Читать книгу The B2B Executive Playbook - Sean Geehan - Страница 9

CHAPTER 2

A DIFFERENT GAME

UNDERSTANDING HOW B2B IS UNIQUE

Michael Jordan is the greatest basketball player of all time. He could hit a game-winning basket under the most extreme pressure. He was so talented a player that he could carry a team to a championship. He did it in high school, college, the Olympics, and an astounding six times in the National Basketball Association (NBA). But when Jordan decided to play baseball, he couldn’t hit a change up or a curve ball well enough to earn a spot on a minor league team. One person, two games, two very different outcomes: victorious domination and failure!

The parable of Michael Jordan’s two careers is a story my colleagues and I see played out time and again in the B2B world. It comes to mind whenever we see a company struggling to meet expectations, despite being led by executives who have orchestrated meteoric climbs at other companies. We are reminded of Jordan when we meet with executives who cannot understand why initiatives and strategies they used successfully at other companies fail to deliver the goods in their new companies. And, we think again of Jordan, five-time NBA Most Valuable Player, when one of us needs to tell an executive he simply is playing a different game.

As in athletics, success for a leader in one kind of business does not automatically equate to success in another without a study of the game and some retooling of the playbook. The proper coaching can also be a big help. Unfortunately, B2B leaders often find it hard to obtain guidance on how to play their game. The most common sources of information—business books and conferences—typically showcase executives from high profile B2C companies. But B2B leaders can’t simply adopt and apply lessons and approaches from B2C companies because it is a completely different experience for both the customer and the provider. Their needs are just different.

Living 50 miles up the road from consumer package goods (CPG) powerhouse Procter & Gamble and the thousands of employees who work there, the point of different games was driven home to me by a B2B CEO who once told me, “Never be the one who first hires someone out of P&G.” Why wouldn’t you? P&G produces professional managers who are smart, articulate, well-trained, and process-driven. They live and breathe the formula for success that has kept the company at the top of its game for decades. Why wouldn’t any company welcome this experience and skill into their organization?

If you are a B2C company whose livelihood is built on a well-positioned brand and product that is preferred by a large share of the consumer market, you should be the first to snatch up an ex-P&G’er. He or she is a master of the B2C game and can bring P&G best practices to your organization. If you are a B2B company, however, that same job candidate may not be such a great hire. You should be looking for a professional who knows how to play the B2B game because the playbook for your success is very different. How often is that considered, though?

It’s not. Think of how many times heralded executives from high profile B2C companies are snatched up to rescue floundering B2B companies. Because of their reputations and the caché of the companies they come from, these executives are almost always granted more authority (and budget) than normal. Emboldened by their previous B2C successes, these saviors almost invariably exercise their new clout promptly and with the utmost confidence by implementing the strategies that worked so well at their previous employer. Just as invariably, a train wreck ensues.

Does this mean that B2B companies should only hire B2B executives? Absolutely not. But whoever is hired must clearly understand the following three realities that distinguish the B2B world from the B2C world and use them to shape the company’s playbook.

Reality #1: The Fate of a B2B Company Rests in the Hands of Relatively Few Customer Companies

When we first meet leaders at B2B companies, they tend to be very uncomfortable about sharing how many active customers they have. That’s because there are thousands of B2B companies in which three or fewer customers account for 60 percent or more of total sales.

In many B2B companies, the loss of their biggest customer would put them out of business entirely. Many more could survive the loss, but would only recover after years of hard times. Think of the many automotive parts and services suppliers that sell to only one or two car makers. There used to be thousands of these companies who made a great living serving the Big Three automakers. But look at what happened to them with the consolidation and failure of the U.S. automotive industry. Today, in 10 minutes, I can drive by millions of square feet of vacant industrial space where the suppliers to General Motors, Ford, and Chrysler once had thriving businesses.

You could argue that the shakeout in the automotive industry is a lesson in the need for diversification along many lines. However, many of the suppliers who sought out foreign manufacturers are gone too. So are many suppliers who were experts in processes such as injection plastic molding that could be ported to other industries. Why? Their customer base was too small to handle the downside risk of losing even one big customer, and they never created a playbook that accommodated that reality.

A Tale of Two Companies

The significance of the much smaller customer base at B2B companies is best illustrated by a simple example that compares the number of customers and revenue at two leading companies.

A simple calculation tells the story. When you divide the revenues of each company by its customer base, you’ll see that Company A receives $125 of revenue per customer, while Company B earns $70 million per customer. Clearly each and every customer at Company B has an immediate and direct impact on the health of the company. That fact alone should race the heartbeat of Company B executives.

But wait. Like every good tale, this one has a twist. Company B’s customers are not created equal. In fact, there is a super-Pareto effect at work: In most cases the top 10 percent (just 10) of Company B customers generate more than 90 percent of total sales. On average, each of these 10 customers contributes $630 million (as opposed to straight-lined $70 million) to Company B’s coffers. Revenue is not distributed equally per customer, so if one of these customers were to leave, the company would be drastically compromised. This is indeed a cautionary tale!

By the way, these are real companies. Company A is Starbucks, and Company B is Celestica, a Canadian supply chain services outsourcer. Exhibit 2-1 summarizes their respective revenue concentrations.

Exhibit 2-1: Revenue Concentration, Starbucks vs. Celestica

Starbucks and Celestica are not outliers. Exhibit 2-2 shows the revenue concentrations of a select group of other well-known B2C and B2B firms. In total, the B2C companies in this analysis derive $620 in revenue per customer, while the B2B companies derive almost $8.7 million in revenue per customer! It’s also worth noting that the Pareto Principle holds true for the B2B companies listed: the top 20 percent of their customers generate more than 80 percent of their total sales.

Exhibit 2-2: Selected Revenue Concentrations, B2C vs. B2B

What does this concentration of revenue mean for a B2B company? Imagine Celestica losing two of its top 10 customers. Their loss of just these two top customers would result in a devastating 15 to 30 percent decline in annual revenue. Since many B2B companies have multi-year contracts with their customers, there would be a compounding effect year-over-year that would increase the decline. Conversely, Starbucks probably wouldn’t know if it lost 1,000 of its top customers. In fact, no matter how many venti, nonfat, cinnamon-sprinkled, decaf lattes Starbucks’ top 1,000 customers buy, if they all decided to switch to McDonald’s McLattes, it wouldn’t dent the company’s revenues.

A few years ago when Tom Webster took over as CEO at Intesource, a B2B provider of spend management solutions based in Phoenix, Arizona, he discovered that 80 percent of the company’s revenue came from just six customers. “The fact that only 6 customers controlled our fate was a major issue we needed to immediately address,” Webster recalls. “Now we’ve got 12 customers who make up 80 percent of our revenue, which provides a much more sound and secure spread of revenue risk. But the reality of our business will always be that very few customers play a significant role in the health of our company.” Even for $3.3 billion India-based HCL, more than 80 percent of their revenue comes from less than 100 accounts.

High revenue concentrations are a harsh reality in B2B, regardless of a company’s size. Further, when the fate of a B2B lies in the hands of just a few customers, the power of these customers is enormous. “Once we realized that we only needed to secure a few dozen large customers in order to dominate our market, it changed the game for us,” says Richard Hearn, the CEO of Crown Partners, a Midwestern provider of eBusiness solutions with $20 million in annual revenues. “Coming from a Procter & Gamble background, it was a complete mind-shift for me and other members of the leadership team.”

What if your B2B company lost two of its top 10 accounts in the coming months? What would the impact be on the top line, bottom line, economies of scale, and the headcount and morale of your company? Would your company be able to recover from the loss, let alone fund growth and meet the expectations of its owners?

Reality #2: The Fate of a B2B Company Rests in the Hands of Just a Few People

If you are starting to feel a little claustrophobic, prepare to have your world shrink even further. In the B2B world purchasing decisions are made by just a few people. That’s right, unlike in the B2C world, it’s just a few people in a small number of customer companies that control a B2B company’s destiny. Do you know who these people are in your customer companies? If so, how well is your company connected to them?

B2B Sales Involve Multiple Players

When I buy a song on iTunes, I play multiple roles:

 I’m the end user: I listen to songs I download to my iPod.

 I’m an influencer: I like the music of Dave Matthews and tell myself I’d enjoy hearing his band’s latest release whenever I want.

 I’m my own purchasing agent: I decide that I’m willing to pay 99 cents for a new song, but not $1.49.

 And I’m the decision maker: I click the buy button.

Because I play all these roles as a consumer, it’s not very hard for B2C companies to figure out how to market to me and others with a similar demographic, preference, buying habit, etc.

For B2B companies, on the other hand, these same four roles—end user, influencer, purchasing agent, and decision maker—are usually played by many different people. This creates complexity and confusion as companies try to focus their sales and marketing efforts. Exhibit 2-3 illustrates the number of people involved in an average purchase from four companies: Oracle; Crown Partners; restaurant equipment manufacturer Henny Penny; and information services provider Lexis-Nexis. For instance, the average customer for LexisNexis’s legal research service is a mid-size law firm. Thus, there are 300 end users of the service, seven influencers (usually librarians and members of the technology or executive committee of the firm), one purchasing agent, and one decision maker (usually the firm’s senior partner).

Exhibit 2-3: Four Roles, Multiple Players in Each Customer

All these players are not equal in importance to a B2B seller, and, as I describe in the following pages, each provides a different level of input to the buying decision (see Exhibit 2-4).

Exhibit 2-4: Levels of Customer Input

The end users of your software, medical diagnostic equipment, or jet engines are important, of course, but they are not as important as conventional wisdom suggests. There may be thousands of them or more, but they can’t renew the sales contract, upgrade to a more expensive solution, or decide to switch to a competitor. Neither can purchasing agents, unless you are selling a commodity, or you find yourself competing solely on price (and if that’s the case, you probably need to add value to your offerings, and change your sales approach). Purchasing agents set standards and practices for purchasing and manage the procurement process, but they are not ultimately responsible for the decision to buy.

Influencers are involved in the buying decision by evaluating which solutions will best fulfill their companies’ needs. Influencers also evaluate providers. They seek to discover if a B2B seller can do what it claims and whether it can work effectively with the customer company. Sometimes this process of evaluation and selection is straightforward. Typically, however, as the complexity of the solutions increases and they cut across organizational boundaries within the customer’s company, so does the number of influencers involved in the sale. In fact, there may be dozens of these folks at any single customer firm and a B2B company needs to satisfy all of them.

Finally and ultimately, there are the decision makers. Usually residing near or at the top of the organizational hierarchy, these are the people who have the final vote; they decide to do the deal. They hear the recommendations of purchasing agents and influencers, and ask themselves questions designed to instill confidence in their final decisions, such as, “Will I enjoy working with this seller? Will it deliver what it is promising? Will it resolve any issues? Can I trust its people?”

At Celestica, there are less than 20 decision makers among the 10 customer companies that make up 90 percent of the company’s annual revenues. Sometimes there is just one decision maker in a customer company, sometimes it is a two- or three-person executive committee that makes the final decision to buy. Regardless, in the B2B world, while a large number of people may be involved in a sale, very few of them control your fate.

To Whose Voice Do You Listen? Whose Voice Do You Hear?

Most B2B companies are already focused on engaging end users and influencers, and they can’t avoid purchasing agents. But a surprisingly large number of them are either not paying enough attention to executive decision makers or are ignoring them altogether.

Like most B2B companies in the IT sector, Oracle is very focused on its end users. It’s easy to see why Oracle would invest millions to connect to them. Events like Oracle OpenWorld, an annual conference that drew more than 40,000 people from the Oracle user community in 2010 and includes top entertainment (Sting and Tom Petty and the Heartbreakers are on the schedule for 2011), are critical to building and maintaining the loyalty of end users, and gaining insight into what they want and need in IT products and services.

But how does Oracle address the one or two executive customers in each of its major accounts who actually decide to buy its offerings? In 2004, Oracle’s leaders asked themselves this question and quickly realized that most of their executive customers didn’t have the time to attend multiday trade shows, no matter how interesting and enjoyable they were. So, Oracle’s senior vice president and chief customer officer, Jeb Dasteel, was assigned the task of designing, launching, and overseeing an ongoing executive customer program. “End user relationships and input are critical to Oracle’s success, but end users provide only one view of the market,” explains Dasteel. “We realized how important additional input and relationships with other parts of the decision chain would be for our future. Without the perspective and insight of decision makers, we would be lacking a whole category of customer input today.”

Oracle understands and taps into the power of executive customers, and that is a major reason why its performance has outpaced its competitors. Most B2B companies, however, are not as aware of executive customers as Oracle, and they devote their customer outreach efforts almost exclusively to the other levels of the customer hierarchy. In fact, our research has found that the average B2B company spends 75 percent of its time and money marketing and selling to end users and purchasing agents, the two groups of customers who have the least say in purchase decisions. Influencers, who do play an important role in deciding purchases, receive substantially less attention. And decision makers, the executive customers who actually make the purchase, receive the least investment of all. This is far from optimal. (See Exhibit 2-5.)

Exhibit 2-5: Allocation of B2B Marketing and Sales Resources by Customer Level

When B2B companies do not actively and systemically engage their executive customers, there is a tremendous vacuum of critical information on both sides of the buying equation. On one, the B2B seller misses insight to the key business problems, challenges, aspirations, and priorities of their customer companies. The lack of this knowledge raises the risk of producing new products or services that will not succeed in the marketplace, as well as the loss of key accounts to competitive threats.

On the other side of the equation, if B2B companies do not engage their executive customers, how will these decision makers get the message about the business value the company provides? How will they learn about you as a business partner? How will they come to trust you? This level of understanding does not come through osmosis, nor is it communicated simply by delivering on your contracts. No, you have to do more.

But will they listen to you? Absolutely. There is a common misguided belief that executive customers are hard to reach and uninterested in talking to B2B solution sellers. We have always found, however, that executives are genuinely mystified by the lack of effort their key suppliers and other sellers make in reaching out to them. “When I became CEO, I was surprised I didn’t get calls from most of our key suppliers,” recalls Joe Morgan, CEO of $688 million Standard Register. This is even more surprising given the fact that Morgan was hired to grow the company after a period of restructuring. Therefore, understanding his expectations and aspirations for the company would have been critical to any B2B company that wanted to earn its business.

When companies neglect executive customers, the initial symptoms usually appear as sales woes. They include:

 Poor market reception of newly launched products and services or an unwillingness among customers to pay extra for new features and functionality

 Overwhelming price pressure and being treated like a commodity supplier

 The loss of key accounts or reductions in their volume

 Increased competition in profitable segments

 Sales engagements which are reactive and focused on today versus proactive and focused on the long-term

These are reliable indicators that the voice of the executive customer isn’t being heard clearly. Often it means a company is listening only to the voice of end users and thus R&D, marketing, and sales are either not including or not fully communicating the business value essential to the executive decision maker.

Just as commonly, companies tend to listen to only the voice of their sales organization. Feedback from the sales team is very important, but it does have limitations. Most salespeople meet with users and purchasing agents, who tend to discuss lower-level issues, such as features and functionality. Salespeople are also very focused on overcoming objections and matching competitors’ offerings. They extrapolate market needs from these interactions and bring that feedback to their employers as the voice of customer.

One major consequence of mistaking the voice of other players with the voice of the executive customer in B2B sales is very evident in studies of success rates of new products. IBM, AcuPoll, and other organizations have consistently found that newly launched products suffer from failure rates of 60-70 percent. Many of these failures result from neglecting executive customers. When the needs and concerns of executive customers are not built into market offerings, companies find themselves investing valuable resources in projects that add only incremental value or worse, actually diminish a company’s ability to differentiate itself in the marketplace. This is why it’s so important that innovation is relevant …meaning that there is at least one point of differentiation in new offerings for which decision makers are willing to pay.

Reality #3: B2B Companies Rely Upon the Knowledge and Acumen of Customers

Consumers can provide input and feedback on a product, but it is usually limited to what they like and don’t like and, perhaps, what else they might want. But in the B2C world, customers can’t typically tell a company how to design a better product or help engineer it. They don’t have that kind of expertise.

In fact, consumers are rarely experts regarding the products and services they buy. In a blind taste test, for example, 90 percent of consumers couldn’t tell a $10 bottle of wine from a $100 bottle. Nor could they tell the difference between tap water and a $5 bottle of Fiji water. That’s why sophisticated and highly emotional marketing and branding programs can yield premium results in the B2C world—they are the main basis for product differentiation among consumers.

By contrast, B2B decision makers have knowledge extremely valuable to the companies selling to them. Consider GE Aviation, the world’s leading provider of jet engines. Its customers, which include major airlines and the military, can provide expert guidance on all aspects of the jet engines they buy. They know how the design of an engine impacts thrust, range, payload, maintenance needs, FAA compliance, financial cost/payback, and so on. In the B2B world, your customers may not be familiar with your offerings per se, but they usually know their industries better than those who supply it, and they know how to evaluate your solutions in light of their needs. They aren’t going to be swayed by marketing collateral; they will scrutinize, compare, benchmark, and test your offerings. And they will also seek out expert advice from peers and third parties for references and validation.

This goes double or triple for executive customers. Think about the domain knowledge of a CIO who has worked in the financial services sector his entire career. He is an expert in IT and his industry. He has networked and attended countless trade shows and educational events. The CIO has an unparalleled ability to cut through the sales jargon and understand the true value of solutions offered to his company. In most situations, the CIO also knows more about how to effectively deploy technology within his firm and industry than virtually all the companies seeking to sell him products and services. And when he doesn’t know something, he can simply phone a trusted peer.

To successfully serve this executive customer, a B2B company must understand his needs, priorities, requirements, and operating environment almost as well as he does. There is too much at risk in his world—asset security, the customer’s experience, privacy, government compliance, and the CIO’s reputation and career—for him to work with a company that doesn’t understand. The same holds true in every B2B industry, whether it’s oil and gas, high pressure valves, medical equipment, scientific journals, procurement services, jet engine manufacturing, media distribution services, business process outsourcing, etc.

The Impact of the B2B Realities on Margin

The reputation of a company and its brands are primary determinants of its margins. Reputation is how a company is viewed in the marketplace—what it is known for, how its culture is viewed, and, most importantly, what the market believes about the value of its offerings. These are all external perceptions, but in both B2C and B2B, they add up to a sort of capital that accrues as customers willingly pay a premium price for a company’s offerings. Only then will margins expand predictably over a sustained period of time.

What differs in B2C and B2B companies is how corporate and brand reputation is created. In the B2C world, reputation is defined by elements such as advertising, package design, and the experience of using the product. B2C companies invest millions to understand the demographic and geographical nuances of customers in order to position and manage their corporate and brand reputations in the mass markets of the consumer sector. Retailers, such as Starbucks and Target, add the look of the store and the behavior of employees to the mix.

In the B2B world, corporate and brand reputation is composed of the same elements, but in very different configurations. The priority and weighting of the elements are altered by the three realities discussed above.

As we’ve seen, the people you are selling to within your customer companies are usually industry veterans with high levels of domain expertise. Simply put, they’re living what you’re selling. These customers aren’t going to pay a premium for your offerings because you’ve got a cool logo, a catchy tagline, or a slick PowerPoint presentation. What do they respond to? Business value. And how do they determine that value exists in an offering? In addition to their own knowledge, they rely on their peers. For example, surveys of CIOs consistently find they rate peer input as the most credible and trusted source of information about products and services.

Thus, the path to a premium reputation in the B2B realm is through your current customers. It is how they perceive and describe your offerings and what they think and say about working with your company and your ability to deliver what you promise that ultimately determines your company’s reputation. And the higher these customers are on the corporate ladder, the greater the impact of their opinions and recommendations. That’s why companies that successfully attain sustainable, predictable, profitable growth, such as Oracle, seek to anchor their reputations as high as possible within their customers’ organizations. The good will of end users is important, but the good will of the person who makes the decision to buy is far more important to B2B companies that are trying to maximize their margins.

“Customers are your brand managers,” explains Tom Webster, who was a senior marketing executive at several B2B companies prior to becoming CEO at Intesource. “They establish your brand and significantly impact its perception. If you earn their support, your customers can accelerate brand growth more effectively than anything else. Nothing boosts our position like a CFO [Intesource’s primary executive customer] sharing and endorsing the benefits of our solutions or working with us. The impact of his words is unmatched, and you can measure the return financially. His peers will assume that the value and pricing has been vetted and accepted, so they have little to question when negotiating with you. Margins soar!”

Moving up the B2B Relationship Continuum

A little more than a decade ago, India-based IT services outsourcer HCL Technologies successfully broke into the U.S. market with a “low cost” value proposition, like many other Indian service providers. But after a few years that proposition became less compelling, mainly because prices equalized as competition heated up. Many U.S.-based competitors, including IBM, Hewlett-Packard, and Accenture, lowered their cost bases (often by setting up operations in India) in order to replicate the cost structure of off-shore labor providers and remove the significant price decrease as a point of differentiation.

In response, HCL beefed up its capabilities in order to provide more value to its customers. The company transformed its value proposition moving beyond commodity-like outsourcing services to acting as a problem solver and often co-engineering applications and products with its customers. But HCL has encountered a dilemma that commonly arises when a company seeks to change its positioning in the market: although its existing customers have come to understand, appreciate, and pay for the added value HCL is offering, its target market (Fortune 2000) still perceives the company as simply a low-cost labor provider.

The “perception gap” that HCL is battling has a financial impact on its revenue growth and margins. As HCL’s global CMO Krishnan Chatterjee explains, this is where and why reputation and market positioning matters. “We have the proof points which can support our desired position as problem solver and trusted advisors. My responsibility now is to close the gap between the perception in the marketplace and the reality that we are capable of delivering to IT leaders around the globe.”

The following graph (Exhibit 2-6) depicts how branding and margin collide and impact one another in B2B companies. As the B2B company improves its position with decision makers, the higher premium these decision makers are willing to pay for perceived value. If you are stuck in the position of “commodity supplier” (whether or not that is the position you think you hold), you will only be able to command commodity pricing and the low margins that come along with it. To increase the value of your brand, you must move the market’s (more precisely, collective decision makers’) perception of you towards Problem Solver and Trusted Advisor in order to secure consistently higher margins needed for profitable growth. As I show in the graph, failing to improve your position, or the market’s perception of you, leaves a tremendous loss in margin.

Exhibit 2-6: The B2B Relationship Continuum—How Brand Perception Gaps Affect Margins in the B2B Sector

As a B2B company raises its reputation among executive customers and moves to the right of the Continuum, the premium decision makers are willing to pay for solutions begins to rise in their minds. If the B2B seller is stuck on the left side of the Relationship Continuum (again, in the minds of executive customers, whether or not that perception is an accurate reflection of reality), the company will only be able to command commodity pricing and the low margins that go with it.

B2B companies such as HCL need a marketing strategy and supporting tactics which are capable of positioning them farther to the right on the Relationship Continuum. Executive customers are indispensible for such a move. They are the opinion makers who matter the most and they drive the perception of a company in the B2B marketplace. Tactically speaking, they are also the peers their colleagues look to for information and recommendations. Credible third parties, such as industry analysts from research services like Forrester and Gartner, and messaging campaigns that repeat and amplify the perceptions of executive customers are useful and effective supporting tactics too, but executive customers are the cornerstone of reputation-building initiatives.

Decision makers become even more important as a company moves farther to the right on the Relationship Continuum. As B2B companies seek to assume roles as trusted advisors and business partners, they need enthusiastic executive customers who are willing to share their stories with their peers. It is very difficult to make a case that a B2B company is capable of acting as a trusted advisor or a valued business partner if no customer will step up to confirm or validate its claims.

The B2B Path to SPPG

In this chapter, I have discussed the critical differences between B2B and B2C companies which can be boiled down to three main points:

 Revenue is controlled by relatively few customers

 Decision makers are not users

 B2B executives must leverage the domain knowledge of their customer executive decision maker peers

The needs, hopes, and aspirations of decision makers must be intimately understood and addressed because they literally hold the fate of your company in their decision-making hands. You can gain this critical knowledge by actively engaging decision makers to drive your company to SPPG. The balance of the Playbook will show you how they will help develop your strategy, fuel innovation, design marketing and sales plans, and align your leadership team.