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July 27, 2010

And then, nothing happened

With apologies to one of my favorite Monty Python sketches:


In February, March, and April, I wrote a series of posts about a serious issue with the Massachusetts municipal health care system.  These were spurred by articles in the Globe by investigative reporter Sean Murphy.  Sean's first article is here, and my first post on the subject is here.

Here's a short summary:  If you like in Massachusetts, chances are that your city or town has had a very rapid growth in the share of its budget that is used to pay health care costs.  In addition to the health care inflation we all feel, many cities and towns have very sweet deals for their employees: very low or no co-pays, very high benefit levels, very low employee contribution toward premium costs, and the ability to get health care for life after a small number of years of service.  In addition, many cities and towns don't force retirees onto Medicare after age 65, instead paying their health care costs until they die.

The biggest obstacle to fixing this has been the cities and towns' ability to negotiate with municipal employee unions on changes to their health care plans.  Most haven't been able to get their unions to give up the sweet deal they have.  Instead, cities and towns have asked the Legislature to allow them to unilaterally change their health care plan as long as they make it no worse than the state employee union plan.  Although it would be better if each city and town cleaned up their own mess (as my town did), that task seems so daunting that it would be better for the tax payers in the State if the Legislature allowed a unilateral change.

Unfortunately, the effort to fix this problem died a quiet death in our legislature at the end of June.  Sean wrote about it in the Globe at the time, but I missed it.  I wrote to my Representative (Charlie Murphy, who has replied very thoughtfully in the past), but he has not yet replied.  I'm disappointed that this opportunity to make our tax dollars go further has been lost for now.

In the meantime, keep after your city or town to negotiate for a more reasonable health care plan with the municipal employees.  Some towns are getting this done, and it is critical for both our fiscal health and to let us allocate our tax dollars to more urgent priorities.

July 21, 2010

The power of immigration

Yesterday, Fred Wilson posted about Immigration Reform.  I agree with him on the need for immigration reform and am glad that he's supporting Sen. Chuck Schumer in his efforts to push this through Congress.

Our country's greatest strength is its ability to take people from all backgrounds and to unite them with a common set of values that cuts across cultures.  Universal values like freedom, democracy, the presumption of innocence, and opportunity are magnets to people all across the world.  When we compromise these, even in the name of our security, we actually lower our opportunity and increase our risk.

There are been several disturbing trends in immigration over the past decade.  First of all, many people in the country mistake followers of Islam for terrorists.  Or, even followers of other religions (like Sikhs).  This creates a lot of ill will toward citizens and immigrants who don't happen to be Judeo-Christians.  Shame on us -- we have to remain open to people of all backgrounds who embrace our American values.  Moving away from that just reinforces the terrorists' message.

Also, the large number of Hispanic illegal immigrants has equated immigration reform with opening our borders to a large wave of Hispanic immigrants.  I'm not in favor of opening the borders to anyone who wants to come in.  But, I do think that we should always welcome hard-working people who want to live by our values.

We do need security at the border to ensure that people only come in through legal means.  But, we have to recognize that we have millions and millions of people who have been here for a long time that took advantage of our porous security and lack of policing employers.  If they couldn't get a job, illegal immigrants wouldn't come here.  Only a very small number of them come here with the intent of committing crimes, so we shouldn't criminalize the rest.

We're about to welcome into our home two family friends from Kyrgyzstan who are coming to the US until things stabilize in their home.  When you hear how immigrants and visitors view the US, you realize that we shouldn't take for granted how powerful our long-term values are.  And, we have to guard against compromising them and cutting off our greatest strength -- being the magnet for the world's best and brightest and integrating their diverse thinking into high-energy inventiveness.

July 15, 2010

TEDtalk on power of commerce

Don't let the title of this talk throw you off.  It's safe for work.  Matt Ridley discusses the power of trade and commerce and explains how we will only see an increase in innovation and our standard of living due to social networking and crowdsourcing of ideas.

One of the best TEDtalks I've listened to in a while.


July 14, 2010

There won't be a new Boss the same as the old Boss

The Boss 

Yesterday ended an era of baseball that is about all I have ever known.  Yankees owner, George Steinbrenner, passed away at age 80.  The Boss was one of a kind.

I grew up a Yankee fan.  The first year I remember was 1972.  The Yankees were mediocre, with a .500 record.  They had a few good players, but were far behind the better teams, including the Red Sox.  In 1973, George Steinbrenner bought the Yankees from CBS for $10M.  Baseball will never be the same again.

Steinbrenner was a fantastic businessman, finding ways to generate revenue and spending more and more money on the team.  It took a few years to win a World Series, but there was a revolving door of managers (20 managers in 23 years including Billy Martin 5 times.  This instability matched Steinbrenner's bluster and bravado.

Steinbrenner made baseball into a big business as other teams tried to keep up with the Yankees.  He wasn't a great baseball man, but he had huge passion for baseball.  He loved the game and he loved to win.  And, after his second suspension as an owner, he stayed more in the background and let his baseball team won things.  That has led to a fantastic Yankee era which continues today.

Steinbrenner made baseball interesting and kept the Yankees in the headlines.  Red Sox fans should appreciate Steinbrenner as he epitomized what they hated about the Yankees.  He was the Evil Empire.  Without Steinbrenner, the modern anti-Yankee sentiment wouldn't have run as deep.  And, the Yankee success challenged the Red Sox to step up their game, too.

Most importantly, Steinbrenner's philanthropy has been highlighted with his passing.  That should be a key part of his legacy.  On Boston sports talk radio today, one of the hosts said that for every charitable event, even the Red Sox own Jimmy Fund in Boston, Steinbrenner showed up with the biggest check.  Inside his bluster and bravado was a huge, compassionate heart. 

He will be missed.

July 13, 2010

New Post on Digital Lumens blog

I posted a new entry on the Digital Lumens blog today about how energy efficiency investments must make financial sense.  There is a lot of 'green washing' that happens today when cool green ideas get a lot of hype because of their potential.  But, to get a customer to buy something, the product has to make financial sense right now.  Very few customers, particularly business customers, will make an uneconomic decision in the name of going green.  But, if you can tie strong economic benefits to strong 'green' benefits, you have a winner.  Energy efficiency is an obvious candidate because the energy savings can deliver a strong ROI.  But, the returns have to be pretty high to offset the upfront costs.  We've done that at Digital Lumens, and we try not to get too caught up on the 'green' side without keeping our eye on dollars and cents.

Working The Plan

In my last post which summarized the session I ran at the Momentum Summit, I discussed some of the issues involved in scaling up the sales effort.  In this first in a series of follow-ups, I'm going to cover things to think about in setting up a sales commission plan.

All of my sales management experience has been in high-tech start-ups, including Digital Lumens, which is a mixture of high-tech and cleantech. I don't think that my advice would necessarily apply outside of that environment.

First of all, why do sales people get commission?  Everyone who works at a start-up is expected to work hard, and everyone gets measured by results.  Engineers don't get paid by completed working software modules.  Support people don't get paid by completed support calls.  They work hard and work long hours.  Why do sales people get aggressive incentive compensation, and the others don't?

I don't want to get overly philosophical in this post because some people may argue that everyone should get incentive compensation.  And, in some sense, it's traditional that sales people earn commissions.  The best sales people expect it.  So, it can't be avoided.

The one thing about sales that doesn't apply to most other positions is that it can be measured by the numbers.  Trying hard, making lots of calls, doing lots of demos, working long hours and asking for lots of orders doesn't count.  What counts is getting POs that the company accepts (no crazy terms or pricing, etc.).  So, sales, in one sense, is the easiest to measure and to be subjected to incentive compensation.

Also, in most sales jobs, your work is never done.  There is always one more call to return, one more lead to follow-up on, and one more prospect to check-in with.  The incentive compensation keeps you motivated to continue to chase down every opportunity.

Lastly, the company really needs the sales people to hit their revenue targets. Obviously, everyone's job in a start-up is important.  But, once companies get to the revenue stage, measuring revenue vs. plan becomes one of the first things that a Board does.  So, the CEO, who feels the heat from the Board if the targets are missed, really needs to know that the salespeople are doing everything they can to hit the numbers.

But, what numbers are they trying to hit?  The most important thing about sales compensation planning is to make sure that you are motivating the salespeople to produce what the company needs.  In a single product company, it's pretty straightforward.  The company needs to generate a certain amount of dollars of revenue, and that is divided up among the sales teams.  I'd advocate keeping the sales comp plan very simple so that it can be explained in no more than a few sentences.  The more complicated it is, the more likely that the salespeople will find a way to hit their number that doesn't necessarily help the company hit its number.  If that's not clear, let me know in the comments, and I'll try to come up with a specific example.

There are two related ways that I like to structure simple commissions.  In both cases there is a goal or quota for the sales person.  The easiest way to pay the sales person is to give them a percentage of everything they sell up to the quota and then a higher, accelerated percentage on everything over the quota.  Never put a limit on what a sales person can earn.  If you grossly underestimate the sales potential of your product, rejoice in the fact that the salespeople can sell twice as much as you expected and are making a lot of money this year.  In most sales roles I had, I was the highest paid person at the company.  And, the CEO was thrilled to pay me!

The second similar way to structure these plans is to identify what a salesperson's on-target earnings level is.  If they expect to earn $50,000 in commissions when they are 'on-target', you can structure the plan with a floor (i.e., if they sell less than 50% of their quota, they earn nothing), and an accelerator.  Above the floor, whatever share of quota they achieve becomes their share of the on-target earnings they get.  Above quota, the accelerator kicks in and they get a higher percentage (i.e., with 110% achievement, they get 120% of commissions).

I like the second method better because I don't like people to get attached to a percentage of sales.  As your team and company grows, you'll be splitting territories and readjusting quotas and commission plans.  Someone who starts off earning 1% of sales will eventually get less than that.  But, if you target them for $50K in commissions, you can always adjust your quotas so that they have a chance to earn that.

There are lots of other topics coming up, including the split of salary vs. commission, how to compensate teams when multiple people work on the same accounts, how to structure sales compensation when resellers are involved, and more.  Stay tuned.

July 02, 2010

Sharing Sales Experience at the Momentum Summit

Back on June 23, I moderated a lunch-time breakout session at the Momentum Summit at MIT.  The topic of my session was on scaling up the sales effort.  And, since so many entrepreneurs are frustrated with this subject, my subtitle was Lies, Damn Lies, and Salespeople.

My time in sales was very important in my career.  In fact, I'd recommend that every CEO, marketing, product management, or business development person spend time in sales.  There is nothing like having quota pressure and seeing how hard it is to get a customer to part with their money.  I think that my sales experience made me a better marketeer, investor, and entrepreneur.

Every entrepreneur is in sales.  They are selling their idea to investors, potential employees, early customers and partners, and just about everyone else.  In many companies, the founder closes the first deals.  One of the challenges we discussed was how to transition the sales responsibility to a sales team when a founder had done all the initial sales.

To me, the most important thing to understand before you hire any sales people is 'what's our sales model'?  This includes things like:

  • What are the best types of leads for us?
  • How long does it take us to close a deal?
  • Who else tends to be typically involved in a customer decision?
  • What is the basis of their purchase decision?  Is their an ROI model?  Or, are you addressing significant needs that can't easily be met otherwise?  Or, what?

In the end, you have to be able to turn the sales process into a recipe.  It's almost impossible to build out a sales team without a well-defined recipe.  A very entrepreneurial salesperson can help define the recipe, but you shouldn't hire more than one of these.  Get the recipe right and then start to scale up the sales team.  And, don't hire salespeople too quickly as it takes some time to integrate each one and make them productive.

Other subjects we covered include how to structure sales compensation plans, what CRM systems to use, how to figure out what level salesperson you should hire for a particular job, how to team up inside sales and outside sales, how do you know when to use resellers or other channel partners, etc.  There are no right or wrong answers to any of these as each company is very different.

I'll try to write a series of posts that cover some of these subjects over the next few weeks.  And, next year be sure to attend the Momentum Summit as the overall event was very valuable.

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