving the goals you set for them. You need smart, results-oriented people who don’t mind giving more each year, to get more than ever before.
  5. The constant gathering and analysis of data in order to drive continuous improvement—without continually analyzing data, the only way you can grow 20% or more is if your industry grows faster than that. How many times does that happen? If you gather data and analyze it regularly, you can make continuous improvements that add up to higher productivity than your competitors. Therefore, even if you industry doesn’t grow at a high rate, your company will as it does more business relative to your competitors.

We will discuss each one of these critical components in more detail, and more importantly, how to implement them in the most practical and least resource consuming way possible.

1. Defining a Specific and Purposeful Focus

Of all the five components of a High Growth Plan, this is by far the most important and most difficult to complete. It turns out that the difficulty company Executives face is not intellectual but rather emotional. Many postpone deciding on which markets to focus on for fear of missing out on revenue potential.

Ironically, the fact that there is no focus actually slows down revenue growth rather than increasing it.

Here is a simple test you can perform to find out how true this statement is.

Who do you think makes more money, the heart or brain specialist, or the general practitioner doctor?

In the era of the PC, Microsoft was the largest software company in revenues. More importantly, it took more than 50% of all of the profits of the entire PC industry! Why, because 90% of the PC’s ran on Microsoft Windows, and nearly all of these used Microsoft Office.

Google owns 80% of the search market, which enables it to grow roughly 20% a year, generate over $700,000 in sales per employee—an incredibly high productivity rate.

Apple sells only a handful of products (laptops, desktops, tablets, and phones primarily)—yet it is either the number 1 or #2 company in the world in market capitalization, with over $100 billion in cash in the bank.

These few examples show that focus increases revenue, not shrink it. But even more critically, it has a remarkable effect on profits. Focused companies, which sell a few products to a few markets, tend to have a lower cost of doing business, higher name recognition and market share, faster sales cycles, and overall better customer satisfaction than those that sell many products in many markets.

Which company has better customer satisfaction—AT&T or Apple Computers? Which of the two do you think sells a wider selection of products to more diversified markets?

As Geoffrey Moore, the noted high-tech marketing guru and best-selling author eloquently puts it, “…you do not have to pick the optimal beachhead to be successful. You just have to win the beachhead you picked”. In other words, it is far more important to commit to the decision you made (once you pick a target segment) than it is to make the best decision in picking the right segment.

2. Building Detailed but Simple Execution Plan

Once a market segment is picked, a specific plan for dominating this market segment can be prepared. By dominating, we mean a market share of at least 35-40% of that market segment within a three-year period. That is the goal of the plan.

The next phase is to define how you will achieve the plan. Your plan has to take into account three separate but highly inter-related sets of activities to achieve the desired goal: Marketing, Sales, and Delivery.

At SOMAmetrics we advocate the use of a Four Funnel Framework to integrate Marketing and Sales to achieve the desired Revenues. To give a simple illustration, say you want to achieve $10 million in incremental revenues in 2015 and your average deal size is $50,000. That means you need to close 400 new deals.

Say, your average closing ratio is about 25%. Therefore, you will need to have about 1,600 potential deals or Sales Qualified Leads (SQLs) in your pipeline.  Let’s further say that maybe 20% of all of your Marketing Qualified Leads turn into a SQL. Therefore, you will need about 8,000 MQLs delivered by your marketing department in 2015. If your closing cycle is, say four months, then these 8,000 MQLs have to be delivered by the end of August to make a difference in 2015 revenue numbers.

The above numbers now give us the Planning targets:

  • $10 million in new revenues
  • Four hundred new deals closed
  • One thousand six hundred opportunities (SQLs) in the sales pipeline
  • Eight thousand Marketing Qualified Leads from Marketing
  • Roughly 1.6 million marketing touches to generate the desired 8,000 MQLs

The next step is to figure out how each of these numbers will be achieved in terms of resources and support systems.

  • How many sales reps will be needed to close 400 deals in one year?
  • Where will you get the list of prospects and how big must the list size be?
  • What are the marketing assets you must develop to attract these prospects, and who will be developing these assets? How much time will that take?
  • What kind of marketing campaigns must you conduct to generate 1.6 million touches to your targeted prospects? How often must you conduct these campaigns, and how many times per prospect?
  • If you have to install your products, and train customers on how to use them, you have to timeline the closing of deals and see how many resources you will need to implement what your sales organization has sold.
  • You also have to worry about supporting customers on an ongoing basis. Your plan is to add 400 more new customers this year. How will they be supported? What is the average customer satisfaction rate you are going for? What will that entail to satisfy your customer satisfaction metric?

This is the minimum level of detail required to implement the plan.

Our experience has shown that the degree to which a plan is executed is a function of two critical factors: the level of detail of the plan, and the simplicity of the plan. These two factors, while NOT exactly being mutually exclusive, are hard to work into the same plan and strike the right balance.

3. Implementing Systems and Processes that support your Plan

The best way to manage the work of people is to create the necessary automated processes that guide their work. If we want to make sure that our people are rowing in the same direction and within the same rhythm, we need to equip them with oars that are the same size and shape.

The organizational parallel to this is to standardize the systems and processes that your people use and to encourage them to use these in a consistent way. This introduces an age-old debate about what is the right choice to make, select a system that can do pretty much everything such as SAP or Oracle, or go with a best of breed approach and integrate the systems.

Our view is always to go with the best of breed approach provided you also follow some basic rules:

  1. Use the same rigor to select the system of choice, regardless of whether you are going with a best of breed or a monolithic system.
  2. The total number of systems you use within your company should be the fewest possible and yet allow you to automate all of your major business processes.
  3. Each of your systems should be well integrated with any system that already has the data this system needs to use. In other words, a cardinal rule is that data should always be entered once and used as many times and places as necessary. One crucial design decision is which system should be responsible for capturing the data in the first place, and which systems are to consume this data from that system.
  4. In designing your systems and processes, it is wise to follow a key principle: design for version three, spec out version two, and build version one. That way, you will reap benefits right away while building critical flexibility into your system.
  5. Take a full audit of your systems and processes at least every 12 months to verify that they are still relevant, that you have not outgrown them, and that you don’t have critical gaps in your system and processes that might prevent you from achieving your growth targets.

In our experience, we have found Salesforce.com to be a powerful, flexible, and extensible platform that can handle the requirements of pretty much all small and medium sized businesses today as well as grow with them to meet their needs of tomorrow. Because of the huge amount of applications developed to integrate and extend the core capabilities of Salesforce.com, it is the most affordable platform for running business processes for most small to medium sized businesses.

4. Getting the Right Skills and Reward Systems in Place

The next step is to think about human resources—what kind, how many, and how you compensate them. Right after the first component—deciding on which market segment to focus—this poses the greatest difficulty for most of our clients, especially those that have been in business for ten or more years. This is especially true for those that founded their companies with little or no funds, who hired help they could afford—that is to say cheaply.

In very few instances, these founders lucked out and hired moderately skilled but highly motivated people for cheap. And these extraordinary individuals put in their heart and guts to grow the company along with the founders. Ten years later, they had acquired vast knowledge and experience and are indispensable to the company.

However, the more likely scenario we have seen is that the founders hired moderately skilled and motivated people for moderate pay. Then they used the Peter Principle; promoting people to a new level based on their ability to do their current job, rather than the new one, rewards seniority by putting in place of high power and responsibility those that do not necessarily have the ability to discharge that responsibility effectively.  Furthermore, these managers feel more comfortable with this level of experience and prefer to hire people they feel are less capable than them, rather than more capable.

Sooner or later, the company faces the danger of accumulating moderately capable people who give moderate performance. Newer competitors come out with better products and services, the response to which is to compete on lower price, which further deteriorates the company’s position.

It is critical to hire smart, results and growth oriented people and do everything in your power to keep them:  by rewarding them well, giving them challenging assignments, and recognizing them in front of their peers when they successfully carry out their assigned tasks. It is not just money, but also growth and recognition, along with money, that is the effective reward system for smart, results and growth oriented people. They will work hard, typically 50 or 60 hours each week, to earn their reward and their recognition, and to master new skills. And in the process, will help propel your company into its next stage of its growth.

5. Constantly Analyzing Data for Continuous Improvements

Whatever is not measured does not get attention, and it will never improve. That is well known and accepted. The key to growth and improvement is to bring attention to the very few things that matter—what we call Key Performance Indicators or KPIs.

Each of the three sets of activities we mentioned—Marketing, Sales, and Customer Support—has its own set of KPI’s.

The steps are simple, but they require a high degree of rigor and diligence to actually convert into real results:

  1. Define the KPIs (some we have mentioned above already such as number of SQLs, MQLs and touches; percentage of accepted SQL’s by sales; average sales cycle; average deal size; number of sales contacts to close a deal; revenues by employee; revenue by sales rep; sales cost as a percentage of revenue; marketing cost as a percentage of revenue; time from contract to invoice; account growth rate per year; customer satisfaction rate; and so on.
  2. Design the monitoring process/systems—what is your system of record that can handle your processes and with reasonable ease provide the data you need?
  3. Automate the reporting and management and review of these KPI’s so they are in everyone’s face as frequently as possible?
  4. Set quarterly objectives on moving them a notch to the next level so they are continually improved. Can you get your managers to review data each week and set the next week’s tasks towards achieving these targets?
  5. Work back into the plan the specific changes in systems, processes, and work activities that must happen to obtain those continual improvements.

Take Away

In this article, we discussed how a company that desires to meet its growth objectives on a sustained basis must do five things well, and must do them continually and relentlessly. It must decide to focus on a single or no more than two markets so it can act with purpose; it must develop a detailed yet simple plan; it must build the right systems and processes needed to execute the plan; it must hire smart, results and growth oriented people and reward them the right way; and it must constantly collect and analyze data so it can continuously improve towards sustained future growth.

All five are critical and must be done in the correct order. We also saw that #1 and #4 are probably the hardest to do of the five, and probably because they both require breaking away from the old culture and moving to the one.

However the real cost of not making these changes is falling into mediocrity and possibly risking the company to fail. This is why a company must target a growth rate of about 20% or more each year so it is assured continued viability and relevance in today’s and tomorrow’s market place.

Unleashing Untapped Revenue Potential for Sustained High Growth

What is Untapped Revenue Potential?

Untapped Revenue Potential  (URP) exists in every company.  It is the difference between the revenues that a company is capable of generating, were it to take full advantage of the opportunities available, and what it is actually generating.

This delta is inversely proportional to a company’s rate of growth. The faster a company is growing year to year, the smaller the delta, and vice versa. In other words, companies growing under 20% year to year are far more likely to have significant Untapped Revenue Potential.

Amazon’s S3 cloud storage business (where customers rent online storage space) provides an excellent example of how a more vigilant company sees URP and acts to unleash it. When Jeff Bezos launched Amazon.com as an online bookseller in 1995 with the vision of some day building it into the largest online retail store, he could not have anticipated the Cloud Storage business. So, why get into that business and compete against well-established data centers?

Well, because it made sense. As a natural outcome of its relentless pursuit of becoming the largest online retailer, Amazon developed the necessary expertise and infrastructure to build and run one of the largest data centers in the world. It seemed logical for Amazon to simply build excess capacity and sell the excess to customers that needed the service. In doing so, Amazon not only increased its overall revenue, but it now has double the reason for constantly improving and upgrading its data centers. The need to be competitive on the cloud storage business end enables it to have the fastest, most secure, and most reliable online store, increasing the distance between itself and its online store competitors.

This is the most important definition of a true Untapped Revenue Potential (URP). Unleashing a true URP not only will bring incremental revenue from that new source, but it will also increase revenues you earn from the rest of your business.

Why Untapped Revenue Potential (URP) Exists

Imagine if you had a ten-room house, but you were using only 4 or 5 of these rooms. It could be because you didn’t even know you had the extra rooms. More likely it would be because you didn’t have the resources necessary to make the rest of the rooms fully livable.

And so it appears to be the case with URP. URP exists for a variety of reasons—partly because it gets created without anyone really knowing it, and partly because companies do not pursue what they already know exists.

One important source of URP is the huge amount of features and capabilities that get into very mature products and services as a natural outcome of being in business for several years. As a company grows and begins to handle a variety of types and sizes of customers, it starts building “hidden” products and services for which it never thinks of charging money. The more a company works to accommodate and satisfy an increasing size and variety of customers, the more it creates new sources of revenues that were not available to it before.

Another source of URP is less hidden. Companies actually have products for which they charge money, but they don’t have a systematic program of making sure that their customers are aware of them and buy them. Why? Because the companies typically don’t know which customer has which product and therefore, can’t do targeted marketing and sales.

In our experience, both these reasons tend to coexist, increasing the size of URP. Sometimes our clients indeed were aware that certain sources of revenues were available to them, but they lacked the skills and resources necessary to develop them into moneymakers.  And there were still other sources of potential revenues that our clients didn’t even know existed.

Ten Examples of Untapped Revenue Potential (URP)

If you don’t think your company has URP, take a look at the examples below. Any company that:

  1. Continues to add features into its products and services, as new and bigger customers ask for them, and doesn’t do anything to break the product into several versions, charging more for those that have more capabilities has URP.
  2. Makes complex products and does not have a Maintenance Service Program where its customers purchase assurance that their expensive equipment will be routinely maintained so as to eliminate the risk of costly downtime has URP.
  3. Has customers that are sourcing what it sells from multiple vendors and doesn’t know how much that is, and hasn’t done much to win this additional business has URP.
  4. Does not know the delta between the number of licenses it has sold into an account and the number of potential seats available in that account has URP.
  5. Discounts deeply to win business over cheaper alternatives without explaining to its customers why they are actually saving money by paying its higher prices has URP.
  6. Sells several products and doesn’t know how many of its products are with which customer has URP
  7. Has lower closing ratios and/or longer selling cycles than its competitors has URP
  8. Does not receive sales leads from its customer support organization has URP
  9. Has not built at least 25% of its customers into raving fans that will bring it new customers on their own has URP
  10. Has NOT integrated its accounting/billing system with its marketing systems such that marketing information automatically go out to existing customers based on what they have purchased, when, and how much has URP.

There are many more examples of URP. The question is not “Does URP exist in our company?” Rather it is, “How much URP do we have at our company?”

Identifying Untapped Revenue Potential

The Four Quadrants of High Growth is a the most effective and systematic approach to identifying the URP available to a company by breaking up the total addressable market available to a company into four quadrants. Quadrants 1 and 2 are of existing customers while Quadrants 3 and 4 are of non-customers.

The model helps companies identify the sources of information that reveal the URP in each Quadrant. Once you know the URP in each Quadrant, you can add them up to arrive at the total URP, which then enables you to define and build a Predictable Revenue Model™ for your company.

Quadrant 1

If a given customer purchases say 100 units of a product that you sell, but they buy only 47 units from you, then they are getting the rest (53 units) from other vendors. There is URP of 53 units from this customer. If you then determined similarly for all your customers, then you can come up with the total URP in Quadrant 1 for just that product.  The next question how much of this URP can you tap into in the current fiscal year?

There is another form of URP in Quadrant 1, which is perhaps even more difficult to determine than the above example. Let’s say you sell 47 units to the company and that is all the company is buying—in other words, it has given you all of its business. However, although it has not given its business to anyone else, it still has need for 100 units, since there are other needs in the company that your product could have addressed—a need is latent and unexplored. It is up to you to identify this new need and bring this latent need to the front so that your customer is aware that purchasing more units from you can address this previously unmet need.

Quadrant 2

If you sell more than one product, then your Quadrant 2 URP falls into one of the following categories:

  • Add-ons: These are additional services or components that customers typically need when they purchase another stand-alone product. A Maintenance Service Program or product warranty is a type of add-on that makes sense to sell along with an expensive or complex product
  • If you have two-or more levels of a product or service—for example you have a professional and enterprise edition—then every customer who is on the lower, less expensive version, is a candidate for an upgrade. This gap is part of your URP.
  • If you sell two or more standalone products that nevertheless could be designed to work together such that buying both actually returns higher value than the sum of the cost of each, and you haven’t either done that or are not selling the package, then you have URP left on the table.

Unleashing Quadrant 2 URP requires looking into the design of your products and services such that you can easily add and sell them as packages, as well as making it easy for your customers to upgrade to a higher level of product or service. The more automated these are the faster and easier you can unleash Quadrant 2 URP.

Quadrant 3

Quadrant 3 is what, typically, companies think of when they think of growing revenue—getting new customers. However, this is far more expensive way of generating more revenue when compared to Quadrants 1 and 2, partly because these are non-customers who see you as high risk since they have never done business with you yet, and partly because they already have some way of addressing the need that you want to take care of for them. For them, the devil they know is better than the devil they don’t know.

However, broadening the customer base is still critical to growth since that is the enabler for Quadrant 1 and 2 sales in future. There is a more effective way to go after non-customers in your current market space. Our Four Funnels Framework is an excellent methodology for leading customers from a very low state of buyer readiness in Funnel 1 to a much higher state of readiness to buy in Funnel Four.

The Funnel Math is a precise tool for calculating what you need to do to tap into Quadrant 3 URP. In fact it is the only reliable way you can see the level of investment needed to achieve your desired revenue growth in Quadrant 3 and budget for it appropriately.

Quadrant 4

Working in Quadrant 4 is like space exploration—expensive and risky, but with a lot of upside if done correctly—or think of a home run. It is basically an attempt to answer the question, “What other market segment(s) is/are there that can use our products and services, where our success stories in our current segment are still relevant enough to convince those customers we can help them, and we can do so with moderate amount of customization to our products and services?”

This requires a systematic search of another market sector for you to develop cost effectively—a sector that has a compelling need for a solution that you can bring to market quickly, where competition is not too entrenched, where the customers can afford your solution, and are accessible to your marketing and sales efforts.

Unleashing Untapped revenue Potential (URP)

So, how do you unleash your company’s Untapped Revenue Potential?

There are five key steps to unleashing URP:

  1. Discover all possible sources of URP by systematically working through each of the Four Quadrants—basically doing what we call a Corporate GAP Audit
  2. Determine the investment required (proforma P&L) to tap into each potential source of revenue
  3. Prioritize according to the amount of URP and cost/risk of unleashing each URP source
  4. Define the project plans for the top candidates
  5. Implement the necessary projects to unleash URP

None of these five steps is particularly difficult to do. So why do so many companies leave so much URP? It turns out that the companies that have significant URP never even get past step #1, for a variety of reasons. It seems that that the hardest part for most companies is actually finishing the Discovery phase–perhaps because they don’t have the time or expertise to do that in-house.

This is where outside expertise and resources can make a big difference in getting an initiative off the ground quickly and cost-effectively.

How SOMAmetrics can Help

SOMAmetrics helps companies to identify and take full advantage of their untapped revenue potential so that they can consistently grow 20% or more each year.

SOMAmetrics has developed proven methodologies and best practices for unleashing URP, honed while working at and with over 100 companies with a variety of sizes, maturity, complexity, and belonging to a wide range of industry segments.

Unlike other consulting firms that simply diagnose and prescribe a solution plan, SOMAmetrics goes much further to provide the necessary implementation expertise, project management skills, and resources our clients need to unleash their full revenue potential.

Contact us today to discover and unleash your Untapped Revenue Potential for sustained high growth.

The High-Growth Strategy Formulation Process

Most companies grow through an organic process of making adjustments and improvements as they go. While this keeps most companies in business and profitable, it is difficult to grow to become market leaders without a clear strategy for doing so. Companies aspiring to accelerate and grow above their competition, need to go through a High-Growth Strategy Formulation Process in order to create a viable plan.

The goal is to define a clear, coherent, and effective roadmap that is accepted and committed to by ALL senior team members. The best way to accomplish this goal is to physically remove the best minds in the company away from constant interruptions of phones, emails, and drop-ins, and have them focus on just the one task of cranking out an effective roadmap to sustainable 100% growth in 24 months.

The preparatory steps are:

  • Set a clear goal of defining a coherent strategy for how the company shall double its revenue within 24 months.
  • Determine who will be involved in this planning session. The end result should be about 10 – 20 of the top people in your company should participate in this effort.
  • Set the time and place. It should give participants enough time to clear their calendars and the location should be either easily commutable, or the company should plan for adequate transportation and accommodation for the duration.
  • Find a suitable moderator to run the sessions. The CEO should be focused on the actual work rather than trying to moderate the sessions.
  • Make sure everyone understands that their ONLY priority during the two days of the retreat is to come out of the retreat with a clear and coherent plan—a plan to which they will have to totally commit

Day 1: Identify the Optimal Growth Market Segment—Part 1

The most important decision that any company can make that will enable it to double its revenues within 24 months is to decide what market to go after.

The key to this is to understand that while what target market is selected is important, far more important is the decision to stick to the market chosen. In other words, the results are far more dependent on the discipline of execution, rather than whether the target market was the best or not.

The day’s work is divided into the following sections:

  • Session 1—Select the target Product. Your company may have many products and services. However, for growth strategy planning purposes, only one product or product family will be taken into consideration.  A voting process can be used to determine the consensus around which product should be the primary focus of this exercise. This typically should be completed in the first 30 min or so.
  • Session 2 – Select the target End Users. For the target product, open the brainstorming session and ask participants to generate as many possible end users for the product as they think. The idea here is to be able to “think out of the box” and uncover previously not thought of potential customers for the flagship product. Stop the brainstorming when the suggestions become repeating. This should be completed within 90 minutes or so.
  • Session 3 – Build Customer Scenarios. Divide the participants into small teams of three members, taking care that no two members are from the same department. Have teams pick as many as five potential end-users for which they will build customer scenarios.  The team will take each scenario through the scenario builder to ensure that a rigorous customer scenario is built that is ready to be evaluated. Someone on the team should be responsible for typing these into a laptop so they are easily read and reproduced. Teams should spend an average of 30-45 minutes to build each scenario, or about three to four hours to build about five scenarios.

This should end the first day. So far, the participants have selected the top product, generated all possible end users the can think of, and have created compelling customer scenarios for each end user type.

 

SOMAmetrics has the skills and tools to enable participants to quickly and accurately build customer scenarios.

Day 2: Identify the Optimal Growth Market Segment—Part 2

The goal on the second day is to arrive at the top three target customer groups, and ran these from first to their place.

  • Session 4 – Evaluate and score each scenario. The teams will take each of the scenarios they have built into an evaluation and scoring matrix. This will likely take 20-30 minutes for each scenario, or about 2-3 hours to complete all scenarios and rank them according to their scores.
  • Session 5 – Present the Scenarios. Each team will take turns to present their scenarios, one round at a time starting with their first choice, and moving last to their last choice. Teams should limit their presentation to no more than five minutes per scenario, or no more than 30 minutes total. Assuming there are between 5 and 7 teams, this should take about 3-4 hours to complete.
  • Session 6 – Vote on the top three scenarios. The rest of the day’s work is left for the Voting committee, which reviews the presentations and written evaluations and moves to vote on these—until they have the top three customer segments ranked #1, #2, and #3.

This marks a significant milestone in the strategy planning effort. The company now knows exactly which customers to go after and why these are the best customers for it.

SOMAmetrics has the skills and tools to enable participants to quickly and accurately evaluate and rank customer scenarios.

Day 3: Build the Go-To-Market Strategy—Part 1

The goal for Day 3 is to build an integrated and coherent go-to-market strategy for the top customer group. This includes defining targeted competitors, positioning, pricing, communication, and distribution strategies.

  • Session 1: Identify the Buying Scenario. For complex products, this step is critical in identifying the buying committee that will likely jointly make the buying decision. The goal is to define what the potential issues are for each and determine what the company must be able to provide to address each issue. This should likely take about 2 hours
  • Session 2: Identify the key competitors. Competitors come in different types. Some are direct and offer the same product to the same customer group. Others offer different products that provide the same benefit and therefore are viable alternatives. The company should brainstorm and identify all possible sources of competition and determine what it can do to beat these competitors. This will likely take about 2 hours.
  • Session 3: Define the Whole Product. The scenario building would have provided the key must-have product requirements for this customer group. During this session, the team will identify what is already available, what can be quickly built, and what capabilities will take the longest to find.  This is a major section and will likely take 3-4 hours to complete.

At this point, the team has identified the buying team and their main issues; the key competitors that target the same customer group with the same benefit and how to counter that; and what the whole product will need to look like in order to beat competitor.

Day 4: Build the Go-To-Market Strategy—Part 2

During Day 4, the team works through the remaining go-to-market strategy elements. Day 3 has defined the foundational elements that provide the context for the rest of the strategy formulation effort.

Session 4:  Define Pricing Model. The next step is to determine the pricing model and values. Pricing depends on a number of factors including: the value that the company can convincingly communicate to customers; the customer’s ability to pay; competitor’s pricing; and the input cost to the company. Regardless, the goal for high growth should be to ensure that pricing is no hurdle for winning customers. This should be completed within 90 minutes.

Session 5: Define the Positioning. The next step is to create a simple, clear, but compelling positioning statement for the company that will be the foundation for all communication efforts. This is a very important step that must be done very carefully. Companies should allow 2-3 hours to come to a consensus as to what the company offers and how it is different from competitors.

Session 6: Define the Sales Strategy. During this step, the team will define three things: how it will sell the product to the target customer group; identify the top five customers that must be won; set the 12 month and 24 month revenue targets. This session can take about 2 hours to complete.

Day 5: Integrate

The goal of the final day is to integrate the work done so far, and to ensure that each department now understands what it must do to implement the plan.

Session 1: Integrate the Strategy. The CEO will present the integrated go-to-market strategy that the team has worked on the past four days. This will be the plan that the team will from now on be focusing all departmental efforts implementing. This will take about one hour.

Session 2: Departmental Targets and Key Performance Indicators (KPI). The participants will break up into departmental teams and work on setting their targets and Key performance indicators. The first quarter will be devoted to making the transition from the current way of doing business to what the new strategy dictates. This is a critical and pivotal period, and the KPI’s should reflect that. At the end of the session, each team will have anywhere from 3-5 sets of eight (8) quarterly departmental key performance indicators. This will take about 3-4 hours to complete.

Session 3: Present Departmental Targets and KPI. Each department will present its Key performance indicators over eight (8) quarters. These will be the targets that each department will be committed to delivering over the next two years. Each department will take about 10 minutes to present its KPI’s.

CEO’s Blueprint for High Growth Strategy

High Growth Strategy Overview

In a previous article entitled “The CEO’s Decision Gap“, we showed that there is a significant gap between what CEOs thinks is going on, and what may really be going on. We showed how this created a phenomenon we call the CEO’s Decision Gap—the gap of missing and misleading information preventing CEOs from making high-quality, effective decisions that lead to sustainable and profitable growth.

In this article we will attempt to provide a blue print for how CEO’s can grow their companies by 100% in 24 months, and sustain high growth rates afterwards.

Step 1: Conduct a GAP Audit

This is the first step. CEOs must first understand the gap that lies between ‘A’ where they are today, and ‘B’ where they want to be in the next 3-5 years.

Without understanding both what the gaps are and the magnitude of the various areas gaps, CEO’s cannot begin to define and prioritize the roadmap (‘C’) to bridge the gaps and arrive at their destination (‘B’). For more information and analysis of what we mean, please refer to The CEO’s Decision GAP.

A SOMAmetrics GAP (Growth Accountability and Performance) Audit typically takes less than a week to complete and provides a thorough and detailed analysis of the challenges the company faces as it tries to move to the CEO’s vision for the future of the company.

Step 2: Define the Roadmap ‘C’

Many a time, CEO’s define the strategy for the company and inform the senior management team, who in turn informs the rest of the company what the strategy will be.  In most cases, results fall short of what expectations are.

We believe the reason for shortcomings is that the strategy is difficult to execute because it didn’t follow a top-down bottom up approach because it didn’t take into account where the company is today (‘A’) and work with the best people in the company to define the roadmap ‘C’ of how the company will get to ‘B’, the future.

Research and experience shows that the best way is for the CEO to assemble a strategy formulation team consisting of the best minds in the company, take the team away from day to day responsibilities, and charge them with identifying the optimal market segment for growth, and define a go-to-market strategy that will enable the company to own 25-40% market share within 24 months.

This step is discussed in great detail in “Go-to-Market Strategy Formulation” article.

Step 3: Shared Responsibility for the Five Fundamentals

As we work with our clients, we see that a key reason why companies fail to achieve their growth objectives is lack of understanding of how the five fundamental metrics—revenues, market share, customer satisfaction, profitability, and innovation–work together towards sustainable high growth.

Our GAP audits consistently show that companies work under two critical misconceptions:

  • Misconception #1: Many companies believe that meeting revenue objectives is the primary focus and that if they focus on that, the company will grow sustainably in the future.
  • Misconception #2: An executive is responsible for only one of these metrics. For example, the VP of Sales assumes revenue is his/her only real concern. The CFO thinks profitability is his/her only real concern, and so on.

Our research and experiences show that both of the above are false and are exactly why companies find it hard to consistently meet their growth objectives.

First, the CEO and the Executive Team have to accept that all Five Fundamentals–revenues, market share, profitability, customer satisfaction, and innovation–have to become top priority, continually monitored, and managed for growth—and not just one or the other.

Secondly, every member of the Executive Team is responsible for ALL Five Fundamentals, not just one or the other. In other words, the VP of Sales is responsible for revenue, market share, profitability, customer satisfaction, and innovation. So are the VP’s of Marketing, Finance, HR, Engineering, and Customer Service. Each is responsible for all five.

Taking it one step further, CEO’s should continually drive the clear message that EVERYONE in the company is responsible for revenue, market share, profitability, customer satisfaction, and innovation.

Step 4: Define the Implementation Plan

With the Executive team and key members of each department now on the same page as to the roadmap  (Step 2) of how the company is going to grow 100% over the next 24 months, the next task is to get detailed implementation plans from each department.

Each executive will work with his or her best people to determine:

  1. How that department will deliver the expected growth in the five fundamentals
  2. How they will track and measure growth in the five fundamentals
  3. What the evaluation and compensation plan will look like for both under and over achievement

This plan will be submitted to the CEO within 2-3 weeks of returning from the Retreat (completion of Step 2).  The CEO will review the plan and accept or reject the plan with specific comments on what needs to be improved.

Once the CEO has accepted all the plans, the CEO will have these specific plans integrated into one business plan for the company and will be distributed to all executives.

This plan will be the basis for all monthly management meetings going forward.

Step 5: Make 100% Personal commitment to Achieve Targeted Results

We often hear from many that their company has announced strategic plans, initiatives, and other big words and nothing much has changed. Employees become cynical. They come to meetings, hear announcements, and go back to their work and their lives.

The only way the CEO can overcome such cynicism, and the accompanying resistance to change, is by obtaining personal 100% unqualified commitment from each of the executives.

Each executive must make a personal pledge to do whatever he or she can do, with integrity, to deliver on the targeted outcomes of the plan. Sure, plans need to be adjusted during execution based on feedback and data. However, the goal of growing 100% within 24 months is non-negotiable. There will be no excuses for missing that target.

Each executive in turn will go back to his or her top lieutenants and obtain a similar unqualified 100% commitment to do whatever it takes, with integrity, to deliver what their department has promised to deliver.

It is only with this personal pledge that change will begin, and also that change will take hold.

Step 6: Pilot the Changes

The CEO will make a formal announcement of the launch of the plan. Each department will launch its 90 –day plan launching the new Strategic Initiative of growing 100% in 24 months. As this is likely to be a departure from the way the company used to do things, each department head will ask for volunteers to work on this initiative and complete it within 90 days.

The core of the team charged with executing the 90 day pilot will need to be composed of those that attended the two-day retreat detailed in Step 3 of defining the Roadmap. These individuals have already given their absolute commitment to seeing that the company grows 100% in 24 months. It is their talents and commitment that will be essential for kicking off the company’s transformation into a world-class high growth company.

Step 7: Make Necessary Adjustments

During these 90 days, each of the executives and the top lieutenants will continually monitor the unexpected challenges and successes, discuss these, and build back into their departmental plan.

A powerful tool for making necessary adjustments is the monthly Senior Management meetings.

While many companies have such a meeting, not all use this meeting for what it should be used for—identifying the most important challenges and opportunities that ALL senior managers must work on together.

During this meeting, each executive will take 3-5 minutes to share three important pieces of information to the rest of the executive team

  • The unexpected successes or positive results seen during the prior month
  • The unexpected challenges or hurdles seen the prior month
  • What the team intends to achieve the coming month

After each executive has reported on their key items, the CEO will then open the meeting to addressing the top challenge faced by each department. Every executive there will offer advice and help on how to address this challenge

After the round of challenges, the CEO will then open the discussion to the top unexpected success or achievement in each department and see whether these can be replicated in other areas, and what opportunity they present for further growth

These executive meetings should not last more than 2 hours and the key is to make sure that executives only report and focus on their key pieces of information they want to share with the team. The rest should be distributed and read before the meeting.

If used as recommended above, the Senior Management Meeting is a powerful feedback mechanism for achieving organization-wide changes quickly and effectively.

Step 8: Scale Out

Now that the team has the first initiative under their belt over the past ninety days, it is now time to start phasing out old systems and processes that are no longer relevant and replacing them with the new best practices, systems, and processes that have been agreed to.

Each department will then set quarterly goals for doing, measuring, adjusting, and doing more towards the stated goals of 100% growth in 24 months.

Step 9: Make continual Improvements

The key to sustained high growth is making continual improvements which has the following key elements:

  1. Defining the targets to be achieved
  2. Determining the Key Performance Indicators (KPI) that enables the organization to see if it has achieved the targets
  3. Periodically evaluating the targets to see if they are still relevant and inspiring for the organization, and therefore, periodically evaluating the KPI to make sure that they are in synch with the targets
  4. Never taking anything for given or granted, but always questioning underlying assumptions to see if they are still relevant and meaningful
  5. Always looking for the unexpected successes and failures to understand why and make the necessary adjustments
  6. Find ways to increase organization-wide learning so as to disseminate new information and skills as quickly and as widely as possible
  7. Rewarding success, but rewarding innovativeness and risk-taking even more

How SOMAmetrics Can Help

SOMAmetrics works with clients in every step of creating and managing the above blueprint: from GAP audits that illuminate the gaps that need to be bridged for a company to transition from today ‘A ‘to the vision of the future ‘B’; to defining the Roadmap ‘C’; to working with each department and senior management team to work out an implementation plan; and to providing any missing skills and resources for bringing about that transformation.

We have the necessary skills, experiences, and tools to help companies efficiently create a compelling future, define an effective go-to-market strategy for this vision, and the resources to execute on the strategy.

Please contact us today to see how we can help you grow 100% in the next 24 months.
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