Tag Archives: Sales Cycle

Sorry, But Demo Is Not A Sales Cycle Stage

I think two demo practices are nearly universal these days and I’m not a big fan of either:

I discussed using demo as the primary website CTA in a previous post.  In this post, I’ll cover my objections to using demo as a sales cycle stage.  I know that both of these viewpoints are controversial, so please classify them in the thought-provocation department [2].

What are Sales Cycle Stages?
Companies use stages to decompose the sales process into a series of steps.  For example:

  1. Prospecting
  2. Contacting
  3. Qualifying
  4. Presenting
  5. Objection handling
  6. Closing

Sometimes those steps are phases that you exist within, other times they are milestones that you pass [3].  Companies use stages to track the progress of deals, the aging of deals to ensure they don’t get stuck, and typically weight the pipeline by stage as a way of triangulating the forecast.

Seller-Out or Buyer-In?
When you first learn about sales cycle stages they are typically presented, as they are above, from the seller’s point of view.  Over time, most people realize this is wrong, particularly when they’ve moved to the increasingly popular framing that selling is not a process unto itself, but more the facilitation of a customer’s buying process.

In this paradigm you try (and it’s not always easy) to define stages from the buyer’s viewpoint instead of the seller’s.  For example, using milestone-based stages, this might look like:

  1. Need established.  Buyer a has problem for which they are seeking a solution, typically as verified by an SDR.  [4]
  2. BANT verified.  Buyer has not only a need, but budget, authority to spend it, and a timeframe for purchasing a solution — all as verified by a seller.  [5]
  3. Deep dive completed.  Buyer has performed a deep dive with the seller to fully explain the problem and answer questions about it.  [6]
  4. Solution fit confirmed.  Buyer believes that the seller’s product can basically solve their problem.  [7]
  5. Vendor of choice.   Buyer believes that the seller’s product is the best choice of solution to the problem.
  6. Redline.  Buyer’s legal team has reviewed the contract and submitted a turn of redline markup.
  7. Contracted.  Buyer has completed the contract and other required paperwork.  Also known as closed/won.

Notice that the first word of every stage definition is “buyer” in order to keep us focused on the buyer, not the seller.  There are three other great features of the above style of system:

  • Every stage is verifiable.  In many staging systems, it’s hard to know what stage you’re in [8] and nearly impossible for a sales manager to verify it.
  • Sellers can be pushed for evidence in deal reviews and pipeline scrubs.  Example.  Manager: “You classified this as stage 4, why?”  Seller:  “Because, they said they think we can basically solve their problem.”  Manager:  “Who said that and when?”  Seller:  “Paula the VP said it at the end of the meeting last week.”
  • Management verification can be done by asking the buyer a single question.  Manager:  “So, your seller Joe says you’ve done a deep dive together on the problem you’re looking solve?”  If yes, stage 3.  Manager:  “So, your seller Jane tells me you think we can basically solve your problem?”  If yes, stage 4.

My Problems with Using Demo as a Stage 
Given that I like buyer-in, verifiable staging systems, it’s probably no longer a surprise that I don’t like demo as stage, but here’s the full list of reasons why:

  • Demo is seller-out.  I learned to hate seller-out stages back in the day when “proposal” was also a stage.  You can send a proposal to anyone at any time — what does that actually tell you about the progress of a deal?  Nothing.  The same holds true for demo.
  • Demo is not buyer-in.  It doesn’t tell us anything about where the buyer is in their buying process.  Just that they got a demo.  By the way, which kind of demo did they get?  Did we do a custom demonstration mapped to a precise problem they are desperate to solve or did they just passively watch a 30-minute generic demo?
  • Buyers may want demos at very different phases of their buying cycle.  Gadget people want a demo of everything.  Others may want a demo before making their long list.  Some may want a demo before making their short list.  Others may only want demos of two finalists.  Many will want multiple demos to different people along the way.  Remind me how demo tells you where are you in the sales cycle again?
  • Buyers should be able to get demos when and how they want them.  Could you imagine saying, “you can’t have that white paper until we’ve completed step 3 of our process?”  That’s effectively what you’re doing when you make demo a stage.  Think:  “I’m sorry, demo is our stage 4 and we haven’t completed stage 3 yet; can we get back to what I’m focused on, please?”  In a world where buyers want ever more control over the buying process, that dog don’t hunt.
  • You risk building an expensive custom demo into your sales process.  Once demo is a declared a stage, sellers start focusing on the demo as the big event.  Well, we need to gather requirements for the demo.  Oh, we’ll be showing you how that works as part of the demo.  Yes, we’re working on customizing the demo for your industry and solution.  What if the customer didn’t want or need some big customized demo to buy your software?  What if believing you could basically solve their problem and thinking you were the market leader (i.e., safe choice) were enough?  You risk imposing the demo on the buyer (“well everybody does it”) in the name of process rather than remaining focused on their buyer and their solution.
  • Conceptually, demo is part of confirming solution fit.  The usual reason for a demo is to help the buyer establish if the product can (basically) solve their problem [9].  What we should be focused on is whether they think we can solve their problem [10], and not whether they got the demo.
  • Be careful what you wish for.  If you wish for a lot of demos, you’ll end up doing a lot of demos.  The question is will they lead to sales?  I’d rather focus on convincing a lot of people that we can basically solve their problem or that we’re the best solution to their problem — or that we can basically solve their problem and we’re the clear market leader — than on giving a lot of demos.
  • Demo defaults to the reference point.  Once people start using demo as a stage, it quickly becomes the default mid-funnel checkpoint and two metrics rise to the top of management reporting:  demos/week and demo-to-close rate. If you think demo is effectively meaningless as a stage, this is obviously problematic.  It’s like saying how many schmumbles did we do this week?  50.  How many did we do last week?  30.  Awesome, schmumbles are up this week!!  What’s a schmumble?  I don’t know.

All that said, I understand why people like to use demo as a stage — demos are tangible, you know when they happened, they often do happen at roughly the same place in the sales cycle, and they are indeed often required.

But making demo a sales cycle stage hard-codes demos into your sales process and, like hard-coding in programming, while it may be expedient in short-term, you may well live to regret it in the long.

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Notes

[1]  Except in product-led growth (PLG) models, where it’s trial, which is indeed the point.

[2]  In both cases, I know these practices are entrenched so I’m not asking anyone to blow up their website or their sales pipeline management process.  I am, however, asking you to think twice about how you use demo both on your website and in your sales cycle, with an eye towards potentially changing your approach.

[3]  It’s shocking how many companies can’t answer the question:  are your stages phases or milestones?  That is, does “stage 4” mean you are “in” stage 4 or that you have completed stage 4.  When defined as phases, you will often find “exit criteria” that define what needs to be done to exit the stage.  Either way, it has to be crystal clear when you have exited a stage or not.

[4]  This is typically done after other preliminary qualification has occurred, such as company-size or industry to ensure the buyer is in the target market.

[5]  Also known as a sales-accepted opportunity.  This is the point, in most companies, where the opportunity officially enters the pipeline.

[6]  This may involve a single meeting, or a sequence of them, depending on the complexity of the problem and the potential solution.

[7]  Notwithstanding certain detailed issues that remain open questions, but overall, the buyer has reached the conclusion that the product can basically solve this problem.  This is not to say that it’s the best, the only, or the most cost-effective solution to the problem; merely that it can solve the problem.  Think:  a tank could likely solve my stump-removal problem, but then again so could The Dominator.

[8]  Among other ways, this can happen in a phase-based system where there are lots of exit criteria per stage.  I’ve literally seen systems where you could win the deal before clearing all six of the stage 3 exit criteria!

[9]  Putting aside purely educational demos which I think are best handled by marketing.

[10]  Which can be accomplished through other means as well — e.g., case studies, reference calls.  Believing that someone like me solved a problem very similar to one like mine is often a far more powerful way of confirming solution fit.  As is merely demonstrating deep expertise in the problem to solved by, e.g., completing a few of the customer’s sentences when they’re describing it.

Why Every Startup Needs an Inverted Demand Generation Funnel, Part III

In part I of this three-part series I introduced the idea of an inverted funnel whereby marketing can derive a required demand generation budget using the sales target and historical conversion rates.  In order to focus on the funnel itself, I made the simplifying assumption that the company’s new ARR target was constant each quarter. 

In part II, I made things more realistic both by quarterizing the model (with increasing quarterly targets) and accounting for the phase lag between opportunity generation and closing that’s more commonly known as “the sales cycle.”  We modeled that phase lag using the average sales cycle length.  For example, if your average sales cycle is 90 days, then opportunities generated in 1Q19 will be modeled  as closing in 2Q19 [1].

There are two things I dislike about this approach:

  • Using the average sales cycle loses information contained in the underlying distribution.  While deals on average may close in 90 days, some deals close in 30 while others may close in 180. 
  • Focusing only on the average often leads marketing to a sense of helplessness. I can’t count the number of times I have heard, “well, it’s week 2 and the pipeline’s light but with a 90-day sales cycle there is nothing we can do to help.”  That’s wrong.  Some deals close more quickly than others (e.g., upsell) so what can we do to find more of them, fast [2].

As a reminder, time-based close rates come from doing a cohort analysis where we take opportunities created in a given quarter and then track not only what percentage of them eventually close, but when they close, by quarter after their creation. 

This allows us to calculate average close rates for opportunities in different periods (e.g., in-quarter, in 2 quarters, or cumulative within 3 quarters) as well an overall (in this case, six-quarter) close rate, i.e., the cumulative sum.  In this example, you can see an overall close rate of 18.7% meaning that, on average, within 6 quarters we close 18.7% of the opportunities that sales accepts.  This is well within what I consider the standard range of 15 to 22%.

Previously, I argued this technique can be quite useful for forecasting; it can also be quite useful in planning.  At the risk of over-engineering, let’s use the concept of time-based close rates  to build an inverted funnel for our 2020 marketing demand generation plan.

To walk through the model, we start with our sales targets and average sales price (ASP) assumptions in order to calculate how many closed opportunities we will need per quarter.  We then drop to the opportunity sourcing section where we use historical opportunity generation and historical time-based close rates to estimate how many closed opportunities we can expect from the existing (and aging) pipeline that we have already generated.  Then we can plug our opportunity generation targets from our demand generation plan into the model (i.e., the orange cells).  The model then calculates a surplus or (gap) between the number of closed opportunities we need and those the model predicts. 

I didn’t do it in the spreadsheet, but to turn that opportunity creation gap into ARR dollars just multiply by the ASP.  For example, in 2Q20 this model says we are 1.1 opportunities short, and thus we’d forecast coming in $137.5K (1.1 * $125K) short of the new ARR plan number.  This helps you figure out if you have the right opportunity generation plan, not just overall, but with respect to timing and historical close rates.

When you discover a gap there are lots of ways to fix it.  For example, in the above model, while we are generating enough opportunities in the early part of the year to largely achieve those targets, we are not generating enough opportunities to support the big uptick in 4Q20.  The model shows us coming in 10.8 opportunities short in 4Q20 – i.e., anticipating a new ARR shortfall of more than $1.3M.  That’s not good enough.  In order to achieve the 4Q20 target we are going to need to generate more opportunities earlier in the year.

I played with the drivers above to do just that, generating an extra 275 opportunities across the year generating surpluses in 1Q20 and 3Q20 that more than offset the small gaps in 2Q20 and 4Q20.  If everything happened exactly according to the model we’d get ahead of plan and 1Q20 and 3Q20 and then fall back to it in 2Q20 and 4Q20 though, in reality, the company would likely backlog deals in some way [3] if it found itself ahead of plan nearing the end of one quarter with a slightly light pipeline the next. 

In concluding this three-part series, I should be clear that while I often refer to “the funnel” as if it’s the only one in the company, most companies don’t have just one inverted funnel.   The VP of Americas marketing will be building and managing one funnel that may look quite different from the VP of EMEA marketing.  Within the Americas, the VP may need to break sales into two funnels:  one for inside/corporate sales (with faster cycles and smaller ASPs) and one for field sales with slower sales cycles, higher ASPS, and often higher close rates.  In large companies, General Managers of product lines (e.g., the Service Cloud GM at Salesforce) will need to manage their own product-specific inverted funnel that cuts across geographies and channels. There’s a funnel for every key sales target in a company and they need to manage them all.

You can download the spreadsheet used in this post, here.

Notes

[1] Most would argue there are two phase lags: the one from new lead to opportunity and the one from opportunity (SQL) creation to close. The latter is the sales cycle.

[2] As another example, inside sales deals tend to close faster than field sales deals.

[3] Doing this could range from taking (e.g., co-signing) the deal one day late to, if policy allows, refusing to accept the order to, if policy enables, taking payment terms that require pushing the deal one quarter back.  The only thing you don’t want to is to have the customer fail to sign the contract because you never know if your sponsor quits (or gets fired) on the first day of the next quarter.  If a deal is on the table, take it.  Work with sales and finance management to figure out how to book it.