Is ‘Status Quo’ Perception or Reality?

Disrupting Status Quosta•tus quo

/ˈstātəs ˈkwō/ – Noun: The existing state of affairs, esp. regarding social or political issues: “they have a vested interest in maintaining the status quo”

“Status Quo” – The condition we all are describing these days. Whether talking about sales, marketing, innovation or strategy, our aim is always the same…to “disrupt the status quo.” But, this is commonly misunderstood.

While my aim for this post will center around salespeople disrupting the customer’s status quo, I believe you will find this relevant in all of its uses.

The Current Use and Understanding

Many of us in the Sales and Marketing community refer to ‘Status Quo’ quite frequently, and I would argue rightfully so. In fact, two of the foremost thought-leaders in this area, from my perspective, are Corporate Visions and CEB as their research and descriptions of the conditions and need for change are quite compelling.

When we talk and read about the status quo as our biggest competitor in the context of customers, we can misunderstand what is really meant. There is a tendency to infer that the customer has two choices – stay the same or change. I would like to reframe how we view status quo, and more importantly how we help prospects understand there is no such thing as staying the same.

A New Understanding

To properly understand Status Quo, let’s reorient back to the original Latin definition – “An existing state of affairs.” What this is speaking of is a condition at a particular point in time. In other words, there are literally hundreds of thousands of things that took their course to lead a customer, prospect, business, etc. to the point where they are now…at this point in time. This all has led to an “existing state of affairs.”

Where this tends to be misunderstood, whether by the sales rep or the prospect, is to treat the status quo as a condition that will likely stay the same unless acted upon. This is a wrong understanding. In fact, the image I used above has it exactly right…Status Quo has a downward trajectory, but is most certainly not level.

Consider it from a financial reporting perspective. If you were looking at a P/L statement or Balance Sheet, you would have a snapshot of your business at ‘a particular point in time,’ which describes the existing state of affairs. While there could certainly be some predictive qualities inferred from either of those financial reports, it does not guarantee that doing things the same way will produce the same results.

On a side note, this is one of the  biggest problems I encounter when working with businesses whose growth has stagnated or declined. They tend to look back to more lucrative times and conditions and subsequently try to repeat what they had once done. This doesn’t work unless all of the other variables that were existent at the time years ago are exactly the same today. As you can imagine, this is rarely the case.

Don’t confuse what I am saying with companies that return to the fundamentals. Returning to fundamentals is often a good thing for organizations…provided their fundamentals were appropriate in the first place. I am referring more to organizations that try to recreate their past like the ‘no-longer popular’ college student that desperately tries to recreate his high-school glory days.

A Different Kind of Conversation with Prospects

With the perspective of financial reports not being a guarantee of future results, consider changing your perspective on what you are truly trying to “disrupt” when talking with prospects who are afraid to change.

Their perspective is most often one in which they believe what they are doing today is known and has some predictability that will lead to predictable results. Your conversations should help them understand that if they are not currently leading to improvements they were hoping and expecting to see, things will only get worse. You already know that if they are entertaining a conversation with you, that they are not seeing the results they had hoped for. Your proof points should be inserted at this point in your conversational choreography to bring the point home.

In Summary

If you are struggling to disrupt the prospect’s status quo, it most likely due to your failure to help them see the consequences of not changing, and leaving the prospect with the impression that what they are doing today will still work going forward. Tim Riesterer, Chief Strategy and Marketing Officer at Corporate Visions, often shares the following comments based on CEB’s research conducted with 5,000 buyers and decision makers that speak with salespeople:

86% of buyers said that the rep’s message, what they communicated in a meeting or phone call, had NO commercial impact whatsoever to them. In essence, they came away with the belief that what they are currently doing right now, the Status Quo, is okay and they themselves are okay. How do they know? The Sales Reps led them to believe that was the case because there was nothing to suggest otherwise in their communication.

When you speak with prospects, does your communication suggest any reason for change?

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

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10 Principles of Personal Leadership

Starbucks Coffee and Leadership

Image courtesy of Todd Clarke

I was recently working with some of my retail clients on ‘showrooming’ and leadership, and was reminded of some of the great principles Howard Behar spoke of in his 2009 book, “It’s Not About the Coffee.

Whether you have read the book or have yet to read it, I would highly recommend picking up a copy. Following are just a few reasons I found to be highly beneficial:

•  It’s practical, not just theoretical
•  It’s actionable, not just anecdotal
•  The focus is on People, not Product
•  The principles are timeless
•  Those you lead will benefit

Following is an excerpt from his book on the 10 Principles of Personal Leadership that I thought would benefit those looking to improve their own leadership.

10 Principles of Personal Leadership

1. Know Who You Are: Wear One Hat
2. Know Why You’re Here: Do It Because It’s Right, Not Because It’s Right for Your Resume
3. Think Independently: The Person Who Sweeps the Floor Should Choose the Broom
4. Build Trust: Care, like You Really Mean It
5. Listen for the Truth: The Walls Talk
6. Be Accountable: Only the Truth Sounds like the Truth
7. Take Action: Think Like a Person of Action, and Act like a Person of Thought
8. Face Challenge: We Are Human Beings First
9. Practice Leadership: The Big Noise and the Still, Small Voice
10. Dare to Dream: Say “Yes,” the Most Powerful Word in the World

[Download printable PDF versions of The 10 Principles of Personal Leadership (annotated) and the Checklist for Individuals, Leaders, and Coaches].

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Case Study: Is the Problem Marketing or the Marketer?

Lead Generation and Lead QualificationThe Phone Call…

“Am I going crazy?” Having just answered the phone, I had no idea who was calling and asking such a question of me. I responded with a courteous, but cautious chuckle saying, “Well…I think I’ll need a little more to go on. With whom am I speaking?”

She paused, told me who it was, laughed rather distractedly, then proceeded to dive right into describing her dilemma from today’s meeting with the Marketing Director from her “problem division.” She is the Sales Director of a firm in which I knew a bit about, particularly with the company’s background and this particular division’s struggle.

In summary, sales were strong across all of her other divisions and lines, each of which had their own marketing leader, while she led the Sales across all divisions. Things were great, that is for all but this one division. Sales continued to decline year over year and had high lead dependency from Marketing, thus her concerns.

The Rest of Her Story…

The sales model is B2B with an outbound sales team that sells consumer products ranging from $200 – $1,000. As described earlier, they are highly dependent upon Marketing to deliver leads.

The Division Head and Marketing Director were both new to this division in 2011 and had stepped in with a new, radical, $1M cost-reduction strategy for marketing. The new marketing mantra became for the next two years, “Less Quantity, More Quality!”

This strategy resulted in lead reduction of 60% in 2011 compared to 2010. In 2012, the leads dropped another 40% from 2011. Not surprisingly, sales had correspondingly declined steeply, more so than any other recent period. While sales did have a dramatic decline, it was nowhere near the rate of decline for the lead volume.

The Sales leader saw neither quantity nor quality from marketing, and as she describes it, the numbers supported her version of the story. Despite the numbers, the Marketing Leader and Division Head remained committed to defending their original strategy a year and a half into it with major revenue losses, and subsequently showed no openness to a different, or better strategy.

Towards the end of 2012, she managed to get a commitment from Marketing for substantially more qualified leads in 2013, although to the Marketer, ‘qualified’ apparently meant email, number and “Request for literature.”

Additionally, the Marketer’s commitment was simply to an aggregate number of leads on a monthly basis, but not by geography, firmographic, demographic, product type or other. His tactic? Email marketing….it’s part of the ‘cost-reduction’ plan.

Today, prior to the call and after her meeting with the marketing team, she made her plea for more qualified leads as the current lead quantity left her outbound team with capacity in excess of 60% going into their largest quarter of the year.

After her meeting, she shared that in addition to the quantity of leads being a third of what they needed, 80% of them were for two of  their 10 product lines. This meant that they had on average  a half-lead per rep to call on each day for the remaining products….not enough to meet the sales plan.

“A Lead is a Lead is a Lead!”

Through frustration, the Marketer responded to her plea for more balanced and qualified leads with saying, “A lead is a lead is a lead. We know that regardless of what product type we market, more than half of the prospects will want something different anyway. We could collect leads on just one of our products and it wouldn’t matter. All that matters is that you have leads of any type, then your team can determine what they really need.”

Again, the sales exec says to me…this time through tears…“Am I going crazy? Do I have my expectations set too high? Is it unreasonable to ask marketing to know the customer well enough to hit who they’re aiming at? Maybe I am the problem. I don’t feel like I am but it just seems like we need to change our approach to marketing.”

I responded, “Being crazy and unreasonable is not your problem, although your 2-year tolerance may be a part of the problem. It sounds to me like there is a much larger issue at play here…”

Change the Marketing, or the Marketer?

I speak with people in Sales and Marketing roles from all over the country. From executives to analysts to reps. Lead generation and qualification is by far, one of the most common frustrations I hear.

No matter who I am working with or from what field, I am pretty quick to keep the responsibility and accountability with each respective group I am working with. Most companies needing my help typically don’t have their respective ‘houses in order.’ Therefore, I keep Sales concentrated on their own responsibilities and Marketing, theirs so I don’t create an all out Game of Thrones. I work with the executive leadership on cross-departmental improvements before circling back to the departments.

For these reasons, offering up an anecdotal recommendation to this Sales executive to “change the Marketer” after merely an hour-long conversation would be ill-advised, no matter how apropos that may seem. There is always more to the story, especially when it comes to Sales and Marketing alignment.

What Advise Would You Give?

Given the very limited facts we all have here, what advice would you give and to whom would you target your comments? The Marketing Director? The Sales Director? The Division Head? Who would you love to spend 15 minutes with and what would you tell them?

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Challenger Sale: Moving Beyond Rational Drowning

Rational Drowning to Emotional Impact

Growing up on the coast of Southern California, I was no stranger to the rip currents we would often see. For those unfamiliar, a rip current (a.k.a. ‘Riptide’) is when the wind and waves push water toward the shore, which then causes the water to travel sideways along the shoreline from oncoming waves until it finds an exit back out to the sea. Some rip currents can move as fast as 8 feet/second.

On one particular day at the beach, I remember seeing a grown man get caught in the rip current. Most of us have been caught in a number of them, and the solution was easy if you knew what to do. We knew to relax and ride the current until it equalized with the rest of the shoreline. It just meant a longer swim and a walk from where you were, that’s all. But for this gentleman, he chose a different course of action.

He began by waving off the lifeguard who was warning him of the strong current. With a wave, in pride he yelled back, “I’m fine.” His plan was to swim against it. Bad call!

It didn’t take long for him to be completely exhausted whereby holding his head above water became difficult. He began swallowing and choking on seawater. In a flash, his once prideful face that rejected help, now showed desperation for anybody to save him. The lifeguard made his way to him in no time as the current led him right to the victim.

I will never forget the look in the man’s eyes – The first look was the look of pride in the face of a dangerous situation. The second look was when he realized he was in over his head.

Temptation to ‘Keep it Above the Surface’

Prospects can have similar expressions, when they have that defining moment. For some, it’s an “Ah Ha!” moment, and for others, an “Oh no!” moment where they realize for the first time how severe the implications are of remaining in their circumstances.

In conversations where one seeks to change the behaviors of another, whether as parents or in sales, there is that point where the person first acknowledges the risks or consequences you are speaking about. When speaking with children, their response may sound like, “I know, I know.” For the business person, this sounds much more rational as they confidently proclaim, “Yes, I am aware of the risks and am taking precautions.” This is code for Status Quo.

This happened recently when I was speaking with the President of an organization about consequences he didn’t realize, and he would be facing in the upcoming months. At one point in the conversation, this President jokingly commented that he needed to do something different or the board would come after him.

He began to move on, but I stopped him dead in his tracks and asked, “Before we move on, in all seriousness, what will happen if we don’t solve this?” At first he chided me for taking things so seriously when he was simply making a joke, but I held out for the answer. I told him, “I’m the serious type, so seriously, what will happen?” He looked down at the table soberly, then slowly back up to me and stated, “I’d probably be fired.”

Within 30 days, he was fired. He had acted too late. His eyes told me a lot, much like the man’s eyes in the rip current. In an instant, pride turned to fear and desperation, and then he was gone.

Rational Drowning vs. Emotional Impact

When working through the Challenger Sale choreography, the third and fourth steps, Rational Drowning and Emotional Impact, are tightly intertwined. I describe these two stages as follows:

If a person fell overboard in the middle of the ocean, Rational Drowning looks like treading water. The victim initially says, “I’m alright,” which ‘feels’ true at that particular point in time. Not until they realize they can’t continue this way for long, will they pass from Rational Drowning to Emotional Impact.

This is not a place most prospects will go willingly. They would rather stand outside of the story…their story…like a casual observer, who can see things factually…logically, and yet remain unmoved, while mired in their own status quo.

Our role as professionals, is to care enough about them to be willing to expose them to the truth about their circumstances.

Tips to Lead to the Center of Their Story

In the aforementioned story of this President who was subsequently fired, I recognized that he was intentionally seeking to avoid getting deeper. I have seen his situation hundreds of times before, but simply telling him so would merely serve to keep him on the outside of his own story.

I could have told him, “You need to change or you’ll be fired” and would have been accurate. But his response would more likely be defensive than if he recognized aloud, as he did, when he said, “I’d probably be fired.” Asking intentional, targeted questions allowed him to begin narrating his own story as his pronouncement of the consequences carried more weight than mine would have. I just had to lead him to recognizing this reality.

Following are a few tips to remember when leading a prospect through these critical stages:

  • Prospects aim for the surface. Like a balloon filled with helium, so it is with prospects. There is a tendency to want to rise back to the surface as going deeper into the center of their own story is never comfortable.
  • ‘Comfort’ is not the aim. If you are not prepared [and skilled] to respectfully lead prospects to uncomfortable places…such as the center of their own story, you will continue to struggle with selling.
  • Don’t tell the prospect’s story for them. According to a study done by the University of Texas (Metzger, 1997), a person will remember approximately 20% of what they hear, but remember up to 80% of what they do and say. In aiming for the uncomfortable center of their own story, ask questions that lead them to tell their own story.
  • Ask targeted questions. Nothing is more maddening and exhausting to a prospect than questions that appear exploratory and aimless. Know where you are leading the prospect in your questioning.
  • Lead TO your solution, not WITH. Your questions, when asked appropriately, should ripen the prospect to a New Way. Don’t jump to your solution yet, as they need to be prepped with what will resolve their issue. This ‘new way’ should aim squarely at what your product or solution can uniquely solve. BUT DON’T TALK ABOUT YOUR PRODUCT/SOLUTION YET.

One final note about these two very important areas of the Challenger Sale choreography – Because these two areas are so tightly connected, there can be a tendency to confuse one for the other. Over the years, I have seen countless reps struggle to even get into uncomfortable places with a prospect. When they do, the most common tendency is to resurface and provide ‘relief’ to their uncomfortable prospect.

Doing this will likely result in the loss of the sale as the prospect merely learned that you make them uncomfortable, but offer nothing but a product solution. They will avoid you going forward. Therefore, remain disciplined and stick to the choreography.

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Constructive Tension through Insights

Constructive TensionIf you are anything like me, I learn best from real life examples. This morning, I was reflecting on a conversation I had with a major retailer a number of years ago, that not only got them to think differently, but caused them to adjust their whole strategy. Below is an abbreviated transcript of that conversation.

Background:

A major retailer saw themselves as ‘The Headquarters’ for our type of products and as such, having a broad assortment was a key part of their strategy. Regardless of how they perceived themselves, their sales in the category continued to decline. They had the wrong strategy, and it was costing them sales and market share.

Following is an excerpt of my conversation with them:

Me: As I understand it, your corporate strategy for [X] category is to provide a broad assortment of brands and give a fair representation of each brand’s line. Is this still a key part of your strategy?

Buyer: Absolutely. Customers have depended upon us as their HQ for years.

Me: I would imagine carrying the top 3 brands in this category is important too…

Buyer: Definitely, it’s critical.

Me: Do you know who is #1 in market share for this category?

Buyer: If you are asking, I am sure it is you.

Me: You caught me, how about #2?

Buyer: (The buyer and Division leader make 3 incorrect guesses, naming our competitors)

Me: I’m afraid not. The three you just named only make up 8% of the market combined. #2 on the list is X [private] and they only sell through their own stores, so as you know, you aren’t able to carry their products. Any guesses on who #3 is in market share?

Buyer: Not if it is someone different from who we already mentioned.

Me: It is. The 3rd largest segment in the market is WYO (an industry-specific term), which rules you out altogether of carrying two of the top three that you said was critical to your strategy.

Buyer: Hmmm.

Me: Do you know what your $/Kit sold is for the other product lines?

Buyer: Do you mean how much in kits we sold?

Me: No. I mean how much ancillary product you sell for every kit sold.

Buyer: No, we don’t track that.

Me: Hmmm. That’s important to know. The reason is that with each of the other lines you carry, the purchase of the kit is all you will make of that sale since they don’t offer ancillaries. Were you aware that for every one of our kits sold, the typical sales on ancillaries are 9 times greater than the kit alone? In fact, that’s what is lost every time you sell another brand. Let’s multiply that by # of kits sold per store times number of stores.

[Figure calculated and presented]

Buyer: Wow! I had no idea. We hadn’t looked at it that way before.

Me: Can you name another category in your stores that achieves this same level of revenue and profitability during this same season?

Buyer: Nothing comes close. The other categories are down when you guys hit your peak.

[Light-bulb moment for the customer with new insights and discovery]

Me: Exactly right.

[The President enters the conversation]

President: What should we do?

Me: You currently have a strategy focused on promoting breadth and fairness to ALL brands. Research shows that 54% of consumers have predetermined the brand they will use before purchasing…

President: Is that your brand?

Me: …It is, and another 34% will compare with only 1 to 2 other brands. You carry 16. In just 2 months time, your strategy of ‘brand breadth and fairness’ cost your stores $xM in sales & $xM in profit. Even worse is that you have lost 7 points of market share. So, in answer to your question, I recommend a strategy change if you want to remain in this category, or otherwise allow us to help you successfully exit the business altogether.

[President pauses and is now at the crossroads with the Status Quo]

The President, after dismissing the buyer and division leader, asked how quickly we could reset the category and serve as category captains.

Doing so would require concessions, if they were serious. He assured me he was. We ended up getting key placement and dedicated signage in the stores, along with many other things that they offered to help them earn back market share and profitability. That following year, they had grown their business with us nearly 30%.

On a related note, we took this same approach with two other major players in the market who achieved even better results that year – One achieving 71% category growth, and the other in triple digits. They remain the market leaders today in their categories.

Summary

The questions I asked revealed that they did not know the answers to key questions. They were looking at things the wrong way. The questions helped to prepare them for a series of commercial insights that created a rich environment to hear a hard truth…that their key strategy was amiss, costing them market share, sales and profitability.

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Sales: Those that can’t close, can’t open

Prospecting Sales CallEver get bad advice? I read a post this morning that struck me as such as it advised 3 Questions Sales People Should Ask Every Prospect. The three questions [taken from a longer ‘disqualification checklist’ of questions] recommended asking the following questions of every prospect:

1. What is your biggest [YOUR INDUSTRY] related challenge?
2. Why is what you’re doing now not working?
3. How do you go about making a decision like this?

In my post a couple of months ago, Are Your Questions Killing the Sale, I addressed the problem of exploratory questions like the first question suggested above.

In this post, I would like not only to implore sales reps to avoid squandering opportunities with prospects through exploratory questioning, but also provide compelling stats on the need to get the message right — from the opening question, through the closing of the sale.

Do you have the right starting point?

CEB had done a survey among 5,000 executives and decision makers that deal with sales reps, in which 86% of them indicated that the sales rep’s message had no commercial impact whatsoever to them.

86% of executives/decision makers believe sales rep’s messages have no commercial impact!

According to Tim Riesterer, Chief Strategy & Marketing Officer for Corporate Visions, he describes the buyers as coming away from conversations with reps believing that what they are currently doing right now…the Status Quo…is okay and they themselves are okay. How do they know? The Sales Reps led them to believe that was the case because there was nothing to suggest otherwise in their communication.

Sirius Decisions had similarly shocking results from their PMM Survey suggesting that the biggest inhibitor to achieving quota was the rep’s inability to communicate messages of value. Not surprisingly, what we communicate and how, is of great import to our results.

Yet, so many take the approach of winging it with prospects, and exploring their way through the sale.

3 Steps to Approaching Prospects Differently:

  1. Know your prospects and know your story. Don’t call indiscriminately looking for any customer that may or may not fit your solution. Be specific and call those whose story you know and that you can help based on prior experience. Have a solid understanding of the issues those similar to them are facing in their industry
  2. Establish credibility quickly. If you have the right story and the right prospect, you will be able to demonstrate understanding of the typical issues those in their industry face. After stating your purpose for the call, open with a statement that summarizes the business issues affecting their industry.
  3. Validate with the prospect. Successful selling is not a monologue, but rather a well-choreographed conversation. Therefore, rather than assuming everybody has the same problem and moving on without them, follow your statement with a question to validate if they are experiencing any of the same issues you just described.

Putting the three steps together, the opening of your call with a prospect sounds something like the following:

“We work with businesses similar to yours from all over the country and have found that each commonly face one of three business issues, given the [current condition]. Their most common issues tend to be [X], [Y], or [Z]. Is your business currently facing any of these same problems?”

If you have a solid understanding of the typical issues similar businesses are experiencing, not only will you get quick confirmation, but often times they say they are struggling with most or all three areas. This allows you to start walking down the path to lead them to the center of their own story.

Even if they mention a different problem, you are still on a better path to zero in on their issues and create complete unrest with their status quo.

If they are not struggling with any of the issues you described in your opening, then you either have the wrong story, the wrong prospect, or both. Go back to step 1 and dedicate the time up front to get this right as you likely circumvented the full process and have just cost yourself a prospect and your credibility.

On the other hand, if you dedicate appropriate time to these first 3 steps of opening with credibility and delivering a message of value, you will see immediate improvement in your close ratios.

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Reorganization or Turnaround? (Part 2): Top-Line Temptation

Top Line TemptationLast week, I wrote about common mistakes made with an underperforming Division or Business Unit in my post titled Reorganization or Turnaround? (Part 1). Most notably, I spoke of the tendency to prescribe a reorganization to situations when a turnaround was really needed, by failing to recognize issues that are below the “waterline.”

If you are the leader of a struggling division, business unit or team that has solid sales, but have continued to underperform the profitability expectations for multiple periods, this post is for you.

The Top-Line Temptation
There is no doubt that top-line revenue covers a multitude of sins. The problem is that too often this is seen as a good thing…or at least acceptable. These ‘sins’ in business, so to speak, that detract from profitability are analogous to the roots of a young tree that later grows to disrupt the foundation. The foundation, in this case, represents the whole organization. Addressing the root of these problems is always better done earlier, for obvious reasons, as the picture of the tree below perfectly illustrates the implications of letting problems persist.

Unfortunately, what happens all too often is that with solid revenue comes the belief that things will correct themselves over time. That increasing the sales will begin to create economies of scale, eventually leading to profitability. Question – When was the last time you saw a profitability issue like this work itself out over time?

Getting at the Root of the Problem
There are a variety of reasons why a leader may be experiencing solid sales with poor profitability, but I want to address one of the more common reasons I see. This is the ‘sales at any cost’ approach. When this is the case, the inappropriate pursuit of revenue tends to come in one of two forms.

Root Cause

The Root of the Problem

The first way revenue is inappropriately pursued comes in the form of aggressive discounts, incentives, and promotions. Unprofitable discounting creates an inflated sense of demand, which bursts the minute the discounts stop. The more inherent problems with this approach, other than increased costs and false demand, is the longer term impact of discounts and incentives lowering the perceived value in your customer’s eyes.

The second way that revenue is inappropriately pursued is through disproportionate costs of acquisition and retention, beyond that which is profitable. In these situations, typical strategies include increased marketing campaigns, sales blitzes, additional staff or even the introduction of new products or services on top of an overly burdened cost structure.

In some cases, a division may inappropriately pursue both, discount strategies and increased activities. The compounded effect of having lower revenue at higher costs puts the business area on a fast track to what I call ‘divisional bankruptcy.’ Not only is this unsustainable, it is a terrible strategy in general for leading a division to profitability.

5 Questions to Determine if You Have a Profitability Problem
Now that we have a good handle on some of the problems and why they occur, it is important to determine whether these are your problems are somebody else’s problems. Also important to note is that the conditions described above are not the sole list, but rather representative of the type of conditions that lead to solid sales with poor profitability. Therefore, the following questions will help in determining if you are in a situation requiring a reorganization or turnaround.

  1. Were your most recent profit results intended? Comparing performance to plan (PTP) is an important measure. There are times when losses are planned. If so, did you meet the plan? If not, proceed to #2.
  2. If your PTP was not intended, do you know specifically what contributed to this? If you answered “no,” stop reading now. Enlist all necessary resources to figure this out. Without this, remediation is impossible.
  3. What specific steps do you have in place, to correct the problems? Assuming you answered ‘yes’ for #2, specific SMART goals should be in place with key staff that will correct the profitability shortfalls.
  4. How long will the plan take to restore profitability? Remediation should occur within 6 months or less. Be very careful about setting anything longer as too often you are delaying the inevitable. The time to act is now.
  5. What is your track record for accurately forecasting corrections? This is an important gut-check. Be honest. If you tend to be overly optimistic, best to confront that now as people are depending on you.

Reorganize or Turnaround?
After having assessed the cause of the problems and determined next steps, you should have a sense of clarity on whether or not you have a ‘waterline‘ issue or not. If you have diagnosed your problem to be below the waterline, this is a turnaround. You are now in a dead sprint to correct the problem before your CEO steps in on your behalf to correct the problem simultaneous with your exit.

Time to A.C.T.
Now that you have properly diagnosed your predicament and are committed to an expedient correction, it is time to act. I have put the steps in the form of an acronym to serve as a virtuous, or repeatable, cycle to follow throughout the recovery.

  • Assess. Pull out the financials along with your sales and marketing metrics to assess where the key profit detractors lie. Don’t fall for only cutting easy, non-essential areas. The allure is that it looks like you took action without disrupting anything too significantly. The problem is that it won’t disrupt anything too significantly. Cut the small stuff, but cut the big stuff first. Remember the tree picture above…address the root issues!
  • Correct. Having identified where to cut, commit to correction through decisive action. These times aren’t easy, so best to communicate lavishly before, during and after the turnaround. Before lets people know what to expect. During to give updates and demonstrate it’s working. After confirms that your actions were worth it.
  • Target. Cuts are important and necessary, but are not the entirety of your action. Time to target key start and stop activities that contribute more quickly to your division’s profitability. Examples include not pursuing unprofitable customers, or to stopping marketing activity that aims to discount its way to profitable growth.

As described above, this process is intended to be followed and repeated, assessing and adjusting as you go. If you are entering this process of a turnaround, I would like to offer encouragement as you have demonstrated the two characteristics I described last week – Humility in acknowledging your situation and Courage to address the problems head on. Once you successfully turnaround your division or business area, not only will you have the respect and admiration of your staff and CEO, but this will likely serve as one of the largest confidence booster’s in your career that will serve you well in years to come.

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.

Reorganization or Turnaround? (Part 1)

Business TurnaroundsAs the end of the year approaches, CEOs all over the country have a laser-like focus on performance to ensure a strong year-end finish. While many organizations will achieve their financial objectives, many others will come up short of the results they expected.

There is yet a third group in which will not only fall short of expectations, but will turn in another consecutive period of underperformance, with no recovery in sight. While this isn’t indicative of the overall organization, but rather a division or business unit struggling to correct performance issues, this still remains problematic for the organization.

For those falling in the unenviable position of this latter group, the CEO’s focus will narrow in on changes that will restore overall organizational health in order to start the New Year off right.

If this describes you, you are likely evaluating your next moves. Assuming this is the case, let’s take a closer look at what to do when you have experienced continued declines and are not seeing a recovery in the results. Is a reorganization of your division needed, or is an all out turnaround in order?

Reorganization or Turnaround?
How you diagnose the problem, and the remedy you prescribe, can either set you on the road to recovery, or lead to further entrenchment in missed results, often worse than before the correction.

Without oversimplifying an otherwise complex problem, there are three general conditions that lead an organization, division or business unit to consider a reorganization or turnaround plan. In the ensuing weeks, I will break down the three scenarios more thoroughly, but my primary aim is to provide an overview of the problem. Following are the three general scenarios most commonly experienced by business areas with ongoing, lackluster results.

The Three Business Performance Conditions:

1. Solid sales, but poor profitability

2. Solid profitability, but poor sales

3. Poor sales and poor profitability

A Common Mistake
When one of the aforementioned scenarios is experienced, the mistake most commonly made is to misdiagnose the problem and subsequently prescribe a reorganization to a turnaround situation. This usually has disastrous consequences as the characteristics of a turnaround differ significantly from that of a reorganization. In other words, a division in turnaround mode that has poor top and bottom line performance, operates much differently…much more expediently…than one that has been reorganized to bring greater efficiency and effectiveness to the division. When a leader of a failing business area makes a recommendation to reorganize the division/business unit/department to improve the underperformance, failure to meet expectations is nearly inevitable.

A reorganization done under the pretense described above just doesn’t work, but you already know this. How? Imagine that you came to me and shared that one of your divisions has a consistent history of declining business performance. Now imagine I say to you, “No problem, simply restructure your division, and this will enable greater growth and profitability.” You would be quick to tell me that 1.) It isn’t that simple, and 2.) You may even tell me that you have already tried this approach, and it didn’t work. Of course, you would be right for both reasons.

A Better Approach
When dealing with prolonged performance issues in a business area, two leadership qualities are highly beneficial: Courage and Humility. Courage will be needed to make a decision that inevitably will depart from the status quo that you have grown comfortable with. This isn’t to say that you were comfortable with underperformance. Far from it, in fact. The comfort came more in the activity of feeling that you were doing something about the problems, and the ‘activity’ itself served as justification for not having to make the more difficult decisions you feared would be necessary.

Humility will also be needed, since the potential is high for you as the business area leader, to feel as if you are conceding defeat to the previous failed approach to correct the problems. This is often linked with a belief that your leadership may be questioned if you change directions. The reality is that your staff already knows something different is needed. Your leadership is already in question until you are willing to break from the status quo and make meaningful change.

A Tip from CEOs
Savvy CEOs that have been through this before will be quick to point out that if their division leader approached them with a plan to reorganize in order to solve business performance issues, their confidence in the leader would diminish significantly and likely result in their departure. Why? No matter how reasonable the cost efficiencies and productivity gains may be, this fails to address the root issues of why the division or unit was failing. Therefore, if they cannot accurately assess the root problems, then they are ill-suited to correct them.

When this goes unchallenged by the CEO, the result is that poor performance is excused for a period of time while people settle into the newly structured organization. This is short-lived, however as soon comes the day of reckoning where all patience has run out and results are expected. Most CEOs state that they don’t have the luxury of that kind of time and money to wait for better performance. Additionally, they know that this kind of decision puts other areas of the organization at risk, thus putting undue pressures on the stronger performing divisions.

Therefore, rather than looking to reorganize to address organizational performance deficiencies, look instead at using reorganizations to address better efficiencies. In other words, a reorganization should not be used to address performance problems, but rather to take good performance and make it great through better alignment.

Reorganizations when used appropriately are liberating to the business area as it allows them to achieve their goals more efficiently and effectively. Unfortunately, reorgs have been used irresponsibly over the years for many organizations as cover for reducing headcount and other operating costs. No wonder why staff hate reorganizations.

General Rule of Thumb: The Waterline Principle
I have a general rule of thumb for whether a reorganization or a turnaround is Waterline Principlethe best approach. Every organization has a specific profitability level they need to maintain organizational health. Think of this as the waterline on a cargo ship. The waterline, or the red paint at the bottom of an otherwise black cargo ship, does two things:

  1. It provides a visual indication of the ship’s relative safety in that is not overly loaded down
  2. It also serves as a clear indicator that any damage below the waterline would be perilous to the ship

In either case, whether too much cargo is loaded on the ship, or damage happens below the waterline, the whole ship is put in jeopardy. No matter how healthy other areas of the ship may be, damage below the line risks the whole. For example, the ship can have state of the art electronics and navigational equipment in other parts of the ship, but all will be lost when the threat below the waterline isn’t properly handled. The same is true in business.

Therefore, when determining how to address a situation in a business area and the choice is between a reorganization or a turnaround, consider where the risks are happening – Are they above or below the waterline? This will bring clarity to your thinking in an instant.

Next Week…
Look for Part 2 of the Reorganization or Turnaround series as I address the approach for when a division, business unit or product has solid sales, but poor profitability.

Jeff Michaels | Repeatable SuccessJeff Michaels is a Sales & Marketing Executive that has worked with executives, leaders, & teams for 25 years to create repeatable success regardless of industry, economy or circumstance.