Sales Growth. Baumgartner Thomas

sales programs also depend on access to resources: companies have to be willing to take risks now to get themselves out ahead, creating sales capacity long before the revenue will materialize (see sidebar “Reborn in the Cloud” for the story of Adobe Systems’ reinvention).

Many sales executives we interviewed explicitly account for investment in new growth opportunities in their annual capacity planning processes. While this usually involves simply drawing territories and assigning customer lists to support growth initiatives, it can also include requests for dedicated resources to pursue new sources of long-term demand, particularly in emerging markets. Forty-five percent of the companies we interviewed conduct sales planning that goes beyond one year, and the level of investment can be high. More than two-thirds invest at least 4 percent of their sales budget on activities supporting goals that are at least a year out – a significant commitment in an environment where sales leaders fight for each dollar of investment (Figure 1.1).

Figure 1.1 Companies are making meaningful investments in longer-term sales opportunities

      The ability to commit in advance helped one Asian auto company crack the Indian market. As it assessed India in the late 1990s, the prospects for success for foreign manufacturers were not clear-cut. There was little doubt that the nation’s rapidly expanding middle class would boost demand for cars, but tapping into that growth from the outside was not going to be simple. A big constraint was the need to develop the right distribution network, since many of the best dealers were already tied to existing local manufacturers.

      The conventional approach would be to piggyback on a local manufacturer’s network and partner with dealers in the largest cities first to gain presence quickly. This is the least expensive and fastest way to attack a new region. However, it had limited upside for the carmaker. The leading dealers tended to put their domestic brands first, and only dealers in the big cities could afford to support a second brand. Without real focus from dealers, the prospects of becoming a market leader were far from certain.

      This knowledge prompted the company to look further into the future. Although economic growth was concentrated in the largest cities now, it was undoubtedly spreading, and a new wave of middle-class Indians would arise in second- and third-tier cities in just a few years. A player that had a dealer network in place in those cities before demand materialized would be exceptionally well positioned.

      Many executives explicitly account for investment in new growth in the annual capacity planning.

      The sales leadership laid out a plan to sign up more than 110 dedicated dealers across India, including in secondary cities. The plan involved recruiting two specific types of dealers: small independents and sellers of minor brands who were eager to expand. The company focused heavily on each dealer’s personal aspiration to grow and willingness to buy into a five-year vision. Beyond the largest cities, dealers would need to stay lean in the early years when demand would be low. This meant the owner would have to be flexible, operating with a small staff that would have to double up in management roles. In many cases, the owner would also have to act as a new- and used-car manager. Then, when demand started to grow, the dealers would need to scale up and invest. Recruiting dealers who fit this profile would be a sales project in itself.

      The first challenge, however, was building the conviction to bankroll this unorthodox approach. Complicating matters, the company had just one product suitable for the Indian market; others were in the pipeline but as much as two years away. However, the sales leaders believed that this distribution strategy would capture the full potential of the Indian market because the dealers would be fully focused on the brand, and the automaker would have an important first-mover advantage in smaller cities.

      The company also decided to offer subsidies to help dealers through the early years, arguing that the eventual sales volume and associated profits justified this up-front investment. The subsidy came in the form of incentives to help the dealer pay for its facilities and build new vehicle and parts inventory – expensive capital outlays required for adding a new brand. The incentives were calibrated to enable the dealer to break even in the early, lean years, but dealers certainly were not given a blank checkbook. Within two years, they were expected to be self-sustaining, and the vast majority achieved this based on the product lineup and their own entrepreneurial skills.

      Once the plan was approved, the second challenge was convincing more than 50 dealers to sign up with a foreign franchise. Although the targeted dealers didn’t have access to the top domestic brands, they were being courted by other car companies trying to enter India. What sealed the deal for many was the announcement that the Asian automaker would build a local production facility. This was an important differentiator, reinforcing the manufacturer’s long-term commitment to the market.

      The results have been extraordinary and have fully justified the sales team’s vision. Within two years, the company introduced additional models and gained enough volume to withdraw the dealer subsidies and attract additional dealers. Within five years, the original network had doubled, and the company was in the top five for market share in India, and it enjoyed top-tier customer satisfaction. An above-average return on sales of 8 percent meant that the company had exceeded its initial sales investment many times over.

      Reborn in the Cloud

      Anticipating trends and thinking at least ten quarters ahead can take companies right outside their comfort zone. Adobe Systems saw the winds of change in time and made the radical transformation from a desktop application software company to a cloud computing company. There were bumps in the road, but the company’s stock price has more than tripled, overall revenue growth has climbed from single digits five years ago to double digits today, and recurring revenue has risen from 19 percent in 2011 to more than 70 percent of total revenue today.

      Adobe’s initial model drove revenue growth by raising the selling price or moving people up to more expensive products. But times were changing. Cloud technologies made recurring-revenue models possible and made it easier to roll out product updates more frequently than every 18 months. This gave customers faster access to Adobe’s product innovations at a time of rapid advances in devices, browsers, mobile apps, and screen sizes. Then came the recession. Many of its peers already had recurring revenue streams and were weathering the storm better than Adobe, despite its high levels of customer satisfaction. The transition to the cloud seemed to be the right next step.

      It was a tough transition and not everyone was initially convinced that the risk was worth taking. “We spent hours knee-deep in Excel spreadsheets modeling this out. We literally covered the boardroom with pricing and unit models, and predictions for how quickly perpetual licenses would fall off and how quickly online subscriptions would ramp up,” explains CFO Mark Garrett.

      Having decided to act, the company prepared investors for a drop in revenue and earnings in 2012, and shifted analysts’ focus to the new metrics of the cloud business. As the switchover progressed, investors began asking about longer-term objectives, so Adobe projected the compound annual growth rate and earnings per share three years out. This longer-term outlook was a new concept for a company that had previously only given guidance one year out.

      Such a radical change of model required major investment across the company, not least in sales planning. On the product side alone, uptime, availability, disaster recovery, and security all became critical product components that had to be developed. The sales force and channel had to be compensated differently, and even the accounting organization had to change as it moved from billing three million customers a year to four million a month.

      Adobe’s vice president of business operations and strategy, Dan Cohen, recognizes the benefits of change. “Companies that simply stick to what has made them successful in the past leave themselves open to disruption. You have to take a fresh look at your products – and be willing to ‘burn the boats.’ Executives in every industry need to read the tea leaves and look at changes that are happening in their own or adjacent industries.