Revenue is Down, Let's Fire Sales

I met with a former client to discuss his company's current business. He wanted to pick my brain on how to best approach their opportunity to transform themselves, to reinvent and re-tune.

In response to their flat (and somewhat declining) revenue, they've cut back their company resources across the board - but they've specifically reduced headcount in sales.

That surprised me. Why would you cut sales when you need to drive revenue? Beyond the obvious opportunity to let go of the dead weight? I asked some questions and here's what I learned:

• The company released the bottom 15% of the sales force, the non-producers. I agree with that choice - separating the chaff is always a good step - even when revenues are up!

• The company also cut all sales resources in their top three emerging target markets. The reps had been on board for less than 5 months and while they had a strong pipeline - no deals for dollars had closed, and this decision was all based on revenue.

• They also cut their new channel program and reps. They'd moved into channels to expand their reach into a rapidly growing market sector where they needed partner expertise. The channel program was initiated about 6 months ago and was starting to get traction - but not fast enough for the bottom line results to justify the investment.

• They kept their top selling reps - especially the ones servicing their largest accounts in traditional industries - their bread and butter so to speak. Even though these reps made higher commissions and represented a higher cost of sales - they were worth it to keep the core of the business happy. When I asked about margins and the overall growth in this core business - my associate looked a bit dismayed. Margins were shrinking due to competitive pressure, and the core business was flat to declining overall -but we have to keep the core solid to survive, right?

This story isn't that unusual. From my perspective, it's filled with common decisions that can have negative ramifications. What are my concerns?

• Cutting sales. Cutting back on your source of revenues is something that needs to be done with a precision scalpel - not a chainsaw. I don't believe that reducing sales when revenue is declining is the best strategy. Yes, its a great chance to clean house and remove any non-productive resources. It's also a chance to proactively focus sales resources into the most advantageous markets - current and future. You have to be very precise and cautious - or risk cutting your future off at the knees. Which leads to my next concern.

• Hanging onto the status quo. If you haven't read my post 'But It's our Biggest Seller' and 'But They're Our Biggest Customer' - go read them please. Hanging onto the status quo can be a significant contributor to a company's demise. In this case, the company is paying reps more money on lower margins just to hang on to customers they perceive as 'core'. Competitive threats are increasing and margins are shrinking. Isn't this an opportunity to streamline the cost of sales into these accounts - and apply some resources to fuel your next market opportunity? What if that 'core' isn't your market of the future? Think about it.

• Strangling your future. I see this one quite often in my turnaround clients. They've started to expand into new markets. But then the overall company has issues and they back away from opportunity, returning to the status quo - just as they were getting traction. I'm not saying that sometimes new markets just don't pay off. When that's the case, it's a good decision to realign and refocus. But you need to give new investments the chance to fly. I happen to know that in this case the sales cycle for the company's products was in excess of five months (more like nine to twelve). So they didn't really give their new sales reps or channels the runway they needed to make a difference. Chances are that the margins, opportunity for expanded revenues and competitive differentiation were much more significant in their newer market targets. But now we'll never know, will we?

Realigning resources is one of the hardest parts of my turnaround business. It's emotional and personal, no matter how many times you do it. But as Spock would say, "The needs of the many outweigh the needs of the few." That's true in business, as well as exploring the galaxy.

We need to be thoughtful about where and what we cut. Sometimes we do have to make tough decisions about the future. But cutting all future investment, just when it may pay off, is not the ideal approach. You usually end up in a bigger mess in the long-term as competitive pressure escalates and markets mature - and you're stuck in the status quo.

Cutting sales and revenue-driving marketing resources may not be the best place to look for savings, either. Reducing nonproductive resources is one thing. Eliminating the engine that drives your revenue and opportunity for future growth is another.

To grow and thrive, companies must continue to invest in their next opportunity, even as they stabilize their foundation. The best decision for resource reallocation usually entails a balance between the known and the potential.

It takes courage to face the risks and invest in the unknown future - but the upside is far brighter when you do.