In my June 2020 article, "Creating Enterprise Value Through Marketing", we identified the importance of choosing marketing investments which produce measurable, sustainable results. The theme continues this month although we turn our focus toward investing in improved sales results. This can be more challenging, as many business owners measure success based on meeting revenue goals rather than growing enterprise value. There is an undeniable urge to meet this quarter's sales numbers without worrying about where that revenue is coming from. How does this quarter's new closed business contribute to next quarter's and next year's results?
Earlier this month, I tapped the LEVEL Expert Network
for help illustrating how to produce sales that increase enterprise value and not just short-term sales results.
I asked John Weidner, Managing Partner of Cornell Global to collaborate with a couple sales experts, Jon Anderson, CEO of Sidehill Group and Steve Hillis, CEO of Empower Partners.
Jon Anderson shared a story about an Industrial Supplies Wholesaler with $150 million in annual revenue which was acquired by a private equity firm in 2018. The buyer’s due diligence efforts failed to reveal:
Jon said those hidden issues illustrate "the importance of having a sound strategy and defined processes in place, and then aligning people to achieve those things, tweaking and tuning execution based on both metrics and human elements like skills and behaviors." After the acquisition, the sales results began to decline and Sidehill Group was engaged to find out why and propose solutions. Once the issues were exposed, Jon outlined a host of actions, including new sales strategies and processes aimed at reducing risk of losing most of the company's recurring revenue by establishing re-order processes as a back-office function, and training the customer service team to deliver outstanding customer support and ensure continuity of care. With this change, recurring revenue no longer requires intervention by the field sales team who can then focus 100% on generating new clients. When the most productive salespeople eventually retire, recurring revenue from existing customers will not retire with them.
Regarding this case study, Steve Hillis shared "Many companies fail to implement motivational accountability in the sales process so the result is often times declining sales and weak customer relationships. With proper training and good metrics around sales activity, a company can ensure that salespeople are held accountable and focused on the right sales activity to drive the results that are desired".
Steve added, "Effective leadership of the sales team is one of the most important success factors for a growing organization. Leading by example and empowering the sales team to be creative and to build stronger customer relationships are keys to growing your business." For this company, these are essential matters to address to improve the performance and productivity of the 75% of salespeople who are unlikely to retire and were not producing lasting customer relationships
John Weidner commented "What strikes me most about this case was the apparent failure of the private equity firm to look beyond the balance sheet and the immediate management of the company. Somehow they failed to discover that 30 key salespersons were all likely to retire in less than five years representing 70% of the revenue of the company and there were no succession plans in place. Human capital issues were rampant throughout the company."
While the private equity firm may have missed some important risks, it is also clear the acquired company leadership was unaware they were creating and perpetuating those risks, and destroying enterprise value in the process. Although detailed terms of the acquisition were not available, it would have been natural and justified for the buyer to greatly discount the offer for the business and/or make a significant portion of the offer contingent on future sales results. Company leadership could have addressed those risks before marketing the business and achieved a spectacular ROI in doing so.
This article presents only a small fraction of the insights the expert team shared about this case study during a recent Zoom conference I hosted for LEVEL Expert Network members. The team's collaboration demonstrated the power of the LEVEL Expert Network to identify actions driving enterprise value growth.