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Sales Wolf Blog

Private Equity's Huge Sales Miss

Posted by Chris Young - The Rainmaker

Sep 21, 2017 6:45:00 AM

Long story short. Private Equity Firms use a sales personality & aptitude test to hire the best salespeople.jpg

Private Equity (PE) Firms are failing to optimize their sales teams from the very beginning of ownership.

It seems that PE Firms fail to grasp that the Net Present Value (NPV) of every acquired portfolio company is a DIRECT REFLECTION of the quality of their sales talent - both salespeople and sales management. 

Objectively-measure sales talent potential.

Every portfolio company sales team should be measured to provide the appropriate catlayst to allocated resources to address deficiencies. 

What gets measured gets improved.

PE Firms exist to maximize shareholder returns.

PE Firms have a reputation of swift business model optimization which translates into often very high shareholder returns.

As of 2016, the average holding period for North America was 6.0 years (source: Preqin Private Equity Online).

HBR's September 2007 article, The Strategic Secret of Private Equity, describes what a PE Firm does best:

"The fundamental reason behind private equity’s growth and high rates of return is something that has received little attention, perhaps because it’s so obvious: the firms’ standard practice of buying businesses and then, after steering them through a transition of rapid performance improvement, selling them."

PE Firms quickly achieve this performance improvement by making the difficult decisions that probably should have been made under prior ownership years prior.

Serious money left on the table.

I have yet to engage a PE Firm that had a centralized sales talent optimization strategy.

I have yet to engage a PE Firm that had a centralized, objective, accurate understanding regarding the quality of their sales talent and sales management capacity for each portfolio company.

If you know of a PE Firm that has sales talent management strategy nailed down, I would love to hear from you.

Instead, it appears that PE Firms use the following sales improvement playbook:

  • Maintain the ad hoc, ego-driven, gut-based sales hiring by Human Resources / Sales Management.
  • Keep "good salespeople" from leaving.
  • Remove only the obvious low-performing salespeople.
  • Train salespeople.
  • Implement improved sales systems (CRM).
  • Continue weak sales management accountability for sales activity and results.

This playbook is allowed to played without intervention until some deficiency inevitably shows its ugly head requiring intervention.

Improvement of the sales team should never be an intervention, but rather a strategy.  

What the field of accounting can teach PE Firms.Private Equity Firms are losing money because they fail to centralize sales hiring and personality tests.jpg

In accounting there is a standard called GAAP (generally accepted accounting principles). GAAP is a standard of commonly-followed accounting rules for financial reporting.

All competent accountants are familiar with and follow GAAP. If they do not, they get to work at McDonalds.  

GAAP enables a true "apples-to-apples" comparison of financial performance between companies and make it easy to compare a business model's performance to their industry.

PE Firms must do with sales talent what accounting has done via GAAP.

If maximization of shareholder value is truly the primary objectdive, then PE Firms must standardize the objective measure of each portfolio company's sales talent and sales management capacity. And they must do this centrally.

Without a central, objective measurement of the sales capacity of each portfolio company, PE Firms will leave serious shareholder return to be achieved by a future owner.

Key Recommendations.

PE Firms can use the acceleration of their sales talent to accelerate sales (shareholder value) by implementing the following six key recommendations:

  1. Centralize Sales Talent Inventory, Job Benchmarks and Optimization - All sales recruiting, hiring, onboarding, training, coaching, development and optimization must be centrally-administrated with mutual accountabilities at the PE Firm and each portfolio company.
  2. Sales Personality Test Completion - Within 30 days of investment, the portfolio company will have every sales team member complete a valid, multi-science sales personality test.
  3. Job Benchmark Development - Job Benchmarks should be developed for each sales and sales management role.
  4. Job Fit Score Identified - An overall Job Fit score should be identified as a baseline. Human Resources, sales management and senior leadership should be rewarded for improving the overall Job Fit score.
  5. Sales Coaching and Development Plans Customized - Based on the unique needs of each salesperson and sales manager, coaching and development plans may be established and delivers.
  6. Centralize Accountability to Measurably Improve Sales Metrics - This includes sales talent quality as well as coaching and development delivery.

Centralization, human nature and ugly babies.

Why centralize sales talent inventory, job benchmarking, optimization and accountability?

Why make this the previously-mentioned recommendations the standard?

For the following simple reasons.

  • Lack of objectivity - No sales manager nor Human Resources is going to be objective in their assessment of the quality of the sales talent when they played a direct role in hiring them. 
  • Relationships - Salespeople are often loved by their sales manager (as they should be). 
  • Power - Human Resources and sales managers are accustomed to hiring salespeople based on their all powerful gut. They "know sales talent".

Fact. The sales management and Human Resources of a portfolio company are never going to match the objectivity nor the experience essential that a PE Firm HQ will in analyzing / optimizing multiple sales teams.

It is essential that sales talent optimization be a centralized, automated strategy at the PE Firm level.

Time is of the essence.

The aforementioned strategy is one that can be a significant game changer for early adopters.

Right now is the best time to proceed. Got questions - give us a call.

And if you are not a Private Equity Firm...

Then act like how a PE Firm should act.

Reread what I shared previously:

"PE Firms quickly achieve this performance improvement by making the difficult decisions that probably should have been made under prior ownership years prior."

Get on the leading edge of change. Do not wait for a PE Firm to buy your business or the company you work for to make the changes necessary to thrive.  Survival is not enough.

Improve your sales hiring, sales systems and sales culture.

Sales Personality Aptitude Test Sample Assessment

Don't just adopt change; make change happen.

Get in front of change because it sure as hell is a LOT more fun leading change than becoming a victim of it.

Take the advice I just mentioned. Improve your sales team's performance by becoming aware of each salesperson's true sales potential. This advice has the power to dramatically accelerate your career and net worth like no other.

 

 

Topics: Hiring Salespeople