Developing new markets
I was talking to a friend at a holiday party over the weekend. He recently left his company because they wanted to change his compensation plan to pure commission. He had been brought into the company to develop the federal government market for a company which had zero sales to the government. Despite several early wins, the senior management wanted results faster and wanted to motivate him accordingly.
I guess they are wondering about that decision, as he left the company. Unfortunately, commission-only plans generally do not work when developing new markets. By new markets, I mean markets that are new to the company (like a particular vertical or geographic area).
Here’s why and here’s what to consider…
Market development is not sales. Sales is when you have a defined product and process. Market development is when you have a product or a capability, but it may need to be repositioned or repackaged to serve the new market. You may need to change messaging or business practices. You may not even know if this new market will be attractive.
Even if the market is attractive, you don’t know what the shape of the sales funnel will be. How long will it take for prospects to progress through the sales process and place an order? What will the yield be on your investment?
Ok, so if you are a talented business development professional, why would you work in market development for pure commission. If you really have the expertise and network, then there are lots of better things you can do. Yet I’ve seen management make this mistake time and again.
Notice that I did not say work without risk. Most talented business development professionals do want upside. They need time and resources to develop the market.
So how do you get the most out of market development efforts?
1. Hypothesize. Develop some reasonable screening criteria to prioritize possible markets.
2. Design a learning process, not a sales process. Define exactly how you will go learn about this market and develop the right customer relationships. Define milestones to determine when you will get there. The biggest uncertainty is the size of the market opportunity and the shape of the sales funnel. Your primary goal is to resolve this uncertainty quickly.
3. Identify the right point person and compensate them appropriately. They typically need a reasonable base salary and a commitment for a certain period of time subject to meeting process milestones. Define a bonus structure that may include commissions or may include equity.
If you are really in an early stage market development process, I think equity is preferrable to commissions. You want to maximize the value of the company, not just sales. Sometimes this means saying no to certain business. If a person is compensated for commissions, they will want to close every sale no matter how bad the business.
4. Get bad news early. Make sure that your management team is focused on learning and that you have the right culture to surface bad news. Based on this news, change your plan.
5. Be very cautious about reverting to traditional sales management techniques. Pressure will emerge to revert to a commission plan. This will sabotage your efforts and drive good people away.
6. Given all of the above, make sure you are really ready to make the investment to develop a new market. It does require capital and patience. Another client of mine spent over 2 years in China just figuring things out. They got some orders here and there, but their primary purpose was to understand the landscape and develop relationships. Now they are booming over there.
