The King Of Financial Justification

July 29, 2010 – 5:08 am

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Based on the analysis done by your team, the IRR for this investment is 67%.

Someone or something always comes out on top.  And as you might guess, it’s true for the financial analysis and justification a sales rep can prepare and present.  Internal Rate of Return (or IRR) enables a rep to use a single number to demonstrate the compelling wisdom of investing in his or her recommendations.  IRR is one big, bad differentiator!

This is the sixth post in a series about selling with Finance, the Universal Language of Business.

OK, first I’ll give you a headache, then I’ll fix it.  Here’s the definition IRR:  The discount rate at which the Net Present Value of the Incremental Cash Flow is zero.

Let’s come at that from a different angle.  You remember Incremental Cash Flow, right?  We take the total amount of cash that comes in minus the total amount of cash that goes out for each year in our anlaysis.  Like so:

Our customer winds up with an extra $486K cold cash at the end of five years.  But from Part 5, we know that we need to adjust that number to account for the time value of money using the prevailing interest rate.  Let’s say your customer’s cost of money is 10%.  (That means any investment that returns more than 10% makes money.)  If you were a wise guy like me, you might ask the following series of questions and then make a statement:

  • What if you could show you an investment that would break even if you had to pay an exorbitant 25% interest rate?
  • What if you could show you an investment that would break even if you had to pay an exorbitant 35% interest rate?
  • What if you could show you an investment that would break even if you had to pay an exorbitant 45% interest rate?

Well by golly, you’re in luck!  What I can show you is an investment that will break even if you had to pay a ridiculously usurious 67% interest rate!!!

We’re not selling vege-matics or Ginsu knives here, but do you get the point?  Your recommended investment is so good that even at extremely high interest rates, your customer makes money.  IRR and the wonders of spreadsheets give us:

Almost anticlimactic, isn’t it?  That, in fact, is the true beauty of the Universal Language of Business.  Take one small step at a time, use your spreadsheet and it ain’t that difficult.  That said, wouldn’t it be cool if you get your hands on a spreadsheet that summarized and showed the real formulas for all six parts of this series?  Right click here and “save as” to do just that!

Learn the language!!!

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By Todd Youngblood | Posted in Finance | Tagged , , | Comments (0)

e-Rep = Relentless Attention

July 27, 2010 – 4:14 am

Think about your important contacts.  Think about how much time and attention you’d really like to be able to devote to each one.  The pragmatic fact of the matter is you’re forced to ignore every one of them most of the time.  Ouch!!!

Like it or not, you, as an H-Rep (a Human-Rep) cannot be in two places at once.  (Even though you want/need to be in 15 or 20 places at once all the time.)  Your focus on individuals by necessity is as shown below.

Sometimes you ignore somebody totally.  Sometimes you invest tons of time.  The amount ebbs and flows based mainly on current events mostly out of your control, and occasionally on specific objectives you have set.

If only there were a way to constantly reach out and touch them all…

Well, some lucky reps actually pull it off!  There is a way.  Those who have created and look after the care and feeding of an e-Rep, an electronic alter-ego, are constantly, relentlessly and consistently available 24 X 7 X 365.  You have an effective, hard-working e-Rep if:

  • You’ve set up “Listening Posts” using an RSS Reader, Google Alerts and Twitter Search and/or other similar tools; and…
  • You have a LinkedIn Profile; and…
  • You belong to and participate in at least one LinkedIn Group
  • You micro-blog multiple times per week using LinkedIn Share and/or Twitter
  • You blog at least once a week, posting useful text, image, audio and video content

That’s only five action items.  A handful of not-all-that-hard-to-execute habits fill in all the dead spots as shown below.

Don’t have an e-Rep yet?  No?  Are you nuts?

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By Todd Youngblood | Posted in E-Rep | Tagged , , | Comments (2)

What You Get Paid For Is NOT What You Sell

July 26, 2010 – 5:45 am

Had a lunch meeting with a sales exec this past Friday, a prospective client.  A colleague brought us together and it was the first time I’d had contact with the man.  Ever leave a meeting and have this feeling that the other person was somehow different/unique/better in some way, but couldn’t quite put your finger on why?  That’s the feeling I’ve had all weekend and it finally hit me why I felt that way.

Most of my working life is spent with sales managers and pros in the industrial sector.  I consider myself lucky to be able to do so, by the way.  For whatever reason, I’ve always been fascinated by factories and machines and the stunningly complex interwoven processes, systems and logistics that make this industry tick.

There’s a downside though.  Because of that complexity, soooo many sales types get mired in the technical detail.  Don’t get me wrong, that stuff is critically important.  A rep is dead meat without being able to hold his or her own technically.

That’s what made this guy different.  It was crystal clear he knew all his tech specs and the relative pluses and minuses.  What he kept repeating though, was, “It’s all about kW.”  That focus on “kW” is his key to success.

Picture yourself for a minute, as the manager of a beer bottling plant.  You’re focused – duh – on beer stuff.  How many cases/barrels rolled off the line today?  What’s our quality score?  Are our suppliers delivering what we need just in time?  Have we reduced our purchasing costs?  Is everything way more sanitary than the inspectors expect?  Does the freakin’ beer taste great?  And on and on and on with making better beer faster and cheaper.

Then in walks Dean with his “kW” speech.  Who cares?  Ah-ha!  You do! Those kWs are kilowatt hours – electricity.  Not particularly beer-focused, but son-of-a-gun it takes a lot of kWs to get beer out the door.  (Seriously, check out this green beer article.)  Even more seriously, consider this…

Dean gets paid for boosting consumption of power transmission gears and drives.  He sells by reducing electricty consumption.

It’s yet another example of selling 1/4 holes instead of 1/4 inch drill bits.  It’s called a compelling value proposition.

Always remember:  What you get paid for selling is not, not, NOT what you actually sell.

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By Todd Youngblood | Posted in Value Propositions | Tagged , , | Comments (2)

Quick Thought For Week Of 7/25/10

July 25, 2010 – 6:51 am

Cuchillo de palo!

Have any habits that might annoy your customers?  Have any bad habits you thought you had dropped, but haven’t?  The answer, of course is, “Yes.”  Here’s a quick video to help stay focused on your not-so-spiffy behavior patterns.

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By Todd Youngblood | Posted in Quick Thought | Tagged , , | Comments (0)

You’re Nuts If You Don’t Do Some Pro Bono

July 24, 2010 – 4:02 pm

It’s a Saturday.  It’s past 5:00 PM.  I’ve been locked up in an orchestra rehearsal room with eight other unpaid compatriots for the last seven hours.  That was after two hours of prep at home this morning.  It was an “extra” meeting of the Cobb Symphony Orchestra Board of Trustees.  We’re in the midst of a search for a new Executive Director and trying to figure out how to survive financially in an economy that has absolutely hammered non-profits coast to coast.  We’ll be fine, but only because the group is so fully committed.  The time and effort, though, is really wearing.  It’s almost like having a second full time job.

And I wouldn’t give it up for anything!

First, there’s the business education I’m getting.  Running a non-profit is every bit as challenging as running a “normal” business.  In many ways it’s tougher, because most of the work is done by volunteers and the few paid staffers we do have are woefully underpaid.  I didn’t truly understand the meaning of “efficiency” or “do more with less” until I got involved with the symphony.  Participating in planning and executing all the core functions of marketing, sales, finance, fundraising and operations in this totally new and different (for me) industry has provided TONS of perspective I’d never have gotten  otherwise.  Those perspectives help me every day with my “real” job.

Then there’s this self-actualization thing.  Yes it’s a lot of time; and yes, it’s a lot of effort.  But the payback, both tangible and intangible, comes in a never-ending flood.  I’m proud to be a part of an organization that serves and provides real value to kids, teenagers, young adults, families, middle agers and senior citizens.  That is, everybody in the community.  It gives me a tremendous psychic boost to know that my effort gets leveraged through the group and will have a continuing impact long after I’m gone.

The business point here???  You’re nuts if you don’t do some pro bono work.  It improves your community tangibly and for the long-term.  It provides value to a whole different set of people.  It makes you feel good about yourself.  It makes you a better business-person.  You’ll never do anything that provides so much payback to so many people including yourself.

Go volunteer somewhere.  NOW!

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By Todd Youngblood | Posted in Learn! | Tagged , , | Comments (0)

I’d Rather Be Lucky Than Good

July 23, 2010 – 6:39 am

There aren’t many feelings as cool as when you get to see one of your own best practices kick in.  I had the great good fortune this past Wednesday to watch one of mine take hold and accomplish its intended effect.  (I just wish I had actually thought the practice up instead of simply bumbling into it about four years ago…)

The scene is a Sales Excellence Council (SEC) meeting for a chemical company.  The attendees include the four top sales performers, the Supply Chain manger (critical to sales in this industry), the Director of Sales and the CEO.  It’s the perfect mix of people to define, document and implement a formal sales process.  This was the fifth monthly meeting; the meeting where we scheduled the rollout to rest of the sales team, about 45 people.

So far, things have gone quite well.  As a group, we’re a good 60-90 days ahead of normal SEC progress.  From day one, it has been me in the front of the room facilitating, presenting concepts, challenging assumptions and documenting everything.  Also back on day 1 (…and here’s the best practice), I asked for opinions about who should present this (mandatory) process to rest of the sales force.  Of course, they immediately said it must be them as the top performers and sales leaders.  “OK,” I said.  “Are you sure you don’t want me to do at least the ‘why this is critical to our future success’ part?”  “No way!” they said.

Then for five months, they all sat in the comfortable chairs, while I occupied the “hot seat.”  On Wednesday though, we locked in the roll-out schedule and assigned SEC members to present the kickoff session introduction, process overview, detailed reviews of each key sales stage, how it all is mapped into the chosen CRM, etc.  That’s when the magic happened.  All of a sudden, it sank in that each individual would soon be up in front of the room; preaching to a quasi-hostile crowd of peers, putting their personal reputation on the line, selling the value of the process they had created and fending off the inevitable objections and negative reactions.

For the next 75 minutes, the discussion was really intense.  Why doesn’t the Develop Value Proposition stage end here instead of there?  Why did we decide to nail down the customer decision process so early on?  Tell me again how odds to close will be calculated…  Round and round it went as I sat there, arms folded, saying nothing and smiling.

It is now their process.  They own it.  They’re proud of it.  They are ready, willing and able to question anything about it, and either defend its wisdom or modify it to make it better.  They’re committed to use it personally.  They’re ready to roll it out.

So back to the initial point.  A different client, 4+ years ago told me in no uncertain terms that I would not be the primary speaker at the rollout meeting.  I warned him about the risks of relegating me, the brilliant out-of-town-expert into a behind-the-scenes role.  It went great.  I’m forever grateful to have been put in my place.

I’d rather be lucky than good.

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By Todd Youngblood | Posted in Best Practices | Tagged , , , | Comments (2)

You Don’t Understand. We’re Different.

July 22, 2010 – 5:37 pm

In kicking off a session with a bunch of sales reps and managers, I always try to start with a group discussion that establishes a common bond.  Last week I decided to focus on something a lot of customers say that derails a sales call.  The first thing I did was project the following words up on the wall:

You don’t understand.  We’re different.

It worked wonderfully.  We had a lively discussion.  The first example was a customer maintenance manager in auto parts manufacturer A who totally dismissed a rep’s 20 years of experience at auto parts manufacturer B as not relevant; brushing aside his perspective with, “You don’t understand.  We’re different.”   The whole group chimed in about how unbelievably narrow-minded “those maintenance types” could be.  Example after example of “customers who refuse to think” followed.

Interestingly, the group then went on (and on…) about how widely applicable their own plant maintenance and engineering services were.  They waxed eloquent about how the same fundamental service from them could provide genuine value to not only auto parts plants, but any discrete manufacturing plant building anything.  In fact, the exact same service could also be productively applied in chemical processing, forestry, mining, waste water treatment, pulp & paper mills and a wide variety of other industries.

As a group, we agreed on two things.

  1. A business process – any business process – is at its core basically the same in any company in any industry
  2. The real challenge is to get those executing the process to agree on a common set of terminology and metrics

Then we got down to the real business of the day, defining and documenting this company’s sales process.  I know you already know what happened next…

I, the out-of-town consultant, “did not understand,” support staff “did not understand,” the marketing guy “did not understand,” the CEO “did not understand,” even reps in different territories “did not understand.”  Fortunately, due to the initial discussion, it all quickly became a joke — with a hard, serious edge of truth.

Hopefully, this little vignette will be useful for you to keep in mind as you’re out there in the field.  Conversations with customers about complex business processes can be quite challenging.  They require an open mind, a flexible perspective and a dedication to always remembering…

You’re unique; just like everyone else!

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By Todd Youngblood | Posted in Sales Process Engineering | Tagged , | Comments (4)

The Time Value Of Your Customer’s Money

July 19, 2010 – 7:21 pm

Mr. Customer, the net present value of the investment I’m suggesting is $377,000.

That’s the translation of “Many companies like yours have found tremendous value is this service of ours” into the Universal Language of Business.  Just a tad more compelling, wouldn’t you agree?

This is the fifth post in a series about selling with Finance, the Universal Language of Business.

Would you rather have $100 today or a year from now?  Well, duh…  Of course you’d rather have it now.  Let’s change the question just a bit, and let’s also assume that part of the deal is that you must invest – not spend – the cash.  Would you rather have $100 today or $110 a year from now?  The answer, with virtually no doubt whatever, is $110 a year from now.  Why?

OK, so I give you the $100 and you invest it in say a corporate bond that pays 5% annual simple interest.  After a year, your investment would be worth $105.  Unless you can find something that pays more than 10% interest, you’re better off waiting for the $110.

Same logic applies to your customer as they evaluate the value of what you’re selling.  The difference is in the complexity.  They’ll be considering cash inflows and outflows over multiple years.  (Remember my exhortation in the last finance post?  Don’t wimp out on my here either!)  Here’s the example from Part 3 of this series:

As is now clear, those numbers in years 2 through 5, while real, aren’t – well – “really” real.  What your customer really must know is today’s value of that $276 in year 5, combined with today’s value of that $235 in year 4, etc.  That’s where Net Present Value comes into play.  NPV, as it’s lovingly called by the green eye-shade crowd, is a mathematical wonder that takes future cashflows and converts them into the equivalent of cash in your hand today.

Three more cheers for spreadsheets!!!  You don’t need to understand the math, you only need to know the formula to plug into the cell.

The example uses a 5% interest (also known as discount) rate.  The impact of interest in the first year reduces your customer’s actual cash outflow to $101 instead of $106.  You can see the impact the time value of money has in subsequent years.

Think about how, using NPV, you can help your customer compare and contrast any investment in any product or service or investment or expense over any time frame with your suggestions.  How many of the other sales reps are anywhere close to providing that kind of business value?

Want your customer end-users escorting you into the C-Suite?  Learn the universal language of business!

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By Todd Youngblood | Posted in Finance | Tagged , , | Comments (0)

Quick Thought For Week of 7/18/10

July 18, 2010 – 8:07 am

Does a 17th century French philosopher, mathematician, physicist, and writer have something to say to 21st century sales reps about “push” and “pull” and their relative effectiveness in getting commitment?

“We never understand a thing so well, and make it our own, as when we have discovered it for ourselves.”  — Rene Descartes

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By Todd Youngblood | Posted in Quick Thought | Tagged , | Comments (0)

Piling On The Pile – Still MORE On The Most Useless Metric In Sales

July 17, 2010 – 3:38 pm

Dave Brock started the mudslinging at a useless forecasting metric, then Anthony Iannarino piled on.  These two guys are right on the money – again – and I can’t help but throw another log on the fire.

A common assumption by sales leaders…  Allow me to re-phrase:  A common dumb assumption by sales leaders is that odds to close an opportunity is directly proportional to and in lock step with the sales process stage.  If it’s stage 1, 10%; if it’s stage 2, 20%; etc.

I’m convinced that some junior programmer with a shiny new IT degree back in the early days of CRM decided this was a great idea, blithely coded it up, and over time, due to nothing more than longevity, it become a “Great Truth.”  As Tony Salvaggio, a mentor of mine always says, “All great truths are false.”

Don’t we all chase a relatively low odds opportunity now and again because it’s for a strategically important account, or in a new geography or related to a new product/service, or is a new application, or…  Don’t we all get opportunities that we just know are ours right out of the chute even if it might take 6 or 7 months for it to come to fruition?  Anybody with any sales experience at all knows that odds to close is dependent on a whole series of factors; some controllable, some not.

Personally, I like a forecasting approach that considers several factors in each of three categories:

  • The prospect & the prospect’s situation
  • My company’s ability to deliver the value needed and/or sought by the prospect
  • The market & competitive situations

Each factor gets a 1-5 score, and over time it’s really not all that difficult to develop a fairly bullet-proof (dare I say accurate?) forecasting process.  There’s more detail about the approach here.  And by right clicking here, you can “save target as” or “save link as” and download a specific example.

Meanwhile please stop using some programmer’s brainstorm as the basis for a key chunk of your sales process.  I wonder what other common “best practices” have this sort of really bizarre origin?  I wonder how many other bad metrics, bad management and wasted time are a result of similar sloppy thinking on our part?

Think About It…

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By Todd Youngblood | Posted in Metrics | Tagged , , | Comments (0)