I ask this question of CEOs regularly and I always get some interesting answers back. Often the tech company has built a great technology and product. To build a great business, though, you’ll need to have a great sales process. In successful businesses, the CEO has command of the sales process, which doesn’t mean they are doing it themselves. There is a distinction between control and command.
I once asked a CEO what is driving his company’s growth. “We’ve finally figured out how to sell the product,” the CEO said. “Wow!” I thought. They’ve figured out how to sell the product. There are a number of things that you can do now to have a positive impact on your sales process in the context of M&A. Let’s take a closer look.
“I’m not the sales guy (or girl)”
I hear this often. In a self-deprecating way, typically – and unfortunately. When the buyer of your company asks you to describe how you are growing your business and getting new customers and you respond that you are not the sales guy or girl, guess what happens? Without knowing it, you told the buyer that they shouldn’t believe your sales forecast. You negatively impacted the value of your business in five seconds. You may not be the salesperson within your company, but don’t tell a buyer what you are not. Let them know what you are. Say that while your focus may be on other aspects of the business, your chief revenue officer has command of the sales process and you are intimately involved. Do you see the difference in this approach?
I’ve seen presidents get fired for not knowing how to use Salesforce
A buyer doing due diligence on my client discovered that the president didn’t know how to log into Salesforce to discuss his company’s sales pipeline and process. The reverberations in the due diligence were, well, not good. The buyer continued to bring this up once the deal closed. Imagine the optics from the buyer’s perspective. If the president can’t view the sales pipeline in real time, perhaps there are other problems related to the company’s inability to grow – and in this case, there were. The president was eventually fired.
What sales forecasting tool do you use?
What do you use to monitor your sales funnel? Salesforce, Infusionsoft, Dynamics? Whatever tool you use, build a model that demonstrates where the business is heading. Your company’s sales forecast will become critical in substantiating its valuation. I can’t stress this enough. I’ve seen technical founders afraid of developing a sales forecast because they always want to be right. The smartest person in the room never wants to be proven wrong because they couldn’t look into the crystal ball and project what their business is going to sell in the future. M&A is different, though ― it is not about right or wrong. The rationale is more important than the number, and you must have one or the buyer will set one for you. How do you think that will end? Create a three-year sales forecast, please. It will change regularly but create the framework.
FLTM v TTM
What metric do you use to value your company? Trailing twelve months (TTM), Forward looking twelve months (FLTM)? Examples of other metrics are last quarter annualized or run rate. The experienced buyer will work hard to get the inexperienced CEO to agree to a valuation early in the process. “Perhaps 4-5 times revenue. Would that work?” “Uh, that sounds pretty good,” says the naïve CEO. Putting aside the problems that the CEO just created for the stakeholders, he/she failed to understand the buyer’s approach to valuation. I don’t mean the approach to acquiring companies, but the buyer’s approach to selling their own companies. I’m not going to spend too much time on nuanced art/science to negotiating the sale of a technology company. However, when you play this game of 3D chess regularly, you’ll deal with this question of the metric differently than described above. I recently doubled the value of a client in five seconds by having a buyer agree that the metric should be FLTM versus TTM. Reach out to me if you’re interested in learning more about this negotiation.
U, V, L , the hockey stick and the reverse hockey stick
No matter what downward-stroked letter you want to use as an analog for the impact that COVID-19 has had on your business, you’ll need to show a buyer that you’re able to come out of this alive or perhaps even stronger than before the Pandemic. We’ve all heard references to how deep and wide the V will be – we’ve also heard people assimilate the curve to be the Nike Swoosh. As the economy moves through the recession, there are a lot of unknown unknowns. Pre-COVID CEOs would often point to the hockey stick growth they would experience, especially as they were getting ready to start a sales process. We talk about the sales forecasting process in detail at Corum’s Selling Up Selling Out Conferences, and the dangers of different types of indicative curves on a credible valuation. Independent of the consonants and vowels mentioned above, understanding your climb out from your potential bottom will be important. I refer to it as the reverse hockey stick. What is happening to support the month-over-month or quarter-over-quarter growth that will get a buyer interested in your business in today’s environment? Can you tell the story that demonstrates that your business is moving back to normal, albeit a new normal?
Your bridge to achieve your sales target
How are you going to demonstrate that you will achieve your sales forecast? What is your pipeline? Your backlog? Your win/loss record? How does your retention look? Why are you winning and losing customers? If you can demonstrate with a degree of certainty (and confidence) how you will achieve your forecast, you have the ability to potentially increase the value of your business, dramatically. Understanding your pipeline and having command of your sales process sends an important message to buyers. You’ve got this and, more importantly, you’ve got a clear line of sight to achieve your sales forecast. Buyers tend to react favorably to those types of signals. For example, you already have your fiscal or calendar year sales forecast booked. They can see how you’ll get from today to the end of year with a degree of precision.
In the example below, you can see how the company is going to move from $6.0M to $7.35M in revenue based on increased revenue from existing customers, pipeline and opportunities that may not be delineated in the pipeline due to their size or timing.
In the example below, the pipeline and attainment of the sales forecast is directly related to specific logos and their associated impact on revenues.
Conservatism and reasonableness
Please don’t refer to your sales forecast as “conservative”. What does that mean? You could open the door for a buyer to question your credibility. It would be better if you characterize your revenue forecast as reasonable based on the information that you have today. It’s a subtle difference. Leave everything on the field to do the best you can with the resources you have. Do you think Michael Jordan ever played conservatively? No, he wanted the ball with seconds on the clock because he was driven to win and not afraid to lose. Think about your sales forecast through that lens. As the CEO, you have to play to win. Otherwise, there will be someone else out there who will want it more. Never point to your sales forecast as being conservative again, especially in the context of M&A.
It’s only worth millions of dollars, potentially
Don’t leave the sales process to chance. This is a game of precision and demonstrating your ability as CEO to push and pull the levers to get and keep customers at scale. Command versus control. I’ve seen CEOs who let their team manage all of their customers while the CEO is in the background orchestrating the resources to grow the business, creating the systems to let the team scale the business. I’ve also seen CEOs who need to close every deal. Both methods have their strengths and weaknesses. Command versus control. It could be worth millions, even tens of millions of dollars in the context of selling your technology company.