The estimated reading time for this post is 8 minutes
As an Angel, VC and Private Equity investor, I’ve conducted due diligence (DD) on over 100 + companies and given my skills I always examined the Sales Operations group as closely as the Financial Controls group. So why is it that almost every VC or Private Equity investor examines all facets of their target businesses with a microscope except for the sales function?
This is the full version of my thoughts. A much shorter version of this article can be found on our LinkedIn page here
Due Diligence and Sales Operations
As part of Revenue Operations, the sales operation team is a key component in the future success of an organization. When the sales engine is tuned up and performing well, profitable revenue is almost guaranteed. However, during the initial due diligence process, the proficiency of the sales organization to drive future sales and the accuracy of sales projections are rarely, if at all, challenged or analyzed thoroughly.
In my due diligence work, the absence of a sales process is evident in almost every small to medium sized founder-based enterprise. These founders didn’t intentionally set out to ignore sales, they’re just so busy working IN the business, theyv’e forgotten or never really worked ON the business. So with no metrics to guide them, there is limited accountability and a narrow or partial vision of future sales.
Dig Deep into the Data
Utilizing a metric-driven approach to a company’s entire sales operations is essential for Revenue Leaders and Investors. This part of the Revenue Operations strategy will provide the owners and investors with a complete and more accurate view of the business’ revenue-generating capabilities.
According to the book The 4 Disciplines of Execution by Chris McChesney, Sean Covey, and Jim Huling, the authors discuss the difference between lag measures and lead measures, both of which are important metrics that are used in sales. The authors define a lag measure “is the measurement of a result you are trying to achieve”; while a lead measure “foretells the result.” I find that many of today’s lag metrics are really just vanity metrics that have been used by teams forever.
Don’t be Fooled by Vanity Metrics: Due Diligence is about finding drivers and leaders of revenue
An effective due diligence process needs to find the leading measures that drive performance. When executing due diligence on sales operations both lag and lead measures should be considered in the analysis. The data that comes mostly from lag measures, like the past financial performance of the company should be complemented by an analysis of the sales process that may reveal critical lead measures that are more indicative of future revenue performance.
For example, in markets with complex sales, the sales team can’t generally control sales revenue volumes as these results or outcomes require decisions made outside of their span of control control; instead, the sales team can control their level and volume of inbound and outbound contact activities with prospective customers. So while lag measures such as sales revenues are easily available during due diligence, leads measures such as sales activity levels are less so.
You may not know the leading indicators that drive revenues but you can find them in the data
DD Focused on 4 Areas
There are four elements of sales operations that are collectively critical factors in a company’s success. These four elements should undergo an in-depth analysis and benchmarked against other top sales organizations. These are infrastructure, organization, process, and support (collectively I call these the sales system).
1. Infrastructure
All highly-productive sales organizations should have a solid infrastructure in place. With the right infrastructure in place, your sales team can focus on the activities that will drive revenues. In addition, with the tools and process from the infrastructure, your team will be able to execute faster with prospects. The sales team will only reach its maximum potential and achieve consistent results if they have the infrastructure to support them.
A good sales infrastructure should include documented policies, procedures and activities related to sales performance, compensation, pipeline review, marketing collateral, payment policies and market/competitive review. Not every sales team uses advanced technologies like local presence dialing or AI, but most, if not all, should have some core tools like CRM that are available to all team members.
2. Organization
When examining the organization you should be searching for these key elements as part of the sales culture: sales team structure, territory design, sales management, and sales personnel.
The sales team structure should be organized in such a way that will ensure maximum efficiency. The sales team structure should also be designed to look at each individual as a team member with a significant role to play, and it should be seen in the light of the rest of the organization – as an all-important cog in the machine. This includes the sales team’s Sales Story (New Sales Simplified, Mike Weinberg) used in its messaging and methods of approaching new and existing accounts.
Territory design is not as straightforward as assigning geographical coverage to the sales team. Apportioning territories requires an understanding of factors such as the approach to strategic accounts, competition, and expertise areas. Whatever the territory design, the main goal is always to find as much profitable business as possible. Account-based Management has become a new “buzzword” in sales literature, but it’s just another way to discuss how accounts with multiple contact points should be managed within the organization.
Territory Design and Management is Crucial in Enterprise Sales. Account Based Management (ABM) can help Revenue Leaders align sales teams.
An effective strategy for sales management involves setting goals for team members, providing sales support, training and monitoring the team’s results. It also involves creating or updating the sales team culture and strategy. Questions you should be considering include:
- Do Account Executives (AEs) and Sales Managers have written and definable goals? How are they held accountable?
- How do Sales Managers interact with AEs, Sales Development (SDRs) and product specialists in aligning to the company’s vision and objectives?
- How much time by the management team is spent “in the field” talking to customers?
- How much time is spent on coaching, evaluating and praising team performance?
- How are successes publicized and failures analyzed?
3. Processes
Processes that need to be evaluated include those relating to sales process, lead management, budget, customer success, and forecast management.
Building a sales process is absolutely necessary for the sales organization. Since the sales process is a set of repeatable steps, the team can easily map out each of the stages by identifying key activities at each stage. For example, at the qualifying stage, sales teams with good processes will know what information is required to determine if their prospect in is the buying window.
A Sales Process is series of repeatable steps that helps the sales team execute the go to market strategy.
An organized and effective lead management process is designed to identify potential customers and engage them in meaningful channels and messages that resonate. As a result, this lead management process, can ultimately contribute to more sales by creating more engaged prospect leads. A solid lead management process includes identifying and understanding needs, generating and collecting intelligence about leads, and scoring and nurturing leads.
The budget process includes all matters related to the expected volume of sales and selling expenses. A sales organization should have a certain procedure for the preparation of the sales budget. The process should include a review of past budget performance as well as the current and future factors of the marketing environment.
Customer Success is not created when a prospect gives you their credit card, signs an order form, contract or issues a purchase order. Customer Success is created when that same customer orders again, refers you to a prospect or offers to be the subject of a case study. This success only happens when there are documented processes that describe how the organization is going to act during the term of the relationship with that customer. If the sales operation team doesn’t have a new and existing customer account management process, then they’re missing out on multiple revenue opportunities.
Customer Success happens when the same new prospect places another order, refers you to someone or acts as an advocate for you. It must be built methodically and inculcated in your organization.
Lastly, good forecast management is also an essential part of sales operations. The forecasting process allows the sales team to evaluate current market trends so that informed decisions can be made about sales operations, customer orders, delivery of goods, customer orders, budgets, and inventory.
4. Support
Support encompasses the following areas: sales operations, sales support, systems, and sales enablement. A solid support team will allow the sales team to just focus on the business of selling as they service new and existing clients.
Some support functions include keeping track of sales targets, scheduling, monitoring customer accounts, monitoring new sales leads, and managing the correspondence between the sales force and clients.
DD RED FLAGS
While we’re always searching for the diamonds in the rough in our due diligence process, we’re likely to find some problem areas as well.
Not suprisingly then, here are some of the red flags that I’ve found in a sales operation that imply a broken or non-existent sales system.
- When the sales team consistently does not achieve its desired outcomes.
- When sales projections are only upon the current book of business and do not consider historical data or activity
- When the sales pipeline is too optimistic (every deal is more than 70% of closing in the next 30 days)
- Despite an influx of qualified leads and prospects from marketing operations, the sales team does not seem to be able to scale
- When sales team members are operating with different platforms, messaging and processes.
Sales Operations is about Data AND People
It’s important for you to remember that Sales Operations is about People and Data working together towards a common objective. When conducting DD, it’s easy to lose sight of this and just focus on the leading or lagging data.
If you focus on both Data and People, you’ll likely open the door to opportunities for revenue growth or show that the current revenue projects are unlikely to materialize. More importantly though, you’ll know WHY the these outcomes could occur.
