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Performance Improvement: A Focus on Revenue Growth and Optimization
EPISODE 55: Growthcast welcomes back DHG's Mark Miller, as he and Micah Dawson from Trivest Partners discuss some considerations for digital marketing and sales operational metrics in order to drive revenue growth.
[00:00:09] JL: Welcome to today's edition of DHG's GrowthCast. I'm your host, John Locke. At DHG, our strength lies in our technical knowledge, our industry intelligence, and our future focus. We understand business needs and are laser-focused on company goals. In this ever-changing world, DHG's GrowthCast provides insights and thought-provoking conversations on topics and trends that address growth opportunities and challenges in the current and future marketplace. Thanks for joining us as we discuss tomorrow's needs today.
[00:00:42] ANNOUNCER: The views and concepts expressed by today's panelists are their own and not those of Dixon Hughes Goodman LLP. Always consult the advice of your legal and financial professional before taking any action.
[00:00:58] JL: I'm excited to welcome back Mark Miller, who is a Principal in DHG's Private Equity group and has over 25 years' experience assisting private equity held and other middle market companies with operational and financial improvements. I'm also very excited to have Micah Dawson with us from Trivest Partners. Micah is the Vice President of Portfolio Support with Trivest Partners and helps to drive value creation for their portfolio companies. Welcome, Mark and Micah.
[00:01:27] MD: Thank you, John.
[00:01:28] MM: Thanks, John. Good to be with you this morning.
[00:01:31] JL: Mark, when you were with us back in September, we talked about some key value drivers of performance, including things like revenue growth, value delivery, and business enablement, and how those are the basic building blocks for running a business. We also discussed how these contribute to better financial management. Today, I understand you and Micah are going to focus on some operational drivers for revenue growth.
[00:01:57] MM: Thanks, John. As you mentioned, we covered a lot of ground in our last podcast in the area of performance improvement. One area in particular we didn't cover in depth would be revenue growth, and it happens that Micah Dawson from Trivest and I have been working on some fun and interesting challenges within client companies related to that topic. We thought it'd be a great area for us to explore today.
[00:02:26] JL: Micah, what initial thoughts would you like to share with our listeners?
[00:02:30] MD: Sure, happy to. It has been a really good dialogue with Mark, particularly around the topic of the role of digital marketing in a B2B environment. A lot of Trivest portfolio companies are B2B business or B2B services companies, and so one of the misunderstood things is people understand very well the role of digital marketing in consumer-facing businesses. What's less understood is the role of digital in a B2B environment, and it really starts with lead generation and the idea that you've got a lot of high-priced sales people on your payroll. Often what we'll see, I can think of one portfolio company in particular where their sales people were spending about 60 or 70 percent of their time prospecting for leads, which is something that can easily be done by a different lower cost resource.
[00:03:35] JL: Micah, you talked about the high-priced sales force not really using their time well. Mark, can you give us a little bit more information about some alternatives that might be out there for a better utilization of sales force versus lead generation?
[00:03:53] MM: Absolutely. I think that one thing that my clients in particular lack often is good data about who they're going after. When we employ marketing resources, be it internal or be it a third party marketing specialist, oftentimes they have a good process for defining our message and finding what key attributes of our product or service will hit with a demographic. But what they don't have and what we need to give them is good data around who we're going after. That allows their efforts to be more focused and to be more efficient so that our cost per lead becomes a key performance indicator of how well we're driving that lead generation to sales.
If we're spending a lot of time with a very crisp marketing message but we're not getting it to the right targets, then we're going to miss a lot of opportunities to generate the leads that are going to drive revenue. Likewise, if sales is chasing down a marketing-produced lead, then we want to make sure that that has a high probability of success. So the data around who we're targeting, utilizing things like CRM, like social media to gather and synthesize that data is very important in today's environment and to Micah's point, to getting the right activities to the right resources between sales and marketing.
[00:05:47] JL: Well, Mark, you bring up really good points there around the different definitions of qualified leads. Micah, can you give us a little bit more insight on what the difference is maybe between a marketing qualified lead and a sales qualified lead?
[00:06:04] MD: Sure. I don't have sort of the academic definition but, yeah, sort of a working definition that we've seen be successful. There's this really critical step where a lead comes in. In my mind, in a marketing qualified lead, there's a scorecard that says, "Okay, here's the target demographic audience type of business we're going after. How do we identify who that is and how do we get in contact with them?" In my mind, that's a marketing qualified lead, which should then go into this critical step between marketing qualified lead and sales qualified lead where a sales person or somebody in that role within the organization then says, "Okay, this person fits our profile. But are they ready, able, willing to buy the product we're selling?" If they are, then that becomes a sales qualified lead where our sales people who shouldn't be very good at closing then allocate more of their time on an actionable target.
[00:07:14] JL: That makes total sense. I'm just curious, Mark. What have you seen as it relates to how this is working now in the virtual environment? Is this still an effective model in the pandemic era?
[00:07:28] MM: I think it's absolutely more effective, and we're learning more and more out of necessity on how we touch customers and potential customers in an environment where it has to be virtual, and we're not jumping on airplanes to deliver pitch decks or qualifications. We're having to come up with ways to identify and appropriate opportunities to touch these targets and do it online through social media, through other creative ways that get eyeballs to use a cliché toward our product or service. I think coming out of the pandemic, we'll see a lot of innovations that have sprung up from that necessity in terms of how we engage our customer base and deliver good leads to our sales folks, who even on their end are having to deliver demos and contracts and points of negotiation remotely and in a way that lacks that in-person dynamic we're used to.
[00:08:56] MD: I think there are some myths that are being broken down in this virtual environment that are actually really positive, especially for B2B sales organizations. Mark and I are working on a company together that I'd say is typical of many companies we see where their approach to sales is I need more sales. I'm going to go hire another salesperson. The myth that gets told is that sales is really a relationship-driven endeavor and not necessarily process-driven. That's convenient for salespeople who like to keep it a black box and say, "My relationships with the customers are really what's going to drive revenue for us, and you shouldn't try and put too much structure around it because it's going to mess up the way I go about things."
The resistance to selling virtually I think and I've heard from other smart people in the area is really driven by sales organizations and not by customers, which is directly backwards. So even in a B2B environment, people want to buy online. They're used to it. We've been doing it now for multiple decades. What we're trying to enable is that online shopping process where there's online lead gen, and then what's really important is some sort of landing page to then connect that qualified lead. The best marketing qualified lead is one that opts into your system, not one that you have to go find. If they raise their hand and say, "I'm interested in your service," immediately the close rate goes up because they've said, "Hey, I am a potential buyer," and they've almost jumped the step between marketing qualified lead and sales qualified lead.
I think one of the keys is as we do more virtual lead gen, as we bifurcate that labor, making yourself as a sales organization really easy to do business with particularly online and virtually so that your customers who want your service have a way to go get that service or product even when they are in other business, and the traditional wisdom would say, "Oh, well. You need to be called on by a salesperson before you're even ready to think about a buy decision." What we're seeing is that's just not the case.
[00:11:27] MM: Micah makes a great point about the black box. I love that term of sales. That kind of argument is sales and art or a science. Well, it's really both. We certainly hire folks who have a propensity toward taking opportunity from germination to close, right? But along the way, if you look at a complex sale process there are key stages that most companies use, right? There's an identified opportunity, potential buyers out there that fits the profile of somebody who would like our product or service. There's a qualified lead, which means we've kind of confirmed that, yes, they're in the market and we can satisfy their need. There's the develop stage, which means we put a proposal in their hand that that lays out the economics and the benefits, and then it's either closed or won. Over time it's been proven that the more numbers I drive into the earlier stages, the more numbers flow out as close one sales, and those are activities that we can measure and we can manage throughout the sales process.
A lot of companies that I'm working with struggle with sales reps that really don't enter a deal into the process until it's right on the threshold of whether it's going to be closed won or closed lost. It doesn't give us the opportunity to learn from how the opportunity was identified. How it was qualified? What messaging got it to the proposal stage? What worked? What didn't? And so these operational metrics of activity uh give us insights into the process of what works and what doesn't in a sales process. A lot of the coaching I do around sales teams is everybody's got to play in the process from the beginning. We're investing a lot in marketing to identify opportunities. We're investing a lot in training and giving tools to our sales people to move deals down the pipeline. We have to have a rigorous process in which we can identify and learn, identify opportunities to learn from and train and develop our people from the end-to-end process.
[00:14:14] MD: Yeah, Mark. I think that's a great point, just the value of – The incredible value of a written down sales process that everyone sticks to. Really what we're trying to do, the end goal of all this, the lag measure, is how do you spend the fewest dollars to drive the most dollars of revenue or EBITDA? And you can't really optimize the system if you don't have a system and you don't have individual pieces that you can drill down on to figure out where things are getting stuck. So I always think of it as a factory or a sales machine and what are those different pieces of the machine that we can optimize. Find the bottleneck. Fix that up and then go to the next one.
And so someone once told me that three of the best metrics, they can predict a sort of revenue with 90% accuracy if they know the size of their top of funnel, if they know the residence time of any opportunity in that funnel and if they know their close rate and then they can trend that over a few months. Because what that allows them then to do is if they see one of those metrics change, they can drill down and say, "Okay, what is different either about the leads we're bringing in or how we're trying to close this business? How we're talking to the customer that is causing these numbers either to go up or down." And then we can fix it or we can optimize for that.
[00:15:52] JL: So when we think about all of these metrics and we think about how we're approaching sales and marketing in this digital world, in the end who owns the customer experience and the net promoter score results?
[00:16:07] MM: That's a great question, because if you work with sales teams, you'll find that there's a balancing act most have and that's between green space sales, which is defined as selling to customers we don't currently have and white space sales, which is selling additional products or enhanced products or upgraded products, whatever it is, to our existing customer base. We need our customers to be advocates for us. In fact, the old customer satisfaction measures have evolved over time to where many companies are using net promoter score as the key performance indicator of customer sat. Net promoter score simply says how many of our customers would, A, promote our service or product; B, are neutral about it; or C, would actually detract or say bad things about us.
Obviously, our goal is to have many, many more uh promoters than detractors. That's important for a few obvious reasons and some that are not so obvious. Somebody that's a detractor certainly isn't going to say nice things to other potential customers, but they're certainly not going to buy additional products and services from us. So managing that customer success or customer experience toward advocacy is important to our bottom line in terms of getting them to – Going back to Micah's points of these marketing qualified leads to actually be somebody that's saying good things about us in the market and driving other potential customers to us.
Likewise, if our sales people are doing a lot of account management, meaning pushing new products and services to the existing base, you certainly want to have a receptive audience when you go through that process. So managing customer success, using NPS as a key performance indicator is something we're seeing in a lot more companies. Micah, any final thoughts you want to share?
[00:18:28] MD: Yeah. I think customer success is one of the most misunderstood parts of the sales process. I think of the marketing funnel, which is really your lead generation engine or sort of the fuel for the sales machine and then your sales funnel is really the engine. Those things have to be in balance. But there's really this third piece called customer success, which is how to how do you use your existing customer base to drive additional revenue? As Mark mentioned, it can often be the lowest cost way to do that, yet a lot of our companies spend almost no time mining that area for additional profit. Extending that concept of a well-defined process, process owners, good metrics, I think is a first step in having customer success and building not only a referral network, but also growing share of wallet.
[00:19:31] MM: There's an example. You asked, John, earlier who owns customer success. I think I have a client that I worked with very recently that customer service measured and produced the NPS scores. So they did the surveys and they broadcast both the collective and the individual results as they came in. In executive team meetings, the CEO would often point to the VP of customer service and saying, "NPS had degraded last week. What are you doing about it?"
Well, the issues often were with a customer that had a poor implementation of the product and an experience that reflected that or they had some billing issues that they couldn't get resolved with anyone that frankly originated with the way the bill was produced by the finance team. Because customer success is impacted by pretty much anyone that touches the customer value chain, you can make the argument that NPS is owned at the C-suite particularly by the CEO as an advocate and a driver of the entire program. It can't be owned by sales. It can't be owned by customer service. It really has to be owned by the head of the organization. I think more and more of my CEO clients are coming to realize that if I'm going to invest in NPS and I'm going to make a commitment to managing customer success, that's got to be something that's on the executive dashboard and it's shared by everyone.
[00:21:29] JL: That's a great reminder. It all starts at the top, doesn't it? Hey, Mark, Micah, thank you so much for your time today and sharing some valuable insights. This has been a great time spent and I really appreciate the investment that you made today. Thank you.
[00:21:46] MD: Great to be with you. Thanks for having us.
[00:21:48] MM: Thank you john.
End of Interview
[00:21:50] JL: Thank you for joining us today, and our guests Mark Miller, Principal in DHG's Private Equity Group, and Micah Dawson, Vice President of Portfolio Support with Trivest Partners. We hope that today's discussion on digital marketing and sales operational metrics will help you focus on the priority initiatives that will lead to your ultimate success. I'm your host, John Locke, and I look forward to reconnecting with you soon on an upcoming episode of DHG GrowthCast.