If sales and marketing teams are misaligned, a portfolio company’s growth could be crippled. Here’s how buyout firms can verify that these teams are on the same page, and how to nurture that collaboration if they aren’t.
The very phrase “sales and marketing” is so ubiquitous it’s implied these two disciplines are naturally joined at the hip, when the truth is that partnership requires focus and effort to cultivate and maintain. And for private equity investors, assuming that a portfolio company’s sales and marketing teams are simpatico can jeopardize their best laid plans.
That’s because the sales funnel has been undergoing a digital transformation, with customers, even those in B2B situations, doing more and more research, and decision-making online. COVID-19 has only accelerated that trend, with recent reports from the likes of McKinsey highlighting that the “new normal” for sales and marketing is a digital one, and likely to continue. And that means that every company’s sales funnel needs to reflect this new reality.
And that new reality is more competitive than ever before. According to Insight Sales, 35% to 50% of sales is won by the vendor that responds first. So if that portfolio company’s solution is going to be considered, service level agreements are absolutely critical. In a recent lead response study from The Harvard Business Review, over 2200 US companies found that in B2B enterprises, only 37% of the companies responded to their leads within an hour. In this new digital landscape, that’s a lifetime, and then consider the 24% that took even more than 24 hours.
In that case, the customers concludes the business clearly isn’t interested in them, and move on. It’s a sobering statistic, but one that should be seen as an attractive opportunity to grow by simply making lead response time a priority. So getting this alignment in terms of service level agreement is critical, and just one of many opportunities to grow the business by fostering the collaboration between sales and marketing. In fact, Chief Outsiders’ 2021 CMO Market Insights report found that almost 70%* of CMOs expect greater collaboration with other parts of the organization, including sales to achieve company-wide growth goals.
This isn’t always easy, as there’s been an undercurrent in every company I’ve been associated with, where marketing marches to the beat of their own drummer, delivering leads that they think are ideal, and the sales staff follows the path of least resistance to that next order.
When growth stalls, or sales decline, marketing blames sales for not doing more with their great leads, and sales blames marketing for those dead-end leads. But even if sales haven’t fallen off a cliff, the proposal win rate can be key metric to indicate there’s a serious misalignment between sales and marketing staff. Proposals take resources to create, so that win rate, at least for B2B, should hover around 70%.
I was just working through a sales funnel discussion with a company that had a 38% win rate. They were trying so many different things to move the needle for sales. But we pointed out that if they bring the proposal win rate up to 55% and do nothing more, they’ll achieve their revenue growth plans for the year. But improving that win rate requires explicit agreements between the two departments.
To accomplish this, I’ll bring the sales and marketing leaders in the same room and drive towards agreement on five key areas. The first is job titles, where we list out every job title for a prospect that is acceptable to the sales organization. Next are the industry codes where the sales staff has the biggest chance at success. I was in a company where we had a 17% lead rate for legal firms, but the sales team could never close those, so there was no need to deliver any more from that industry. The third issue is a prospect’s revenue, which follows the Goldilocks rule: if the revenue is too small, it’s a waste of resources and if revenue is too large, the company may lack the credibility to close that one. The fourth is geography. If the company’s solutions are restricted by geography, there’s no need to call Alaska- if you’re in the lower forty-eight.
The fifth is the home run here, which is the problem the prospect wants to solve. This can be derived by conversational marketing or even a chatbot that asks visitors to a company’s web site, what brought them there today. And we’ve found by aligning sales and marketing around these five areas, companies have enjoyed a 15% jump in productivity.
The final piece of this puzzle is getting sales and marketing to agree on all the funnel metrics (see attached diagram), with the specific responsibilities for each organization spelled out. This includes such details as how many key words, ad impressions, how many content consumers, and of course, how many leads needed to put through the process to reach their goal.
It may sound quite straightforward, but there are hurdles to this effort. In these situations, it can be hard to get the sales leader to slow down and add rigor and process to their organization. They’re driven by a need to find the fastest route to the next sale, which can leave them chasing the nearest shiny penny, when the data from the marketing team can be far more reliable in identifying which penny is worth chasing.
That’s why it’s crucial to have a communication process in place, so if marketing sends qualified leads and they don’t go anywhere, there’s a process to address that. That’s why I find it best to establish weekly meetings between the sales and marketing leaders to nurture and refine the process.
Make no mistake, there are dangers to letting sales and marketing stay in their own silos. They’re part of a continuous feedback loop, so if certain leads close, or fail, marketing can adjust accordingly. If sales can’t close with legal firms, but they’ve closed 90% of accounting firm leads, that’s a pretty clear indication of what to do next.
Private equity firms should know that even if the sales and marketing teams report to the CEO, this kind of alignment is rarely a CEO’s specialty. But they can coach the CEO to bring these teams together and develop a holistic approach to the entire sales funnel, where both teams contribute to its design and execution.
Recent research from Sirius Decisions finds that proper alignment of sales and marketing can drive a company’s growth up by as much as 30%, which argues that such “alignment” has a place inside any buyout firm’s playbook. Customers reward sellers that respond first with a solution to their problems, and if customers are well served, investors are bound to be as well.
* This was derived from Q6 of the report that finds over 30% of respondents perceive a trend towards greater collaboration, and almost 40% “somewhat”
perceive that trend.