Thought Leader Phil Fernandez In His Own Words
Revenue Disruption—Revenue Performance Management and the Cure for Revenue Dysfunction
Phil Fernandez, CEO of Marketo, squarely explains how a historical failure in sales and marketing alignment along with a disruptive change in the way buyers buy creates a revenue dysfunction that stifles revenue growth. In his new book, Revenue Disruption, he also shows how to cure this ill using new thinking and Revenue Performance Management.
"Anytime there is this kind of disruption it creates a tremendous opportunity for individuals or companies that are able to see it as an opportunity to change, to rethink, to reinvent and to make a move."
Key take away points in the Revenue Disruption discussion with Phil Fernandez:
- In his just released book, Revenue Disruption, Phil suggests that companies have a revenue dysfunction problem brought on by a combination on internal and external factors. Internally, sales and marketing teams have historically lacked effective collaboration and often operate with a cultural friction that results in separate strategy, processes and technology which then deteriorates their mutual objective of revenue generation. On the external side, there is now a profound change in the way buyers buy. With abundant product information available online—such as customer reviews, peer evaluations, independent analysis, social network referrals, user generated content and more—the vast majority of buyers begin their buy cycle in a search engine or online, effectively circumventing sales people, completing the majority of their buying process and culminating a vendor short-list before ever contacting the finalist vendors. Potential suppliers not found during the buyer investigations are excluded without ever knowing. This fundamental change in control to the buyer, without recognition or adaptation by sellers, is exacerbating a systemic revenue dysfunction problem.
- According to SiriusDecisions, Inc., "70 percent of the buying process is now complete by the time a prospect is ready to engage with sales." Therefore, marketing now owns the majority of the buy cycle and must implement lead acquisition techniques—such as content marketing and inbound marketing—to engage buyers early and in the formative stages of the buy cycle, and before those buyers down select their finalist vendors.
- Phil suggests the entire revenue creation process is ripe for disruption, reimagination and fundamental reinvention. In fact, he authored Revenue Disruption as a manifesto for change, to effectively view the disruptive influence from the Web and social media as an opportunity to rethink and reinvent business development strategies. When recognizing that most companies reinvest 20 to 30 percent or more of their revenues to acquire more revenues, even small adjustments to an inefficient revenue generation process can trigger significant changes to top line revenues.
- Key to Phil's strategy and recommendation is the concept of Revenue Performance Management (RPM). RPM effectively morphs what are oftentimes separate sales and marketing processes into a single revenue generation process and brings more science to the strategy in order to optimize interactions with buyers across the revenue cycle and accelerate predictable revenue growth.
- Phil argues that implementing a Revenue Performance Management strategy can grow revenues 20 to 40 percent, in largest part from the efficiencies gained by the sales team or sales channels. Looking at the numbers at a macro level, most companies spend in the neighborhood of 30 percent of their revenues just on the sales team. Yet most sales teams spend 20 to 60 percent of their time inefficiently calling prospects who no longer need or want to be contacted by sales people. The business impact upside occurs when sales people stop investing inefficient time trying to reach unqualified prospects and instead focus their limited time on those prospects who are ready to buy. If marketing can become more efficient in using lead acquisition techniques (such as compelling content, search engine optimization, search marketing, etc.) to be found by early stage buyers, nurture not-yet-ready to buy prospects, and transfer those sales-ready buyers to the sales team at the precise point when they become ready to engage in active buyer discussions, the sales team will avoid inefficient prospecting and allocate their time to selling activities such as demonstrating value, advancing opportunities, and negotiating and closing sales deals.
- Phil suggests that adopting a Revenue Performance Management strategy is not optional; it's essential, and businesses which fail to adapt to the new ways in which buyers buy will become systematically less competitive and in fact will be out-competed by organizations who do capitalize on this disruption and take advantage of RPM.
- There are multiple routes to begin an RPM journey. Ideally, a change in business development strategy will occur top-down, beginning with executive sponsorship and then aligning sales and marketing departments into a single team bound by unified revenue objectives and rewarded by mutual performance. At a more tactical level, it may make sense for sales and marketing to begin their alignment by defining a 'sales-ready' lead.
- Obstacles to successfully implementing Revenue Performance Management include the failure to recognize that RPM is a long-term journey which requires changes in the way people work and work together. Another pitfall can occur in the failure to align incentives and compensation. For example, Phil argues that marketing people must be incented based on revenue outcomes—and resistance to this results based performance accountability will cause RPM initiatives to sputter and stall.
- As buyers now complete much of their buying cycle online and before contacting a sales person, marketing now owns much more of, and possibly the majority of the buy cycle, and must therefore implement techniques to engage those buyers before they down select their finalist vendors. This should similarly trigger a change in in the way companies allocate their resourcing and budgeting among sales and marketing. For example, many software companies maintain a 3 or 4 to 1 ratio between sales and marketing spend (i.e. for every dollar spent on marketing, 3 or 4 dollars are spent on sales). However, Marketo (a leading RPM adopter) has shifted its spend based on the disruptions discussed and maintains a 1 to 1 ratio, spending as much on marketing as sales. This actually makes sales more efficient by limiting their sales activities to truly qualified buyers. It further allows Marketo to assign sales people significantly higher quotas—and at the end of the day empower those sales people to earn more. In reality, while marketing requires more investment to supply sales with higher quality leads, to achieve this investment shift, the strategy may need to follow success and not lead success by incrementally investing more in early stage funnel activities, holding marketing accountable for predicted results, and then adjusting overall investment strategy based on win/win outcomes.