Transactions are the Atomic Level of an Economy
I know, an abstract starting point – but let me explain.
One of my best friends runs a short desk for a fund. He and I talk a lot about what drives value and through him I’ve learned how investors look at companies and how that drives CEO and CFO actions which ultimately create gaps between sales and marketing leaders.
I’ve read everything he’s suggested – most of it was extremely out of my ability to understand. But over several years (yes, years!) he finally shared something with me that I could understand. This video by Ray Dalio (the founder of Bridewater Associates, a hedge fund that killed it during the economic crisis – so he’s really credible) helped me understand something.
Fundamentally, the economy is based on transactions. People are behind those transactions. Yes, a lot of that buying volume happens without much thought – and some are goods we learned were commodities (like tomatoes). However, my uncle is a tomato farmer – and he relies on his salespeople to get into the stores. So, sales people are behind huge segments of our economy.
A whole economy is far to complex for me to understand and it is outside my pay grade. What I can understand is what actually happens at the moment of a transaction because I’ve been a student of sales for at least 20 years. So, let’s try to tease out different kinds of transactions.
Transactions are exchanges of value
Before we do that, we have to understand WHY a transaction happens in the first place. Ray’s video explains it pretty abstractly.
Let me get this out in plain speak: transactions only happen when someone with money sees value in a good or service someone else has. Those someones can be either people or companies. This falls into the “no duh” category.
So, as a sales professional, I have a problem with calling these things “transactions” because something or someone made them happen. When CFO’s look at all of your deals only as transactions – they are not factoring in all of the effort that went into helping the person with the money understand the value of what they are evaluating and also make sure that person spends that money with you rather than something else (maybe not even spend it at all – ie losing to no decision).
So, I’ve learned to talk to CFO’s about the value exchange is what is important and its salespeople who drive the economy, or at the very least – the company.
I realize you might want to “cut to the chase” with how this effects you and your company – but it is important to understand this core concept of value exchange and how it relates to your business. I use this graphic in every conversation I have with a CFO to help connect the dots between the transaction idea from the video above to the value exchange idea depicted here.
Information transfer drives the value exchange
For a grocery store, it might be that impulse decision you made in the checkout line to buy a snickers bar. Alternatively, United Airlines buying a fleet of 777’s from Boeing is far from an impulsive decision. It’s an extremely complex decision likely to involve: government pressure (Airbus or Boeing), specific requirements about the experience that United is trying to create for its customers, sophisticated financing, detailed production and operating schedules… you get the picture.
Well, for Mars to boost sales of Snickers bars and hit the volume it requires – it needs to make these value exchanges happen at scale and the whole buying cycle is going to happen in seconds. The idea of hiring a salesperson to stand in line with all of the other grocery items is just silly (hence the idea of business to consumer marketing) Conversely, how would a Super Bowl ad help Boeing sell more airplanes when there are only a handful of carriers on the planet and each of them have complex requirements (and thus, the idea of business to business)?
Complexity determines the medium of information transfer
While these are two extreme examples on a continuum the point is that your business has a set of similar value exchange patterns between the different customers you have, the complexity of information required to make the value exchange, and the economics of your products and services. Regardless of the situation what drives those value exchanges is the type of information that needs to be communicated.
B2C information transfer can happen at scale
So, for Mars the information they want to convey is “we want people who are hungry and want a quick snack to buy our product” so they create a whole campaign around that one idea and get it everywhere. That’s the information and they hope it will resonate. The amount of sophistication that goes into identifying that right message is astonishing. Consider one of my personal favorite commercials of all time – the 2012 “Darth Vader” Volkswagen commercial. They are now using neuroscience to study how we process information in our brains in order to maximize the information they encode in order to drive the result they want. What Volkswagen is looking to do is to attach all of its core messages about their product to identify with a specific imagined image and life experience for its target market. A lot goes into getting it right because they spend millions creating and then distributing the ad. But, they are trying to get us to have a conversation in our head or with our spouse about their proposition – buy a modern, nice looking, safe family car, that’s affordable for you. The medium for this exchange is mass media (either TV or digital).
B2B information transfer happens through conversations
On the other end, for Boeing the issue is different. The value proposition here is about high quality, reliable, safe, durable, and efficient aircraft that can cost-effectively carry a given load of passengers over a distance threshold. The amount of information is required to facilitate the value exchange is voluminous and must all be orchestrated to meet United’s own set of complex requirements. Imagine all of the conversations about maintenance details to determine how quickly a plane can be serviced and made available for a new flight – or how long it can stay in rotation without regular care. Or the safety records, how well the electronics work, how easy is it to fly, how quickly each aircraft can be manufactured, etc. Its a cacophony of lots of sets of very detailed information that must also be simplified into ways that United management can fit into is capital expense tables and easily communicated to investors in a paragraph or two in plain speak. The medium of this transfer of the required information to fuel this value exchange are conversations – many of them, over a period of time.
Conversations are the medium of information transfer that drives the value exchange
Therefore, it is critically important for a business to really understand what their customers are looking for in order to:
- Understand who the actual buyer is in the first place
- Determine what they consider valuable
- Figure out how much and the nature of the information they require
- Create and organize the information so it’s more easily digestible by the people involved
- Identify the kinds of skills required to effectively convey that information
- Make the process of communicating that information simple enough to where it can be repeated by not too basic so that the required information is not diluted
However, while business to consumer companies like Mars, or Snickers are getting increasingly more granular in understanding their costumers’ experiences and then using science to innovate – business to business firms are not responding as quickly.
The relative investment in sales and marketing to revenues for two contrasting businesses: Ford (more complex B2C) and IBM (more complex B2B)
- 2016 Revenue: $151.8 Billion
- Invested: $12.2 billion on SGA
- SGA as a % of Revenue: 8%
- 2016 Revenue: $79.9 Billion
- Invested: $19.4 Billion on SGA
- SGA as a % of revenue: 24%
For Ford, the bulk of their customers can be provided the information required to make a value exchange with them through highly leveraged methods (broad-based and omnichannel communications and dealers to complete the exchange). However, in IBM’s case – helping their customers understand highly complex business issues and the role technology plays to address it requires significant subject matter expertise and a very agile sales team given the rapid rate of change in its industry. Thus, IBM is spending 3x as much on SG&A relative to Ford.
Conversations are the fuel that drives transactions
Therefore, if your customers require complex information transfer in order to make a value exchange with your company, you need to pattern out what kinds of conversations are required to be successful. If this is the case, your salespeople are your communications channel and the conduit through which your value proposition is conveyed. In order to make this communication exchange more efficient and effective (and thus make your salespeople more productive), you need to understand the components of a conversation.
On a simple level – the figure below outlines the various components to that make up an effective conversation for your sellers:
- Content. They must have the right information required so they can provide it to all of the people involved in the decision. A less complex value exchange will involve fewer people and require less information. A more complex value change requires more information. The more this information is: timely to the stage of evaluation the customer is in, relevant to the overall goals of the customer and what they are trying to achieve and in context to the roles of all if the relevant impacted stakeholder involved in the decision – the easier it will be to facilitate that value exchange.
- Skills. The sellers must have the right skills to identify the information a customer requires to meet their objective (its often the case that customers don’t know exactly what they need to solve a given problem) and then also help that customer envision how your company will help them reach the objective. The profile of skill required to effectively connect that content with the customer to help them complete a value exchange will be based on: how complex the problem is, the altitude level of the wallet owner, the amount of buy-in required from other internal stakeholders, the funding model, and anticipated value realization of the client.
- Tools. Tools are really communication aides to help skillful sellers more easily frame content for customers and covert general information into something specific to the customer, digestible based on their needs, and codified so the customer can more easily share the information internally. Tools help decode the information you’ve provided into more useful and situationally specific formats that make the internal buying process a lot more effective.
The Problem: The information flow the fuels the value exchange is bottle-necked
Business to Business firms are struggling with massively inefficient sales forces because they have been too slow to adapt to a radically changing business landscape. One the whole, the customer’s problem and their expectation of a seller has changed dramatically over the last 10 years and will continue to do so. In addition, technical innovation has increased the number of communication modes for salespeople to have conversations- from phones, emails, and face to face meetings – we now have a whole slew of different and emerging digital options. And while sales forces adjust their techniques and skills to these new modalities – they are getting bombarded by a never-ending stream of well-intended: policies, materials, messages, directives, training, processes, resources that (seen through the lens of having a conversation) are random acts of sales support. The figure below communicates the following:
- your company is making it more difficult to allow your sales force to have valuable conversations because all of the changes, new products, and information being pushed to your sales force isn’t designed to with conversations in mind.
- This overwhelms your sales force and confuses most of them. What happens then is either – salespeople don’t know how to engage with new buyers or they revert to old techniques that might not work today or only sell products they are comfortable with that don’t map to your future business strategy.
- To make matters worse, your customers keep changing and the more you keep following the beliefs that produce the “random acts of sales support” your company drifts farther away from adding value.
A failure to address this situation strategically will either create an increased strain on your sales and marketing resources – ultimately driving your organization into a community player and the margin pressures associated with it…. OR your business will be displaced entirely from a new entrant with either a lower cost option or a far more value added value communications process. Both scenarios involve business transformation (retooling your sales engine to be more cost-effective in a commodity market or divesting whole businesses you can no longer compete) so why not look at transforming how you are enabling your sales force to have valuable conversations with your customers?