Making Big Bets #2
I was reading a blog by my friend Jim Carroll "Why thinking big could save you in the 21st century". He talks about companies that are using "Big Bets" to drive stunning levels of innovation such as Wal-Mart's goal to completely eliminate packaging.
I am a big fan of "big bets" and "shoot for the stars" targets for other reasons than those Jim discusses. They expose flaws in a business model that you can hide today, but will cripple you in the future. They also flush incremental thinking out of the system. It is rare that you can pull off a "big bet" by using the same thinking and processes that you use today only working harder, faster and more efficiently. Big bets also make change management easier because it becomes obvious to all that just peddling faster won't work. Resistance to change, a major cause of many project failures, rapidly disappears. Fundamental changes and re-thinking of everything, even things that work well today, is required.
During a conversation with a CEO of a small software company, I challenged him to abandon double digit growth objectives and instead to challenge his team to grow ten times by 2015. I walked him through my logic.
He currently focuses most of his sales team on new business and does very little farming of his customer base. His average sales transaction amount is small and his team will often bundle additional products into a deal at heavily discounted prices. This model has been successful; but to create a scalable business, he knows he needs to increase sales productivity, increase average transaction price and get more incremental revenue from his customers through the purchase of additional products and professional services.
To raise sales quotas and deal size always meets resistance from the sales organization. Combine this with the need to reduce the amount of free software that is bundled into each deal and save these additional products to "farm" into the customer base in future years, and resistance will increase even more. He will also have to increase his Professional Services capabilities to increase customer usage and success in order to set his customers up for "farming" repeat sales. This increases the complexity of the sales process.
Jim Collins speaks of "Good being the enemy of Great". The company is doing well so there is a feeling that the current model "isn't broken". In the current environment of "good, not great", changes to current sales processes, productivity expectations or quotas will be tough to implement.
Now consider the big target approach. At 50% growth, their VP Sales needs to add 20 people to his sales team this year to meet this year's targets and prepare for next. On a one year horizon, this is a do-able task. It just means "continue to do what you are doing but peddle faster". At 10-fold, 5 year growth, without changing how they sell today, their VP Sales would have to hire over 250 sales reps and managers in the next 5 years. To do this, the company must either become world class at attracting, selecting, hiring and on-boarding reps or change other fundamentals of how they sells. Their team will pretty quickly conclude that if continuing the current sales model means pursing over 250 sales hires, then the current model is broken. Now, discussions on how to raise their value proposition, improve their selling skills, increase the Average Selling Price, develop better Service offerings to make customers successful, and create a farming sales team are possible without the non-productive discussions battling to overcome entrenchment opinions. These new types of discussions will allow changes in the initial selling model and in the Professional Services model, thus reducing the number of sales hires over the next five years to less than 100, a more do-able target.
So making a "big bet" is not only a tactic to drive stunning innovation, it is a tactic to rally everyone to necessary change required in the business.