Front Lines is a guest viewpoint section offering perspectives on current issues and events from people working on the front lines of Canada's technology industry. Jeff Bennett is a partner with ServiceVantage Corp.
In the technology industry, there are companies that consistently experience great success and longevity in their specific verticals. Public companies such as Cognos and SAP, and private ones such as Kinaxis (formerly Webplan) and Mxi Technologies all have something in common.
They all have strong support and services operations that profitably generate a significant percentage of their revenue that often exceeds 45 per cent of overall. This, combined with having technology that the market wants, has secured each of them a spot as a major, influential player in their industry. They are solution-selling organizations that understand that they bring the most value to their customers by solving their business problems through the right combination and balance of technology, services and support.
Despite the obvious, positive effects every single successful technology company has attained because of their solution selling focus, many startups, small and mid-sized technology companies fail to see the importance. They place their bets that their technology and its features will sustain and grow their business. They are product selling organizations.
Let's look at some characteristics of product selling companies versus solution selling companies.
Product selling companies have product-focused sales people and emphasize new sales instead of sales from existing accounts. This type of organization often gives away valuable services in order to "sweeten the pot" to make the sale. They have a very short-sighted view of revenue that, without services, must rely on product features to attract customers. The problem with this strategy is that 80 per cent to 100 per cent of these features are also found in their competition's product. As a result, price becomes the only possible differentiator and the customer makes their decision based on which one is cheaper. Revenue and profitability challenges are a virtual certainty, as is mediocrity.
Solution selling companies think very differently. During their sales cycle, product features are rarely discussed. Instead they focus on clearly understanding the problems and challenges the prospect has and then present them a solution that includes the right mix of services, support and the product. The product is a piece to the overall puzzle, not the entire solution in itself. These companies use services and support to augment the value of their product to ensure the best possible solution that will generate revenue beyond just a particular quarter. They do not find themselves in features war, or have price as the sole negotiation tool.
Companies with non-product revenue streams can also allow them to make major changes to their business model without the critical impacts that would affect product focused companies. A perfect example of this is Kinaxis (formerly Webplan Inc.) who, over the course of two years, made massive corporate changes, such as its market positioning, product focus, product name and even company name. Kinaxis focused hard on its support and services areas to generate a large majority of its revenue to ensure that it made this critical transition. How many product selling organizations that you know of could make such a fundamental shift in their business and survive?
So if you are a product-focused, product selling company and want to transition to a solution-focused, solution selling company you must both understand and improve the skill set within your sales organization. You can have the best solution-focused strategy, operations and talent, but if it isn't being sold, it doesn't matter. Solution selling people have a very different sales cycle, approach and negotiation skill than their product-selling counterparts.
All salespeople fall under one of three categories; product selling, product selling with the desire or acumen for solution selling but need help, and finally, true solution selling. If you need to transition to a solution focused company, there will be no room for those in the first category and need to be quickly replaced as they will not contribute adequately to a solution focused organization.
This may seem harsh, but the market in which you are competing is both extremely harsh and unforgiving of slow decisions. Those in category two need help with this transition through sales training, mentoring and sales tools. Assuming all the tools are in place, these sales individuals will have one or two quarters to prove they are solution selling otherwise they will then fall into category one.
Finally, those in the third category just need the right compensation plan to unleash them.
I have spent virtually my entire career in the area of Professional Services and Support, with the past three years specializing in helping companies make this transition. Through the years, there have been dozens of examples of solution-focused companies that achieve success and product focused companies who struggle to do the same.
Solution selling companies, on day one of their first quarter know that they will generate 40 per cent to 50 per cent of annual revenue target even if they don't' sell one unit of their technology while their product selling counterparts must generate, from scratch, almost their entire revenue target.
This is not to say that solution focused companies do not have struggles, they do, but the difference is that they have many more options (not to mention revenue streams) for navigating through most storms and choppy waters than their product focused counterparts. Which ship would you rather be sailing?
