LAWS AND LIES OF
MANAGEMENT,
MARKETING AND SALES
The following is taken from my
book, The Laws of Management Physics, A HandBook for Hands-On Managers:
The Lies of Marketing and Sales
When sales
are low the sales manager can be heard to say, “I will pack a suitcase and
go on the road until I get bookings.” This sounds dramatic and committed,
doesn’t it? However, weeks later, the situation has worsened and his
suitcase is still collecting dust.
Be wary of
salespeople who use words like “good for business” or “margins.”
Ever heard
this one? The salesperson says, “If we don’t lower our prices we will go out
of business!”
I’ve been
told this more than once, but even several months afterwards we held
absolutely firm on prices no salesman ever produced a report on the
resulting loss of business.
Or this one:
The salesperson says, “We got this job even though we were the highest
bidder.”
Believe that,
and you probably also believe, “I’m the only one that was given the
competitor’s prices.”
And talking
about naiveté, how about the salesperson that says, “I get more insight
because the customer is my friend.” I cringe when I hear that because the
salesperson probably believes. How often salespeople fall for the old
Maxwell Smart trick: “I will be out of the room, and if you can read upside
down you can see your competitor’s prices that I want you to see.”
The marketing
manager, on the other hand, might tell you, “Our pricing formula guarantees
a 20 percent pretax profit.” I’ve always wondered what happens to that
elusive 17 or 18 percent because more often than not the actual profits are
two or three percent. How often does anyone ever make 20 percent pretax?
How do you
know when salespeople are lying?
Their lips
are moving.
“But you
don’t understand my market!”
In their
minds, this solves the problem and ends the conversation. Ironically, the
bad results the manager presented make it clear that is they who don’t
understand the situation.
“I tried
several times to reach Joe.”
What he
forgot to mention was that he called at lunch or at the very end of the day
(as if he really wanted to talk to Joe, right?). The same thing happens when
Joe is an irate customer; he never seems to be available.
The president
proclaims, “I don’t care if our salespeople make millions on a commission. I
would welcome it. After all, the company benefits from it, too,.”
And then, at
the first hint of a “bluebird,” the word processor is directed to change a
number or two in the compensation plan.
The Laws
Law 7: Good collections
start with a well defined purchase order.
Most likely a customer will
only pay for what they purchased, so the documentation must reflect in
detail what the customer is buying.
Besides its claim that it
doesn’t have the money, there are many reasons a customer doesn’t pay on
time. Perhaps:
The shipment didn’t match the purchase
order
The invoice didn’t match the customer
purchase order
Too many products were shipped
Shipments were ahead of schedule
Shipped items did not perform to purchase
specifications.
All the screaming in the world
will not help collections if the customer is not satisfied. It is far
better to put that energy into ensuring that all the documentation is
correct and the product works.
It is helpful if a top
executive is involved with collections to some degree, as it is an
excellent feedback for the entire process and helps identify internal
problems.
Law 16: Many times you
win by losing.
Avoiding a bad deal can be a
winning situation. An overzealous competitive attitude can cloud judgments
on sound business decisions. In many situations you’ll end up with much
better results if you walk away from them.
Law 15: Do not put costs
in place anticipating growth in sales.
The key word is anticipating,
because growth seldom develops as fast as expected. Anticipation has
driven many companies to take on far more physical space than needed
prematurely. The added costs can become losses that are not easily
recoverable.
Law 22: The longer
something takes to happen, the less chance it has of actually happening.
Confucius may have been the
first person to say it, but it is still hard for some people to
understand, and they never give up. The probability that you will obtain
an order from a customer dwindles as time goes on. Material in inventory
is less likely to be used the longer it sits in storage. The probability
that a job offer will be accepted goes down the longer it takes for the
candidate to reply.
Law 23: Your price, my
terms; your terms, my price!
An effective approach in a
negotiation is to make it clear that the other side cannot have both
favorable price and favorable terms.
If the vendor wants tons of
money for its product, then a long payment cycle will be appropriate.
However, if it wants cash up front, then the price should be heavily
discounted.
Law 21: Most often,
creativity is better than imagination.
In my dictionary, imagination
is the ability to come up with ideas having no limitation, whereas
creativity requires innovation to solve a situation within the limits of
the system. Creativity is more difficult, but more effective. For example,
salespeople who say they can get an order if they pay the customer’s real
estate taxes are imaginative. But salespeople who say they can get the
order by taking the customer on a walk around a California swap meet are
creative.
Law 24: At some point,
the monthly revenue level has to change to match the bookings level.
It is dangerous to hold on to
people and expense levels to match past revenue levels when new bookings
are decreasing. Since bookings precede revenue, when bookings run less
than revenue for an extended period, it is inevitable that revenue will
slide to match the bookings level. The organization must accept the need
to be smaller and restructure accordingly. Many organizations will find
several reasons to delay the inevitable, but the sooner adjustments are
made the better.
Law 27: No contract is
the worst kind!
Verbal agreements and implied
understandings will play havoc with a relationship when it starts to come
apart. Perceptions change interpretation between a friendly and an adverse
relationship. It is naïve to believe that no problems will occur because
nothing is written down.
Most agreements are usually
structured as if success is assured, and verbal understandings seldom, if
ever, define the “what if’s” (all those things that might go wrong and
what to do if they occur.)
It is scary to think of it,
but in a court, it’s your word against theirs.
Law 29: The easiest
product for your salespeople to sell is the one you don’t have.
Salespeople get bored easily
and like excitement, therefore they have a natural tendency to sell
features and futures that you do not have. They love to keep the
customer’s interest up and pitch “new” all the time. Getting salespeople
to sell inventory is a challenge to all managements.
It is dangerous to allow
salespeople into planning meetings or to expose them to the R & D group.
Too often they will run with what little they hear.
Law 32: People tend to
fight giving price increases.
Managers can find all kinds of
reasons for delaying a price increase because it is unpopular with the
customers, and therefore uncomfortable for the manager to have to tell the
salespeople.
Salespeople have even a
tougher time because they want to be loved by the customer, and a price
increase risks deterioration in that relationship.
Unfortunately, every day the
price increase is delayed is a decrease in the bottom line that cannot be
made up later. It is therefore very important to be well-prepared when a
price increase is in order.
Law 33: Defining the
market is not enough; You have to prove you can penetrate it.
Some of the worst management
fumbles happen during talks with investors. Along these lines is the
manager who says, “If the market is X billion dollars, don’t you believe I
can get 0.1% of it?”
First, identify that there is
a market need, then show that you have a product or service that will
satisfy that need. Finally, convince the investor (and yourself!) that you
have a plan for effectively penetrating that market.
Some ways to show you can
penetrate a market are customer testimonials, good press, experienced
employees, and perhaps most effective, a well-defined structure for
marketing and sales channels.
Law 36: It is easier to
find new products for the market you’re in than to take your product to a
new market.
Although you may be
comfortable with your existing products, and show desire to find other
markets for them, penetrating unknown markets can be far more difficult
than developing a new product.
Being established in a market
allows you to find other needs within that market. You can then take
advantage of relationships you have already established to increase sales.
It is even more difficult to
take a new product to a new market, yet many companies like to do so,
often with a high failure rate. This seems exciting to try, but the effort
is often driven by ego rather than good judgment.
Law 37: The quality of a
product as perceived by the customer goes down as the customer’s need for
the product goes down!
When the customer’s need for
the product goes down, quality requirements go up. A customer who may have
been perfectly satisfied in the past may start finding nit-picking reasons
to reject the product in order to avoid paying for unneeded inventory.
Be wary of the customer who’s
in trouble or has high inventories; their attitude towards their suppliers
will probably change. The same thing tends to occur in the service sector.
All of a sudden you will receive complaints that you aren’t performing as
well as you used to. One helpful tactic is to make sure the acceptance
criteria for your service or product are well documented.
Law 44: It’s OK to be
bold with a good backlog, but arrogance can lead to oblivion.
Arrogance leads to complacency
and indifference to competitive factors in the environment, customer needs
and customer sensitivities. Many a company has tumbled from the
attitudinal cloud that buffers the needs and sensitivities of the
customer.
Law 45: Never tell the
sales staff your lowest price if you want to get more!
The sales staff wants to win,
and with a bit of natural impatience, giving them the lowest threshold
price is like handing them a torch burning at both ends. Also be wary of
salespeople who use terms like ROI and gross margin in their vocabulary.
If salespeople become too knowledgeable about the financial factors in
running a business, it will weaken their ability to sell.
Law 46: Never let an
engineer discuss price or estimates with a customer!
Engineers like to deal in the
absolute, and apparently have banned the word contingencies from all their
technical books. Engineering estimates are naively based on perfect yields
and schedules, as though this is the norm for their development schedules.
Engineers also have this
strange idea that they can be “honest” with a customer, whereas in reality
they can actually hurt the customer by giving optimistic information.
Law 47: Be wary of
promises that end up in negotiations after you’ve lost your leverage.
Watch for danger when you’re
told, “Let’s get started and we will work out a fair price later.” By
nature there are no negotiations after you have lost your leverage. It is
best to define and make the best deal up front while you still have
bargaining power.
Law 48: Backlog capacity
coverage that extends beyond the competitive lead times for delivery can be
harmful!
Competitive market delivery
dates must be met, and if you are overbooked, you will have to pass.
Customers can be very fickle, and once they are forced to find an
alternative source, they may never come back.
Law 49: Good marketing
depends more on customer perceptions than it does on the product !!
Having the customer perceive
you as the first or the best can overshadow shortcomings in your product
or service.
No matter how good you are, it
doesn’t matter if the customer has a negative image or a positive image of
your competition.
Too often, when we hear about
negative perceptions from someone, we tend to discount them.
Law 54: Plans tend to
show greater optimism downstream and often falsely justify near-term
actions, or inactions.
Law 76: You can know too
much about a customer, and adversely affect your performance by taking
things for granted, and you can hurt yourself by abandoning your normal good
mode of doing business.
Law 78: By not meeting
the revenue as planned, all plans are doomed!
Law 86: Any forecast of
sales for a new product will be greater than reality! |
