Wednesday, May 22, 2013

Avoiding the superstar sales rep trap


For your business to be valuable – and sellable one day – you need some way to generate sales after you’re gone. Many business owners hire a superstar salesperson to replace themselves as a rainmaker but that’s a trap. 

By replacing yourself with a single salesperson, you’re simply trading a dependency on you to  dependence on a sales rep, and your business will be no more sellable as a result. When we analyzed the users of The Sellability Score, a self-assessment test business owners use to understand how to drive up the value of their company, we found that businesses who could easily replace their top salesperson are more than twice as likely to get an offer to buy their business than those companies who are overly reliant on a single salesperson.

To be as valuable as possible, your company needs a sales team – not just a single salesperson. But how do you build an entire sales team? Wouldn’t it be more prudent to hire a sales rep first?  The answer is no. Hiring a single sales rep will only keep your business reliant on one person. You need a team and the faster the better. Here are three tips for building a sales team on a shoestring:

1. Charge up front

Sales reps are expensive to find and train, so in order to avoid running out of cash before they are fully ramped up, consider switching your customer billing cycle to charging some or all of your bill up front. If you stagger your billing, you can simply ask for a larger portion of your payment up front. If half your customers agree to the larger deposit, you’ll have more cash to build your sales team and more time for them to train up.

You might also consider switching to a subscription or service contract model as most people are used to paying for subscriptions up front. Try for an annual contract with an incentive for full payment in advance. For example, if you charged $1,000 per month for a maintenance contract but offered clients a $10,000/year option provided they paid up front, you would have ten thousand dollars in the bank for each contract sold. If a fully ramped up sales rep is able to sell ten service contracts a month, would it be reasonable to assume a new rep could sell three per month? If so, a new rep should be able to quickly get to the point where they are covering their monthly cost to you.

2. Carve territory into small chunks

Sales territory is an asset of your company and, like giving candy to a baby, it is easy to offer and hard to take back. Carve up your market into sales territories that provide enough opportunity for each rep to make money.  It’s okay to leave a territory unfilled for years, so avoid the temptation to give the territory to another rep, as it will become impossible to take back when you’re ready to fill the position.

3. Hire a second rep as quickly as possible

If at all possible, start by hiring two sales people, not just one. Sales people thrive on competition, and in order to be a sellable company, you need to be able to demonstrate to a buyer that your sales are driven by a sales team and not just a high performing salesperson. If you’re charging up front or on a subscription model, you should be able to quickly get to the point where each sales rep is at least covering their costs to you.

Replacing yourself as your company’s rainmaker is the right strategy; but avoid trading a dependency on you to dependence on a superstar sales rep. Instead, hire a sales team and watch your company – and its value – grow exponentially.

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Wondering if you have a sellable business? Contact the MAXIMA Group for a consultation. We focus on privately held companies with annual revenues of $3 million to $60 million. We also advise larger public and private companies on buy-side engagements.