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Saturday, March 31, 2007

Back in July last year I wrote an article on Ecademy called "Is Sales Outsourcing Right For My Business?". The article was aimed at helping people understand sales outsourcing and whether it was a good fit for their business.

I recently had a discussion with a sales outsourcing partner about the different models used and what the benefits are of each one.

Sales outsourcing, in the sense of contracting an external sales team, is still a young business model.

Models used by sales outsourcing companies range from 100% revenue-share/commission (usually only adopted when the company has established relationships they believe they can exploit for a superior return) to a hybrid fixed fee plus commission.

In addition to this, many companies using the 100% revenue-share model are forming joint-ventures with their clients with an exit strategy established up-front; once they build the business to a specific level the client either buys out their share and brings the sales function back in-house or, if the client's business is sold, the joint-venture is included in the trade sale.

To me, this model encourages long-term commitment on both sides, which is always a problem when working purely on commission. Plus, from a sales outsourcing perspective, it provides a larger upside through building equity. This is the principal of shared risk models - a higher reward for greater risk.

An alternative, particularly suited to very early markets, is to work on a fee + commission to ensure some control of time committed, activity levels, etc and then to phase into a full commission or joint-venture model once traction is established. This has the added benefit of both parties getting to know each other prior to any venture.

The common thread in each model is a balance of risk and reward between client and sales outsourcing firm.

Factors such as maturity of products and markets place a large part in deciding the best model. If time-to-revenue is likely to be long, then some form of retainer will ensure commitment from the sales outsourcing firm.

Otherwise, and I have seen this happen, the client will get 6 months into the contract and find out that their sales partner has dropped them for a more attractive offer.

If that happens, the opportunity cost in delayed market entry will far out-weigh any savings on fees.

Shared risk means just that... shared risk.

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Posted by: David Regler @ 12:27 pm |  0 comments  | Links to this post  

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Monday, March 12, 2007

I was reading an interview in F1 Racing with Mike Gascoyne the other day. Mike the CTO of Spyker F1, one of the smaller F1 teams.

I was struck by some of Mike's comments on how smaller F1 teams try to outmaneuver rivals with larger budgets and better cars.

"Even when we were at the back [with Tyrell] we went into every race thinking we were a going to score a point. We were convinced that we could come up with a strategy, make the call or do it better than our rivals."

According to Gascoyne, it's the thrilling bite of competition against the odds that drives him.

I get that. Absolutely.

Having worked with smaller companies up against larger, global competition, I know that it's all about finding smart ways to do more with less.

I've worked with people from larger companies who, when they make the transition to a start-up or emerging company, they just don't cut it without a huge marketing budget behind them and a string of warm accounts to farm.

Gascoyne calls it trench warfare - "I'll blow the whistle and we'll all pile over the top. Of course, it's going to be shitty at first, but you can guarantee I'll still be leading from the front."

Let's see how they fare when the F1 season starts next Sunday.

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Posted by: David Regler @ 9:38 am |  0 comments  | Links to this post  

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