What’s the state of the selling profession today? In brief, it fluctuates significantly based on economic circumstances and a company’s position in a category lifecycle. At the start of a category lifecycle, when vendors really need people who can educate and explain what a disruptive innovation actually does, salespeople are in demand and life is very good indeed. But in a down economy, most selling suffers; in a recovery selling can be fun.
Of course, life is even more difficult when the economy is down and the last disruption has run its course. In my selling career I found that it’s vital to understand where you are in all of this down to a company’s trend line in its market because a sales person can do a lot but the macro trends really own you.
I am always interested in the annual CSO Insights sales performance study that comes out this time of year. Last week’s release of its 2018-2019 report was full of interesting nuggets that make me wonder where we are in various cycles. Deep in the report it says that about a third of most companies’ revenues come from new sales and early on it notes that “Average revenue attainment has reached 93.9 percent, the third straight year of growth,” which is good. But it also shows that only about a third of revenue is coming from the sales team and, significantly,15 out of 16 seller skills have declined over the last five years.
That means companies are bringing in more money but that sales people are less responsible for it and not as good at basic blocking and tackling as they were not so long ago. How do you explain this?
Sales process but also…
CSO Insights has a classic answer that I think stands up but that also needs to be challenged in the current environment. For many years they’ve divided the sales world into four categories of sales process: random, informal, formal, and dynamic. Roughly drawn, random sales processes live in about 25 percent of the universe of over 900 companies surveyed. This year the number of random process companies is down to 20.8 percent. Nicely done!
At the other end, the dynamic process supporters also represent about a quarter, this year it’s up to 28.9 percent. Good also. Finally, the broad middle, consisting of informal and formal process users makes up half or 50.3 percent this year. The differences are important because the research shows that companies with dynamic processes who are able to adjust to customers’ changing expectations and truly provide consultative selling services, are the locomotives where getting a deal is concerned compared to the others with the random process guys in the caboose.
My analysis of the report this year suggests that we in tech and the selling profession might be on the downhill side of some trends. First, I don’t think you just lose skills in 15 out of 16 capabilities without cause. Sales people can be lazy, finding the easiest way to a deal is the name of the game and that’s a benefit not a bug; plus, they aren’t stupid. For such a profound thing to happen suggests to me a significant turnover in the sales population. Newer, less experienced people are filling the ranks and it’s obvious.
Also, the fact that revenues are up while this is happening tells me that sales people are less necessary today than they were five years ago. It could be that AI and machine learning are enabling more organizations to do more with less, but I suspect what’s really happening is that customers are just getting smarter and more experienced with the products on offer throughout a broad swath of the economy so selling is being replaced by purchasing.
This happens all the time as products and categories commoditize. Vendors simplify products and the purchase process to the point that they can eliminate expensive sales talent or at least replace it with lower cost versions. I’ve seen this before and it’s almost a generational thing as people who “grew up” with a category or trend take their winnings and figure out something else to do.
The last time I saw this was in the 1990s. In that decade mainframe and mini-computer business was eroding but there was little to replace it yet. Client-server and large PC networks weren’t exactly ready for prime time. The “year of the network” was falsely proclaimed so often that the year turned into a decade. It took that long to shift the industry.
Meanwhile, with expectations that most of the software and gear in the datacenter was about to become obsolete, demand dried up for almost everything save ERP systems that could support 4-digit dates. All this resulted in a difficult time for selling that was only relieved when the ERP thing had been handled and CRM became the next big idea in the enterprise. That was over 20 years ago.
My two bits
I think we’re entering another down phase for selling. So far it seems that vendors are weathering the commoditization of their products well and the numbers in the report bear this out. But questions abound. What will take over as the engine of progress if so many tech products are commoditizing? Will selling become the first white collar profession to be automated away or will some new disruption require so many people who can educate and explain things?
At the moment the answers are somewhat obscure though my bet is on new technologies that support sustainability and initiate dozens of new categories of products that help. Those will be big ticket sales and they’ll require smart people who can explain and educate as well as close deals. The big questions are whether all this will take another decade and if we have that much time.
How do you build a software company? It’s a trick question.
There are certainly things you need to do and not do on the way to building a successful software company but there are no recipes, especially in CRM where demand changes all the time. In my career I’ve seen first-hand some of the ways that company builders succeed or fail, and to paraphrase Tolstoy, happy companies are all alike; every unhappy company is unhappy in its own way.
We’re used to having an idea, a prototype or minimally viable product (MVP), and shopping it around to investors in the hope of raising a few million bucks to get going. One round follows another with the investments and the number of investors growing until the company either fails because it can’t raise more cash, or it has a successful liquidity event like an acquisition or IPO.
Some years ago, I witnessed up close another approach, called bootstrapping, in which founders finance the effort and retain ownership. It should be said that bootstrapping was the only method of starting a business until the Renaissance. At that point the cost of starting, say an import-export business, were so high and the risks so great that prudent business people began pooling resources to lower the risk of any specific voyage meeting with robbers, weather or other disasters. The profits were lower but more consistent and the risks were, obviously, less.
That was the beginning of what would be the “joint stock” company and it was so successful that a peripheral business, shipping insurance, took hold. For the first time, investors could make money not on the profits of the voyage but on its simple successful completion. It’s noteworthy that Lloyd’s of London, the 300+ year old insurance company got started as a simple coffee house/information exchange where nervous investors gathered to trade information about their shipping investments. Watch out Starbucks!
At any rate venture capital was a significant investment that, like insurance, discovered a new niche within the old idea of shared risk. VC’s invest in ideas that are far, far removed from first voyages in markets that demand immediate results. My point is that bootstrappers might build the company slower than the guys with access to the capital markets but they are part of a long and successful tradition and, for some entrepreneurs, it’s the right move.
The big question occurs if, and it’s often the case when, growth stalls. A VC funded company might get shopped around and eventually sold to a company with parallel interests. A self-funded outfit might go into a holding pattern in which it operates more or less as a funding mechanism for the founders. These companies are at least minimally profitable, and they can go on for many years. Some call them lifestyle companies because they provide a product or service but are uninterested in generating profits beyond satisfying founders’ income requirements, i.e. their lifestyles.
Nevertheless, some very successful examples of bootstrapped companies in the modern era include SAS, the analytics vendor, and UPS, the shipping giant, which only went public in 1999 after becoming a business icon for many decades; the company raised over $5 billion its first day. Also, back in the day, Ford Motor Company was like UPS only having its IPO in 1956 once it was well established.
What many bootstrapped companies have in common is that they decide to avoid the spotlight to concentrate on building great products and serving customers while providing good workplaces for employees. Last week I spent a day and a half at Zoho in Pleasanton, CA and I think they fit the overall description.
It’s impossible to say how big Zoho will become. Heck, it’s impossible to say how big they are right now. As a private company with offices around the world and zero interest in accessing the public markets, they keep their financials well hidden. It’s part of the Zoho culture of investing profits back into the company and its people. It’s also part of a strategy that emphasizes making everything rather than buying it—no acquisitions, that is—and invests heavily in educating its people in how to focus on customers, the Zoho way.
Bootstrapping might not be for everyone, but it has worked at Zoho. The company has a culture well-focused on customers and empowering employees. Zoho was founded in India and most reminds me of another company with some Indian roots, HubSpot. It might surprise some people that a Boston company has roots in India, but as I wrote in “Solve for the Customer,” its co-founder and CTO, Dharmesh Shah defined its culture and published it in a Slide-Share deck that is still available titled Culture Code: Creating A Lovable Company.
Culture Code is too long to go into detail here so check out the deck. One thing that stands out to me is this prime directive for employees:
Favor your team over yourself.
Favor the company over the team.
Favor the customer over the company.
Why? Because this directive speaks about not making lazy mistakes that have to be fixed by applying money. When you are funding your own growth, the last thing you need to spend money on is replacing the revenue you lost because you hurt an employee who hurt a customer, so, yes, favor the customer over the company.
My two bits
What’s interesting about Zoho is that the company is expanding from its core constituency of small business into a larger universe and it is bringing its unique culture with it. Zoho understands the moment we’re in, which includes a turn toward efficiency and effectiveness driven by reliance on automation. But it still sees treating people well as core to the business. So Zoho is in favor of profits but, in an inversion of the lifestyle company, it is not interested in profits at any cost while simultaneously showing great interest in manufacturing happy customers and employees.
As a practical matter that’s what supports the strategy of building everything in-house and not growing by acquisition which would require compromises as disparate systems must be bound together. There’s a lot to like about a single platform and an intense focus on customers and employees. It’s kind of old school and goes back centuries. So I’m now following Zoho, just to see what they do next.
There’s been way too much obsessing about how AI and machine learning will eliminate jobs. In just one example, on Sunday January 13, 2019, 60 Minutes on CBS ran a feature about artificial intelligence venture capitalist Kai-Fu Lee, another one of many stories predicting the elimination of jobs and a dystopian takeover of the world (it seems) by machines.
Lee is a persuasive voice having been educated in the US but now residing and working in China. He’s also well published with titles on Amazon like, “AI Superpowers: China, Silicon Valley and the New World Order.” On 60 Minutes, Lee said that in 15-20 years 40 percent of our jobs would be “displaceable.” Being diplomatic and unwilling to buck Chinese policies he was unwilling to go all the way to saying the jobs would evaporate.
For the interview go here
But the reality of how AI and machine learning are and will continue to penetrate modern life is much more complicated than a Chicken Little reaction like, “The machines are coming!” To get the subtlety you might not be able to do better than pay check out Salesforce’s Commerce Cloud announcements from the National Retail Federation show in Manhattan this week.
What will surprise you is not that AI and ML are definitely making inroads into retail but, at the same time, they aren’t taking jobs away from humans. In retail, at least, machines are creating niches that only they can fill.
Here’s what I mean. There are lots of jobs in retail that could exist but they might add so much overhead that they’d eat up profits, also they could not be done timely i.e. in a few seconds within a transaction with a capricious customer. These functions form a niche that AI and ML fit nicely into. Back at the dawn of retail, vendors were product light, meaning there weren’t many choices. You bought in bulk or you bought cloth and not clothing, and, of course many product categories simply didn’t exist. Henry Ford’s famous dictum that customers could have a car in any color they wanted, “As long as it’s black” typified retail for many decades.
But today the situation is reversed. Amazon pioneered the infinite store shelf making it possible to carry ridiculous assortments and many retailers, even traditional brick and mortar ones, see no alternative but to follow. Their models have hybridized with options like buy on line but pick up and return in store—a software mediated work of art if you ask me.
Retail has gone through at least three iterations that can be summarized as, being assisted by a clerk, self-service, and now, being assisted by a machine. For example, the Einstein Recommendations API that Salesforce announced at NRF enables merchants to embed product recommendations in their ecommerce apps. Yes, the recommendations are based on what the machine knows about a customer, what they’ve bought, sizes and the like. Also, Einstein Visual Search enables users to send a picture through a merchant site to identify their product needs. In this the machine “sees” a picture and finds things that correlate. Who doesn’t want that?
Both of these services are human-ish jobs that improve the customer experience and ought to increase sales but that retailers can’t afford to supply. Nevertheless, tools like Einstein can easily provide such services at low cost and timely. And if you’re new to all this, Einstein is Salesforce’s AI functionality. To see the full press release go here.
To my way of thinking this is all confused with terms like customer experience but that’s what merchants are delivering with these AI and ML driven tools, an experience, and a good one. Imagine how seductive it is to want to purchase something and have the very item provided without the hassle of wrong size, wrong color, or wrong location.
But wait a minute, let’s also consider a situation in which the item is in stock but at another location and that it can be sent to you overnight. That would be thanks to the new Salesforce High-scale Inventory Availability Service. This platform service enables companies to see in store and fulfillment center inventory as one to facilitate sales.
My two bits
These and other products announced at NRF are either in beta or pilot meaning they have no prices yet. But it’s reasonable to expect that in nine months or so, in time for Dreamforce that is, these products will have their own place in price lists and cool demos on the main stage.
So to all the critics that worry about the decline of work for the masses and fret that we’ll need some form of universal basic income, wait a moment. The jobs being eliminated are either those that no one will want in the future or they’ll be machine generated services that were never considered for humans to begin with.
A century ago ocean-going passenger liners and cargo ships ran on steam power. Humans in the bowels of the ship literally shoveled coal into furnaces that made the steam. Less than 50 years later the laborers were gone. Ships still ran on steam but the furnaces were fired by oil that was mechanically fed to the burners. No one minded.
If Kai-Fu Lee is right and 40 percent of jobs could vanish in a couple decades let’s not fret. My research shows that such has happened 6 times since the Industrial Revolution and we’re at the end of number six. Disruptive innovation, what Schumpeter called creative destruction, has a way of back filling.
I’ve been writing a forecast column every year at least since W was president. Nothing’s wrong with that, lots of people do. But I often find that my forecast is more of a wish list than a true prognostication so this time I’ll dispense with the fiction of analytical rigor and just say what I think needs to happen.
Platforms and leaders
First, the industry is consolidating. The big and successful companies are competing on a different plane than the smaller ones. The smaller guys are working harder than ever and some are realizing they need niches, that they’re not going to be able to cover the whole CRM landscape.
This is mostly a good thing because it clarifies the mission and lowers the costs of being in the market. I can also mean better and more verticalized software. But there are two basic kinds of these companies—those that have credible platforms and those that don’t. Among those that do I’d list several including Oracle, Salesforce and Zoho.
Oracle and Salesforce should not surprise but Zoho might. They’ve spent decades building a global solution and platform. There is only some overlap between the two with Salesforce attacking the really big enterprises and offering a huge ecosystem. But Zoho is a powerful solution for the small to mid-enterprise. It also has a good ecosystem. One of the big differentiators is how much ERP functionality you’re likely to need and where you plan to get it. Salesforce integrates well and has ERP partners like Financial Force. But Zoho offers good back office apps as a part of their service as well as having that ecosystem.
Another vendor in the mix is NetSuite which has been setting sales records since Oracle bought and significantly invested in them. NetSuite’s idea of CRM is eCommerce though, so customers will self-select.
So on the flip side, there are small-ish vendors still working on their own platforms and whose development teams are measured in the hundreds. The market leaders have thousands of developers in contrast, which is why it’s time for these vendors to find a niche and try to excel. With that comes a decision point about their platforms.
Next, we’ve had years of AI and social media, and even years of integration. I think it’s time for a year of integration on major pharmaceuticals. We need better networking and this needs to be led by the biggest names. A consortium including Microsoft, SAP and Adobe announced the Common Data Initiative (CDI) last year which I still think is not only too little, its major purpose is more aimed at slowing the advances of Oracle and Salesforce. Oracle’s autonomous database and enhanced security present a major challenge to other DB vendors. Salesforce is drafting behind the Oracle RDBMS on this one and has that advantage.
CDI focuses on building a common CRM data model and that sounds good, but it has too many moving parts as in potentially every vendor in the industry. Smarter people have said the better approach to making everything talk is to facilitate the communication at the API level. I agree. No surprise, some of the vendors conspicuously left off the Microsoft, SAP, Adobe invitation list, are pursuing the API approach, like Salesforce, and I think 2019 will be a banner year for more API centric networking.
We need that approach too, not just in CRM but throughout the tech world as we continue to build what will be a true information utility in the not too distant future.
Taking social seriously
Social media has deep roots in CRM—recall the year(s) of social CRM—and because it does, I think there’s subtle pressure in Silicon Valley for the likes of Facebook, Twitter, and all the rest, to clean up their acts and mature their business models and security plans.
Recent reporting shows that virtually every social network has either been compromised or willingly gave access to private information to entities that shouldn’t have had it. You can’t do CRM if customers get worried about how their data is being used. CRM is an unwilling victim of social shenanigans and they don’t want to be seen as willing partners, so the pressure is on.
Foolish social leaders will think they can wait out the federal government on regulation but that approach could backfire when the feds deliver a set of regulations that don’t work. Remember, many of the people who would pass this legislation are in their 70’s and have an archaic understanding of tech. Smart leaders will see this and volunteer to define what’s possible.
My two bits
I’m looking forward to 2019. I don’t think it will be a time of runaway growth and major innovation in CRM though I would be pleased to be proved wrong. In a consolidating world, there will be some losers too so be prepared.
I think the year ahead will impress by showing unprecedented innovation, of people and companies doing some unexpected things that make a lot of sense. I’m looking for the second or third tier of companies to be more aggressive in the mergers and acquisition arena in a bid to become more competitive. After a lot of years in this seat, I’m still having fun and I appreciate you letting me share my views.
No, no, no, not the Patriots! Gotta wait a couple of weeks for the Super Bowl to say that.
But! Late last week CRM Buyer published an annual listing of the top 20 CRM blogs by Chris Bucholtz, something he’s been doing since the earth cooled and well before he began his sojourn at ‘Buyer. That’s important because I write a soft for CRM Buyer every week and the two are separate.
This year Chris has selected this blog as his top finisher for which I am extremely grateful and honored. The list is full of great CRM minds like Kate Leggett, Chuck Schaeffer, and Paul Greenberg just to scratch the surface, so this is a great honor. I hope you’ll check out the article and investigate some other CRM voices, any of whom could easily be in the top spot in the future.