Anyone considering backing your plans will look long and hard at how you plan to sell. Unbelievably, it is an area often dismissed in a couple of lines in a business plan. That error alone is enough to turn off most investors. Just because customers know you are in the market is not in itself sufficient to make them buy from you. Even if you have a superior product at a competitive price they can escape your net.
Getting people to sign on the dotted line involves selling, and this is a process that anyone championing a new proposition will have to use in many situations other than in persuading customers to buy. They have to ‘sell’ to their bank manager the idea that lending them money is worthwhile, to a potential partner that he or she should team up with them; and eventually to employees that working for their company is a good career move.
There is an erroneous view that salespeople, like artists and musicians, are born, not made. Selling can be learnt, improved and enhanced just like any other business activity. First, you need to understand selling’s three elements.
CASE STUDY 1E
When Sumir Karayi, with a B.Eng and an MSc (IT) from Warwick University, started up in business in the spare room of his flat in West Ealing, London, he wanted his business to be distinctive. He was a technical expert at Microsoft, and with two colleagues he set up 1E (www.1e.com) as a commune aiming to be the top technical experts in their field. The business name comes from the message that appears on your screen when your computer has crashed. Within a year of starting up the team had learnt two important lessons. Businesses need leaders, not communes, if they are to grow fast and prosper; and they need someone to sell.
On the recommendation of an adviser Karayi went on a selling course, and within months he had won the first of what became a string of blue-chip clients. The company is now one of the 10 fastest-growing companies in the Thames Valley, with annual turnover approaching £25 million, profits of 30 per cent, and partners and reseller partners worldwide.
Today 1E is headquartered in London, with regional offices in New York, Dublin, and New Delhi. They have deployed more than 26 million licences worldwide, helping 1,700 organizations in 42 countries work more efficiently, productively and sustainably.
If you are not going to be your business’s main salesperson you need to brace yourself for costs of around £50,000 a year to keep a good salesperson on the road, taking salary, commission and expenses into account. The problems with employing your own salespeople is that initially they won’t sell enough to cover their costs, and you may get the wrong person and so end up with just a big bill and no extra sales.
A less risky sales route is to outsource your selling to freelance salespeople. Here you have two options.
CASE STUDY Howard Fabian
Howard Fabian’s business was designing and selling greetings cards. His main market was London and the south-east of England, where there were 120 important shops to be sold to. He planned to sell to these accounts himself. This meant visiting all the outlets once at the outset. He could make four to five calls a day, so it would take between four and five weeks to cover the ground. After that he would visit the most important 30 every month, the next 30 every two months, and he would phone or visit the remainder from time to time, and send samples of new designs in the hope of encouraging them to order. While on an enterprise programme at Cranfield he took a professional selling skills course.
Outside London and the south-east, Howard proposed to appoint agents, based in the principal provincial cities. To recruit these he planned to use the trade press and the Manufacturers Agents Association. Each appointment would be made on a three-month trial basis, and he had an agency contract explaining this business relationship drawn up. He proposed to set each agent a performance target based on the population in this catchment area. Sales within 25 per cent of target would be acceptable; outside that figure he would review the agent’s contract.
Initially he was looking for 10 agents, whom he would visit and go out with once a quarter. As selling time in a shop was short, it was important that he and his agents should have a minimum set agenda of points to cover, and a sales presenter to show the range quickly and easily from the standing position.
The sale process is not complete until, as one particularly cautious sales director put it: ‘the customer has paid, used your product and not died as a consequence’. You do have responsibilities for the safety of everyone involved in your business, including customers, the legal aspects of which are dealt with at the end of this chapter. One of the top three reasons that new businesses fail is because a customer fails to pay up in full or on time. You can take some steps to make sure this doesn’t happen to you by setting prudent terms of trade and making sure the customers are creditworthy before you sell to them.
There is a wealth of information on credit status for both individuals and businesses of varying complexity, at prices from £5 for basic information through to £200 for a very comprehensive picture of credit status. So there is no need to trade unknowingly with individuals or businesses that pose a credit risk.
The major agencies that compile and sell personal credit histories and small-business information are Experian (www.experian.co.uk), Dun & Bradstreet (www.dnb.com) and Creditgate.com (www.creditgate.com). Between them they offer a comprehensive range of credit reports instantly online, including advice on credit limit and CCJs (county court judgements).
You need to decide on your terms and conditions of sale, and ensure they are printed on your order acceptance stationery. Terms should include when and how you require to be paid, and under what conditions you will accept cancellations or offer refunds. The websites of the Office of Fair Trading (www.oft.gov.uk) and Trading Standards Central (www.tradingstandards.gov.uk) contain information on most aspects of trading relationships.
EXAMPLE
One unfortunate entrepreneur felt that his business, a management training consultancy, had got off to a good start when his first client, a major US computer company, booked him for three courses. Just three weeks prior to the first of these courses, and after he had carried out all the preparatory work and prepared relevant examples, handouts, etc, the client cancelled the order. The reason given was a change in ‘policy’ on training dictated by the overseas parent company.
If this entrepreneur had included in his standard terms and conditions a cancellation clause, then he would have received adequate compensation. In fact, he was operating on a ‘wing and a prayer’, had no terms of trade, and wasn’t even aware there was an industrial ‘norm’. Most of his competitors charged 100 per cent cancellation fee for cancellations within three weeks, 50 per cent within six weeks, 25 per cent within eight weeks, and for earlier cancellations no charge.
Cash has the attraction in that if you collect as you deliver your product or service you are sure of getting paid and you will have no administrative work in keeping tabs on what is owed you. However in many business transactions this is not a practical option, unless as in retailing for example, you are present when the customer buys. A cheque underwritten with a bank guarantee card is as secure as cash, assuming the guarantee is valid. But the cheque will take time to process. In practice you would be wise, until you have checked out the creditworthiness of the customer in question, to await clearance of the cheque before parting with the goods.
You need to be careful in interpreting banking terminology here. Your bank may state that the cheque is ‘cleared’ when in fact it is only in transit through the system. The only term in bank parlance that means your money is really there is ‘given value’. If you have any concerns, ring your bank and ask specifically if you can withdraw funds safely on the cheque in question.
Getting paid by credit card makes it easier for customers to buy and makes it certain that you will get your money almost immediately. With a merchant account, as the process of accepting cards is known, as long as you follow the rules and get authorization the cash, less the card company’s 1.5–3 per cent, gets to your bank account the day you charge.
You can get a merchant account without a trading history as a new venture, depending of course on your credit record. See Streamline (www.streamline.com), a division of Worldpay, who in turn are owned by venture capital firms Bain Capital and Advent International, Barclaycard (www.barclaycard.co.uk/business) and HSBC (www.business.hsbc.co.uk/1/2/business-banking/business-payment-processing/business-debit-and-credit-card-processing).
However prudent your terms of trade and rigorous your credit checks, you will end up with late payers and at worst nonpayers. There are ways to deal with them, but it must be said that experience shows that once something starts to go wrong it usually gets worse. There is an old investment saying, ‘the first loss is the best loss’, that applies here.
The most cost-effective and successful method of keeping late payers in line is to let them know you know. Nine out of 10 small businesses do not routinely send out reminder letters advising customers that they have missed the payment date. Send out a polite reminder to arrive the day after payment is due, addressed to the person responsible for payments, almost invariably someone in the accounts department if you are dealing with a big organization. Follow this up within five days with a phone call, keeping the pressure up steadily until you are paid.
If you are polite and professional, consistently reminding them of your terms of trade, there is no reason your reltionship will be impaired. In any event the person you sell to may not be the person you chase for payment.
If you still have difficulty consider: