Three Reasons Why B2B Sales People MUST Engage Executives
Today, the new sales reality is that the buying process is more convoluted and confusing than it has been in the past. This “buy-side” complexity manifests itself in a number of dimensions: More stakeholders, greater caution, higher levels of scrutiny, and numerous signature approvals.
Most of the B2B sales professionals I work with in sales training engagements report longer customer sales cycles and growing levels of personal frustration.
In the past several years the customer’s world has evolved: Technology has been harnessed and “vendor management” workflows have been automated. Today, your customer is much smarter about how it spends money and how it “manages” you.
From my perspective as a former Fortune500 CFO, here are 3 reasons why you must engage at the executive level in your customer’s organization.
Reason #1: When the Economy Goes Down, Decision-Making Goes Up
As a rule of thumb, executives intervene more frequently in the decision-making process during periods of declining or stagnant economic conditions. For some companies in a down economy, spending money is a make-or-break proposition, so investment decisions quite naturally get kicked up to the C-suite.
In this post-financial crisis environment, companies are scrutinizing decisions as they allocate scarce capital expenditures and operating funds. For executive decision-makers, never before has the value of being right or the cost of being wrong been so large and consequential. The financial margin of error has narrowed in this slow-growth economic environment. Not surprisingly, more stakeholders in higher places are getting involved in the buying process.
Evidence of this trend was revealed in a 2011 Gartner Survey which reported that CIOs acting alone have authorized only 5% of recent technology investments. This same survey also revealed the rising importance of the CFO: In 42% of companies surveyed, IT now reports to the CFO while 33% of IT organizations report to the CEO.
In this weak economy, decision-making is most certainly “going up” … in many cases right up to the C-suite.
Reason #2: The Cost of Capital Investment Hurdle Rate is Rising, Not Falling
Even though companies have trillions of dollars of cash on their balance sheet, it’s getting harder to justify spending it on new investments. The hurdle rate, or minimum required rate of return on investments, is rising not falling in this post-recession period.
This fact is counter-intuitive to most sales people who think that the investment hurdle rate is equivalent to the absolute level of interest rates on borrowed money. A lower “cost of debt” most certainly helps to reduce the hurdle rate, but it is being more than offset by a rising “cost of equity” which is the other key component of this investment threshold.
The liquidity crisis of 2008/2009 has prompted many companies to pare their debt levels. As companies de-lever they are left with less “low-cost” debt financing and more “high-cost” equity capital financing. The cost of equity capital is more difficult to understand, but in general reflects the expectations of company investors for a fair return on their investment. In today’s slow-growth economy, equity investors have elevated their return expectations, even as interest rates on debt capital have fallen.
For example, consider the plight of FedEx as depicted in this chart. In a recent investor presentation, FedEx disclosed that its investment hurdle rate or WACC (weighted-average cost of capital) rose from 6.8% in FY2009 to 8.5% in FY2011. That’s a massive 25% increase in the hurdle rate most likely driven by the de-levering of the FedEx capital structure.
A rising hurdle rate or WACC means that new projects will need to have larger financial benefits if they are to be accepted. Because the margin of error has shrunk, it also means that investment analyses will be scrutinized by decision-makers higher up the food chain in the customer’s organization.
It’s always been a fight for the allocation of scarce capital, but now the fight has escalated to the C-suite and only the proposals with the strongest business case and ROI will survive. To make your best case, you must engage at the executive level to influence the investment analysis.
Reason #3: You’ve Got Competition for Your Job
If you are still selling the same way to the same lower-level people you sold to five years ago, you better start looking over your shoulder. Someone with better executive selling skills, fully capable of doubling your current level of sales productivity, is vying for your job.
Ready or not, your comfortable world of selling transactions to lower levels in your customer organization is going to end. Transactional selling has been commoditized thanks to the internet and your employer cannot afford to continue subsidizing a high-cost direct sales channel for a low-value non-strategic selling motion.
Executive selling skills are a clear personal differentiator in this competitive job market for B2B sales professionals. The best action you can take is to commit to a personal development plan to acquire the specialized skills required to achieve relevance with your customer executives. Your plan should focus on how to sustain intellectual dialogues with C-level executives in order to gain their sponsorship. In most cases, this will involve elevating your business/financial acumen and ability to communicate solution value in the context of your customer's business.
For B2B sales people, never before has the value of executive selling skills or the cost of not having them been so large and consequential.