I previously wrote a blog that focused on the topic of outcome-based selling. Without a doubt, this continues to be one of the hottest topics with sales leaders that I speak to around the world.
I’m not sure what it’s like in your company at the moment, but it feels like there is a lot of pressure in the system to drive change initiatives in the Sales organization. As always, the challenge is that no-one’s getting a break when it comes to sales targets. The metaphor that people use is that they are being asked to change the engine on the aircraft while its flying at 40,000 feet!
There’s very clearly an acceptance from sales leaders that change is required. Last year I spoke to around 30 senior sales leaders from across the industry and 92% of them acknowledged that they need to make changes to their customer engagement model. I’ve attended a number of our Members’ sales kick-offs over the last few months, and they are almost all themed around becoming more focused on customer outcomes.
Why Change Needs to Happen for Hardware, Software, and Services Companies
When it comes to the drivers for change, there are three major factors that are consistent across the hardware, software, and services companies that I engage with:
- Revenue growth is not living up to expectations; whether it’s from new or existing accounts, performance is not where shareholders need it to be.
- The shift to the subscription, or XaaS, business model is putting strain on their income statement and sales operating practices.
- Business buyers are increasingly responsible for their own technology budget, and they want to talk about business outcomes and not about features or functions.
Everyone seems to acknowledge the need to make changes. Just adding more sellers with the same skill set is not going to work this time; there is a real acceptance that for the long-term good of the business some more fundamental change is required.
5 Things Sales Leaders Should Focus On
The five big areas of focus that keep coming up in my engagement with sales leaders are:
- Redesigning the customer engagement process
- Reviewing functional roles and responsibilities
- Hiring, training, and developing the right people
- Measuring and rewarding the right behaviors
- Providing the right systems and tools to support the change
Over the coming months, TSIA is going to be running a specific survey to dive into more detail around how organizations can improve the hiring, training, and developing of the right people. We want to really understand what practices in this area are delivering the best results.
Why You Should Have a Vertical Go-to-Market
There is one play that we are super-confident is going to show up in the research as being a really positive move. That is the investment in industry vertical skills and capabilities. We’ve seen real evidence that this is a move that is paying dividends and can support so many other popular strategies that sales leaders are adopting.
We know from research that we conducted on this topic that revenue growth in organizations that have built vertical capabilities is significantly higher than in companies that haven’t yet made this investment.
The chart above shows that 67% of companies that have adopted a vertical go-to-market posture are experiencing growth rates of over 21%, compared to only 28% of companies that have a purely horizontal go-to-market approach.
Making the shift from being horizontal to vertical in the way you function as a business clearly makes sense, especially when you further consider that one of the imperatives of being able to engage with business buyers is that you have to speak their language. You must be able to demonstrate to them that you understand their business and that you can show a tangible connection between the solutions you offer and the business outcomes that they are looking to achieve.
Most companies will start by making the move to being partially vertical. We call this the “Thin Vertical Veneer”. As you can see from the results in the chart above, the benefits of doing this are worthwhile. Nearly double the number (49% vs 28%) of companies that have made this move are growing subscription offer revenues by more than 21% year-over-year.
How to Get Started in Developing Vertical Capabilities for Revenue Growth
Let me unpack what I mean by developing industry vertical capabilities:
- Start by understanding where you are and what revenue comes from which verticals. Look to identify the biggest 2-4 to start with and check for any significant sub-verticals (i.e. banking or insurance in financial services)
- Take the top 2-4 and bring together a core team who will focus on growing revenues. This will start as an overlay function to support the general sales force
- The initial priorities will be to improve the effectiveness of account planning, build credibility with industry customers, and build case studies that demonstrate the business outcomes that you can impact
- Start to bring your customers together. This can be informal to begin with and the purpose is to show these customers that you are a thought leader and facilitator of sharing best practices
- Create internal cross-functional teams that work across different accounts in the same industries. This should include Sales, Design, Architecture, and Delivery resources who can all learn from each other (without breaking your customers’ trust and confidentiality agreements)
- Build industry-specific Outcome Chains that show the connection between your offers and the industry business outcomes that your customers care about. This will further demonstrate your ability to speak their language
Companies that have made this shift have highlighted the importance of changing the metrics and starting to introduce elements of compensation change to start driving the right “vertically-oriented” behaviors. The metrics that have been introduced as companies start to make the shift include:
- Revenue per industry vertical: To start tracking progress of the performance of your chosen industry verticals, it’s important to track an absolute number as well as the percentage of overall company revenue year-on-year.
- Vertical penetration: You will want to get a reasonable handle on the percentage of share that you have which will bring focus to the market opportunity.
- Number of vertical solutions deployed: Tracking the absolute number of vertical solutions that you have deployed (vertical configurations of a traditional offer) will keep strong alignment between sales and product functions.
- New business win rates: One of the key reasons for making the shift to a vertical GTM model is that you should improve your percentage win rate in the industries where you have invested in the overlay function. Tracking win rates is the first way to assess if things are working.
- Average order value: This is the second impact point of sales metric to track. The overlay vertical team should be able to drive up your average order value which should in turn improve your point of sales gross margin.