The question of employing a sales manager or to use a sales service is a consideration that many (if not even most) VP of sales/CEOs will confront when seeking to penetrate new markets. Which alternative is the correct one?
The reason for writing this post is to share my thoughts on with you, because many of you are asking this question when considering us (or our competitors). The trigger for posting this now is a sad one. A few days ago I followed up on my discussions with a previous potential client that eight months ago decided to employ a person in their country (Finland) to drive sales in Central Europe from there. The VP sales told me:
“We made a stupid recruitment, which has cost us way too much. We lost 50K€ and some deals.” – VP of sales (person and company kept confidential)
Employing a person is always a considerable undertaking, especially when seeking to penetrate new markets and generate sales revenue from strategic new or existing customers or channel partners. If the person is to be responsible for penetrating new markets (for example Germany, Italy, Spain or France), employing someone in the company’s remotely located home-country is hardly advisable; penetrating new markets from a remote location will prove difficult.
In the scenario where for example a US-based company is seeking to penetrate the European markets, the company usually has a customer base in America. In order to do business in Europe, the company will need a local sales team or resource. It is usually the VP of global sales that is responsible for making the decision regarding how they will approach Europe; often the alternatives include employing a person or using an external party (i.e. a sales accelerator / business catalyst, such as ibd) to accelerate manage and drive their market entry and increase sales performance.
Which approach is the correct one; to employ a person or to choose a sales service (like our Sales Acceleration & Management service)? My answer is: “it depends”. It depends on various factors, such as: a) the novelty of the service/solution, b) how well-known the company already is, c) the budget, d) the time horizon.
Novelty of the service/solution: The less-known the service/solution is, the harder it will be to attract a professional sales person who wants to take the responsibility for the business. Reasons for this include that if the market is in its infancy, the expected sales commissions to be earned are scarce. Additionally, it involves a considerable amount of ‘risk-loving’ of a person to jump into a business that is risky, especially if this is his/her only source of income. Let’s not forget about the market; the higher the novelty of the service/solution, the more evangelizing to create a market is usually required: i.e. it will be more difficult and slow to sell (which puts certain requirements on the sales person).
How well-known the company is: In the event that the company has already made a strong name for itself (e.g. through a huge success in, let’s say, the USA that carries all the way to Europe), it may be that their brand name is strong enough to attract excellent sales persons who are eager to be part of that success story. In most of the cases, however, this is not the situation. Like a German sales director that was approached by a headhunter for a small US-based software company said:
“Why should I take the risk to jump onboard a company that I have never heard of and know nothing about? Besides, I would have to do everything myself – I’m a director, not an entrepreneur.” – Director, Sales DACH (person and company kept confidential)
Budget size: Setting up a local operation from scratch can be a considerable investment, which include costs related to: recruitment/headhunting costs (which often are 25-30% of the annual target salary), employer costs (i.e. costs related to the social security and pension schemes carried by the employer), payroll costs, office lease (often costly and time-bound), office equipment, IT-systems, and car lease for employee(s). Employing a person to locally manage the market entry is, simply put, costly.
Time horizon: In the event that the company has the luxury of taking it slowly to find their way on the new market, they can consider themselves very fortunate. In most cases, however, this is hardly the situation. Most companies are facing fierce competition (where patents are in fact of little value) and as buyers are increasingly consolidating the amount of suppliers that they deal with, most supplyer-companies are facing a rapidly closing window of opportunity, regardless how innovative a solution they may have. Innovative products/solutions are easily copied, at an increasing speed (think of the iPhone or iPad for example). If a company has a head-start of 6 months over their competitors, it does not seem optimal to use between 5 to 6 months for employing an EMEA Sales manager. (Explanation: Usually it takes some time to draw up the profile and find a headhunter; 3 months for a headhunter/direct search company to come up with a short-listed candidates; 1 month for the company to select one; and the person may have a notice/vacation before he/she can start working.)
In summary, employing a person locally in the target market can be a good decision, especially when the product/solution already has some traction on the market, the company has a name, the budget is not too constrained, and the company is not facing fierce competition (and closing windows of opportunity). In other situations, in order to accelerate sales and penetrate new markets, using a sales service resource (such as ibd, I just had to say that) that has a strategic mindset, adopts a value-based sales approach, has excellent consultative selling skills, is highly mobile, and that is willing to accept risk-reward-sharing, is the better alternative.
We usually advise our clients to first use our sales service resource to build up their business in Europe. By doing this, we can jump-start their business in Europe, at a lower risk, faster, and at a lower total cost as compared to applying the traditional market-entry approach (involving employing people and setting up a location). Once we have helped them building their sales (i.e. have built up their European customer base and already have a considerable revenue stream), then we are glad to help them set up and staff their local sales office(s). After all, by working according to a success-oriented business model, it is also in our own interest that our clients business takes off and thrives.
Hope this helps you to avoid some of the pitfalls during your internationalization process. In case you need help, let us know.