A typical business strategy (and business model) will have the following constituents
- Customer Segments and Value-Proposition
- Pricing Vs. Demand vs. Profitability
- Geography Foot-Print
- Sales Volume vs. Profitability
- Branding & Marketing
- Cash vs. On-Credit Sales
- Fulfilment- Production, Logistics and Supply Chain
- Financial Model, Ratios and Boundary Conditions
A strategic game-plan is a highly dynamic and constantly evolving organism. We are in a hyper-competitive and uncertain world, where new business models & technologies with the power of digitization are disrupting and undermining the existing companies and sector. So enterprise strategy has to be highly agile, fact-based and responsive. Here are the 10 Biggest Reasons why Sales Strategies fail and what can we do to avoid them.
Reason #1- Lack of Sub-Segmentation
I have seen a lot of companies projecting their sales by taking the overall segment size and then forecasting their sales as very minuscule %age of segment buying their product. For example, a company selling discount coupons for Restaurants can say that there are 10 Million customers who go out to eat and even if we are able to sell to 1% of them, we will have 100K customers. Based on this premise, they over-invest into back-end and delivery platforms, sales force, and branding.
From a mathematics standpoint, this may sound great, but this is one of the key reasons why companies go-under. They ignore that a large customer segment has multiple sub-segments (High-end Restaurants vs. Low-end, Frequent vs. Occasional visitors, discount seeking vs. non-seeking, etc..). Each of these sub-segments needs different sales & marketing strategies and product variants. Also, each sub-segment is served by different niche players.
Lack of sub-segmentation leads to vanilla sales approach and products across a diversity of customer-groups, which ends up making a company doing everything for everybody. This not only leads to failure in sales but can be disastrous if a company invests big-time based on simplistic assumptions.
How to avoid it?
There is no harm in thinking big, but you need to shift from ‘Vanilla’ to ‘Niche’ targeting. It is possible that your organization does not have the capabilities to create variations for all sub-segments. In that case select top-3 (say) niches, and limit your phase – 1 of growth to the said segment. In today’s world of specialization, going deeper is preferred over going wider (unless you have reckless funding). Remember, if you are not in the top 3 of the segments you serve, you will fail. So better to narrow your segment(s), than being an ‘also ran’ player in a larger population.
Reason #2- Lack of Data and Facts
Misplaced and invalid assumptions are the biggest killers of a business strategy. One wrong assumption can take a company in a wrong-direction, and today’s business environment does not provide many chances to make corrections.
The main reason for misplaced assumptions is not because you cannot validate them (barring few, as you cannot validate all assumptions), but because:
- Companies do not have patience, energy or even intent to go through the drudgery of collecting mountains of data, meeting hundreds of end-customers, research market reports, reach out to industry associations, study competition and collect ground intelligence.
- Decision-makers of strategy are sometimes attached to their ideas and experiential learning as ‘universal truth’, and strategies are built around the same. For example, a senior executive who has a great track record of selling through direct sales teams could assume that it is the best way to go, in spite of the fact the market might have moved to a network-based sales model and digital-channels.
How to avoid it?
- You can engage a 3rd party who is fearless and highly objective to look at the assumptions with a hard-nosed view.
- Create an ‘assumption-strength’ checklist, which enforces an objective view and measures the top 10 assumptions on how well they have been validated.
Reason #3- Lacking Investor mindset and Hard Questions
Business Strategies are made in two different environments:
- Internal corporate strategy with few CxOs, driving the assumptions and decisions, and most of the team is essentially the order takers.
- Investor review of business strategy, where an organization is seeking the funding
Keeping everything as same, the dynamics of these two environments are diametrically opposite. Investor review of business strategy will have the following aspects which are critical for a sound strategy but are mostly missing in ‘Internal and Cozy’ strategy sessions.
- Hard Questions– An investor will be fearless ask hard questions, question every assumption. He will not give respect to anyone’s sensitivities apart from his money.
Risks to Strategy- All possible areas where things go wrong (and let’s face it- they do) and how to mitigate.
- Competitive land-scape– An external and independent entity like a funding company will have a closer view of companies operating in the market. They will be able to do a smarter diligence on competitive threats
- Tight on monies– A prudent investor will look at all projected expenses with a high-powered lens. He will beat down the financial ratios to ensure that company operations is run as a very tight ship.
- Future-Ready thinking– An independent entity will be able to bring in out of the box thinking and focus on organization preparing for future and not limit itself to short-term quarter by quarter thinking.
By limiting, strategy formulation to a closed group of CxOs has risks and disasters. It not a question of competency or intent. Every team has its blind zones and they sometimes are too close to the subject, and external hard-nosed strategy input can be highly valuable.
How to avoid it?
Every organization should bring in an external coach/strategist who is highly empowered, experienced and independent. He will play the role of being:
- Guardian of Strategy formulation process, so that there are no short-cuts taken
- Devil’s advocate questioning every assumption (including seemingly obvious ones)
- Ensuring that holistic inputs are taken from all stakeholders
- Bringing in wider industry experience
- Establishing Boundary conditions and ratios for a healthy business model
It’s not easy for a management team to bring in an external entity and give a high degree of empowerment. Ideally, It should not be the decision of shareholders, but this decision has to be owned by the management team.
Reason #4- Lack of Agility and Responsive Strategy
Let’s say that you have created a robust strategy with most of your assumptions and maths validated. What will you do if the market conditions change, new competition comes in, new technology disrupts your product-line and there are changes in regulations and tariffs?
A business strategy has to be a living and highly evolving organism. The fact is the most of the companies are not prepared for new developments, sudden shocks, and setbacks. There is a certain level of rigidity built in almost all functions including financial sources, production capabilities, products, and channels. This limits capacity of a company to respond to expected and unexpected events. Trust me, uncertainty is the only certainty in today’s business environment. However, most companies do not invest in building flexibilities and back-ups.
How to avoid it?
Agility and Responsiveness are ensured by adding the following components in your strategic blueprint and ensure that there are monies and resources to back them-up:
- Event-Response Sheet: Think about the top 10 disruption events that could happen and how companies will mitigate them and respond to them. What readiness and resources an organization will deploy? For example, what you will do if new competition goes into a price war and undercuts your prices, and you cannot match him (unless you destroy your margins)
- Risks and Mitigation Sheet: Apart from disruptions, there are many things which can go wrong at tactical and operational level. For example, not getting the right man-power, changes in the tax rules, and changes in the interest rates.
- Assumption Validation Sheet: You cannot validate every premise. You should mark out the hypothesis which are not confirmed, and set up strategies in case the assumption does not work out. For example, what you will do it the demand you imagined on a given price does not materialize.
- Agile Capabilities- You need to make a ‘Flexibility’ game-plan including
- Your production facilities to be able to change their product-mix
- Ability to change financing sources
- Multiple Sales & Service Channels
- Ability to create product variants to fine-tune customer tastes
Reason #5- Not involving all stakeholders
The strategy is still mostly considered as an ivory tower function, where a set of senior and highly evolved individuals churn out the blueprints which the worker bees are supposed to execute with no questions asked. It is less blame to corporate governance, but more to the traditional mindset inertia.
When the strategy formation process does not include their mid-level and junior employees, their vendors, customers, channel partners, and industry experts- they miss out on high valuable and passionate inputs. Also not involving stakeholders dilutes ownership at all levels
How to avoid it?
- Set-up a process by which you collect ground-level inputs from your field staff.
- Reach out to key customers, understand their business needs and plans
- Include key channel partners in the strategy discussion teams
- Include core vendors to take their ideas and also confirming their readiness in delivering the product and production agenda
- Hire industry expert(s) to validate assumptions and provide market land-scape.
Stakeholder involvement will be effective give rich dividends when we listen sincerely & humility, complete feedback loop thereby updating them on what happened to their inputs and demonstrating openness to diversity of views. This is the true test of leadership.
Reason #6- Traditional ‘Annual’ Mind-set
Most companies have their strategy blueprint process caught in the ‘Annual’ mindset. This is completely out of sync with the current reality of hyper-competitive and uncertain world. This makes strategy an ‘Event’ instead of a ‘Process’. For certain months in a year, the management team gets to-gather and soak a whole lot of energies to develop next year’s strategy. However, the strategy falls apart more often than not within the first few months and then the organization moves from one fix to another, and one crisis to another. Also, it takes the focus away from building a future-ready organization.
How to avoid it?
- A enterprise should strategize for Short (6 months-1 years), medium (2-3 years) and long-term (3-5 years) depending on its business dynamics.
- Apart from that, a strategic blueprint should be seen not as an annual but a rolling quarterly exercise, where ongoing adjustments are being made to keep the strategy in synch with current realities.
Reason #7- Imitation Trumps over Creative and out of box thinking
Companies play safe. They feel secure by following the best practices and strategies followed by the industry leaders. There is nothing wrong to learn from your competition. However, unless you have innovative and creative ideas to either change your game or change its rules- you will always be a follower. Companies with killer new ideas and courage to try them out, are ahead of the competition and develop strong differentiators.
How to avoid it?
While a company cannot bet its existence on a new, untested idea (barring disruption start-ups), they should have at least 10 brain-stored ideas which they should incubate as a strategic investor. Chances are that out of 10 pilots, 2-3 ideas will be winners and become force-multipliers.
Reason #8- No Strong differentiators and Entry-Exit barriers
A company without a unique selling value-proposition, entry and exit barriers is a highly risky proposition. Good operational backbone and sales machinery can surely ensure short term success, but without offering something which others cannot, you will ultimately become the victim of price-wars and low profitability. If you are not able to push back competition and hold on to your customers, you will become a ‘Commodity’ player where you end up being a ‘low-cost leader’.
The reason for not being able to develop differentiators are:
- Differentiation demands change in the existing product portfolio, processes, skills, and infrastructure. For example, if I start offering onsite replacement instead of offsite repair, it will mean a complete overhaul of service function, along with after-market parts inventory management, greater working capital needs and so on. Differentiation demand quick and strong change-management and not many companies have adequate leadership depth.
- Additional investments- Differentiation means that you will need to invest in new products, more sophisticated infrastructure and higher customer acquisition costs. Companies may not ready to sacrifice their current margins for future growth.
- Differentiation means taking a risk and doing things that have not been done before. An enterprise may want to play safe.
How to avoid it?
You need to work out your investments and strategies so that at any point of time, you have at least:
- 5 short-Term differentiators (competition can catch-up within 6-12 months)
- 3 Medium-term differentiators (competition will catch-up in 2-3 years)
- 2 Long term differentiators (competition will catch-up in 3-5 years)
This is the CORE of your strategy blueprint. Working out differentiators is not easy. There are 3 stages in the process:
- Picking the right differentiators– For example, if you are a power back-up battery manufacturer, you will go for stability and time duration of back-up, and not for lighter weight. The customer is not concerned about the weight as these batteries are placed on load-bearing structures.
- Going for maximum return and most competitive USPs– There are many things that customers will pay for. You have to choose the ones, for which he pays a maximum and what will be difficult for your competition to catch-up. For example, giving on-site replacement could be difficult for your competition, if he has to overhaul his service and support network.
- Invest in differentiators– If you have picked a differentiator that makes sense, invest in it all the way to make it a strong competitive edge. Do not leave it half-way.
The idea is similar to the previous point of out of box thinking, where you incubate new ideas and workout some big winners.