[EDITOR’S NOTE: This interview was conducted in December 2018.]
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EPISODE 168: UVA Darden School’s Tom Steenburgh Says It’s Critical to Do These Things to Successfully Sell New Products
TOM’S FINAL TIP TO EMERGING SALES LEADERS: “There’s so much you can do to change performance and help people grow in their careers. It’s really heartening to watch people do that. As sales managers, you have a great role to play in helping people grow in their career and you should feel empowered to help them do that.”
Tom Steenburgh is the Richard Reynolds Professor of Business Administration at the Darden School of Business at the University of Virginia.
He wrote the classic article in 2012 in the Harvard Business Review about motivating top performers.
In the November/December issue of the Harvard Business Review, he wrote a new classic article on selling new products and how that’s changed. This podcast focused on those insights.
Find Tom on LinkedIn!
Tom Steenburgh: Thanks for having me, Fred, I really appreciate it. I actually had a professional life before I went back and did my PHD. I worked at Xerox and we can talk a little bit about that and how that shaped my research. From there I did a PHD at Yale and I was at Harvard Business School for a while, and now I’m here at Darden. I’ve been very lucky to be at great institutions.
Fred Diamond: We’ve interviewed over 150 sales leaders for the Sales Game Changers podcast and a number of them got their start at Xerox. Obviously that was the gold standard in the 70’s and 80’s, that’s great to hear. I’m interested in how that directed your career and some of the things that we talked about. Let’s get right to the meat, you just published this article, it’s gotten a lot of attention. Why don’t you tell us what’s going on with selling new products and some of the major themes behind the article?
Tom Steenburgh: One of the things I was really interested about and helped motivate the article actually came from my experience at Xerox. If you think of Xerox as a company, there are two functions that were really outstanding. One was the research and development arm in Palo Alto, they came up with crazy inventions, some which Apple eventually, let’s say, borrowed and capitalized on with like the GUI interface, the fax, an incredible amount of technology there. Then they had a sales force that was second to none, it was a fantastic sales force.
The great irony of it to me is that despite those two great strengths of the company, when it came to selling new products they were never able to actually capture the market. It’s just really fascinating so it leads to the question of why, what’s different about selling new products, what fell apart for Xerox in that sense?
Fred Diamond: What’s going on today? What are some of the major things you found out in your writing?
Tom Steenburgh: I think one of the big takeaways from the research that we did is that with a lot of companies, basically they treat selling new products just like they treat everything else. I’ve spoken in public forums and asked the question, “How many of you with your company have set up a different process when it comes to selling new to the world products? Not just product line extensions, but something that’s radical and new or fairly radical and new depending on the industry.”
Most people say that they don’t, it’s overwhelming, it’s more than 95%-98% of companies don’t do anything special for new products and the question is why? If you look at the thousand most innovative companies, the year over year spending increase in research and development is more than five and a half percent. Compound annual growth of five and a half percent, so you’re constantly investing and developing in new technologies and then when it comes to commercialize them, we’re not doing anything special. In fact, when you ask the question, “How long does your marketing team stay on with the sales team post product launch?” the median answer is zero months, long answer would be maybe one or two months. For spending all this money to create new inventions, the question is why aren’t we spending more thought and attention in commercializing? That really drove a lot of the research.
Fred Diamond: It takes the customer a while to understand and get the message. Is that part of the challenge as well?
Tom Steenburgh: I think that’s a huge part of the challenge. One of the fundamental differences in selling new products relative to old is that you’re asking the customer to go through a massive change process themselves. Salespeople need to become a coach, so to speak, in that change management process and a lot of them don’t feel comfortable in that. The question for a company is how do you help your team become more comfortable in that process? We collected a bunch of data around what’s different in the process, some big level stats would be you’re spending between 30% and 40% more time meeting with cross-functional teams, you’re spending 30% to 40% more time with face to face meetings. The engagement level that you need with a customer to sell new products is much more intense, much deeper and salespeople need support in making that happen.
Fred Diamond: Of course, you have your early adopters and then you have eventually laggards, if you will, at the end of that spectrum. Is that a part of it too, that there’s a small percentage of companies that are willing to be the early adopters?
Tom Steenburgh: Absolutely. Let’s tie that back to salesperson behavior and what you’d like to see out of people. It’s really hard to sell in the sense like with an established account you might have the same conversation with a client over and over again and you’re just dying for something new to talk about. When a new product comes along, the initial enthusiasm from the sales force is usually huge, “I have something new to talk about.” Actually, that novelty leads to a whole set of dysfunctional behaviors from the sales force because the reason we start talking about this is you say, “Are there certain people who’s your target?”
The answer to that question is yes, and you should be thinking about people that are open to change and willing to change rather than just this standard client. What most salespeople do is they broadcast the message really widely across all their accounts, when in fact this is very counterproductive because it just eats up time with a lot of people that really have no intention to buy. When we looked at what star performers did – and by “star” I mean not people that always knocked the numbers out of the park, we’re talking about people that really know how to sell new products. What they do differently is they’re much more focused in their targeting, they find clients that might be open to change, clients that they know how to help change, figure out how to sell this new product and then expand to their client base.
Fred Diamond: The federal government of course is Fortune 1, the government is mostly thought of as a market that’s a little slow to adopt certain new technologies but are there other industries like tech or financial services, potentially that maybe more apt to buying new products from a company or is that really not applicable?
Tom Steenburgh: I think you can find customers that want to buy new products in any industry but they need to have something special going on at the company for that to happen. There’s certainly industries that are more slow moving than others, I think with the federal government or defense industries in general there’s a lot more testing to make sure the products will be acceptable but certainly there are innovations that get adopted there, too.
Fred Diamond: How about your study on the customer buying behavior? Let’s talk a little bit about how apt customers are to buy new products. I know we just talked about markets, but the willingness of customers to make new investments. Obviously if there’s something radically new like iPhone or those kind of things, but talk about that, about the customer’s willingness that you’ve seen over time to take a stab with some new things companies are offering versus wait till all the bugs are fixed, so to speak.
Tom Steenburgh: The customer behavior is really interesting when we talk to senior buyers who are making these decisions. Often times what they’d say is, “We will talk to anyone.” In fact, one senior manager that we talked to in a finance industry said, “I really go out of my way to find new products because I want to know what’s happening in the market, I want to stay current, I want to make sure that I have best practice but when I really look back at my own behavior, very rarely do I buy.”
For them, part of the advantage of being in the market is just to learn and from a seller’s perspective that’s just disastrous. They’re just eating up your time without ever really hoping to make a sale. Getting back to our earlier conversation a little bit about that, that just says that you have to be very targeted in who you choose to sell to.
Fred Diamond: Curiously, if a customer is in that position where the customer will just show up at your seminar, your road show if people still do things like that but they’re not really willing to buy, is there something that an elite sales star, sales performer can do to accelerate the process?
Tom Steenburgh: If they’re really not willing to buy or not interested in buying, it’s best to avoid them I would say, till they’re market ready. Maybe that’s a year, maybe that’s after there has been some product adoption and you can show success in other clients but there’s things that a seller can do to test whether or not a customer is in the position to buy. One thing to do would be to develop deep networks within the company.
One of the practices that we found to be successful is that companies with big key account management or strategic account management programs where you have somebody in the account that really knows how the network across business divisions or across units, that is helpful in new product adoption because they have a better sense of where the client is in their own change processes.
The other important thing that that helps with is if you understand the network, you can figure out who might block the sale. New products often mean that power changes in the account because you’re asking the customer to do something that’s different out of their normal business practices and they can anticipate who’s going to block the sale and how do we get around them, how do I build the team that will actually help me win in the end.
Fred Diamond: Tom, we have a lot of people listening on the podcast today who are in the first 4 to 5 years of their sales career. A lot of them obviously started off as SDR’s and moved into accounting roles, if you will. What would be some of your advice for them as it comes to selling new products?
Tom Steenburgh: When we looked and asked questions around who is actually successful in selling new products and what’s the behavior they exhibited that made them successful, the focus on learning actually turned out to be a really big deal. How that played out in managing their emotions to that process turned out to be really important. Let me explain a little bit what I mean by that: what we found was that the people that were most successful in selling new products often went through a deep learning phase early in the sales process. The product just launches and then there’s a period of time where because you’re asking the client to do something new the salespeople need to spend time figuring out, “What does that new thing mean to the client and who’s going to be affected within the client?” They spend more time engaging in these face to face meetings, engaging with cross-functional teams and asking the right questions.
I can talk a little more about that later, but they’re really engaged in this deep learning process. What that meant for their performance – and this is where the emotional side of it comes in – is often at their performance early in the sale cycle was worse with other people, so they had a deep troth early in the period but that’s because they’re spending their time learning rather than selling. Then if you look at how this plays out over time, once you figure out how to sell this product within hopefully a limited set of accounts, you then learn how to sell it in other accounts and you then start to reap the benefits of these new product sales which often have greater profit margins and perhaps greater revenues associated with them. If you looked at the performance of the people who engage in this deep learning, in the long run it went up to a higher level than it had been before and we contrast that with people who have more of a performance orientation, people are always worried about making their numbers. What you found was that early in the period they didn’t actually engage in this much learning.
They did spend time with the client but not as much learning about their process, more worried about making their current sales, maybe in fact they prioritized existing products over new products during this period so a much shallower troth. Then when you looked at their long run performance, it never hit the high levels of the people who engaged in the learning. Some of the advice which is hard from a management perspective to take to heart is to stick with your people who are engaged in that learning process and stick through the downturn because in the long run it pays off.
Fred Diamond: I just want to make sure that people on the podcast today understand what the learning process means. Talk about what they need to know, the people that you’ve seen be more successful because they’ve gotten deep into the learning phase. Talk a little bit more about specifically what that might look like.
Tom Steenburgh: Often times with customers when you think about a new product, one of the things on their mind is, “Does a rep understand the industry trends? Do they understand what the product does?” One of the differences that we found in terms of really successful reps and reps that did just okay in selling new products are the really successful reps focused much less on the product characteristics themselves. It wasn’t really as much of an information game as it was about trying to figure out what’s the big picture trend in how the industry’s changing, what’s the emotional arch that the client is going to go through in adopting this type of product. Does the customer even have a set of buying criteria so that they can evaluate this new product?
What happened early in the sales process from our average people, again they’re excited about talking about the product, what do they do? Show up and just talk about all the product features. It’s just an information download and they think that’s enough to do the trick. What more skilled salespeople did is actually asked a hell of a lot more questions, tried to figure out how this product might change the dynamics in the client’s site, again changes in power, changes in process in the client’s business processes and then try to anticipate once they got to the buying decision which may take 6 to 18 months away, what are the types of things that they had to anticipate to be able to win at that stage.
Fred Diamond: We’ve had so many themes come across the Sales Game Changers podcast that we’ve investigated at the Institute for Excellence in Sales. One of the common threads is that because of the proliferation of the internet and social media, the customer is now in much more control than they’ve ever been. If I were interviewing you as a VP of sales, I would ask the question, “It’s harder to get through, the customer thinks they know more.”
You’ve heard of the whole 57% stat from The Challenger book that came out. Even to be a sales professional today let alone with new products, you need to bring so much more value to the customer by understanding not just how your product can make them better, but what are they trying to achieve from a business perspective? That’s one of the key trends is, is this just another further indication of that or is there something specific about new products accelerating that gap?
Tom Steenburgh: I think the new products accelerate that gap. In fact, it leads the rep to talk more about the product features and think that that’ll be enough. Neil Rackham did a great study on this 15-20 years ago. What he found was when salespeople were selling new products they were much more likely to talk about the product features than they were when they were selling existing lines, exactly the opposite behavior that you’d like to see. I think that the reason behind that is that, “I have something new to talk about, so I’m going to talk about it.”
Fred Diamond: That makes so much sense. We tell a lot of these sales professionals, especially in the younger stage of their career, “You’ve got to make 60 phone calls a day.” Even if you’re an account rep who’s out on the field, let’s say you’re not just inside, you’re constantly trying to find reasons to continue to engage. Even if you’ve been selling to the customer for 15, 20 somewhat years, you’re constantly stressed with figuring out, “How do I get another opportunity? We’ll need to talk about your kids” but how this is going to help you with the business.
Tom Steenburgh: That’s exactly right.
Fred Diamond: Talk about some things that the high performing sales VP should be aware of and implementing to ensure that he’s successful, or she.
Tom Steenburgh: One of the things that I personally was really surprised about when we did the research was how much of helping the salesperson manage their own emotions and their own feelings about selling new products mattered. What we found is more capable organizations usually did some sort of competency mapping and had really difficult conversations with the reps to challenge them to get out and put themselves out there in a sale. For example, one manager that we talked to talked about how his reps, when he asked them, “Do you understand the product?” they would be able to give back exactly what the product could do. They understood all the features of that but when he asked the reps, “What conversations are you having with the customers?” they’d come back and say, “We’re not even having those conversations, I don’t feel like I can put myself out there” because basically, they didn’t want to look stupid, they didn’t want to look dumb. They were shying away from having the right sorts of conversations with the customer.
What was interesting about that was when we asked them, “How did you solve the problem?” he said, “One thing we did is we asked the reps to do some journaling about the issue. Describe what your role is and what your role isn’t, and if you could make the animal smaller somehow they were willing to put themselves out there and have the conversation.” It’s interesting how I think maybe the new product sales heightens the emotions of everybody involved, it says more about them so it’s more important to help the reps have those right types of conversations.
Fred Diamond: I remember launching new products at Compuware and Apple, if you’re on that team you live and breathe it. A quick story, when I was at Apple I worked on a couple of new product development and Apple had all these code names, and they were names of beers for the various products. When it came time to actually name the product, people were fighting for that beer name to be the name of the product because we lived it for 18 months, for a year every single day and you have that passion.
Also, if you’re on the product team or the product marketing team that’s your baby, you’re investing a big part of your career on the success of that product. When you go out to the field as well you’re going to try to get the sales team motivated and pumped however you do it today with communications. There is so much at stake there, but then again on the customer’s side the customer doesn’t necessarily have the same enthusiasm. The customer has his or her business, their profitability is their goal or if it’s the government it’s the mission or education or healthcare, whatever it might be and a lack of synchronicity between the two.
Tom Steenburgh: I’ll just add before we break if we have the time, one of the really interesting things again that we found in our research sort of gets to this point of what’s the customer seeing versus what is the sales rep seeing. When we asked on a number of questions how does the salesperson see themselves and how does the customer see them, when it came to product knowledge both the customer and the rep saw themselves as having reasonable amounts of product knowledge. The rep would say, “Yes, I understand the product” and the customer would say, “I believe the rep understands the product.” When we asked the rep about how adaptable are you to the market and how much do you understand what’s going on in the market, the rep saw themselves as being very adaptable, really understanding of what the market’s like and the customer said, “No, actually this rep is not adaptable.
Actually, the rep maybe doesn’t understand the market as well.” I think that insight that you had about what is the customer seeing and how much are they willing to move, you see this gap between the two and part of what good companies do is help the salesperson bridge that gap.
Fred Diamond: Before we take a short break and listen to the message of one of our sponsors, again the article came out, it’s called Selling New Products Focused on Learning, it’s in November December issue of the Harvard Business Review. Just to summarize, what were some of the industries from the product perspective that you reviewed and investigate and studied for the article?
Tom Steenburgh: We mostly looked at business to business type companies, companies that were launching products to another business would make a big difference in what they’re doing so we’ve focused exclusively on new products. In terms of industry, we looked all over the place so we had companies that range from Microsoft to pharmaceutical companies to some online companies, some digital media companies, financial services. The industries were fairly wide ranging, but the scope was limited to more of business to business type sales.
Fred Diamond: Tom, you of course had a seminal article that came out in 2012 where you talked about some of the challenges facing companies as they have tried to motivate their star performers. Talk a little bit about what you saw back then and what you’re seeing today.
Tom Steenburgh: I think that people are people, a lot of the things that we found back then would certainly still hold today. The basis of the article looks at differences in how laggard score performers and star salespeople behave and then talks about different ways and different techniques that you might use to motivate them to higher levels of performance. If I could add one thing I always like to say when I talk about this article, really the best sales managers that we work with are able to move the performance upward of all of these groups. This isn’t a choice between, “Do I focus on the starts or do I focus on the laggards?” The best sales managers are to motivate across the performance spectrum and the question is how, how do I treat some people differently than others?
Fred Diamond: What are some of the things that you’ve seen? In the article you talk about how certain organizations were dictated by finance to restrict the earning ability and how that demotivated some of your star performers.
Tom Steenburgh: One other thing that’s common across companies that we’ve talked to is that finance often plays a role in setting compensation targets for salespeople, in many companies they might set an upper bound of earnings for people. This turns out to be a really terrible tactic if you think about it because what happens is if I set a ceiling on earnings for reps, once a star performer hits that ceiling, what do they do? They just stop. We have data from companies that show basically once the stars get to the ceiling they’ll just stop and wait till the next year to make the money. Sometimes maybe they shift business across periods, often times that’s not possible but the customer won’t allow it, but they’ll just stop and they’ll wait till the next year start to re-engage with the customer. If you think about that behavior, what you’re doing from a senior management perspective is saying, “I’m going to take my best performers out of the field in the fourth quarter when most of the business occurs.” It’s crazy behavior but we do that because we want to contain costs, it’s nuts, really.
Fred Diamond: What should they do?
Tom Steenburgh: They should not set ceilings for their earnings and basically have the discipline around showing that the compensation plan, if you take away the ceiling, motivates the star people to a level that’s still cost effective. You certainly don’t want to spend money on salespeople through compensation if you’re not making money as a business, you’ll go out of business that way. I’m not advocating that you shouldn’t be profitable, but I am suggesting that you should think about whether or not that cap is doing the thing that you’d like to do in behavior. Would you rather have another half a million dollars in sales or add this incentive cost or not? That’s really the only question you have to ask.
Fred Diamond: General question about motivation, this comes up all the time obviously. Cash compensation versus other types of recognition, what do some of your studies show on that? It’s a real general question, we could be talking for hours about that and books have been written but for the purposes of the short podcast, what might be some of your discoveries?
Tom Steenburgh: I think both are effective in terms of non-cash compensation and cash compensation. Non-cash compensation, things like contests I think are most effective if there’s a social component associated with them. I’ll give you an example: instead of just giving a lease to a BMW, let’s say put the BMW in front of the door on the way in to the district. Depending on the type of culture you have, if it’s more of an outcome based culture, more of a culture where we highlight wins, that can be really effective because people say, “I want to participate in this, I’m jealous of the other person so I’m going to make sure next time my motivation is higher.”
For a while, that worked in sales compensation at Xerox, that’s actually where I had a lot of my professional experience. Probably the most effective money that we spent was on President’s Club. What you knew is every time a person went on a President’s Club trip, A, they got to share that experience with their wife. It was a memorable experience, senior management would be there and would recognize the work that people did and as soon as people got back to the office, that’s the first thing that went on the business card because they want to show people, “I’ve earned this stature.” I really think that social component of helping people highlight their successes, I think that’s really an effective motivational tool.
Fred Diamond: Tom, we have a lot of sales leaders listening to the podcast as we mentioned. There’s a lot of young people moving into sales, the M word, millennials in early stage roles and a lot of them obviously move on, but a lot of them are very successful. They have a lot of energy, they want to serve the customer. What are some of the things that you’re seeing motivate that group?
Tom Steenburgh: I actually find them to be less different maybe than other people do, I think there’s an altruism when you’re younger, there’s an energy when you’re younger. It’s just fun to be around students of that age – or people of that age, I should say. Not just students, although I see many of them who do that. I think tying their work back to the mission of the organization is really important, I think that tends to be more important for younger people. If you’ve been around for a while you understand what your role is so maybe that becomes less necessary. It’s always necessary at some level, though.
Fred Diamond: You also mentioned laggard. What might be some things companies would want to do? You said that you believed that a great sales leader can improve the performance of your star, your core and your laggard. You also said that you believe that your sales leader should be paying attention to all three groups equally. What are your thoughts on that?
Tom Steenburgh: You need to pay attention to all three groups. Certainly sales is difficult and there’ll be laggards that you need to move out of the business and there’s many businesses that I’ve worked with that have trouble with that and don’t want to make the tough calls, there are some people that you’ll lose. One of the big differences in behaviors that you see between stars and laggards is not that different than what we see in education in terms of testing.
Stars, when you look at how they’re motivated, they might have the foresight to forecast their whole year before the year gets started. They’ll tell you, “This lease is coming up with this client in March, so I know I need to spend some time there in March and then in September another set of opportunities are going to come up. I’m going to plan my time so that I’ll be with this client in September” and they’ll plan out their whole year. If you look at motivational tools of putting in quarterly bonuses, hardly matters to those people. It changes their behavior very little because they’re already thinking about what the year is like. The parallel in educational testing, you can have one comprehensive exam at the end of the year for your best students and they’ll do just as well on that as if they have interim testing.
With laggards the behavior is quite different. They’re much more short-term oriented and they don’t do a lot of long-term planning, so what happens is they’re not really thinking about what they need to do to make their annual goals. We’ll see over and over again in the data where with the bottom end of your distribution, they get to June, they realize they haven’t been doing the type of work that they need to do to make their annual quota and they just stop. You’re done, basically in June. One effective technique in comp to help with that is putting quarterly bonuses and shorten the time horizon to get people to prospect and to continue to work throughout the year.
There’s plenty of things that you can do outside of compensation to help people with that process, just even engaging in monthly dialogues or twice a month dialogues to help people plan for their account at the lower end is helpful. It’s really that educational part, that sort of training the person to act more like a star that’s helpful. Again to come back to the parallel in educational testing, it’s a pretty well-established result that if you put in weekly quizzes, let’s say, for under-performing students it actually lifts their grade at the end of the year quite a bit because what you’re doing is you’re training them to engage in that learning process on a continuous basis.
Fred Diamond: Do you want to give us any final thoughts as we wrap up on either the selling new products or the motivation topic?
Tom Steenburgh: If I were to give any sort of advice or heartening message in sales is that often times people think when it comes to selling that everything’s inborn and you can’t really do much to change outcomes. I’d say through my research and through my experience in working with companies it’s quite the opposite, I think there’s so much you can do to change performance and help people grow in their careers. It’s really heartening to watch people do that, so if anything I’d say as sales managers you have a great role to play in helping people grow in their career and you should feel empowered to help them do that.
Fred Diamond: Just to wrap up, if you were to give one bit of advice to a sales professional who is either a core or a laggard, is at the middle to the bottom, what would be the one thing you would tell them?
Tom Steenburgh: I’d say if I’m the salesperson, his or herself, if you can focus on learning, focus on getting better in one way or the other it really can make a big difference in your performance. I’ve seen it happen in many different contexts, I’ll give one more example of this. When it comes to core performers who I think are often overlooked relative to some of the other groups – we tend to look at the stars and the laggards and either have concern or praise for them, core performers get overlooked.
One of the studies that we did in working with a company, we put in a different type of contest to help the core performers improve their performance. Basically what we did is we asked them to give demos, it was at a car dealership, to show how the demos can change the sales process.
What we found because the contest itself wasn’t structured on just the number of cars sold but actually on learning the process and changing your behavior in the sales process, a different set of people – it wasn’t the stars, it was the core performers – really engaged in the contest, taught themselves this new behavior and really lifted their performance. I just think there’s so much room that you can have to grow in your career, that would be a message I’d like to give people no matter where their performance was.