Sales Management

The nature of sales in interesting times, revisited, or is cold-calling in B2B space dead?

OLYMPUS DIGITAL CAMERAA story in today’s Dagens Næringsliv about DNB’s success in the US market for high-yield bonds stimulated some serious thinking about cold-calling in interesting times.  There are indeed tons of articles about the death of cold-calling out there, and I am not going to review their arguments.  It suffices to say that most of them are based on variations on the theme “the return on cold calling is dropping with every passing year. … [I]n a recent survey … more than 90% of C-level executives said they “never” respond to cold calls or e-mail blasts.” (source: Barbara Giamanco and Kent Gregoire: “Tweet Me, Friend Me, Make Me Buy”, in HBR July 2012).

However, the whole discussion about the death of cold-calling misses in my opinion the mark, for three reasons: i) There are significant variations across industries (see for example my blog about same, on crispideas.wordpress.com/2015/02/04/how-industry-fundamentals-dictate-dominant-sales-models-in-various-industries-and-why-reactive-sales-may-be-good-for-your-shareholders/), and these variations can be explained by industry fundamentals.  ii) The announcement of the death of cold-calling appears counter-factual (as I as well as most of my clients as well as my clients’ competitors and clients on a regular basis do cold-calling and email shots, with patently good results; besides the click on link rate is a much more interesting outcome than the email response rate referred to above).  iii) Most importantly, cold-calling, in a generalized sense, is in practice the only way to get up and running for an early-stage company in the tech sector (which is the primary focus for my advisory business), and I will in the following explain why:

  • Sales cycle compression: A proactive sales channel works with fairly low latency; one makes a call today, one gets a meeting next week, and one closes a deal next month. An inbound marketing system has in contrast typically much longer time delays, for a prospective buyer selected at random, not least because one has to wait until the prospective buyer is in buying mode.
  • Variabilization of cost structure: An inbound marketing system (incl. the technical set-up and the generation of content) has a high fixed cost, but low marginal cost. A proactive sales channel has lower fixed cost, but higher marginal cost (incl. travel and bonuses).  For most early-phase businesses, there are just a few, but important deals to be closed and then a proactive sales channel provides a cost advantage over an inbound marketing system.
  • Compensation for lack of visibility (mindshare and / or Google ranking): Early-phase companies struggle with establishing mindshare and Google ranking. A proactive sales channel takes to some extent this issue out from the equation.
  • Selling unknown products or products that do not respond to a known need: A buyer without a known need will never Google for such need. Many early-phase technology companies offer products that fall outside traditional need-based categories.
  • Monetization of professional and private relationships: As most founders of technology companies can testify, sales success for such companies hinges on selling stuff to buyers with whom one has an existing relationship, that is, to friends from university, ex-colleagues, and anyone one has met at a conference and with whom one has exchanged business cards. A proactive sales channel allows for the monetization of such relationships, an inbound marketing system does not.  It is this simple.
  • High contribution margin (not including sales costs) / low marginal cost: There are often in the tech sector room for solid contribution margins, with the implication that the relevance of lower sales costs as an argument for reactive approaches becomes void.

I have worked for a number of software companies, including Microsoft, Trolltech (later Nokia), Navita (later Brady), and LINKftr (later SINTEF).  Without disclosing  internal information, it is fair to say that Microsoft and Trolltech leveraged predominantly reactive sales channels, while Navita and LINKftr leveraged predominantly proactive sales channels.  Which can be compellingly explained by assessing the relevance of the above six arguments for each of these four software companies.

As hinted to in the introduction, the above argument is also corroborated by a story in today’s Dagens Næringsliv about how DNB, the largest financial services group in Norway with a dominant position in many business sectors, managed to build a solid position in high-yield bond market in the US, and ahead of for example BNP Paribas and UBS, by trawling office buildings and conference attendee lists.  Said a key member of the DNB team: “It was pioneer work.  We knew nobody.  It was all about getting the foot into the door.”  You want to tell that team about the virtues or RoI of inbound marketing?  No, because bullet points 1, 2, 3, 5, and 6 presumably all work against you.

However, the proof is in the pudding, or in our world in the RoI.  I happen to have insight into a natural experiment with a client in which we will pursue a two-pronged strategy: with some opportunities pursued essentially through inbound marketing, and other pursued proactively.  My pre-campaign guess is that both channels will have approximately the same 3-year RoI* of 150-250% (if large differences, it would not have made sense to pursue both approaches), but I will in a later blog post endeavour to give you the calculated post-campaign RoI, anonymized (pending client approval).  Stay tuned.

And if you think I am presenting alternative (an euphemism for contradictory) perspectives on cold-calling in my series of blog posts about sales, business development, and strategy, you are of course right.  It is because the relevance of cold-calling in interesting times is a knotty issue, and indeed, I only write about knotty issues.

Grim

*) Defined for the purpose of this discussion as (3-year order intake that can be attributed to this year’s activities– 1-year costs of same activities) / 1-year costs.

Discussion

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