Excess baggage

5 January 2007

Large companies face all kinds of organisational obstacles that stop them managing customers efficiently. It's easier for start-ups - but only if they get their sales strategy straight from day one

For a company that's had its fair share of critics over recent years, Sun Microsystems must have been pretty pleased with the coverage it received from the venerable Wall Street Journal last week. Underneath the headline 'Sun Microsystems remakes its Sales Force', the Journal reported positively on Sun's efforts over the last eighteen months to improve the way it sells, which have included reducing the number of internal business units and changing its sales incentive schemes. One of its aims was to prevent customers being bombarded by calls from different salespeople pushing different products, and instead have one person manage each major account to provide a customer-wide perspective and a single point of contact.

The issues Sun has been tackling will resonate with mid-sized and large company CEOs around the world - and they matter just as much to start-ups. Over the years, most large organisations have evolved around their products and services, not around their customers. As a result, they tend to sell by division, and frequently find that people in one part of the company have little clue what their colleagues are selling elsewhere, or indeed who they're selling to. Last summer, for example, Webster Buchanan Research carried out extensive research among UK insurance and banking organisations to study their customer processes, and concluded that traditional product and divisional silos remain a key challenge even as they dabble with sophisticated sales and marketing techniques (see www.websterb.com).

Since the late 1990s, these kinds of issues have been tackled under the umbrella of Customer Relationship Management (CRM), a business discipline that focuses on companies' sales, marketing and service strategies. At the height of the Internet boom, CRM spawned a host of technology companies trying to automate customer-facing processes and deliver customer intelligence, and although many of them imploded as the bubble deflated, CRM has since become a mainstream component of business software suites from industry giants such as Oracle, SAP and Microsoft.

The great thing about CRM is that the management theory is entirely logical - it's about putting the customer first, determining their real business need, meeting it, and then keeping them sweet until they're ready to buy from you again. But putting it into practice is another matter, particularly for well-established companies that have to manage the transition from an old-school, product-centric view of the world. No-one likes driving through change at the best of times - but change that involves organisational structure, culture, commission schemes, strategy, operations and whatever else passes for the kitchen sink in corporate-speak, is nothing short of scary.

The good news for entrepreneurs, of course, is that they don't start with all that historical baggage, so in theory they should be able to build a customer-focused structure that plays to the rules of CRM. In practice, however, much will depend on how effectively they're able to impose a customer-centric discipline on their senior management team, sales staff (whenever they're hired) and the rest of their company. And the decisions they make in these early days can come back to haunt them.

Take something as basic as hiring a salesperson. Successful customer management is all about collaboration - but good salespeople are competitive by nature. Even with just two people selling - maybe a founder and a new hire - you can quickly get to a point where both are as concerned about carving out their territory as they are about meeting customer need. Founders often don't help themselves by refusing to hand over the reins on key accounts - what looks like a business-critical relationship to you looks like a lost commission opportunity to your sales manager.

Secondly, your customers' long-term requirements will sometimes conflict with your sales commission structure. Retention is one of the fundamental tenets of customer management: you spend a small fortune acquiring customers, both from direct costs like marketing and the cost of your time, but once they're on board it's much cheaper to keep on selling to them. So it's sometimes in your interests to sacrifice a short-term sale to secure long-term buy-in. The problem, of course, is that long-term buy-in doesn't pay your sales manager's mortgage, so you need to have an incentive scheme in place that rewards strategic thinking as well as short-term goals.

Above all, CRM is about meeting genuine customer need. Way before you worry about sales tactics and commission structures, investors will urge you to ensure that the product you're going to develop fills a real need. It may sound basic - but there's good reason why the vast majority of business ideas are rejected by angels and VCs. As long as your whole company ethos is driven by customer demand as much as product brilliance, you should be able to head off some of the CRM challenges that more established companies face today. That may not get you featured in the Wall Street Journal, but it has definite upsides.

By Keith Rodgers, Webster Buchanan Research