In this current economy, the deployment of technology and professional services is the foundation of every major business market revenue growth and new business success.
From funeral homes to theme parks, technology utilization is the consistent element for business controls and increased corporate productivity. Due to this infiltration, technology and professional services sales opportunities continue to expand for well-managed and aggressive technology firms.
When business development is correctly launched, technology companies' revenue and market share rise. But when it is incorrectly deployed IT companies fail. Yet today IT, software, and professional services companies continue to miss their firm's forecasted revenues and most do not understand why.
If you look at the current environment of IT business operating cycles and methodologies deployed, one can identify five specific reasons why high tech firms continue to be stuck in the downward curve of the revenue success cycle.
The five factors affecting IT firms' revenue success today are:
1. Failure of IT companies to use an outbound sales model to sell.
2. Continued calculation of inaccurate sales forecasts.
3. Continued confusion of what the intellectual property of high tech firms is.
4. Continued deployment of relationship marketing as a revenue generating tool.
5. Failure to calculate IT market demand and reliance on the assumption that it exists.
1. The Failure of IT Companies To Use an Outbound Sales Model To Sell
During the ‘90s, sales teams of technology companies benefited from the greatest wave of technology purchasing since the inception of the computer. This dramatic buying frenzy was spurred on by three almost concurrent technology model changes. These elements included the release of Windows 95 by Microsoft in 1995, the public commercialization of the Internet in 1996, and the Y2K fear.
By the mid-‘90s, these three technology adaptation models were in full swing. As a result, IT sales teams focused less on their outbound sales model processes and more on selling their existing customer base to grow their top line revenue.
With this misguided refocus, IT firms weakened their sales capabilities to sell outbound and became dependent on inbound lead opportunities.
With top line revenues growing in the ‘90s and many firms investing heavily in technology training for their development staff, sales training efforts subsequently were minimized, and IT sales skills diminished with many IT firms deploying "half-cycle" sales teams.
As the year 2000 passed, technology buyers adjusted to a more knowledge-based understanding on the investment and performance payback of the Internet and lack of legacy transformation issues. Prospects now have moved from a technology inbound buying perspective to an outbound perspective of having to be sold with their enhanced understanding of technology needs.
These selling model changes in our economy have made premeditated outbound selling the key to success in technology and professional services sales.
Today, most technology and professional sales forces deploy "half-cycle" sales teams with exorbitant sales costs. These individuals were trained during the 1990s, and unfortunately were never exposed to an outbound sales model that required them to actually pursue business in order to succeed with today's economic business model.
This continued use of high-salaried salespeople who will not pursue new business erodes the financial foundation of IT firms, and thus unbalances the entire firm's economic business models that were based on forecasted revenues. As the sales team hesitates to seek new business on their own merits, development and deployment departments fail due to lack of corresponding revenue support.
2. The Continued Calculation of Inaccurate Sales Forecasts
In an economy where investors, bankers, and Wall Street drive corporate communication for financial commitments, IT sales quotas continue to be the imaginary land where fact and fiction do not meet. Today, there are ten models currently in use by a disproportionate number of high tech firms.
The top ten most common methods IT firms currently use to calculate their technology sales quotas are:
1. Last year's territory sales numbers.
2. Cost of the salesperson times a multiplier (sales costs x 3).
3. Cost of corporate General Administrative (G and A) plus a gross margin.
4. Revenue goals committed to Wall Street or VCs.
5. Total of the VP of Sales department's goals divided by the number of salespeople.
6. Salesperson's success the previous year.
7. An imaginary compensation number that was sold to the salesperson as their income potential if he/she hit 100% quota.
8. What the IT trade press says is the annual growth rate for technology for this year (up 12%, quotas are up 12%).
9. The VP of Sales' experiences at other companies.
10. A percentage of what the top salesperson did in their territory.
These impractical and unscientific quota determination methods are used over and over in technology firms. More times than not, the sales quota number is created based on commitments to investors, bankers or Wall Street, combined with accounting's perception of what the cost of sales should be. The short-term losers are the sales reps as they struggle to make their monthly numbers.
The long-term losers are the IT companies and the operating departments because business models have been budgeted on this fabricated sales quota.
Can you recognize your technology or professional service firm's method?
What do these measurements have to do with the potential of a particular salesperson's territory? These elements are based upon outside influences and expenses not related to the sales potential of their technology product or service in an assigned territory.
The fact is none of these methods are accurate.
This impractical and unscientific quota determination, more times than not, just frustrates everybody. The Ops department is upset because the bench utilization is low. They end up blaming sales because they haven't "hit their numbers." Accounting is upset because A/R is shrinking and VCs are upset because their financial milestones are missed.
3. The Continued Confusion of What the Intellectual Property of High Tech Firms Is
During the 1990s IT firm market valuation paralleled the business technology that was deployed. As the decade rolled on, companies with poor economic and sales models but strong technology continued to receive exorbitant business valuations from Wall Street and venture capitalists.
During the 1990s technology was the intellectual property of high tech firms.
However, that business paradigm has shifted. Technology, or better yet, the development costs of technology today, has decreased. In this economy, IT firms are evaluated on their current sales revenues, trailing edge revenues, targeted account penetration and forecasted revenues. As the costs of technology development have decreased, simultaneously the costs of sales have increased.
Today sales distribution is the intellectual property of high tech firms. Locating, training, and retaining a successful sales team are the keys to increasing an IT firm's valuation.
4. The Continued Deployment of Relationship Marketing as a Revenue Generating Tool
The term relationship marketing is an oxymoron. Relationship marketing was invented by Customer Relationship Management (CRM) companies to explain their technology value. As this term became dominant in the IT sales model marketing arsenal, firms were led to believe that holding on to prospects and creating "relationships" was the key to IT sales revenue.
In fact that is not true. Transactional marketing is the key to IT sales. Relationships have nothing to do with buying IT. People buy value based on business pain.
The world is filled with professional lookers who waste IT salespeople's time, filling their sales forecast with inaccurate data and never buying. Just because a prospect might have the right executive title, a stated budget, and meets with you, does not mean he/she is a qualified buyer.
Yet, time and time again IT salespeople build "relationships" with prospects that never buy. Throughout their sales cycle, believing that relationships equal revenue, IT salespeople project their own sales expectations and quota insecurities onto prospects.
This continued belief by IT salespeople that "relationship" selling will generate revenue just extends sales cycles longer and longer.
If a qualified buyer needs your IT services or technology to fix a business pain, he/she will buy from someone. Buyers do not need IT salespeople to take them to lunch or to be courted for twelve months.
Yet, the relationship marketing myth continues, increasing the sales and marketing costs of most IT firms.
What is needed today in IT sales is the transactional marketing model. This method encourages IT salespeople to discover who is a qualified buyer and promotes forward movement of their sales steps. This results in moving the qualified buyer to take action steps toward the close of the sale.
The key to transactional marketing sales methods is forcing qualified prospects to move forward with action steps that make them prove that they are a qualified buyer. They may not buy from the IT salesperson that is sitting in front of them but they are going to buy from someone.
When a purchase is made, the status changes from the category of a transactional marketing prospect to a relationship marketing client, and solidifies their value for building a long-term relationship.
Relationship marketing reduces the revenue success of IT sales teams. Transactional marketing accelerates IT sales cycles and qualifies prospects for long-term relationship marketing engagements.
5. Failure To Calculate Market Demand and Reliance on the Assumption that It Exists
When was the last time an IT firm did a market gap analysis on the demand factor for their particular technology or professional service in the geographies they sell?
Many IT firms are trying to sell blue shoes to a market that wants red shoes.
Based on pre-2000 market studies or trade publication estimates, many IT firms have not conducted a market gap analysis demand of what they offer during the last year. So, instead of knowing what their potential prospects are buying, they estimate corporate revenues based on industry assumptions rather than accurate data.
Without proper market gap data, IT firms continue to overestimate market demand and incorrectly forecast corporate revenues. Thus, the lack of success toward reaching their corporate revenue goals and the process continues.
Where To From Here?
The dynamics of technology and professional services' operating sales models have changed. As these five business factors continue to be used, more and more IT firms will miss their corporate revenue forecasts and additional employee layoffs will follow in 2003.
The key to IT success in today's market is the integration of sales, marketing, strategy and strategic alliances into one outbound sales program, where the firm as a whole is focused on revenue capture. Through this integration, technology firms can calculate more accurately, align the sales and marketing steps needed to minimize failure, and increase sales penetration opportunities.
By studying market demand, deploying outbound sales team methods, calculating sales quotas correctly, focusing only on prospects that are currently in the buying cycle and treating their sales team as a business asset, technology and professional services firms can not only survive, but prosper as well. For IT senior management to succeed, they must learn how to adapt to the economy or they will continue to fail!
