Small and mid-sized businesses are getting hit particularly hard in the new economy. One area of consistent struggle for businesses is developing a professional sales engine. We’ve seen businesses, particularly at the $20m revenue level struggle to break through to the $50m mark for this reason alone. They’ve relied on a strong owner to generate sales for years, and sometimes have made false assumptions about their sales capabilities. When the market is strong, they can overlook this challenge, but when the market takes a downturn, like it has in 2023, they’re often exposed, and their business valuation suffers as a result. This paper helps identify the risks and challenges of transitioning to a professional sales engine, and suggests 5 considerations to help navigate around common pitfalls firms have experienced in this area.
Sales is more than just the lifeblood of the business - it’s the nerve center of your operations!
Sales is the vital bridge in the business that connects all parts of your operations. If you create or tolerate inefficiency in the sales function, that inefficiency cascades to client services and support, upstream to marketing, product, development, and project delivery. That’s why getting sales right is so important to the business - it’s not just revenue you’re creating, it’s operational efficiency.
Because of its importance, transitioning from founder-led sales to building a sales engine is fraught with risk. Some firms find it much more efficient to use fractional consulting to “set the stage” and identify early problems that an executive might face. This helps them to better define the job, and overcome likely obstacles that hamper success, well before the firm invests in some cases over $300K on a sales executive, who single handedly can change the culture, and dictate 24-36 months of revenue, especially in the case of a bad hire.
Take a couple of examples from our clients. These examples illustrate two radically different approaches for founder-led organizations.
A $16m firm with a 20+ year history had missed quota by over 80% for two consecutive years. The founder of the firm had relied on a the CEO to run the sales function. After the second year of poor results, the private equity firm that had purchased the company “cleaned house” and put a new Managing Director in charge of the business. This MD needed to demonstrate sales effectiveness quickly and felt they had to go outside of the organization to bring in more effective sales talent. While they achieved success, they took a vital misstep that would backfire in the long-run.
A 17 year old, $18m services firm had no sales organization, and the majority of its sales were sourced and developed by a charismatic, but erratic CEO, known for his unyielding optimism and “rose colored glasses”. The firm never invested in building a sales function, because they always had revenue when they needed it, and the relationship management capabilities of the CEO could reliably find revenue opportunities, even if the timing was unpredictable.
These two firms, essentially the same size, with some significant tenure, chose drastically different paths. And both struggled. What happened?
You’ll learn more about these two stories over the next weeks as we publish more content. Their stories illustrate both the difficulty and the risk associated with a transition from founder-led sales.
Err to Action - five key considerations on why you need to act now, and how you should go about it to minimize risk:
The risk of inaction is arguably higher in the Sales function than anywhere else in the business. “Your good enough to date isn’t good enough today!”
Postponing a decision compounds existing problems in other parts of the business
With the nature of sales development, inadequate sales coverage can kill financial results 18-36 months out. If your pipeline isn’t strong today, you’ll have to rely on “heroic efforts” to fill the gap
Relying on heroic efforts encourages variability in delivery, there is unnatural pressure to take projects that aren’t a good fit
The risk of an executive lead or functional lead mishire is highest in sales due to the complex nature of sales.
High performing sales professionals often have strong personalities, points of view, and their extroversion immediately influences other parts of the business
Cultural implications
Immediate pressure
Tendency to sell what they’ll buy, not what you have
Risks of personnel issues with great sales people
Sales-driven cult of personality - is it the culture you want to emulate?
Frame the sales job more extensively than any other position you’re going to hire.
Better to define what it is not, before hiring, otherwise you open the door for other functions to be adversely impacted
Fractional sales leadership can help better define the boundaries and expectations of the job
Are your operations “ready” to support sales volume?
The fastest route to maximizing a business valuation in an exit scenario is a deep and professionally presented pipeline coupled with an executive leader whom the buying firm believes in.
Can boost valuation premium, in our experience, 25-35%
Can be achieved in the short-term (90-120 days)
Must be credible (not “added $2m in 15 minutes) - requires discipline and strong administration
The sales leader is selling your products and services. As the owner, you’re selling credibility of the sales function.
Sometimes this won’t align with the facts, it’s the spirit of the change that you’re selling
Need to demonstrate enough progress so that this is believable
Do you have a pipeline report, and a weekly review cadence?
Do you have win/loss follow-through?
What’s your close rate? Why does this differ from the industry (positively or negatively)?
Expected value pipeline?
MQL to SQL coverage ratio? (Marketing coverage ratio)
Sales pipeline coverage ratio
If any of this is foreign language, you need work!
Activate the buyer’s greed
When the buyer “smells potential”, they’ll likely advocate for the buyer to take on more risk
Buyers are AS A RULE more optimistic about their own ability to influence sales, which creates an arbitrage opportunity for the seller, if the narrative is managed correctly
At ShadowHornet Consulting, we’ve helped over 40 businesses maximize their valuation and advance towards exit. We’ve enabled 11 transactions from the buy and sell side, and have a unique perspective that gives you the ability to understand how changes you make to your business will impact buyer perspective. We’re the hands on consultant - we’re there in the trenches with you as we work to make your vision a reality. While other consultants may offer advice, elegant and expensive Powerpoint decks, and high-level recommendations, we translate words into action.
ShadowHornet Consulting - Your Trusted Guide to Success in the NEW Technology! Economy