Market entry modelsPosted: September 12, 2007
Since the beginning of the year I’ve become intimately acquainted with all kinds of market entry models and I would like to share my findings with you.
What is it that makes people think that pure commission based models in enterprise solution sales are a form of risk sharing? Sales cycles vary from six months to two years. Channel building requires that you have activity to bring the channel into and getting results from channel development takes even longer than direct sales. I usually interrupt and ask if the customer is willing to commit to a five year exclusivity for the territory, which usually ends the discussion. In 100% commission based models the client says his paying and the sales agent says he is selling. An agent will take a quick pass through his rolodex to see if there is a quick win opportunity and after that lets the client die on the vine. The only party that ends up loosing is the customer who naively thinks that they have out smarted the system and that there actually is someone representing them when in reality there isn’t.
Export circles seem to be a popular phase for most small companies. The promise of government funding and minimal per company expenditure is appealing. Let’s follow the money and see what conclusion we come to. The total investment into a circle of four companies is about 150k Eur per year. The party that puts the circle together (which really adds very little true value) takes a lions share of the funds as payment for services rendered, since they are first in the food chain and they rock the party! The fee offered a local sales agency in approx. 100k USD per year. With four companies that adds to about 2k USD per month per company. What do you expect to get for 2k USD per month? The actual sales agent coordinating the circle ends up with 40k-60k USD per year. The current rate for a competent sales rep is 90k-120k base per annum. Again, what type of a representative do you expect to get for your brand and products? I’ve seen a few good reps get enticed with promises of huge commissions, but when they find out the reality in few months they become very bitter.
Let’s set up a daughter company and share ownership. I’ve seen a few US customer execs offer such setups with the promise of domain knowledge and wide contact bases. I only ask, do you see that 55 year old VP getting down and dirty with cold calling? He is going to need a small army to function and who is going to pay for that? I’ve had customers offer stock against sweat capital, but looking at some of our competitors I feel that in such a setup time is consumed by admistration and higher level strategy, when the newly appointed CEO should be cold calling. Building a funnel from scratch is probably one of the most painful processes that I know. The CEO title makes one feel that they are above the hard work and results are reflective.
A fixed monthly retainer guarantees the vendor that some one is investing in long term growth. An incentive bonus makes a hunter sales rep smell blood and start dreaming of the Porsche Cayman that they will never afford.
If it was possible to get competent people without risk, why would any employer hire people with base salaries, benefits, social security expenses and 401K plans. It would be totally asinine!