The B2B Sales Growth Conundrum - clinging to sunk costs

Ed Marsh | Aug 26, 2014

Persistence or ignorance?

"As the Nobel Laureate Daniel Kahneman and his collaborator Amos Tversky pointed out decades ago, we tend to chase sunk costs - the time, effort, and money that we put into something and can't get back out.  It's irrational behavior. Once your team realizes that a project is failing, previous investments shouldn't matter.  The best you can do is try to make smart choices with what you have left to invest.  but too often we stay the course, unwilling to admit that we have squandered resources that would have been better spent elsewhere."  from HBR May 14
Facing an existential crisis, American manufacturers battled back.  They released their iron grip on traditional manufacturing and management practices, adopted new ones, and are now experiencing a renaissance.

But it required letting go - 'abandoning' much that was ingrained, assumed, instinctual and understood about how to manufacture.  It was traumatic - and although the sunk cost investment which was abandoned was more emotional than capital, the tremendous resistance to walking away took many companies to the brink.  It was only the black & white alternatives, change or die, which prompted action.

Business development isn't yet a crisis

For most manufacturing companies, revenue & profit trends are concerning, or maybe just perplexing, but not yet critical.  Revenue is stagnant or maybe contracting or growing slowly; business and sales cycles are unpredictable; margins are pressured; and there's a general feeling of unease not unlike the operational uncertainties of twenty years ago.  And the threat is less clearly identifiable - changing buying habits is less galvanizing than the invasion of cheap Chinese products.

But absent a crisis, the resistance to change is too much to overcome in many cases.  It's hard to condemn the VP Sales who hesitates to suggest cutting his direct sales force and investing substantially in virtual, early stage sales, through content marketing and marketing automation.  Similarly the COO, who comes from an engineering background and whose focused on continuous manufacturing improvement and the bottom line can't be readily faulted for assuming that the business development function simply needs the right people and right management pressure.

Sure, the right people are key.  But great people working on the wrong things are a waste of resources.  And NO frequency of excel spreadsheets is going to grow the top line.

The emotional 'sunk costs' of traditional B2B sales


Excerpting from the HBR quote above, "It's irrational behavior. Once your team realizes that a project is failing, previous investments shouldn't matter.  The best you can do is try to make smart choices with what you have left to invest.  but too often we stay the course, unwilling to admit that we have squandered resources that would have been better spent elsewhere." 


It's easy, natural and psychologically predictable that as revenue growth slows, sales cycles stagnate, margins decline and the "top line" becomes problematic that those who are invested in traditional business development will resist change.  They'll stay the course.

So what's the solution?  First companies must be positioned to accept a solution.

5 prerequisites for B2B sales growth

  1. A CEO/President who recognizes that unpredictable B2B sales is actually a symptom of gradual failure of the current approach
  2. Acknowledgement that the approach wasn't always bad - but that markets and buyers have changed
  3. Sr. management with "the balls" (thanks GapingVoid) to walk away from the emotional 'sunk costs' of traditional business development
  4. An open mindnedness to accept that effective approaches may not feel comfortable, even while they are correct
  5. A willingness to change staff if they can't change themselves, even long-time employees and heroes of yesteryear, to find the right skills and mindset to drive B2B marketing and sales based
It's easy to list the bullet points - but particularly for manufacturers who are obsessively focused on product specs and details, with traditional management and direct sales teams, these are five enormous hurdles.

Change to what?

That's a fair question, but one that can't be satisfied with a canned answer.

But it starts with a "zero moment"....here's a sneak peak via an interesting post byDaniel Newmanon HufPo
"Data that cannot be ignored

The paramount shift from 1:1 marketing that took place between a sales rep and a buyer has gone by the wayside. Even brands that still see this as a viable channel must realize that clients are more informed than ever and it is the boundless volume of content that is creating information parity that at the very least realigns the sales professionals role from informer and educator to creator and innovator. 

If nothing else, brands must recognize that by the moment the prospect has landed at your door, the process has long been underway. The companies that 'get it' will recognize and prescribe content as a means to be more involved and engaged in creating those moments, those zero moments of truth and those that don't "get it" will be left on the outside looking in with little more than hope to guide them to their next cycle of growth."

Is your B2B manufacturing business up to the challenge?  Are you mr. company president?