Re-engineering the Organization to Make a Tonne of Money Consistently

[0:04] This is the Full Funnel Freedom Podcast, supporting sales leaders and managers to improve their sales funnels from people to prospects. I'm Hamish Knox. In this show, you'll learn how you can improve your results, lead a great team, and hit more targets with Full Funnel Freedom. Welcome to the Full Funnel Freedom Podcast. I'm your host, Hamish Knox. Full Funnel Freedom Podcast is brought to you by Sandler in Calgary. Join us at the Sandler Summit next March in Orlando. Go to hamish.sandler.com slash Orlando for details. Today, I am joined by Justin Rothmarsh, the author of The Machine, a radical approach to the design of the sales function. And I can verify that because I've read the book a couple of times. He is also the founder of Ballistics, a company that builds sales and customer service teams in organizations all over the world. Justin, welcome to Full Funnel Freedom.

[0:59] Nice to be here, Hamish. So I gave the audience a quick intro to you. Please expand on that. Tell us a bit about you, a bit about Ballistics, and maybe a bit about what brought you to write the machine.

[1:13] Yeah. So I started Ballistics about 27 years ago. Prior to starting Ballistics, I was the CEO of a startup. And we started off initially building a sales function the traditional way. We recruited commissioned salespeople, and we whipped them into a frenzy in a sales meeting every morning and sent them off to, you know, conquer. I was going to say rape and pillage, but sent them off to conquer.

[1:36] And we discovered quickly that we didn't have enough margin in the product to support that. It's a very expensive route to market. And also I come from the insurance industry and I'd spent, you know, five years, which felt like 50 years running a sales team in that kind of environment. I had a hundred salespeople working for the insurance industry and wow, Myself and the other owner of the business, we were just tired of it. And the other thing that happened was we built this amazing lead generation machine. We put people into public events and we were putting 45,000 people a year at its height into public events. So we had more sales opportunities than you could shake a stick at. And you would think in that environment, salespeople would be earning a mozza. But what we discovered actually was that salespeople would earn up to the level that they felt they were worthy of, which back then was maybe $80,000, $90,000 a year. It's the equivalent of maybe, I don't know, $130,000 or something, $150,000.

[2:40] And then they would level off and they'd stop selling. This was Australia, by the way, not the States. They'd level off and they'd stop selling. And we were generating sales opportunities at a far higher rate than salespeople could consume them. And what we realized is that the commission model was actually impeding performance, not causing performance. So we got rid of commissions. We took away salespeople's autonomy. We put them on good salaries, about the same as what they'd leveled out at, which was essentially a pay rise. If you're earning 150 fixed as opposed to 150 variable, that's a fairly significant pay rise. If you don't believe me, go to your bank and talk about a mortgage and you'll quickly find that out.

[3:17] And we put ourselves people in offices what is deliberately designed to look a bit like doctor's offices. They sat in a glass office at the end. We had a receptionist out front and a coffee machine because in Australia, you have to have a coffee machine. Of course. And we had a small little call center who would call the leads that we had, the expressions of interest from events and schedule them into these waiting rooms. And we would deliberately overbook the waiting room.

[3:45] So that we didn't end up with any underutilized slots in salespeople's calendar. And the salespeople would sit at the back of the room and they would do 10 or 12, I think, presentations a day. And they had a fairly high win rate, probably about 30%, somewhere around there, because folks had already been to an event and they knew what they were buying. They knew what it cost. They'd expressed interest. So it was a high win rate. And those salespeople were generating, they were generating sales at a rate, which in the previous commission environment,

[4:13] we probably would have to pay them $500,000 or $600,000 a year. So I came out of that experience. I left that company. I started Ballistics. The reason I left is I was only a minor, even though I was CEO, I was a minor shareholder. And it just didn't seem to make sense to build this business and have such a small share. So I thought, screw it, I'll start my own business. So Ballistics started 27 years ago. And the goal was to sort of monetize these two special skills I'd developed in this previous his company. One was cramming large numbers of people into public events. In other words, lead generation at scale. And the other was this novel approach to building sales functions. We had a whole bunch of false starts trying to figure out how to monetize both of those ideas.

[4:58] We ended up realizing that the true value was in the second idea, not the first idea, even though the marketplace initially valued the first idea higher. So, yeah, that brings us to today. Ballistics, we have teams and we have consulting teams in two locations, Australia and the States. We build customer service teams online.

[5:20] Sales engineering teams, internal sales teams, channel management teams, and the like in Canada, US, Australia, New Zealand, UK, and also in other locations. We have a large South African client right now. And we tend to always have stuff going on the European continent, you know, one or two things at any one point in time on the European continent. So most of the Western world, We have engagements running about 30 to 40. We're doing about 30 or 40 builds at any one point in time, you know, building teams in those locations. And we haven't been bought yet by Sandler.

[5:57] Well, if they don't hurry up, we might buy them. Fair enough. Fair enough. I'd love to be a fly on the wall for that negotiation.

[6:04] They don't want us because we're far too radical. And that's the same thing with, we ended up realizing a few years ago that the problem with being radical, Well, the benefit of being radical is you're different. And like recent Trout said, it's better to be different than it is to be better. It's much easier to sell different than better. That's the good news. The bad news is that if you're different, you end up basically segmenting the marketplace into the radicals who are prepared to pay a premium to do something different and new and exciting and shockingly dangerous. And the rest of the herd for whom, you know, different is more scary than it is exciting. So I don't think a large company would ever buy us because the consequence would be they'd piss off most of their customers. That's been borne out over and over and over again with some mergers and acquisitions in all sorts of different industries. Yeah. Yeah. So...

[6:57] I, you know, in rereading the machine, which I encountered back in 2017 at the recommendation of a shared client of ours, who we'll talk about a little bit later, really focusing on that management side, right? How do you make sales process engineering work from a management level? And the one thing, there's two things that stood out to me, and I'd really love to hear your comments on both. The first one was, you need to believe in it with the conviction that you have that that the sun will rise tomorrow.

[7:28] So tell us a bit more about like why, it sounds obvious, but why does a leader need to have that level of conviction in order for what you lay out with sales process engineering to actually work? Well, we're talking about making fairly radical changes in the organization. Not radical, actually, not that radical from a practical perspective, but extremely radical from a philosophical perspective. So the changes that we make in organizations aren't enormously difficult in the schemes of things. If we're working with a $20, $30 million business, we could redesign a significant chunk of the business in a six-month period. With a $100 million plus business, maybe we might work in that organization for 12, 24 months. But in the scheme of things, these are relatively simple physical transformations, but they're very radical philosophical transformations. And what that means is that if you're the zealot who decides to push these ideas on your organization, you need to understand that there's going to be a whole bunch of other folks in the organization for whom these ideas are shocking.

[8:40] And obviously not true. Now, we tend to specialize in industrial. And we do work with technology companies periodically, mostly larger ones. But the reason we like industrial is when we work in industrial environments, we're dealing with engineers. And engineers do not determine what's true based upon what their friends think, as opposed to folks who rather than studying engineering, maybe they studied liberal arts or something. So there's a different... Now, Now, that said, some of our clients have liberal arts degrees, so I shouldn't impugn them. But there's a different worldview, I think. And, you know, an engineer who's built a business or an engineer who's risen to the level of senior management in a business is used to establishing their own opinion about what's true and what's not true based upon the evidence of their senses. Yeah. So if we're talking to a room full of engineers and we say, look, clearly the sales function should not be responsible for revenue.

[9:40] Operations should. And they say, well, hang on, that's not clear. And we point them to a couple of artifacts and they say, shit, yeah, it's clear. They're sold. There's no further discussion required. Once they understand, you know, or the other radical things, arguing that qualifications destroys value, arguing that paying salespeople commission is idiotic, you know, any of these other positions, they all appear radical when you first hear them but you don't have to look around much in a modern organization in order to realize that you know most of these ideas are patently false and the nature of engineers is once they've seen it once once is enough if they go and talk to their colleagues over a beer or a coffee and their colleagues have a different viewpoint but no interest in arguing coherently from first principles, they will ignore the opinion of their colleagues. They'll allocate the credence to that argument that it deserves.

[10:38] Whereas if we have folks who haven't, and I'm not even an engineer, but I'm just aware that there's an engineer's approach to processing information. If we're dealing with folks who don't have that that approach to processing information, then it's much harder. So I think maybe the absolute belief isn't the prerequisite. Maybe the pursuit of truth is the prerequisite.

[11:02] I like that. Well, and we work with a lot of engineers. Calgary is a very engineering heavy city and engineers are process oriented. And that's, you know, you and I are both very, very focused on processes. And you're right. Once they see the data, once they see the evidence and and they can factually prove it, They tend to get on board, whereas someone who's maybe a little less process-oriented, it can sometimes be a bit of an uphill challenge to get them to see the light, so to speak. I mean, there are some people whose default orientation is to pursue the truth.

[11:40] They're more independently-minded, and there are others who are like second-handers. They would rather survey the population as a whole and adopt whatever position appears to be the central tendency. I'm skeptical about how effective the second strategy is as a survival tactic.

[12:00] But, you know, you can make it through with that strategy and some people choose to. Yeah, they do. And, you know, I know from my experience talking to CEOs or business owners, entrepreneurs and say, well, you know, what are your growth plans to say? Well, well, 6% next year. Well, how'd you come up with that? Well, that's what the industry is going to do. Okay. Yeah. And I think if you work for a large organization, the reason we target mid-size organizations, you know, in the sort of 50 to $300 million range is the founder is still at the helm typically, or the founders kids are, if it's not the second generation, maybe not the kids, but the second generation, the founding of the business is close enough. Yes. The folks at the helm are prepared to make changes. But if you're talking about a third generation business that's doing two billion dollars a year, there are a lot of incentives not to make any radical changes unless you're true. And that's that makes perfect sense. I mean, don't don't rock the boat if it doesn't need rocking. Yeah. Yeah, absolutely. Bank that money. So, Justin, you've said a few times and I brought it up earlier about radical, right? You've used this word radical. So what are the three or maybe four most radical ideas that were outlined in the machine that you work with your clients that maybe you get the most pushback on or the ones that people really buy into once they see the light?

[13:18] Yeah. So there's kind of a hierarchy at the top of the hierarchy. There's this idea that the sales department is not responsible for revenue and for the most part, do not generate revenue. Most revenue comes from existing customers, repurchasing run rate business.

[13:32] What salespeople's contribution to the organization is, is the acquisition of new annuities. The salespeople should only be loosely coupled to revenues. So the connection is salespeople win new annuities, the annuities generate revenue. Got it. So salespeople should be recognized for the net present value or the sum of the NPVs of the annuities they win. They should not be held accountable for revenue and sales should not be consulted to figure out a revenue target. So that's the first big idea. And that leads to operations having to take responsibility for a whole bunch of stuff that sales was responsible previously and sales having to let go of a whole bunch of responsibilities that they had previously. And in particular, salespeople need to let go of this ridiculous idea that they own, in some sense, customer relationships. So we don't want salespeople managing accounts. We certainly don't want them deluding themselves into believing that they own accounts because they don't. If you look at the reasons why customers leave, it's very rarely because of salespeople. It's because of operational reasons, on-time delivery, performance, pricing, product range, product quality. So there's this mirage that salespeople own relationships. They don't. The organization owns relationships. Yeah. So that's the first thing. The second thing, the other radical ideas would

[14:52] be sort of a byproduct of that. We remove salespeople's autonomy. We take them off commission and we move them inside.

[15:00] And the reason for that is we recognize that salespeople add the most value when they're having selling conversations, just like a welder adds the most value when they're welding. The difference is if you had a fabrication plant and you employed welders, you would deliberately structure the environment in which they work so that they spent pretty much all day welding. It would be very unusual if you went and checked on them in the plant to find them in pack and dispatch or in cutting or bending. They'd be welding or they'd be doing nothing. Our position is that for a salesperson, having commercial selling conversations is a salesperson's equivalent to welding. That's where salespeople are adding value, when they're talking to folks, persuading them. Now, it turns out that in this day and age, commercial selling conversations, contrary to popular belief, do not occur in the field.

[15:55] Oh. They simply don't. And the more expensive your product is, the more technically complex it is, the less likely it is that commercial selling conversations occur in the field. They occur on the telephone or hopefully in Zoom calls. and the more complex your product, the more expensive your product, the more necessary it is that you have multiple participants involved in commercial selling conversations. And the more participants need to be involved, the less likely it is that you can get them all in the same geographic location simultaneously, which means if you want to have synchronous communications, you're forced to use Zoom rather than face-to-face meetings.

[16:31] Now, that's not to say there isn't a requirement for face-to-face there is, but our mantra is put engineers in the field, put salespeople on the phone or in Zoom meetings. Very cool. It seems that they would be more productive.

[16:45] Infinitely. Well, not infinitely. Five, six, seven times more productive.

[16:50] A field-based salesperson, particularly if they're managing their own calendar, they can't have two selling conversations a day. They really can't. Because if you have a reasonable size territory, which you will have if you're having a lot of selling conversations, you have to travel. And most people don't like to travel evenings and weekends, which means if you're traveling to sell, you're losing one and a half days at least to travel. So straight away, we chop the week from five days to three and a half days.

[17:18] Even if you're having two selling conversations a day, that's for only three and a half days. That would be the best case. But of course, someone has to book those meetings. And if the salesperson has to book those meetings, then there's probably a week's worth of work required to book those meetings. And if the salesperson is responsible for performing follow-up activities, when they return to the office, then shit, we're probably losing another week. So we're, we're doing a week of a week's work to book the sales activities, a week's work to, to, so we're up to 15 days so far to do three and a half days worth of meetings. So let's call it seven meetings spread out over 15 days, that's a fairly low rate of work. If we decided, okay, we're going to have selling conversations on Zoom, you can comfortably have 10 selling conversations a day, five days a week. So that's more than an order of magnitude improvement in the rate of work. So now people, the interesting question is if you had a salesperson who was not just a good salesperson, they were a great salesperson. They were absolutely fantastic.

[18:21] Whenever you put them in front of a prospect, you know, if it was possible to persuade that individual to change course, this character who we're imagining would surely do so. So would you rather they had seven selling conversations every 15 days, or would you rather they had 10 selling conversations every day? Seems to be a pretty obvious equation. Yeah. Even non-engineers, for the most part, will not struggle with that math. Yeah. Yeah. Pretty easy.

[18:52] So let's talk about our shared client, F12.net. Devin Gillard was a guest on this podcast, and he was actually the one who connected us. Smart guy. He is a very smart guy. So tell us a bit more because they are an IT company for those listeners who don't know who F12.net is. So they're technical, maybe not industrial, but they're technical. So tell us a bit more about how that worked with them and how the sales process engineering sorted out their sales system. Well, I can't talk too much about them because if there's something that Devin didn't tell you in his interview with you, he probably wouldn't want it told. The other thing is that I was involved in the initial design of the model. The basic idea was, I mean, we've already discussed the basic idea is that salespeople sit inside and they have selling conversations inside and we put engineers in the field.

[19:44] They're a managed service provider. So in the scheme of things, really not that technical, as opposed to say someone like SAP or more technically still someone who's writing custom software, they probably do a little bit of custom software development, but for the most part, But they are responsible for the plumbing, as opposed to, say, some of our other clients who might do custom software development, which is really... I mean, the thing about F12 is they have a very compelling proposition, a very sexy proposition. It's a true managed service proposition that they will go to organizations and they will say, look, we will charge you a flat per employee or per team member monthly fee that covers all of your software and all of your hardware as well, which is a very compelling proposition. It takes away the IT related risk entirely. Now, the great thing about that proposition is even though there is complexity associated with information technology, their basic proposition is we're going to take the complexity away and we're going to give you simplicity. It's like electricity. There's a huge amount of technical complexity associated with the generation and the transportation of electricity.

[20:54] But the electric industry has figured out how to hide that away. And for a typical consumer, it's a simple proposition. You give the utility money and you can stick stuff in the wall and it works. Totally. Most folks have a shockingly minimal understanding of electricity and they're basically selling the IT infrastructure like electricity. And I don't think Devin would be insulted to hear me describe it like that, which means it's a very simple proposition to sell. You don't need lots of engineers on the phone having technical conversations. You might at some point in sales conversation need your prospective clients, engineers to have a meeting with some of your engineers just to tick a few boxes, but ultimately from the salesperson's perspective, it's a very simple commercial selling conversation. Very true. Very true. I mean, how do the economics of this proposition compare with the economics of what you're doing currently? Let's sit together and figure it out. And the consequence of that is they can have a very small team of telephone-based salespeople who can spend all day having those kinds of selling conversations. And it turns out that if you start off with a compelling proposition with a great product, and you talk to a shit ton of people every day, then you're going to end up booking a lot of business. Very much so. Growth is not rocket science.

[22:10] Although we can sometimes overcomplicate it. We do overcomplicate it. Yeah. The other key thing I took out of the management chapter of The Machine, and listeners, if you have not read The Machine, go get a copy of it because it is a really, really excellent book, was the idea of managing for consistency, Consistency, not peak output. You gave some really good examples in the book around how trying to manage for peak output by doing sales contests and all these other things actually diminish the returns if you average them out. So tell us a little bit more about this whole idea of managing for consistency, because it really stood out to me.

[22:47] Yeah. So there's an argument that at some level people perform well, if they sprint and they relax. I mean, I read some data recently that suggests that marathon runners are better off training with interval training than they are by running increasingly long distances. So the idea is you do interval training every day, and then you go and run a marathon or an ultra marathon or whatever the case is. But organizations are not people, even though they contain people people. And sprinting and relaxing is not a good way of scheduling an organization. We have all these moving parts that need to mesh together. So in order for an organization to make a lot of money, you need a steady load on your most expensive resources, whether that's a team of people processing mortgages or whether it's a traditional factory floor with a bunch of heavy machines that need to be kept running three shifts a day.

[23:38] Now, if the organization as a whole requires requires consistency in production. In order to supply consistency to production, we need a similar level of consistency in other parts of the organization. And certainly it's a lot cheaper. The less variability you have, the less expensive resourcing is. So we don't want salespeople generating a million bucks in bookings this month and $300,000 worth next month and $1.3 million worth of bookings. I came from the insurance industry and that's how we used to run things in the insurance industry. We do a big promotion. And I remember we sent a whole team of salespeople from Australia to Las Vegas for a week. And you have no idea how hard our whole team sprinted to get that fully paid Las Vegas trip.

[24:21] But of course they fell in a hole for two months afterwards because they'd pulled forward a whole kind of deals and they were exhausted. Plus they were still hung over from going to Las.

[24:32] We're much more interested in engineering the organization for consistent performance. So you have this dichotomy. If you look at how we manage a sales team, we'll have salespeople sprinting and relaxing over the course of a day. We'll have protected calling times and we'll have a couple of sprints. But that mode of operation is actually designed to deliver consistency to the sales function as a whole. We want the daily bookings to be consistent and the weekly bookings to be consistent and the monthly bookings to be consistent. That way we have a steady load on production and resourcing is a lot more predictable. It's less expensive because you don't need to resource for the peaks. It's more predictable and it's easier to build a more effective organization as a whole. Very cool. Yeah. And that makes a ton of sense. I get the sprint relax thing. I've been in sales since I was 19 and I've certainly followed that model because, well, it feels good at the time, but yeah, you, as a, you know, in a leadership position, you eventually are like, why aren't you guys running?

[25:29] I'd rather you ran at a steady state as opposed to going hard and then, as you said, falling into a hole for two months. Yeah. So you can have variability in effort at the daily level, within a day, at the hourly level, without destabilizing the organization. So we'll tolerate on an hourly level, but we won't tolerate it on a daily or a weekly or a monthly level because we want customer service to have a steady, predictable load. We want production to have a steady, predictable load. We want procurement to be able to forecast what the requirements of production is going to be and so on and so on through the organization as a whole. I mean, ultimately, our job is not to generate as many sales bookings as possible. Our job is to make organizations profitable and make them grow faster. So maybe one of the reasons I don't socialize a lot with a lot of other sales leaders is they're too focused on sales. I'm not that interested in sales. I'm interested in engineering and organization. So it makes a shit ton of money and grows at a healthy rate.

[26:31] Very cool. That sounds like a really nice way to wrap up today, Justin. Thank you so much for spending some time with us today to give us a radical approach to the sales insight. Thanks for being on the show today. Yeah. Thank you for having me. So you've been listening to the full funnel freedom podcast. I've been your host Hamish Knox today. we've got some ideas and insights from Justin Rothmarsh on a radical approach to the design of the sales function. And as Justin said, how we can be consistent and make a ton of money. Listen to us wherever you get your podcasts, like and share, rate and review. Until we catch you on the next episode, go create full funnel freedom. Thank you for listening to Full Funnel Freedom with Hamish Knox. If you want to increase your Your sales with ease go to fullfunnelfreedom.com.

[27:23] Music.