Lesson #316: Decision Making Only as Good as Quality of Data Studied

Over the years, I have become a “data hound”, looking for every morsel of wisdom I can get about my business, to help make smarter decisions.  The good news here:  data is king.  You can’t effectively manage your business without it.  But, using accurate data is critical, and getting that is not always easy.  And, if you don’t have accurate data, you may be making the wrong business decisions that could end up hurting your business, when you thought you were helping it.  Allow me to explain.

CASE STUDY #1:  MANAGING SALES PIPELINE

In most B2B businesses that have a long sales cycle, the only way assess the effectiveness of your sales team and predict future revenues is based on data your sales team enters into your CRM.  Here you would be looking to see a salesperson’s number of accounts growing, see how those leads are working their way through the sales funnel from qualified lead to closed sales and the total dollar value of the pipeline being managed.

But, think about what I just said: you are valuing the success of your sales team based on the data that they themselves are entering (or not entering) in the CRM system.  That creates multiple problems.  First, I have seen situations where salespeople will actually enter false information, to make it look like their efforts are more successful than they really are, trying to save their jobs.  And, second, any time you are reliant on humans for data, there is plenty of room for error.

For example, did the salesperson remember to enter a new lead into the CRM?  Did they remember to update the status of a lead (e.g., from active to dead)?  Did they update the dollar value of that lead from $20,000 to $10,000 after they learned the client didn’t need as many products as they first thought?  Did they update the expected close date from April to June, after they learned the project has been delayed?  You get the point.  Most businesses are making mission critical decisions based on future expected revenues from this data.  And, more often than not, the data in the system is not very accurate, updated or reliable.

If your CRM suggests you are working with over $1,000,000 of potential leads, and your normal conversion rate is 20%.  You would think there is a reasonable chance to close $200,000 in sales.  Monies you would be running the business with and paying your bills and payroll.  If that $200,000 doesn’t show up on time, as predicted, and you don’t have cash in the bank in reserve, bad data could put you in an illiquid position and potentially take you out of business.

So, when managing sales pipelines like this, you need to do to your best to scrub the data.  Every week, remind your salespeople to update their data in the system for any changes?  In your one-on-one meetings with the team, talk through their list, line by line, to ensure what the system data is telling you, is actually the reality.  And, where you can, build automated systems that updates data for any actions made (e.g., as new email leads come into business, they automatically get entered in CRM).  This includes building in automated tasks and reminders for each lead, to make sure the leads are actually being moved forward and the salespeople are getting system-triggered actions they need to take for each lead.  Most good CRMs or sales enablement tools can help you here.

CASE STUDY #2:  MANAGING MARKETING SPEND

The quality of your marketing efforts is also dependent on the quality of the data being managed and studied.  Here are the two most-typical problems: (1) is your marketing team managing towards the right data metrics in the first place; and (2) is the appropriate credit being given to the marketing channel that actually drove the lead, in a multi-device world where getting the proper attribution is not always easy (e.g., first learned about you through Google paid advertising on their office PC, but came to you direct from the mobile phone where you lost the Google tracking).

Let me talk through a recent example I lived through.  We recently hired an ad agency to manage our paid search campaign.  We told them immediate return on ad spend (ROAS), defined as clearly attributed revenues from the campaign divided by marketing cost of campaign, as the key metric to drive.  A strange thing started to happen in our business:  our low ticket, online ecommerce transactions started to take off, but our desired high ticket, offline B2B transactions were not growing at all.  By telling our agency to focus on “immediate” ROAS, the only way they could hit the desired target was by focusing on smaller orders that were immediately ready to book online.  That excluded the desired longer sales cycle leads we really wanted to be growing.

So, after six months of these learnings, we switched directions.  We told the agency immediate ROAS was no longer the goal.  We would be happy waiting our three month sales cycle, before studying our ROAS.  Instead, the leading indicator of future desired B2B sales, was immediate B2B leads that came in from that marketing effort.  That would be the key metric to manage for.  And, as soon as we made that change, our quick, low ticket sales started to fall back to more normal levels, and our desired B2B leads started to reach record heights.  We were thrilled, thinking we had finally “cracked the code” to scaling our business.

But, did we?  A B2B lead is only valuable, if they ultimately convert into B2B transactions and revenues.  So, in April, we did a retroactive cohort analysis of all B2B leads that came into the business in January (our normal three month booking window).  And, what we learned was concerning:  the B2B leads were coming into the business in record numbers, but very few of them were actually converting into sales, at levels far lower than our typical conversion rates.  And, after researching this further with our sales team, we learned the leads that were coming in, were very price sensitive, shopping many websites at once looking for the lowest price, and were often looking for last minute deliveries that were impossible to get the products to them in time.

So, now we are back to the drawing board, trying to figure out the right metric to be managing to?  Or, if the same B2B lead metric, how to optimize the campaign trying to find leads we can actually work with.  And, making sure we are giving proper attribution to all the leads coming into the business, to ensure we are not missing anything important in our look at the data.  We also want to be careful not to “throw the baby out with the bath water”.  Maybe there is something going on operationally, that is getting in the way of sales not converting, and the marketing agency is actually doing a great job.  Time well tell.

CONCLUDING THOUGHTS

So, any you can see, data is critical to managing your business.  I gave you examples in sales and marketing.  But, I easily could have given you data-driven examples in other areas of your business, like operations, finance, human resources or technology.  So, make sure you are living in a world where data is king.  But, more importantly, accurate data is king with the business being driven by metrics that are the most important and reliable for predicting and driving future success and desired outcomes.  The data is only as good as the effort you put into it!!

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #315: Why We Turned Down a Chance to Double Sales

As you may remember, back in 2018, we acquired Restaurant Furniture Plus, a B2B ecommerce business that sells foodservice furniture to restaurants and other hospitality companies.  We recently received a request for proposal from one of the most-recognized restaurant brands in the world.  If secured, the project would have doubled our sales overnight.  We walked from the opportunity, which may sound silly to you.  But, here’s why.

OUR CORE BUSINESS

First a little background on our business.  To date, our core business has revolved around two key things.  First, we are marketing company first and foremost.  Which means we resell the products of others and don’t typically take part in product design, manufacturing, importing or warehousing.  And, second, our average B2B transactions are typically in the $5K-$200K range, sold most typically to up-and-coming chains that have yet to build in-house procurement departments like the national brands.  In no year has any one of our customers comprised more than 10% of our sales.

THE NEW CLIENT OPPORTUNITY

The proposal we received is summarized as follows.  First, it was a huge order for over 1,000 franchise locations of the chain, which meant it would have been a huge multi-million dollar order, around 25x bigger than any other order we have ever closed.  Second, it was a complex order that involved custom manufacturing new designs exactly to the customers’ exact specifications, where the customer required us to build prototypes upfront at our own cost.  And, third, it was not an ideal contract, where the customer was not buying from us, their individual franchisees were (one at a time), and the contract included a 10 year product warranty.

WHY THE PROJECT SIZE WAS A PROBLEM

If we had closed this sale, yes, we would have loved doubling our sales.  But, all of a sudden, we now have a customer that comprised more than 50% of our sales.  Which is a really high concentration of sales in one customer, especially since the nature of the transaction was a “one and done” project.  Those sales would have evaporated in the following year.  So, instead of showing nice growth in 2020, we would most likely have shown sales declining in that year.  Which was not an optic we wanted to share with banks or other investors down the road.

And, when you have a client as large as this one, it is really easy for that project to become “all-consuming”, at the expense of all of our other long-term clients.  We didn’t want to risk mis-serving our loyal base of customers, by investing the vast majority of our energy into this one big project.  Which is what this project would have required.

WHY THE COMPLEX PRODUCT WAS A PROBLEM

If we had been selling “off the shelf” products from our typical vendors, this project would have been a layup.  There would have been no new product to design or warehouse.  But, the fact we needed to custom manufacturer a specific solution meant we needed to go around $50,000 out of pocket to build the required prototypes for the customer to approve, as they would not fund prototype development.  To us, that was a big number to swallow without any guarantee of a sale on the backend.  And, this particular product had to be manufactured with required components only available from one overseas manufacturer, which would have made assembling the product with other U.S. or China based components a logistical challenge.

WHY THE CONTRACT WAS A PROBLEM

This $5,000,000 project wasn’t going to be funded in one check from the customer.  It was coming in $5,000 at a time from 1,000 individual global franchisees over the course of a year.  Which meant going out of pocket on around $3,500,000 worth of inventory day one to get the best-priced manufacturing terms, without any financial support or guarantees from the customer, and then, crossing our fingers all the franchisees actually buy the product over time as there were supposed to.

Then, there was the issue of having to send the orders individually to 5,000 locations across the globe; it wasn’t simply going to one customer warehouse.  So, the warehousing of the items and the shipping logistics for heavy furniture going overseas, would have certainly created its challenges, operationally and financially, as that was not part of our core competency of selling only to U.S. based customers to date.

And, the final deal breaker was the 10 year warranty.  How many products have you purchased come with a product warranty of 10 years.  And, this was for outdoor patio furniture getting baked in the sun, and being used in a commercial setting where things could naturally go wrong.  The last thing we needed, were warranty claims showing up in years eight, nine and ten, that could have bankrupted the company down the road.

WHY WE PASSED THE DEAL

So, as you can see, there were a lot of reasons we decided to pass on this opportunity.  It would have been so tempting to close the sale, and pat ourselves on the back for doubling sales.  But, the downside risks here were way too high to swallow:  the upfront prototype costs, the upfront inventory financing, the global warehousing and logistics, the 10 year warranty, etc. were all potential pitfalls that we were unwilling to take that risk.

CONCLUDING THOUGHTS

So, the lesson here:  be careful what you ask for, because it could be your undoing.  Don’t get so romanced by the idea of driving revenues, that you don’t think through the operational or financial challenges it is going to result in.  Only bite off what you can easily chew, otherwise your business will “choke”.   Know what your core competencies are, and stay firmly focused on what you can do best.  It is perfectly acceptable and prudent to say no to a sale, if there is a high odds it will end up capsizing your boat.  For more insights here, be sure to read this companion article:  Pitfalls to Avoid When “Reeling in the Whale”.


For future posts, please follow me on Twitter at: @georgedeeb.