To Diversify or Not to Diversify, That is the Question

There is no disputing it. Diversifying your investment portfolio is an important strategy to protect your personal wealth. Although your overall returns will be tempered, it hedges risk, smooth’s returns, and ensures liquidity. No, the diversification I’m talking about is a set of business strategies that expands your market and therefore your opportunity for growth.

If we get into our time machine and go back to the latter half of the 20th Century, you would see that diversification was the primary strategy for most companies. With few exceptions, those companies ending up losing their way. More than 80% of the Fortune 500 corporations from 50 years ago are gone (lack of innovation also played a role). For a story on how diversification can be taken to an absurd degree, read the History of the American Machine and Foundry (AMF) Corporation, founded in 1900 and now just operating bowling alleys.

Before we get into how and when diversification makes sense, let’s first talk about the risks. There are three main pitfalls you need to consider when going down the path of expanding your service offering. Each of them alone could ruin your business. All three are most certainly lethal.

It becomes a major distraction. If your company is like most, you have limited resources. Resources include people, money, and time – all three are usually in short order. When you embark on a diversification strategy, some of these resources get redirected (even in the case of acquisitions).  And guess who gets distracted?  Your best people, since you assigned them this important initiative. How will this impact your current business? I know both your employees and customers will miss them.

It cannibalizes existing sales. It’s very common for companies to diversify in a way that causes them to unwittingly steal market share from existing products or services. For example, when a company realizes they are stuck in the high-end of the market and feel the need to offer something at a lower price point to drive volume. The problem is the new product, even when it has a different name, can provide a higher value-price ratio than your existing offering and customers may make the trade-off, go down market, and reduce your total share of wallet.

It damages your brand. I put this last as I believe this could be the greatest risk. You’ve spent years building and honing your reputation. Your customers have come to expect a certain level of quality, service, and price. When the new product/service falls short of expectations, you’ve hurt your brand equity. This could negatively impact a large swath of customers, taking you years to recover.

Now that I’ve sufficiently scared you away from even mentioning the word diversification, let’s talk about when and how it makes sense. When you have become a dominant player in your market and you are enjoying excellent margins with a stellar reputation, diversification could be an exciting opportunity. There are 5 fairly unique diversification strategies that make sense. Remember to start small.

New Geographies.  The easiest form of diversification is geographic diversification. If you sell in a region of a country, sell in other regions (Northeast US to Midwest US). If you are in one country, look at the next logical country (US to Canada), and so on and so forth. As I’m sure you know, selling into other countries comes with it’s own set of challenges; however, these are easily overcome with the right people. The Internet has made the world borderless (nearly), so ignore this at your own peril.

Product Line Extensions. This is typically a minor change to a product in the same category that can expand your market. It could be as simple as a new flavor, color, or package size. Coke is the simplest example. Cherry coke was created because people were adding cherry syrup to regular coke. Diet coke for those people that didn’t want the calories. 2 liter bottles for people that wanted to save money by buying in bulk. All of these carry low risk and provide a pivot that expands your market. Who would argue with that rationale? Of course, do the proper market research and testing to ensure you are delivering on your promise.

Add on Services. This is one of my favorites and often overlooked. GE saw they could make more money from financing the equipment than on selling the equipment. GE Capital was born. How about buying insurance for your phone from BestBuy. You would be surprised how lucrative service contracts can be because the cost to service is so low and you have a captive audience (low sales and marketing costs).

Brand Extensions. This is where you leverage your strong brand equity to sell a new product in a similar market. Under Armour provides a classic example. They developed a breathable material and developed casual sportswear for active people. They used athletes to market their product because if it’s good enough for them, it must be good enough for the weekend warrior. Using that same technology, they moved into running shoes, golf shoes, sports accessories…all targeted at the same active consumer.

New Industries. This one is trickier than it sounds. Just because a product or service is used in multiple industries doesn’t mean the price, quality, and volume expectations are the same. This can be as easy as going from the industrial to the consumer sector or as complex as going from serving business offices to serving hospitals, the difference in expectations can be vast. Be smart and find a new industry that requires a small pivot but provides significant upside and small risk.  Again, it probably requires you to hire an industry expert, but that is small price to potentially multiply your available market.

Then there are some companies that have taken all of these to the extreme. Think Richard Branson and the Virgin Group. From a small record company in 1970 to more than 400 companies today (including a global commercial airline). That is one powerful brand.

Diversification can provide quick upside without a large investment when done right, or it can challenge the strongest companies. Remember, you don’t have to go it alone. You can partner, white label, or acquire your way into diversification strategies, but that’s for another blog.

Like Magic, Selling is Both Art and Science

Everyone loves a good magic trick. You want to believe in the supernatural even though you know it’s just slight of hand. The reason I like magic tricks is because they are filled with both art and science. The art involves ones ability to gain the confidence of others and hold their interest. The science is that magic tricks often play off the basic laws of physics.

Like magic, most people feel that the sales role is either really easy or really difficult. This binary outcome can be attributed to the fact that more than any other function, sales is a role that requires both a strong right and left-brain. The art (right-brain) includes marketing, relationship building, and negotiating. The science (left-brain) requires skills like pricing, pipeline management, and contracts.

For this discussion, let’s take the need for right-brain skills as a given. If you cannot earn someone’s trust, be able to connect with them emotionally, and motivate them to act, there is no reason to continue. That’s the art…and yes, it can be taught. Instead, let’s focus on the science, or left-brain, requirements of growing top line revenue.

In my experience, successful salespeople utilize three interdependent left-brain components: analytics, process, and technology.

1. Analytics: Surprisingly, most salespeople are not comfortable with numbers (except when it comes to calculating their quarterly commissions). That’s because they are left-brain dependent and got into the business because they prefer relationship building. I’ve always looked for solid analytical skills, because like an economist, the salesperson needs to be able to account for a number of variables to deliver the optimal outcome. I’ve secured major deals because I was able to calculate a number of factors in my head during negotiations, helping to short-cycle the sales process. The other reason I like analytical salespeople is they tend to better understand the financial aspects of their role, e.g. the interplay between pricing, volumes, margins, and probabilities and how it impacts forecasting and the income statement. A side benefit is that I don’t always have to double-check their work.

2. Process: Most salespeople abhor process. They usually associate process with bureaucracy (sometimes they are correct). In fact, most salespeople circumvent processes, even the processes they helped create. You could write a book on why process is critical to this role, but let me discuss two. First, a scalable and repeatable sales process is about time management. Others in the organization know how and when to get involved each step of the way. Second, a robust sales process ensures consistency in the deliverables (presentation, pricing, contracts, etc.) and the quality improves each time.

3. Technology: When I first started in sales in the 80’s the available technology was a pen, day planner, calculator, and marketing materials. Cell Phones, computers, and the Internet were still years away from being ubiquitous. Today, technology is a must-have and it starts with your CRM system. CRM helps streamline processes and makes real-time decision making possible. The better question is how are salespeople using the technology? I’ve helped numerous companies that had all the technology, but didn’t know how to properly utilize it. Technology is about two things. First, having access to information that allows the salesperson to make better decisions. That could be the price of certain commodities or it could be a service failure that happened 10 minutes before a client meeting. Second, technology is about time-management. My goal has always been to maximize the amount of time the salesperson is in front of the client. Each minute saved is another minute they can push an existing deal over the finish line or prospect for a new client.

There is a reason why the average tenure for the VP of Sales position is only 2 years. Most of that turnover can be attributed to their inability to tap into their left-brain and setup a scalable sales organization based on rigorous analytics, repeatable processes, and time-saving technology. Obviously, there are other factors; however, when these three are implemented properly, your sales organization will become a true growth engine and your top line will see significant and immediate lift.

Crisis in Lead Generation for Complex Sales

Many organizations rely on inside sales departments and/or third party firms to generate leads for their outside sales teams. Investments in marketing automation systems, such as Marketo, Hubspot, Eloqua, and others, along with increased inside sales headcount and program budgets, have set lofty expectations for your business.

The crisis is that for many companies, the investments are not generating significantly more qualified leads for the sales organization. Why is that?

Three major factors are contributing to the crisis:

1. Office Phones Are Rarely Answered. Contacts that are able to make decisions within large firms are rarely in their offices due to meetings and travel, so they rarely answer phone calls from unknown numbers. Calling their cell phones would be a logical alternative, right? Two major challenges exist in that department: the contact’s cell phone is often not in the lead list or CRM system, and calling cell phones is risky except for the most skilled people making outbound calls that know when to call. And in many organizations, leads are delivered to outside sales people for the sales person to try to set an appointment. Think about it—the inside sales or third-party organization succeeds in getting through to the prospect. Then they say thank you very much and I’ll have the outside sales person contact you to set up an appointment.

2. Emails Aren’t Getting Through.  Your and your competitors’ marketing automation systems are carpet bombing email addresses, so getting your snazzy template emails through is hard and getting harder. There is a whole industry focused on stopping the mass emails from marketing automation systems, and they are good and getting better. And if your outbound emails are not highly targeted and customized, they are rarely opened. Email average open rates are in the low 20% range, with average click through rates (CTR) less than 5%. The higher the person is in the organization, the lower the open and click through rates.

3. Sales People Don’t Like Leads From Marketing Automation Systems. Marketing automation systems easily handle hundreds of thousands of email addresses for marketing campaigns. Companies didn’t make marketing automation investments to deliver the same number of leads as before automation. Typically, we see lead generation goals increase by multiples once the systems are up and running. So the number of leads handed to outside sales teams increases by approximately the same multiple. The issue is that the quality of the leads decreases. To that end, the outside sales teams lose confidence in the leads and tend to ignore all but the most encouraging leads.

The sales leaders are key to solving the crisis. Sales organizations scream for more and better leads from marketing. Unfortunately, rarely do sales managers incorporate lead management discussions with their sales people. Sales leaders need real-time reports and dashboards so they can monitor how well their teams are following up on leads and the corresponding results. It is critical that low quality or bad leads be tagged with the right amount of feedback so marketing can understand how they need to adjust their qualification criteria and monitor the effectiveness of their calling resources.

All of these challenges can be addressed in most organizations, but the marketing department cannot tackle it on their own. They need help from sales leadership and the marketing operations teams. It often requires a revamping of processes, adjusting expectations, reestablishing trust with the sales organization, and providing sales leaders with tools so that they can be front and center on addressing the crisis. It’s not easy, but we can’t afford to ignore the crisis, as it will continue to be a drag on firm growth.