As an investor with a focus on early stage enterprise software companies, I sit on a number of boards and have the opportunity to see patterns of company behavior over time. In that role, one of the key things I like to understand is how the sales pipeline evolves and what has happened to the opportunities that were previously in the high probability categories such as proposal, pilot, and proof-of-concept. I also like to understand how much we know about where we have competition for deals on the current pipeline. The scorecard I like to use focuses on deals won, deals lost, and “no decision”.
It’s funny but CEOs and VPs of Sales seem to think it is better to have a “no decision” than to have a loss. I hear it all the time: “We kill the competition, we only lose to incompetent organizations that can’t make a decision.” My view is the opposite – a “no decision” is the worst outcome. A “no decision” is most often the result of a poor sales process and unstructured sales leadership at your company. If you give a possible buyer the right to explore and learn on your nickel, it is your team that is to blame, not that potential buyer, because your process for screening real opportunities is flawed. A company that puts you through a “no decision” process has just taken your resources and wasted your time. I would rather see a company lose two of three deals to a competitor than to a “no decision” because competitive losses tell me that there are real dollars being spent and that there are real lessons that can be learned from a real loss to improve process, product, or pricing.
Think about it this way. Start with the assumption that you run a sales organization at an enterprise ISV. In the last month, your sales organization had 10 pipeline outcomes: 3 wins, 2 losses, 5 “no decisions”. Assume they all took about the same level of resource through proposal and pilot to reach an outcome. In three wins, you have three new customers. In two losses, you have had real opportunities and have come up short. Your team already has identified a product weakness and is quickly moving to fix a specific gap. In five “no decisions”, you have just wasted a significant percentage of your sales capacity and learned very little in the process. Think of how those resources could have been deployed to accelerate growth, had they not been spent on opportunities that never were.
It is important to understand how corporations make buying decisions and how dollars get allocated, and to apply that understanding to ensure your sales team chases real opportunities. In most cases, competition is required in the procurement cycle and buyers need to get multiple bids and look at multiple providers. This is part of a corporate buying or procurement process. If the person to whom you are “selling” cannot describe her company’s buying process, it raises doubts about the existence of a real process and, more importantly, the existence of a budget. Sole sourcing does exist, especially in companies pushing into new solution categories, but it happens more rarely than pipelines suggest, and a “buyer” who promises a sole source sale may not be a buyer at all. Corporate procurement has become very involved in technology purchasing, and with the inclusion of corporate procurement comes process, competition, and a preference toward existing versus new vendors; similarly, if you aren’t involved with the procurement group, the “buyer” often doesn’t have the budget or mandate to procure.
“No decisions” most often happen because people who are modest influencers at enterprises present themselves to salespeople as buyers and decision makers. Experienced sales people with the support of strong sales leadership can identify the false buyers by building influence maps, meeting multiple people in an account, and quickly determining the existence of a process, the availability of dollars, the criticality of the need, and who will be making a decision. These experienced sales people identify the real opportunities and quickly put the others nicely on hold until the real buying process starts. These people do not have a very high percentage of “no decision” outcomes.
CEOs should track what has fallen off the pipeline at later stages and create a monthly ratio of:
(deals won plus deals lost) / total outcomes
As this number approaches 1.0, you know that you are only fighting real fights versus “no decisions”.
When you get rid of the no-decisions, then look at your win / loss ratio and your total number of real outcomes and recognize that accelerated growth will come from your ability to improve your win ratio and your ability to improve the number of real opportunities. And the resources previously spent on the “no decisions” will be available to fuel that growth.