Question:

What is the current sales strategy? Be specific to the case.

Sales process – Funnel

What would you change about the current sales strategy? Why? Show your analysis and explain your thinking.

Is it right or wrong? What would you change?

Analysis of why?

Case:

It is Dec 1, 2022. (NOTE: assume this is the date you are at in the case) ) you are Marina Martin, Vice President of Sales at a Canadian SaaS company, EKJCo (fictitious). 2022 was the 3rd year of full commercial operations for EKJCo and despite strong efforts from your team in achieving annual revenues of $4,000,000 (for fiscal year ending November 30, 2022) the revenue growth rate declined to 40% in 2022 from 100% year over year revenue growth in 2021. Management was expecting revenue growth of 90% in 2022 so the clear sense across the company was that the sales organization materially underperformed even though revenue had grown. At all hands e n d o f y e a r meeting last week, Malia Wight, President of EKJCo, was marginally diplomatic in her assessment of 2022 and expectations for 2023. In her words, “2022 was NOT our best year for execution and this missed forecast has caused us some heartburn as we had hoped to be profitable for the first time in 2022. Notwithstanding 2023 will be our best year ever!”. When you asked your boss the Chief Operating Officer, Elle Bitda for details she was more specific – 2023 revenue target is $10,000,000. Elle also shared that your budget for 2023 was being cut by 10% at the same time.

The Company – EKJCo

EKJCo was started in November 2019 out of an incubator program at The J.R. Smith School of Business at Queen’s University. Malia Wight, a recent computer engineering graduate completed the prestigious 4-month business core program, the Graduate Diploma in Business in the summer of 2019. Over the next few months, she worked (out of the school’s incubator) refining her business. She released the first commercial version of her service and secured her first paying customer, a small technology company, in Feb 2020 and then secured a $1,000,000 short-term government contract which skewed revenue in year 1 as this contract was mostly for contract work. After that the next couple of years focused on 100% commercial growth from their flagship product.

EKJCo’s only product is called Carnegie (and is named after Dale Carnegie, one of history’s greatest trainers). It was designed to enable an individual salesperson to learn, practice and refine all the key skills required at each stage in the sales process from prospecting to discovery to demonstrating capability to handling objections to gaining commitment. And it can all be done in a self-directed manner at the salesperson’s convenience without the need to have trained professionals involved or to send the salesperson to expensive training. It is as easy as the salesperson logs into the platform, picks the scenario then logs into a virtual call (the same way that you would either on the phone or via a video conferencing interface) and interacts with the Artificial Intelligence (AI) Avatar which simulates the role of an executive at the target buying organization. And what is unique about Carnegie is that it provides a library of scenarios, executive types and a customization engine so that each organization can design the training to perfectly match their context. E.g., if you are training a new Business Development Representative (for a company selling employee health benefits) to do Outbound Calling to Chief People Officers or training an Account Executive to manage the sales process for new retail channel members and all other scenarios in between, then there is a library of simulated sales scenarios and the customization engine to train the AI Avatar.

Industry acceptance over the past couple of years has been very positive. A sales executives at one of their customers, Hamilco Insurance, said it best, “Our sales reps are the best in the industry for three main reasons – 1)Carnegie drastically shortens their onboarding time and gets them producing revenue faster, 2) it enables them to refine their skills more quickly on their own freeing up manager’s time and 3) it regularly is updated to incorporate new selling techniques based on evidence-based best practices that enables our reps to shortens sales cycles and increases win rates. And because they perform better it has drastically reduced churn in

the salesforce.” The executive went on to say, “while there is no doubt Carnegie is expensive, there is also no doubt that the ROI is extremely compelling. Carnegie is a must have as not sure how we could ever go back to the old methods of sales training and onboarding.”

Carnegie is priced as follows:

Customization Engine License Fee — $25,000 upfront and $5,000 per year thereafter covering an organization of up to 100 sales representatives. For larger organizations a custom quote is negotiated.

Plus

User Subscription Fee – this is an annual subscription fee

It is $500 per year per sales representative.

Volume discounts can be negotiated for organizations with more than 100 users.

At this point in time EKJCo has recently been targeting small (<20) and medium sized (20 up to 100 salespeople) companies in the retail, insurance, technology, transportation, sports & entertainment, and staff recruiting industries. In the first couple of years of operations EKJCo focused on startup/small (<20 users), because they were fast growing organizations that were hiring lots of salespeople and did not have the training infrastructure in place. While these companies continue to be an important part of the sales mix, EKJCo has also started to show success in going after medium to larger organizations and has even considered enterprise companies with many 100’s to 1000’s of salespeople. At the enterprise level competition is much greater. The needs varied considerably from small to enterprise organizations. For example, startups rarely did any kind of privacy compliance checking whereas the enterprise organizations typically had a list of required compliance checks that needed to be signed off by a legal team. In addition, the # of administrative features needed for user management and integration with other software systems such as Human Resource Management and CRM were much greater as the size of the user base grew.

Thus far, 100% of revenues came out of Canada. The plan was to expand into the USA in the second half of 2023.

The Sales Organization

In an interview early in 2022, Malia Wight was quoted as saying that EKJCo was racing to be a $100M company in revenues in the next few years. Her logic was that EKJCo had a time to market advantage, and that its AI capability was continuously being refined and more accurate in execution. She believed that doubling each year was possible. And Marina Martin was hoping she was right.

At the end of November 2022 Marina Martin had a team of 11 direct sales representatives employed by EKJCo.

There was also a junior marketing person that was responsible (among many things) for running campaigns and support Marina’s team in generating leads which were then assigned to one of the sales representatives for direct outreach and opportunity management. A project that the junior marketer was also doing research on was the purchase of a comprehensive CRM system. Up to now the organization has been using Outlook and Excel yet quickly needed to transition to either Hubspot or Salesforce.com. This decision was expected to take place this coming month (ie December 2022) and system deployed by the end of January 2023.

The sales representatives were organized geographically by territory covering Canada. The reps were responsible for the full cycle within their territory including outbound lead generation (other than leads provided by junior marketer), inbound calls (received from marketing campaigns) and managing all opportunities to completion. The sales representative was also responsible for managing all their existing accounts to drive user growth, manage service requests and prevent churn. While on occasion there was a need to visit a customer, most sales calls took place either over the telephone or via videoconferencing. For the direct sales force the leads in 2022 were split

20% through inbound from marketing campaigns and 80% outbound.

While at this point Carnegie was designed primarily for sales professionals there were discussions about new releases in early 2024 for training of customer service staff as well. Until then the sales force was 100% focused on Carnegie for sales teams.

What Happened in 2022?

As of yearend Nov 2021, there were 80 companies as customers using Carnegie. And across those 80 companies there were 1,600 users registered with and paying to use the system.

In Dec 2021 EKJCo added 4 sales representatives. Marina Martin, among all her duties, operated as the single channel manager for EKJCo’s channel partner network. EKJCo was lucky as it had no churn in its sales organization in 2022.

The overall selling expenses for fiscal 2022 including wages, incentive plan and out of pocket expenses were $2 Million.

In February 2022 a software glitch resulted in the AI Avatar behaving in an odd manner. As such the decision was made to quickly release a patch to fix this issue. However, the patch served to materially exacerbate the issue and led to 10 companies canceling their contract. In fact, 4 are in legal proceedings. This was the first time that EKJCo had ever lost a customer other than a couple smaller organizations that went out of business. Since that time the patch had been fixed and everything was operating smoothly although there was some lasting latent negativity among the existing customer base and users.

In June 2022 Malia Wight and Elle Bitda unilaterally stepped in and established a new compensation system for the sales representatives that moved from a base with bonus above quota plan to a straight commission plan. The total target cash compensation (TTCC) was around $110,000 for a sales representative under the old plan. The new plan, while still experiencing considerable resistance from the sales force around removing the base, gives each sales representative the potential to earn more with the TTCC now estimated at $150,000. The commission is to be paid as a % of estimated new contract value in year 1. After that there was no further commission. While some of the sales team, particularly those with families, were worried about their own personal cash flow (with no base) most were intrigued by the upside.

The insights from a post-mortem conducted on what happened in 2022 were as follows:

Due to challenges in the Canadian economy the average buying cycle extended from 6 weeks to 18 weeks and moved from a decision-making unit consisting of only a Sales Leader (e.g., Vice President of Sales) to a more formal buying process involving a team that included finance, mid-level sales managers and purchasing. Oftentimes these purchasing managers wanted to get multiple quotes and this sometimes further extended the buying process.

Total spend in sales training had declined somewhat across the industry as fiscal realities took hold eclipsing discretionary budgets.

More challenges in securing orders due to concerns about pricing model, specifically the upfront customization costs. This was particularly so in organizations with sales forces of 20-50 users. The argument from them was it drove up the average cost in year 1 that made it difficult for them to find the money in their budget.

3 sales representatives quit in July 2022 and it took until November 2022 to hire their replacements. During that period the territories were essentially uncovered although Marina attempted to manage on a customer-by-customer basis.

Increase demand for free trial periods that extended from 1 week to 4 weeks. Given the workload of sales representatives these trial periods oftentimes were stretched and, in some cases, wasted as companies used the trials to get some free training at a busy time and then did not make an order.

EKJCo’s channel partners, which included a network of 40 independent sales consultancies represented 20% of all revenues in 2022. However, due to a lack of time spent by Marina working with these consultancies and Malia demanding a phasing out of the referral commission paid to them in 2022 (from old of 10% of total contract value and 2.5% each year thereafter to 11% only in first year) essentially little new business came from the channel and there was some indication that channel partners were looking for ways to offer customers an alternative to Carnegie. This was one area that concerned Marina as she knew that across Canada and the USA there were 100’s of independent sales consultancies ranging from small firms of 2-3 consultants who target smaller firms to larger ones of 50-500 consultants who target medium sized to enterprise organizations.

2023 Will be Best Year Ever

So, Marina Martin and her team wondered what they needed to do this year to grow revenues to $10,000,000 while simultaneously cutting $200,000 from her budget of $2M. It is Dec 1, 2022 (NOTE: assume this is the date you are at in the case) and the 2023 fiscal year begins. Marina was behind and needed to make decisions fast. She asked herself where she should start, what would have the biggest impact in the year and set up the organization for the future? Were her salespeople motivated to take on the challenge? Could they achieve it? She knew this was a critical year for the business and that her organization needed to deliver. So, she and her team got to work assessing the current situation, figuring out where the primary issues were, analyzing possible options and then getting to work prioritizing recommendations. Her meeting with Malia and Elle was on the horizon and quite possibly her job on the line.

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