Doug Davidoff”If you don't know where you're going, any road will get you there."
-the Owl (paraphrased) from Alice in Wonderland
Do more. Do it faster. Do it better and do it with fewer resources. This is the battle cry of those who succeed through recessions.
When times get tough, the winners are the ones who capitalize on the opportunities that exist and utilize the limited resources they have the best. While it’s never a good idea to waste resources or even to use them ineffectively, in good times (when there’s a wind at your back), there’s more margin for error and there can even be a solid rationale for less effective utilization.
In difficult times, however, poor utilization can be devastating in three ways:
- There’s less margin for error, so mistakes are magnified.
- Resources and opportunities are more limited, so the opportunity costs for bad decisions is higher.
- While rosy projections and false confidence can, initially, lead to a feel-good effect; morale is quickly tarnished as it doesn’t hold up to reality, and the likelihood of “end of quarter/month” miracles are virtually non-existent.
The psychology of loss has a profound impact on people. In normal times, people exhibit a natural risk aversion, where people naturally move towards protecting gains. However, when people enter the domain of losses, they actually become risk-seeking. Rather than definitely losing a small amount of money, they’d rather gamble (that’s gamble, not bet), taking a chance (even if that chance is very, very small) on losing a larger amount of money if that also gives them the chance of not losing anything at all. What makes this behavior so dangerous is that it happens in the realm of the subconscious; people are unlikely to even be aware of their change in mindset.
This is one of the primary reasons that downturns are so threatening. Without a strong base in reality, poor judgment leads you astray.
Making Bets
Every decision you make about any action you take is the equivalent of making a bet. When you decide to take action, you’re simultaneously making the decision not to take other actions, and that the action you are taking has a better chance of producing a better outcome. Pause for a moment and think about how you place your bets.
Whether you play poker or not, you’re probably at least familiar with it (and if you’re not, stop reading this post and study up a bit on the subject - seriously). The game of poker puts players in the position of making a series of bets for both the (relative) short- and long-terms. Poker players, especially good ones, can make confident bets because there’s a clear model, anchored in reality, to guide the decisions (aka bets) they make. Their model guides their decision-making.
Imagine playing Texas Hold ‘Em if you didn’t know that a 2-7, off suit hole cards give you very little chance to win. Candidly, if you’re involved in sales or marketing, you likely don’t have to imagine that much; you already know. Every day, I see people across all disciplines and levels of sales and marketing make both small and big decisions with little to no attention paid to a model to guide decision-making (and remember every decision is, literally, a bet).
When times are good, most companies can get away with that. Hell, they can even convince themselves that they do have a predictive model - as New York Times columnist Thomas Friedman has said, “If you jump off an 80-story building, at some point during the first 79 floors, you can convince yourself you’re flying.” In good markets, the greater environment (also known as luck) works in your favor. When times are tough or chaotic, it works against you, and you can’t afford to be making blind bets.
In difficult markets, the variance of your path increases and the cost for slow decision-making multiplies. In good markets, you can afford to give your tests and iterations time to prove themselves. In difficult markets, you face a dichotomy between the need to give your efforts the time they need to succeed, and the higher costs associated with mistakes.
In difficult markets, you’re playing a high-stakes, high-speed game of poker, whether you realize it or not. To put yourself in a position to win, you must have a strong model to guide your bets (decisions).
A strong model has 5 attributes:
- It’s based on real data
- It’s actionable
- It reinforces and gets better the more you use it
- It’s objective
- It creates alignment
A strong model is always important to guide strong decision-making, but it becomes even more important - and it’s more important that you keep your model up-to-date - in difficult times. It’s for this reason that we are launching our first DEALS Framework course to guide you in generating a strong sales and marketing model that brings predictability and impact on your efforts.
Your model, and our course, should have five core components:
The Economic Model
The economic model focuses on the costs and values associated with customer acquisition and retention efforts. It guides your decision-making to ensure that you're allocating limited resources and investments to their best use. Without a strong economic model, you’ll allocate resources less efficiently. Worse you’ll have no objective means to assess how well you’re doing.
The Win-Rate Model
Would it surprise you that most sales organizations overestimate the effectiveness of their sales efforts by 2-5x? This is one of the main reasons that even when sales organizations are “beating the number,” the organization still feels like it’s falling behind.
A strong win-rate model brings realism to forecasting and makes everyone in the organization smarter about determining when, how, and where to apply limited sales resources.
The Demand Generation Model
How big of an effort do you need to create to meet your objectives? How do you know the best place to invest to increase the probability of achieving your goals, to lower the costs associated with that achievement, or both?
In our experience, this is where most mid-market companies are the weakest. They lack the transparency and predictability to make great decisions quickly. A strong demand generation model acid-tests your projections and progress to identify the key areas that need attention. This enables you to know whether you’re ahead or behind hitting your targets while there’s still time to do something about it.
The Win Rubric
A couple of years ago, I had been working with a client for about three months and had developed a very good relationship with their VP Sales. For reasons I can’t remember, we got into a conversation about books and movies over some drinks, after dinner with the entire executive team. The VP asked me what my favorite work of fiction was, and being in a slightly sarcastic mood, I responded, “Your pipeline.” We had a few laughs, and he got my point.
I call most of the sales pipelines I review Stephen King Pipelines because they're fictional and when you dig deeper into them they’re quite scary. The reason is that there is rarely an objective means for assessing opportunities.
The win rubric is a process that enables you and your reps to score their opportunities as they progress. It highlights the weaknesses in a deal while they can still be addressed, and provides an early indication when you’re in a position where you’re likely wasting your resources.
Pursuing the wrong opportunities is extra dangerous in difficult times.
- Reps are more likely to pursue bad opportunities. (After all something is better than nothing, right? Wrong.)
- Bad (fake) opportunities create a lot of static and confusion when it comes to assessing how things are progressing.
- The cost of time poorly spent has a bigger impact on bad market conditions.
The win rubric addresses these issues.
Forecasting
All of this comes together and is communicated through a strong forecasting model. You’ll find you’ll need to update your forecasting more frequently in difficult times, so a strong model is especially important or you’ll find yourself in a position where bad decisions reinforce bad decisions.
A strong growth model creates clarity in a world of fog and enables everyone involved in managing the business to be aligned. It enables you to accelerate in good times and provides the stability and control that’s desperately needed in bad times.
