Written by Steve Gielda, Principal – Ignite Selling
So, who’s the villain in this month’s forecasting drama? Is it the manager who wants to get an accurate forecast? Is it the sales rep who does not want to – or cannot – produce an accurate forecast? Like a postmodern plot line, good guys and bad guys are hard to pick out. But our experience tells us neither is at fault.
The science of human performance technology teaches us that performance problems in the workplace generally boil down to three overarching factors: attitude, skills, and knowledge. Attitude has to do with whether the workers want to do the task; it’s the why. Skills, of course, are about ability; they are the how. And knowledge is about understanding; we might call that the what. When workers are not doing satisfactorily the tasks that are required, it boils down to gaps in the why, the how, and the what, and the interplay between the three of them. However, when it comes to complex tasks demanded of an entire enterprise (for example, pipeline management for a large-scale sales force), a fourth element becomes essential in good forecasting: a well-thought-out, validated, and repeatable process. And it’s been our experience that many sellers – and many organizations – simply lack a reliable and consistent way to predict which deals will close and when. Producing an accurate forecast becomes a sort of meteorological art, but without the reliability! It’s no wonder sellers resist doing them. And it’s no wonder managers are frustrated. Nobody’s getting what they really want or need out of the effort. To borrow a phrase used in reengineering and Total Quality Management (TQM): blame the process, not the people.
I know many of you are thinking that the only purpose of the pipeline process is so that senior sales leaders can keep track of who’s working and who’s not. More than one salesperson has expressed sentiments like one IT client manager put it: “Forecasting has no value to me as a sales rep. My manager just wants it so he has something to hold over my head until the end of the month.” We suspect that part of this belief is truer than managers wish it were. And the reason this is so tends to be that bad information from bad pipeline management processes yielded forecasts which had little value for anyone, except as an enforcement tool. However, there is tremendous value in managing your customer opportunities in an active pipeline management process. Emerging, robust CRM software, such as SalesForce.com, Saleslogix, Siebel, and others, have made great strides in simplifying the reporting process. In the Utopia world that CRM consultants seem to live in, this ought to have led to better forecasts and improved pipeline management. Yet, the problems have persistently survived, and sales reps and managers still have challenges getting the results everyone seems to want.
The obstacle resides in this simple truth: Good technology layered over processes that do not work yields unsatisfactory results.
It would be like putting a Formula One engine into a Conestoga wagon (looks fast on paper, but the chassis cannot manage the torque).
There are occasions when companies build new pipeline processes, sometimes to match their shiny new CRMs, and sometimes simply because they know the old wagon will not carry them. And still, there are problems getting better forecasting results. Why? We think it’s about connecting dots. Too often companies implement a sales pipeline (or sales funnel) process into their organization without any regard to the strategic sales activities that sales reps should be doing throughout the sales process.
Most pipeline or funnel management systems use terms such as Stage 1, Stage 2, Stage 3, Stage 4, etc., or even more vague “Early Cycle,” “Mid-Cycle,” and ”Late Cycle.” We have seen five-stage models. We have seen seven-stage models. We have even seen a 12-stage model (whose stages closely mirrored 12-step programs, which was really pretty interesting). We do not think it matters very much how many stages the process has; five seems to be a pretty common “magic number,” but our evidence tends to be anecdotal and experiential, rather than statistically significant. The problems arise not from the number of stages there are, but rather murkiness around each stage’s definition. If for one constituency Stage One means, “targeting and qualifying,” but for another it means, “uncovering needs,” the pipeline’s results will be ambiguous at best. A process whose boundaries and stage definitions can shift from case to case, is a process that does not work. On the other hand, when the pipeline process fits with sales activities – the way a hand fits in a glove – the results can be stunning.
When the Pipeline Hums
We saw this success story played out while working with a global blood diagnostics instrument company. Jeff was their North American VP of Sales, and he was striving valiantly to improve his team’s forecasting. After building a more rigorous pipeline process, not only did he get a more accurate sales forecast, but also an added benefit of a more strategically minded sales team. Let us explain.
Jeff’s North American sales team consisted of nearly 400 sales reps and their 75 sales managers. Like many organizations, forecasting was about as accurate as guessing when double zero would come up on the roulette table. Sales reps did not have an effective or consistent way to predict when their opportunities would close. It seemed as if each region had its own way of doing things. This caused many problems for Jeff, to say nothing of his company. His biggest concern was providing a more accurate sales forecast to his Board of Directors each quarter. If projections were off by more than 5% in either direction, Jeff had to explain it and justify it, a verbal shuffle that resembled a rhetorical Riverdance. He asked us to help him develop a pipeline process that would consistently meet the demand to provide accurate forecasts to the Board.
We began the project with data collection. We interviewed Jeff’s top performing Regional Sales Directors, Sales Managers, and Account Managers across the customer-facing enterprise. We wanted to learn three things. First, we had a hunch that they did a better job of communicating about a customer’s progress toward a decision. So we wanted to know how they were communicating with each other about where the customer was in their decision process. Second, we wanted to know how they defined the stages or steps in the process. What sort of ground rules were they using to move customers out of one stage and into another? Third, we wanted to know what managers were doing to add value throughout the process.
At the time, the company did not have a centrally-established, centrally-controlled pipeline process across the enterprise. Some regions did it one way, some did it another. But among the top performers, there emerged a consistent theme. These top performers utilized a consistent and rigorous process for their region, whether it involved five pipeline stages or three or four or ten, and they communicated frequently about opportunities’ progress – or lack thereof – through the pipeline’s stages.
The unfortunate reality, though, was that the top performers were not any more successful at forecasting than average or below average performers were. For Jeff, this was not acceptable. So working in collaboration with a cross-functional team, we designed and implemented a rigorous, workable five-stage sales pipeline. The five stages were:
Stage 1: Opportunity Qualification
Stage 2: Needs Development
Stage 3: Solution Identification
Stage 4: Implementation Resolution
Stage 5: Contract Confirmation
To be honest, Jeff was not impressed with the five stages. He actually said, “Seriously? I paid you guys how much and this is what you deliver? I could have gotten this myself from any sales strategy book.” We did not really blame him for his first reaction (there is something wonderful about a client who speaks his mind). And really, in one significant way he was right. Our five stages were not delivered on stone tablets from Sinai. They were not particularly innovative. They were just five stages, with no magic attached to the number five. In fact, it could have been six, and we probably could have managed with four. But five is where we landed.
There was power, of course, in the model’s simplicity, especially as things like scalability, applicability, and repeatability were considered. If the model is so complex you need to hire engineers to make sense of it, it will be a black hole. Our five stages had the advantage of being so simple that anyone – including consultants such as we are! – can understand and use it. Moreover, the real trick is not in the number of stages in the model, but rather in being clear about the boundaries between the stages themselves. What did impress Jeff – and what made this approach different than some of the company’s “flavor of the week” approaches from their past – was the clear and unambiguous way in which the five stages were delineated, and the key milestones and metrics built into each stage.
Agreeing upon the number of stages in your sales pipeline – and naming them in a way that is both memorable and denotative – is indeed a critical first step, but this is only the first step. More important than fixing the right number of stages is clearly defining each of them. What constitutes the first stage? And how is it distinct from the second? What criteria have to be true to move an opportunity from Stage 3 to Stage 4? What key milestones have to be passed, what activities have to take place? These criteria – the activities and milestones – ought to reflect the day-to-day selling life of the customer-facing enterprise. Is making contact at the C-level a necessary activity? It ought to be a milestone (e.g., “Met with C-level buyers and identified companies goals” ) in one of the stages. The completion of a “Player Influencer Map” (see the “Who is Influencing the Influential” posting) ought to be an activity within one of the stages.
So, coupled closely with naming and defining each stage is ensuring that the pipeline process itself integrates with the day-to-day activities in the sales process. That is, selling activities fit with the pipeline. This connecting of the dots for Jeff gave them a process that was workable for the entire customer-facing enterprise, leading to many payoffs. Using the pipeline process consistently led to positive changes in Jeff’s forecasting accuracy.
Additionally, establishing the crucial criteria for each stage makes it easier for sales people and managers to communicate with clarity where they are in the pipeline process. When Harry tells Sally that ABC Company is a Stage 3 opportunity, Sally knows that each of the criteria in Stages 1 and 2 have been met. With a bit of Q&A between her and Harry, she will know how close ABC is to graduating to Stage 4. She will probably also have an idea how likely ABC is to close, and perhaps even be able to guestimate when.
Fire Rube Goldberg
The rock band OK Go has become famous for their innovative music videos, from the four of them dancing across treadmills (for their song, “Here it Goes Again”) to the “dog video” (for their song, “White Knuckles”). Perhaps their most famous video is the one which they produced for “This Too Shall Pass,” where the band (and some engineers) built an elaborate Rube Goldberg device, culminating in the boys’ being shot with spray paint. The complexity of the machine married to a fairly addictive pop tune make for a great and entertaining video. Rube Goldberg Machines are extraordinarily entertaining. But that approach makes for a lousy pipeline planning process.
The Beauty in Simplicity
It seems that in the corporate world, simplicity is a forbidden thought. If it’s simple, it must not be complete. If it can be explained by mere mortals instead of the High Priests from the Temple of Engineering (or IT or Finance), it’s probably not robust enough. This explains a bit of our friend Jeff’s response to our simple five-stage pipeline model. But it’s important to remember that simplicity is crucial with processes which need to be scaled across large enterprises.
Implementing this pipeline process had a number of distinct advantages for Jeff and his company. Here are just a few:
1. Account Managers are clear about their call objective before the sales call begins. Too often average performers walk in and out of their customers’ offices without doing anything strategic to drive the customer closer to a decision. With clear milestones in each stage of the pipeline process, Jeff’s team was able to check which milestones have not been passed for that stage, and then develop smart call plans to achieve those objectives. For example, if an Account Manager has an opportunity in Stage 3 and one of the milestones is to validate the customer’s decision criteria, then the call objective is clear.
2. It shortens the sales cycle. Top Account Managers are proactively driving their customers’ buying processes, verses playing a passive or reactive role. The pipeline process encourages them to establish smart and clear milestones at each stage. This fosters momentum building activities because Account Managers are motivated to get the customers to take action.
3. The sales rep and his managers have absolute clarity about where the opportunity is in the pipeline. An opportunity cannot move into Stage 3 until it has met all the criteria for Stage 2. And a rep cannot promote an opportunity to an advanced stage before it’s time, so nobody gets false optimism about a deal’s likely closing. (No premature speculation.)
4. Sales managers can now quickly identify where a sales rep might need help. Too often sales managers spend hours conducting ‘account reviews’ with their teams without any clear direction or outcomes from the dialog. Establishing clear criteria for each stage of the pipeline process allows the manager to quickly identify which accounts seem to be ‘stuck’ in the pipeline. They can collaborate with their reps on developing solutions and action plans to move the opportunity forward. Without the milestones in each stage of the pipeline, managers merely conduct dialogs of good intent, but can’t establish clear direction regarding what the seller should do next to secure the business opportunity.
5. Establishing clear milestones in each stage of the pipeline process creates a set of forecast metrics that the sales rep can rely on. The rep knows if he can get his entire team to use the pipeline process that was established and can work to achieve the milestone in each stage of the pipeline process. And everyone will win.
Our friend Jeff established a rigorous pipeline process in his sales team, one that was simple and robust. He rolled it out to the entire customer-facing enterprise. This directly improved the company’s forecasting accuracy, to say nothing of the sales team’s interest in living in the process. Jeff and his sales managers became more attuned to warning signs of an opportunity’s stalling or slowing. Conversely, they were able to respond more efficaciously when the opportunity’s forward momentum became intense (because they saw it coming). Over time, Jeff and his management team established reliable metrics which gave them insights into their business. For instance, they learned that opportunities that entered Stage 3 had a 78% chance of closing. When the opportunity moved into Stage 4, the percentage jumped to 86%. So, Jeff was able to provide his Board of Directors and other stakeholders the accurate forecast they were demanding. More importantly, his Account Managers and Sales Managers had a consistent pipeline process, one that was linked to their day-to-day selling tasks. For them, managing the complex sale became much less “Rube Goldbergian.”
It is time to stop blaming the process and to create a process that works. In reality, there is no magic to having just five stages. There could be more, and there could be less. We’ve just found through experience that these five tend to work across nearly every conceivable sales sector. More important than determining how many stages there are is defining what criteria you use to measure when a prospect moves from one stage to another. These criteria need to be clearly defined and consistent from sales person to sales person, and customer to customer. Without that consistency the pipeline falls apart, and so does the forecast. We recommend that you err on the side of simplicity rather than complexity in developing your pipeline process.