"Frank From Harvard Talks Sales" with Frank Cespedes

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Episode Transcript

Tim Geisert (00:06):
Welcome to The Selling Excellence Podcast for Business Executives, presented by AuctusIQ. We all know B2B selling is not getting any easier, and what’s worse, it is getting more expensive. Hello, I’m Tim Geisert, your host and partner at AuctusIQ, a Selling excellence as a service company. Our goal today is to give you some insights, some learnings that help you turn your sales organization into an asset, a company asset, not a pain in the asset. All right. Welcome to our episode today. This is a great day, because we have a special guest with us today, Frank Cespedes. He is a senior lecturer at the Harvard School of Business. You may have heard of him, but what Frank, I got to tell you, thanks for being here today.

Frank Cespedes (00:51):
Tim, my pleasure, and thank you for hosting me.

Tim Geisert (00:55):
Well, I got to… For our audience, who is… They tune into this, because as your executives, you’re trying to make some sense out of how to drive sales and build revenue, and turn your sales organization into an asset. I look back on what you’ve accomplished over your career, just to give our audience a sense of character development, if you will. You’ve been in sales, you’ve run sales, you’ve built company, you transacted that company, you’ve sat on multiple boards, you’ve been a business consultant, sales consultant, revenue generating consultant. Today, we’re going to spend probably my favorite portion of your career, and that is your authorship. If I got this right, you’ve written seven books. Is that right?

Frank Cespedes (01:41):
You’ve got it right. That’s correct.

Tim Geisert (01:46):
And so this latest book, which I discovered last year as we were really going to market with our company, and it’s called Sales Management That Works, and I would encourage anybody who is listening in here to read this book, because it’s… I’ve read all of Frank’s books. This one seems to have the culmination of that wisdom put into a practical nature. So Frank, tell me, why did you write this book?

Frank Cespedes (02:14):
Well, it’s a fair question. You know this, Tim, it’s not as though the world is sitting there waiting breathlessly for yet another book about sales.

Tim Geisert (02:25):
Right. Right.

Frank Cespedes (02:25):
Right?

Tim Geisert (02:25):
Right.

Frank Cespedes (02:26):
In fact, if you go to Amazon and go to the book section and input in the keywords, bar sales-

Tim Geisert (02:34):
Right.

Frank Cespedes (02:34):
… out will come over 80,000 items. As far as I can tell, the only management topic that gets more SKUs at Amazon is “leadership”, gets about 90,000, but sales is a close second. I had two motivations in writing this book. The first is primarily a professional, intellectual motivation. Of all the different functions, activities in business, sales is the most context-specific. Selling software is different than selling capital goods, is different than selling professional services and so on. It’s also culture-specific. So-

Tim Geisert (03:18):
Yeah. Right.

Frank Cespedes (03:19):
… North America is different than Latin America or Asia-

Tim Geisert (03:22):
Right.

Frank Cespedes (03:23):
… and yet, for some reason, it’s that topic where people and pundits feel most comfortable making huge generalizations that are usually unsupported by any data beyond what, in academia, we call N equals one. When I sold for Oracle, I did it this way-

Tim Geisert (03:46):
Right.

Frank Cespedes (03:46):
… so should you. When we invested in PayPal, and so forth. So I wanted to write a book, after doing 30 years of what I think is reasonably good research in this area, a book that says, look, this is what research does and does not tell you about this core activity in business. My second motivation is that I think it’s a particularly good time for a book like that. There is no doubt, no doubt whatsoever, that digital technologies, the data revolution that will continue throughout our lifetimes, no doubt, they are changing buying and selling. But my reading of what people say about these things is that they just misunderstand the managerial implications. I think in many ways, the pandemic has raised the forgetting all of this right.

Tim Geisert (04:43):
Well, that’s interesting. So you’re saying that the catalyst… All of this pressure’s been there, but the pandemic has created an additional pressure to make some changes in how companies are running sales?

Frank Cespedes (04:56):
Yeah. Here’s an example. I think one of the things you heard for the last two years, and you still hear… I get emails from major consulting firms about this 3, 4, 5 times a week, is that the salesperson is dead or in the current jargon, being disintermediated, and the pandemic has made that a new normal. That sort of thing. Now, here’s the data, and people are usually surprised when I lay out the data. If you ask yourself what was eCommerce as a percentage of total retail sales in the United States before the pandemic, the beginning of 2020, the answer to that question is about 11.5%. Now, when I ask executives, when I don’t give them the number and I say, what do you think that number was, I routinely get estimates from 30 to 60%.

Tim Geisert (06:04):
Right, right. Yeah.

Frank Cespedes (06:06):
They’re not a little bit out of touch with buying reality, they’re way out of touch.

Tim Geisert (06:11):
They’re three times out touch.

Frank Cespedes (06:12):
Now, what happened during the pandemic? Here the most relevant data, is the second quarter of 2020, because that was, thus far… let’s hope for the best. But thus far, that was maximum lockdown conditions-

Tim Geisert (06:29):
Right, right.

Frank Cespedes (06:29):
… in the United States. Now, obviously, or at least it seems obvious to me, when stores are closed, when healthy they’re held 25 to 50% of their capacity, when people feel that if they walk into a store, they may catch a virus and die, obviously, there’s going to be more buying and selling online. What was the number second quarter of 2020? About 15.5%. In other words, even in those conditions, it went up 5%. It has been trending down every quarter since. In the latest quarter 12.9-

Tim Geisert (07:04):
Oh my God=

Frank Cespedes (07:04):
… percent. It is not a digital eats physical world. But what the pandemic did was accelerate trends that were already in place before the virus. It’s an omnichannel buying world. That doesn’t mean the demise of the salesperson. The number of salespeople in the United States has consistently increased in the 21st century, even as the internet has increased in scope, et cetera, but that makes a big difference in what salespeople need to do, and more importantly, the requirements for effective sales management and business development. So that’s my [inaudible 00:07:51].

Tim Geisert (07:51):
That’s a slap in the face data, because it just seems out of… it just doesn’t seem like it’s right. But when you think about it, yeah, it is an omnichannel, but here’s the question. Okay. You brought this up earlier, you brought it up just a moment ago, sales management. How is that changing, in your opinion? When you’re sitting in those board meetings, when you’re having those conversations with those executives, what are you hearing? What are you seeing from those executives?

Frank Cespedes (08:19):
Well, let me answer that question from two points of view. One is, what’s required for a good sales model? Because that’s what sales-

Tim Geisert (08:30):
Sure.

Frank Cespedes (08:30):
… managers need to manage. And then, quite honestly, knowing our audience, how does this affect careers in that area? Because-

Tim Geisert (08:42):
Yeah right.

Frank Cespedes (08:43):
… that’s a big deal, as well. I’m going to get academic with our audience for a moment-

Tim Geisert (08:47):
We expect that.

Frank Cespedes (08:48):
… but deal with it. I think it makes the point.

Tim Geisert (08:51):
We welcome it, actually, Frank, so bring it on.

Frank Cespedes (08:54):
All right. Here it goes. Basically, the most important thing about selling is and has always has been the buyer. Who buys, why, and how. Really, for over 60 years, the way buying has been conceptualized, and as a result, the way sales tasks get allocated is in terms of what academics call a hierarchy of effects model. Now, what does that jargon mean? It means that the job is to move the prospect from awareness to interest, to desire, to action. A-I-D-A, AIDA, as in the-

Tim Geisert (09:37):
Right.

Frank Cespedes (09:37):
… Verdi opera.

Tim Geisert (09:38):
Right.

Frank Cespedes (09:39):
By the way, that way of looking at buying and selling is built in to virtually every bit of CRM software that’s out there. That’s why the major metaphors in sales have to do with these sequential series. We talk about pipelines, funnels, et cetera.

Tim Geisert (09:57):
Right.

Frank Cespedes (09:57):
Third decade of the 21st century, that’s not how buying works-

Tim Geisert (10:01):
No.

Frank Cespedes (10:01):
… in most categories.

Tim Geisert (10:02):
No.

Frank Cespedes (10:03):
Buyers are online and offline, dealing with influencers, buying forums multiple times during their buying journey. Again, this doesn’t mean the demise of the salesperson, but it changes dramatically sales tasks. So that’s the first thing. Many sales models are basically built on obsolete assumptions. Frankly, I think the pandemic made more companies aware of this. One way to think about what the pandemic did is it made more companies aware that in effect, they were overpaying for many tasks in their sales models. They don’t need their most expensive enterprise reps doing lead gen.

Tim Geisert (10:51):
Right.

Frank Cespedes (10:51):
Turns out, less expensive people can do that, sometimes an algorithm. You can do many demos online, et cetera. I don’t think that recognition’s going to go away, but that’s the first thing, many sales models, based on obsolete views of how buying works. Then my second point was about sales managers. This gets me to the data revolution that will only increase throughout our lifetime. But if you look at where that data is going and read the book, you’ll see the research. More than 50% of the time, that data is not reporting up to the chief revenue officer, et cetera. It’s going into the data groups that, in turn, report up to finance. Now, once finance gets that data, Tim, you know this, finance-

Tim Geisert (11:47):
Absolutely.

Frank Cespedes (11:47):
… people absolutely very, very annoying people. Once they get data, they start to ask questions. Well, how do you allocate your people? Yeah. I understand what you’re telling me about top line revenue. What about return on invested capital, cost to serve this segment versus that segment? This is my major recommendation to people less than for 45 years old in sales. The requirements for financial literacy in that area are increasing dramatically. You’ve going to have to speak that language. That genie is out of the bottle. So those are the two things I’d say and answer to your excellent question.

Tim Geisert (12:35):
The other day I was in a sales management meeting with a client of ours, and he described their funnel as someone was traditionally describing how it used to be. He goes, we don’t have a funnel, we have a spaghetti plate.

Frank Cespedes (12:46):
Yes.

Tim Geisert (12:47):
That’s how our buyers are buying. So we better get better used to how to help that buyer through that spaghetti play of decisions, and all of the people that are involved. Which is another thing. How many more people? How many more influencers? It’s not one or two people, especially in business to business. Would you agree, or making the decision? It’s many influencers, and some of which you never even see or hear from in the selling process.

Frank Cespedes (13:13):
Yeah. I think that has implications, externally and internally. One is, what that executive called spaghetti, in the book I call that parallel streams. But this is why finance, increasingly, is asking the right questions. One of the ways you get ROI from sales, one of the ways, especially if you’re in a small business, very often, your single biggest annual expense is what you’re paying on go-to-market, you’ve got to know when and when not you need the salesperson in that omnichannel buying process.

Tim Geisert (13:54):
Correct.

Frank Cespedes (13:54):
You don’t want to waste their time and effort in areas where, frankly, just go to the website. But conversely, you want them there when you need them. So that’s on the external side. But internally, it’s not just that there are more people involved in buying. The other thing the online technologies are doing is making sales and selling more of a cross-functional activity. The reason is that online allows the selling company to be more transparent to the buyer, and they can contact different folks. But the salesperson in most businesses is the de facto an integrator.

Tim Geisert (14:36):
Yeah. That’s right.

Frank Cespedes (14:38):
The reason, and now I’m going to date myself, Tim, it’s what I call the Ghostbusters reason. You remember that wonderful film? Remember-

Tim Geisert (14:45):
Still a hell of a movie, man.

Frank Cespedes (14:46):
But remember the tagline, when you see a ghost, who you’re going to call? So what the research tells us is that 80 plus percent of the time, the buyer calls the person who sold them-

Tim Geisert (15:00):
That’s true.

Frank Cespedes (15:00):
… the product.

Tim Geisert (15:01):
That’s right.

Frank Cespedes (15:02):
That person, no matter what their job description says, needs to go back into their company and resolve it, work us the different functions. Anyone who’s ever run a company can tell you, that’s not an easy job, especially for individual contributors, like people in sales.

Tim Geisert (15:21):
Yeah. So if you break this into… It’s now a spaghetti plate, and then the other part of this is… Tell me if I summarize this right. What you’re seeing is that sales manager, that sales leader has to have more business acumen than they’ve ever had to have in history. Right?

Frank Cespedes (15:40):
Yeah.

Tim Geisert (15:41):
That’s putting a great deal of pressure on both of those two key elements, talent and processes. Right?

Frank Cespedes (15:48):
Yeah. Yep.

Tim Geisert (15:50):
So-

Frank Cespedes (15:50):
I think you got to right, and I think you’re using the right metaphor, it is pressure. You’ll find there are a number of people out there who say, therefore, what we need as sales managers are not people that sold, but people with some platonic thing called business acumen.

Tim Geisert (16:07):
Right.

Frank Cespedes (16:08):
I disagree.

Tim Geisert (16:10):
Okay.

Frank Cespedes (16:10):
What a sales manager need to do in most companies is sit down with other people, their sales force, and basically they determine how much they get paid, they determine whether or not they get promoted. In order to do that, you need credibility and trust, and the biggest form of credibility and trust is that he or she has been there, done that. You’ve got to grow your own, but the competencies are changing very dramatically.

Tim Geisert (16:40):
Yeah. So as I look at your book here, and I’ve got the outline here, this is what struck me. I’m going to ask you to just give some key highlights here. You break it into three sections. One is people, the second is process, and part three is pricing and partners. Just hit those real quickly. I’d love to just hear your thoughts on each of those, and then we’ll take it to a conclusion of what our sales or what our business leaders need to know, because you talk about it right here at the end.

Frank Cespedes (17:11):
Well, with people, what are the topics in that section of the book? Hiring, training, compensation. One or two things about the hiring part. It is not popular to say this these days, but it’s true. If you look at the amount of money that’s spent on sales training, the reality is companies already spend a ton there. They spend 20% more per capita on sales training than they do in any other function. But the ROI of sales training is notoriously disappointing. There are systemic reasons for that, but one of the reasons is hiring. Right?

Tim Geisert (18:00):
Yeah.

Frank Cespedes (18:00):
It is just tough to train and develop someone who’s a bad fit for the job in the first place. So one of the takeaways is you got to link your hiring and training, or you’re always going to be on the hamster wheel. The reality is that sales hiring has always been tough to do, and it’s getting tougher. I’ll just give couple of data points that help to frame this. In the United States, there’s something like 4,500 colleges and universities. The last time I looked, which was about three and a half years ago, when I started writing this book, of those 4,500 plus, less than 200 even offered a sales course, let alone a sales program.

(18:51):
So this is an area of business where the vast majority of people start out knowing almost nothing about what they’re going to get paid for. So that’s why companies spend so much more on training. Many companies and sales managers, in their hiring processes, make a tough process needlessly tougher. They rely on one or two interviews, when the research about this is definitive. The correlation between the evaluations that people get in their interviews and their actual on-the-job behavior tends to range from about 0.2 to 0.4. In other words, even in the best of circumstances, it’s less than the 0.5 of flipping a coin. All right?

Tim Geisert (19:48):
Yeah. Right, right.

Frank Cespedes (19:48):
So there are other things you can do. By the way, this is an area where technology can now be your friend in improving hiring and training. The other thing you pointed to was process. I already gave the… I think the major message about that, and that is that many sales models are based on obsolete assumptions about buying. This, again, is an area where technology can help, because the data is there, and there is technology that can tell us more and more about the conversion dynamics in that bowl of spaghetti, to use your executive friend’s analogy, but you’ve got to put it in place. Then you’ve got to know what’s there, but can talk about that.

(20:38):
And then the third thing you mentioned is pricing, and I’ll give you my takeaway about that and then stop. But this is a very interesting area in business. This is what I learned when I left academia and ran a business for 11 years. So much talk in business is basically talk, yada, yada, yada, until you get to the topic of price. Then you either get the price-

Tim Geisert (21:08):
Right.

Frank Cespedes (21:08):
… or you don’t. In other words, pricing is that moment of truth, where you test the coherence of a strategy and a value proposition.

Tim Geisert (21:18):
That’s right.

Frank Cespedes (21:19):
Yet, it’s an area where the inertia is enormous. Sales is part of the issue here. How many salespeople in your career, Tim, have you met that said, we should increase our price? When you look at the way salespeople are paid, they don’t have a big incentive-

Tim Geisert (21:37):
Right.

Frank Cespedes (21:37):
… to do that. So you don’t ask them. But it’s also an area where there’s less and less excuse to simply ignore this, because we now have more and more tools that not only allow you to do good ongoing price testing, but allow you to do it in ways that are much more accurate than the standard surveys.

Tim Geisert (22:04):
Right.

Frank Cespedes (22:05):
We know that surveys are unreliable in this area. There’s what people say in a survey, and then there’s what they actually do in the marketplace. With pricing, in particular, it tends to focus them on price, independent of other value elements. But now we have lots of good online technologies that can get at behavior. People click or they don’t click, they buy or they don’t buy.

Tim Geisert (22:31):
Absolutely. There’s a lot of data and science and all kinds of-

Frank Cespedes (22:33):
That’s right.

Tim Geisert (22:34):
… and place to interject that. When you were talking about that, I was… You’re right, when the relationship turns to a price conversation, it’s a little bit like what Mike Tyson said, everybody’s got a plan until you get hit in the mouth, and that’s exactly where it starts to happen, whether or not this deal’s going to turn into something. It needs to be built more into the value proposition, versus waiting to the end, and-

Frank Cespedes (22:57):
Well, I think that’s-

Tim Geisert (22:58):
… successful sellers do that.

Frank Cespedes (22:59):
… the right distinction. Very few people wake up in the morning and say, I want to pay a higher price. But, they do value, and that’s what we need to look at. Not a survey that says, guess what, would you pay a higher price?

Tim Geisert (23:17):
Yeah. Well, price has always been a thing for me. I had a client one time tell me, because I was… we were talking about price, we were talking about the structure and the contract and all those sort of details, and we came in significantly higher than any of the other competitors in the tournament. I was outlining the value, and I was not backing down off the price. I had to stop, because I thought, well, maybe I’ve lost this deal. And so I listened, and he said, something really profound. He says, “Tim, this is interesting because you have to understand, I’m not spending my own money here, I’m spending the company’s investment to make more money, and that’s a different decision. Anybody who convinces me that this is a worthy investment, I’m going to put the company’s capital to work, and that’s my job.” That was very insightful, and always helped me think about, and maybe others think about how you talk about price. You don’t do it in a. let’s keep ratcheting down the price, let’s talk about the value and deliver that. That’s easier said than done, of course.

Frank Cespedes (24:22):
I would agree with that and generalize a bit more. And then, if you don’t mind, I’ll direct our listeners to the book for the evidence and the details. But the way most companies… When I say most the research about this indicates about 75%.

Tim Geisert (24:37):
That’d be most.

Frank Cespedes (24:38):
Most Companies basically do cost plus price.

Tim Geisert (24:41):
Exactly.

Frank Cespedes (24:42):
Right?

Tim Geisert (24:42):
Exactly.

Frank Cespedes (24:43):
This is our cost. Let’s see if I can get 10%, 20%, whatever. But the reality… and this sounds, I have found, counterintuitive to many executives. All I can say is, read the chapters, look at the examples, look at the data. The reality is, there are more opportunities, not less, to do value pricing, as opposed to cost plus.

Tim Geisert (25:07):
Yes.

Frank Cespedes (25:07):
So that was very good advice you got. At the end of the day, every company is selling profit, but you got to document the value outcomes.

Tim Geisert (25:16):
Yeah. Well, I’m going to go back to one thing real quickly on the hiring. One of the things… You talked about the data and the process and the things you can bring into a deal and the things you can get as far as injecting the price, earlier in the conversation, all of those things. But you know what, there are so many values to assessing a talent before doing an interview, or really comparing, using that behavioral science, that really the industry, in other areas, has been using for 25, 30 years. I think only now are sales executives looking harder at those assessments and seeing what they can tell us about the intangibles of an individual. Those traits, those competencies, that business acumen you talk about. Those are something we’re very proud, but I think that hits right at home, and you and I started talking about that a year ago.

Frank Cespedes (26:12):
Yep. I would just say… I’d add to that two other things. One is, we know. Aside from the correlations I talked about earlier, we know that there are all sorts of biases involved the interviews, and the assessments are actually better for this purpose. But, if you’re going to use them… I know you know this and you do it well at Auctus, but if you’re going use the assessments, A, you need an assessment that’s relevant-

Tim Geisert (26:42):
Correct.

Frank Cespedes (26:43):
… to what you’re doing.

Tim Geisert (26:44):
Exactly.

Frank Cespedes (26:44):
Most companies, many companies use Myers-Brigg disk assessments that were never intended-

Tim Geisert (26:50):
Right. They’re too generalized.

Frank Cespedes (26:51):
… for hiring.

Tim Geisert (26:51):
Yep.

Frank Cespedes (26:51):
So you got to use the right assessment, and then your people need to know what the heck they’re doing. They need to be trained in doing this, as well. But I think your exact right, there are so many things we can do to increase the odds of a good hire. Again, I won’t go into detail, you’ll see it in the book, but this is an area of business where when you make a mistake… You know one of the old [inaudible 00:27:20] in sales is, you hired your problems. When you make a mistake, this is a very, very expensive mistake-

Tim Geisert (27:30):
It is.

Frank Cespedes (27:31):
… quantitatively and qualitatively, because these are the people who… they’re called sales reps. They represent us to the outside world. So you’re right, but like any other thing, any tool is only as good as the person using that tool.

Tim Geisert (27:47):
Yep. That is so correct. Well, Frank, it has been a joy to have you on this episode. As we all encourage you take a look at the book, I want to thank you. But I want to give you the last word here, Frank. Our audience are senior executives, and your last part of this book is… it’s entitled, What Senior Executives Should Know About Sales. So in a short brief, what should they know?

Frank Cespedes (28:16):
Well, a couple of things. One is, I always get back to basics. I don’t apologize for that. In most industries, if you can do the fundamentals better than your competitors, you’ll be surprised how much competitive advantage there is there. One of the fundamentals here is a basic law of business. It’s tough. It’s just tough to get sustained good things done in a business without a coherent business strategy. You cannot substitute even a great sales model for an incoherent business strategy. Senior executives need to know that. And then the second thing I would say about this is a… this is what that last chapter is about, this dirty secret about many, many companies, the gap between C-suite executives and their knowledge of what actually goes on in the activities of their customer-facing colleagues. Again, you’ll see the data in the book, but this is where SMB, small midsize businesses, can and should have a competitive advantage.

Tim Geisert (29:32):
No, that’s interesting.

Frank Cespedes (29:33):
If you’re out of touch with that, shame on you. But what’s going on out there is changing, and is changing very, very quickly, and the strategy sales performance cycle always needs to be an iterative process, a two-way process. Begin with strategy, make sure you have a coherent business strategy. Then your job is to link sales to that strategy. So that would be my advice there.

Tim Geisert (30:02):
Tucked right in the middle of that are those managers. Right? They become-

Frank Cespedes (30:05):
Yeah.

Tim Geisert (30:05):
… an apex of that success. Frank, thanks so much for your time. I feel like I’ve gone to Harvard for the last 20, 30 minutes, and that’s a real treat. Thanks a lot.

Frank Cespedes (30:18):
Well, in that case, you owe me $300,000, Tim. But my thanks go to you. I’m going to sign off. You reminded me of a comment a guest executive made in one of my classes last year. When he was saying goodbye to the students, he said, “Now, you remember stay positive, but test negative.” Thank you.

Tim Geisert (30:41):
Thanks, Frank. Thank you so much for listening to this episode of The Selling Excellence Podcast for Business Executives. I hope you’ve gained some insight on how to help turn your sales organization into a company asset, versus a pain in the asset. Don’t forget to subscribe to the sales excellence podcast wherever you get your podcasts. For more information about AuctusIQ, or to schedule a discovery call, visit our website at auctusiq.com. Until next time, this is Tim Geisert, your host and partner at AuctusIQ, here to help you sell more and grow your company.

Speaker 3 (31:15):
A Hurrdat Media production.