What do I mean when I say it’s a sales problem, not a cash flow problem? I think the biggest mistake entrepreneurs make is they have a tendency to overestimate their ability to sell their product or service. Once they open their doors or hang their shingle, they believe the world will beat a path to their door. Take it from me, that just does not happen. Today, Paychex brings on board more than a thousand new clients a week, but as I said earlier, it took me four years to get my first three hundred!
When entrepreneurs overestimate their company’s potential sales, they are doing the same thing with their gross revenue. This results in a cash flow problem. In simple terms, there is not enough cash coming into the business to pay the company’s overhead. So they go to the bank and report that they have a cash flow problem, but in reality, it’s a sales problem. Or, if we look at the bigger picture, a management problem.
In short, if your business is short of cash, the first place to look is at your sales productivity. Assuming you’ve done your budgeting correctly and you aren’t spending all your money on exotic cars and . . . well, whatever, then your operating costs should be under control.
Hopefully you also have a cash flow spreadsheet that details what revenues your company needs to achieve to meet your monthly outgoing obligations. Linked to this document, you should have a sales forecast spreadsheet, showing targets and actual sales for each salesperson. I’ll discuss this later in this chapter.
Because administrative staff are not part of the selling process, the importance of the sales department is often underestimated. If you’re the CEO, however, you need to know at all times whether your sales revenues are on target. If they aren’t, your financial situation can deteriorate extremely rapidly.
Here is a fundamental truth: nothing happens in a company until someone sells something. The importance of the act of selling something frequently gets lost in business school curriculum, where it is usually combined with marketing. But there’s a difference between sales and marketing; knowing that difference is an important first step in creating a sales strategy. Academic programs often fail to discuss the act of selling; that is, the personal interaction between a salesperson and a prospect. The act of selling and the art of negotiation are imperative to every business on the planet. It doesn’t matter what your business is; someone has to sell something.
When you employ my philosophy of no-nonsense business, you will realize that you are the best person to sell your product (initially, at least). There is nothing better than experiencing firsthand the objections prospects have for not buying what you are selling and learning how to handle those objections. You’ll also gain an understanding of what motivates your buyers. Once you’ve experienced the sales process yourself, you can share the knowledge you have gained with your sales team and give them a clear idea of what they are going to hear when they’re face-to-face with prospects. There is no one better than you to train your sales management and salespeople. Let’s face it, entrepreneurs: it’s imperative you learn to sell your product or service and, more importantly, how to be productive at it.
There are many different ways to sell a product or service, so developing an effective sales strategy that identifies key prospects is vital. There are plenty of books dedicated to the art and science of prospecting, so I’m not going to give you a lesson here on how to fill your pipeline, or sales funnel, or whatever. What I will say is that you need to be creative when figuring out how to reach customers in your target market, and you need to solve the prospecting riddle early on in the game.
In the early days of Paychex, I realized CPAs (certified public accountants) didn’t actually want to process payrolls for their clients; it was too much work for too little reward. This turned out to be a major discovery. Uncovering this simple fact enabled me to work through them to reach out to their clients. My initial direct mail strategy may have had limited success, but working with CPAs was hugely successful. More than forty years later, it is still the way Paychex sells many of its customers.
If you are out there prospecting and you come across a potentially huge customer, be cautious. You have to be careful when selling to what I call elephants. The “elephant” in this case is any major customer that accounts for a sizeable percentage of your overall sales revenue. These clients appear very attractive, and they can be; however, they come with some baggage. Here are several challenges you will face if you focus on these “highly desirable” prospects and customers.
First, they can take a long time to close, and you will face stiff competition for their business. Second, they are not usually as profitable as you might expect. Large, important clients expect heavy discounts, and as I mentioned, your competitors will also be trying to get their business, so beware of a race to the bottom when it comes to profit margins. You need to ask yourself whether high revenues, low profit is a good strategy for your company.
One final danger is that you will likely have to increase your overhead to allow you to build capacity in order to service an elephant, or elephants; then, sometime later, should they decide to change supplier, you will be left with increased overhead with no corresponding revenue. Losing one or more major customers on which you rely heavily for a large percentage of your gross revenues can quickly, and sometimes unexpectedly, throw you into treacherous financial waters.
Here’s a little-known fact: Paychex doesn’t have any customer that accounts for more than 1/1000th of its total revenue. That puts the company not only in a very strong position but in a predictable one, which the markets appreciate.
The only thing ever stopping you from getting a sale is an objection you have not overcome. Think about it: if you can overcome every objection, you must get the sale, as long as you ask for it, of course. The question is: How?
No matter what product or service you are selling, or to whom you are selling, prospects are always going to raise objections to buying whatever you are selling. The trap many salespeople fall into is that they become offended or upset by these objections rather than seeing them as another avenue to get back to the sales presentation. Look at objections as opportunities. To help you with this, train yourself to be ready for any and all objections by preparing clear, logical answers in advance. Spend the necessary time to think about all the possible objections you might face, write them down, and decide how you will answer each and every concern a potential buyer might raise.
Let me tell you a story about Chuck Wollmer, one of my first franchisees in Miami, Florida. Part of my role and responsibility as a franchisor was to help franchisees with sales training. Chuck called me one day and said he had his first appointment with a twenty-five-employee restaurant, which was an ideal-size company for Paychex, so I decided to make a trip to Florida and go on the sales call with him.
We went to the restaurant and sat in one of the booths; the restaurant was closed so it was just us. Chuck went through the presentation, and there was no question he knew and understood our product, its features, its advantages and benefits in finite detail.
When we left the restaurant and were walking back to his car, he said, “That went well, didn’t it?” My reply was that it was one of the worst sales presentations I’d ever witnessed. He was shocked, so I explained that he had failed to ask for the order, even though the owner had given him several strong buying signals. Chuck had been so wrapped up in his presentation he hadn’t heard, or noticed, that the owner wanted to sign on the dotted line. The restaurant owner had said, “What do I do to get started?” and “When could we start?” Chuck, however, single-mindedly carried on with his presentation.
In any sales situation you need to listen to your prospect, really listen. There comes a point when prospects have enough information to make a decision and will ask you questions that indicate they are ready to commit to the purchase. These are the buying signals; learn to recognize them and when you do, move toward asking for the order.
On some occasions a prospect may become silent; do not take this as a negative. They may be thinking of all the reasons they should buy. Let the silence go on for however long it takes, and you will be rewarded with an order.
Chuck learned his lesson and went on to run a highly successful franchise and later became a key member of the Paychex management team.
Trial closes are almost the reverse of buying signals. Whereas buying signals are initiated by the prospect, you the salesperson can ask questions to “test the waters” to see if a buyer is close to making a decision. For example, you might say, “We could start this service next week if you like,” or “We could deliver your order the week after next. Will that work for you?”
If you use a trial close at a moment in the presentation when the buyer has all the information he or she needs, it can actually be a form of asking for the order or closing the sale. If the buyer is not ready, a trial close question will encourage the person to raise any remaining objections he or she might have about your product. At that point you can answer the questions and use a trial close a second or third time.
I remember once using a trial close and getting an extreme buying signal. I was selling to a printing firm, a father-and-son operation. I was making my sales presentation to the father, who was in his seventies. Their company had a twenty-person payroll, which was a great size for Paychex. The presentation went well, and I decided to employ a trial close: “Maybe we should start this next week. It’ll give us time to get your payroll information together.” I was surprised when he answered, “Can’t you do it sooner than that? I might not live that long.” Here was a case where the trial close led directly to the close as I replied, “Well, let’s do it right now.”
Often salespeople make closing far harder than it needs to be; sometimes you simply have to ask for the order.
Successful selling has three basic elements: identify a prospect that needs what you are selling; determine that the prospect has the power to make the buying decision; and ascertain that the prospect can afford or is willing to pay the price you need to charge to make a profit.
Some entrepreneurs and business moguls (and politicians—they’re the worst) take an almost insane delight in dragging their competition and opponents through the mud. I never thought that was necessary. In fact, I think only losers take that approach.
I made it Paychex policy that no one in the company should ever disparage our competition. Competition keeps a company on its toes, and it also provides opportunity, so why not embrace it? My strategy was always to compliment my competition. People don’t expect that, and once again, I think there is a benefit to doing things differently. I find my competitors provide a wealth (in more ways than one) of useful information.
The big advantage you can have over your competition, especially when starting out in business, is that you know what you are up against and can take action to position your product or service more favorably in terms of features, advantages, and benefits. For instance, you can set your price a little lower, knowing it will be harder for them to adjust their pricing in the short-term.
When I launched Paychex, I noticed ADP’s fairly high minimum charges, so we came in at a much lower price point. We hurt them for quite a while before they could start matching our pricing. However, be careful, because lower prices don’t always work, especially if the cost benefit doesn’t outweigh the inconvenience of changing suppliers.
Your salesperson’s primary responsibility is to convince prospects that what you offer is a better deal than what your competitors can offer. He or she needs to do this in an honest and ethical manner. Prospects make their buying decisions by weighing a great many factors, including the benefits of your product in comparison to others on offer, price, ability to deliver, reliability, and security, and whether they have faith in your company. Add to this personal biases, such as whether they like and trust the salesperson, and you can see that the road to an order is paved with tripping points. One such stumbling block for your salespeople is disparaging your competition. Most potential customers will take a dim view of your company if your salespeople openly criticize the competition. This strategy of integrity first will put your salespeople into a stronger position when dealing with prospects.
Competition exists in almost any enterprise that has ever been created, but rather than see competition constantly as a threat, look at the significant value competitors can bring to your company. What do I mean by this? Having competition helps you, maybe even forces you, to keep your product line viable and more desirable to your target market.
Competition also helps build an esprit de corps in your company, but you have to be careful this is achieved with integrity. You need to set a high standard of morality for your employees, one that makes it a policy not to disparage the company’s competition. Do this, and your employees will respect you and be even stronger team players—they will be proud to work for your company.
When I was on the road selling, if I commented on our main competitor, ADP, it was to say that they were the leader in large company payroll processing and we were the leader in small business payroll processing. I would go on to say that without the pioneering work carried out by ADP, Paychex wouldn’t even exist. This kind of approach will sit well with both potential customers and your salespeople.
I mentioned earlier that competition keeps your products viable and desirable; I should add “current” to that list. Some years ago, Paychex introduced a product called Taxpay directly as a result of watching the success ADP had with a similar product. Without getting into the technical and fiduciary details, this product, or it might better be referred to as a service, determines the taxes due on a client’s payroll and allows Paychex to pay the amount to the IRS using the client’s own funds. This takes a great deal of responsibility and work away from small businesses. It is a convenient and trouble-free service that is extremely popular. I have to confess that initially I didn’t think small business owners would allow us to take money out of their accounts because they would be concerned about their cash flow. In this case I was wrong.
Once we decided to introduce Taxpay, it took us about a year to catch up with ADP’s success with this product, during which time they were eating our lunch in no uncertain terms. However, as I write this, 95 percent of our new clients sign up for this service, and it is a profitable part of Paychex’s product line.
In my defense, ADP also adopted one of our services, payroll tax returns, that we had offered from the day the company launched. As with our adoption of Taxpay, it took them quite some time to realize the benefit of offering this service.
The lesson here is to keep a very close eye on your competition. Are they offering potential customers anything more, or better, than your salespeople have in their bag? Your sales manager should create a feedback loop with all members of his or her sales force so that any information relating to the strengths and weaknesses of your competition is duly noted, and then you can compare their strengths and weaknesses to your own. Once you have the results of that analysis, you can ensure their weaknesses become your strengths, while at the same time matching them strength for strength.
Respecting your competition and learning from them when they do something better than you is a sound strategy. Competition is good; good competition is better, as long as you watch the companies concerned carefully and keep one step ahead.
The most difficult people to hire are often salespeople. First, it’s extremely hard to find people who are good at selling. Second, the whole issue of compensation—salary, salary plus commission, or commission only—can be a minefield. However, Paychex has had thousands of excellent salespeople work for the company over the years, so I can assure you they are out there.
Some would say hiring salespeople is like going to Las Vegas: it’s a gamble. You can do a lot of interviewing, you can check a lot of references, but in some cases, despite all of this, you’re not going to be successful in hiring the right person. Let me give you some advice based on my experience of hiring hundreds of salespeople in the constant search for those who can actually sell and reach sales quotas.
First, if someone has prior sales experience, that’s a good start. It doesn’t mean they are any good, but at least you are on the right track. You can and should check with their previous employer or employers, and ask how successful they were, or ask the candidate whether they have any awards, letters, internal emails, or trade press coverage to show how successful they have been. If their employer is noncommittal and has nothing that validates their claim of being a top producer, you might want to tread carefully.
I’ve found that the best salespeople are those who have played sports at a competitive level and experienced a degree of success. It shows they are used to working hard and that they are highly competitive; that’s what you want to see in a salesperson.
I was constantly on the lookout for good salespeople when I was running Paychex. For example, one winter day my car was sliding down a hill, so I pulled into a tire store, conveniently located at the bottom of the hill, to buy some better winter tires. A pleasant young man looked after me. His level of service and his attitude were great, so I asked him if he would ever consider a sales job. He said sure, so I got him an interview. Within three or four years, he was one of the top five salespeople in the company. I’ll talk about hiring for attitude and then giving that person all the training he or she needs in chapter 6.
This is something I outlawed at Paychex. We never tried to encourage good salespeople to leave the competitor they were working for and join Paychex. I never felt it was a fair way to do business. It takes a lot of time and money to train salespeople, and then even more time for them to become comfortable and skilled at selling your product.
I’ve often been asked by entrepreneurs how they can ensure their best salespeople are not stolen away by competitors. The best way is to make it clear that your company will not indulge in the practice of poaching good people. Set an example, and hopefully you will gain the respect of your competitors. Another thing I have done in the past is call competitors’ CEOs and openly discuss the issue with them. If you can get an agreement that neither of you will actively engage in poaching, it can go a long way to preventing such activity.
To protect your own people from being lured away, ensure your sales team is happy, well paid, well trained, respected, and made to feel they are part of the bigger picture and the future of the company. People can only be recruited by one of your competitors if they are willing to leave.
I’m not going to give you a complete management lesson here—this is not an MBA course—but I do want to highlight a few things I’ve always found that made it more likely the salespeople working for me were both content and highly productive.
Whether you are just starting a company, own a going concern, or manage a sales force, there are certain keys to building a successful, motivated, and committed sales team.
The first is the compensation plan, which has to have a balance between incentive and base pay. For example, if a compensation plan is too heavily oriented toward base salary and too low on the incentive or commission side, salespeople may not be encouraged to work as hard as someone with a higher incentive component. In my experience, something in the fifty-fifty range seems to work best for most people.
Although it’s not necessarily an entrepreneur’s first thought, expenses and their payment can be part of the compensation plan, though this is an area full of potential problems. Expense reports can make liars out of honest people; there is too much room for misrepresentation. Administratively, expense reports are also a big hassle for salespeople and companies. Each expense has to be itemized, receipts provided, and someone in the company has to make a value judgment as to whether each line is reasonable and legitimate and then approve or disapprove the claim.
From the very beginning of Paychex, I instigated a no-nonsense expense system for salespeople. We decided on a fair, flat-dollar amount per pay period that sales staff would receive to cover their expenses. This removed any necessity of providing expense receipts or completing and submitting expense reports to management.
Doing this also means it’s up to the individual salesperson to justify to the IRS what their actual expenses were versus the reimbursement they were given. Salespeople are therefore less likely to exaggerate their expenses, and this approach also removes the challenge of monitoring them, while simplifying the whole reimbursement of expenses for your accounting department.
I would encourage you to have your salespeople fill out some sort of activity report. Whether it’s once a week or once a month, an activity report allows you to monitor the number of presentations they are making and how many prospects they are closing, and to decide if these are acceptable rates of productivity and success. Without activity reports you will have little idea how individuals are performing, how your overall sales team is performing, and whether you are meeting your company’s revenue targets.
I’d like to share a sales and management strategy we introduced at Paychex after the company went from being a disparate group of individual businesses to a single corporate entity (the process I referred to earlier as consolidation) and we reorganized our entire operation.
In a nutshell, the new management structure allowed for each zone manager to oversee eight sales managers who in turn directed the efforts of eight salespeople. When a region grew and required more than eight salespeople, a new sales manager would be hired. Subsequently, when a zone grew to have more than eight sales managers, territories would be redistributed, a new zone would be created, and a new zone manager hired. This eight-to-one system worked well for us during a period where we enjoyed consistent growth.
With a new structure in the sales organization, it was important to have appropriate sales quotas. The numbers needed to make sense based on historical reality. If you can justify how you arrived at objective sales targets, it’s far harder for people to question them or claim they are too high. Initially we came up with what we expected for the company as a whole, then through discussions with the zone managers and sales managers we looked at each territory one by one to come up with fair, attainable quotas. This buy-in was important to prevent any resentment among zones.
Once we had the overall sales targets by region, we broke these down even further to provide weekly quotas for each sales rep. They would be expected to submit a weekly activity report to company headquarters. Back then I reviewed these reports myself. My expectation for salespeople was that they did at least forty cold calls a week, leading to a minimum of eight face-to-face presentations, of which they were expected to close no less than two new clients.
The key to this strategy was that I could compare reports sales rep to sales rep and zone to zone. Having that depth of information allowed me and other senior managers to understand what was going on out in the field and take immediate action, when and if necessary. The simple fact that we were collecting this information added to the level of accountability all parties felt; it also gave us credibility when we needed to confront any issues in the field.
Training salespeople is paramount. They have to have the ability to make presentations to potential customers, in a way the customer understands, that show the features, advantages, and benefits of the product. They have to be confident enough in what they are selling to handle objections and close sales.
Ongoing sales training has been a major factor in Paychex’s success, and I can’t emphasize enough that you should make it an integral part of your overall sales strategy. Bringing together your sales team at least once a year for a sales conference and sales training, where you update them on your company’s goals and vision, will motivate them and ensure they are recommitted to your company when they return to their territories. They will also have the opportunity to share success stories, along with any challenges they face, with their colleagues.
Ensuring your salespeople are completely familiar with the products they are selling is important. Knowing a product intimately when talking about it, or demonstrating it, boosts confidence in both the salesperson and the prospect.
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I’ll close this chapter with a story about making a sale that one of my partners, Jack Hartland, quickly regretted. In the next chapter, I’ll tell you more about the strange way Jack ended up becoming my partner. One day during his training, he came into the Rochester office in a state of great excitement. He said, “I sold a fifty-person payroll!” He handed one of our staff the employees’ personal payroll information. About fifteen minutes later she came into my office and exclaimed, “Tom, you’re not going to believe this. This trucking company Jack just brought in—every mobster in the city is on the payroll!” I called Jack and told him he’d better ensure when he delivered their first payroll it was 100 percent accurate! We ended up handling that account for several years, but not without some trepidation. It’s a competitive world out there and a sale is a sale, although I think Jack had mixed views about that trucking company.
My final advice? Close early and close often.