Creating Sales Seals Special Forces with Alex Nowroth of Lebenswerk Consulting Group

Patrick Daly:                     Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about international business supply chain and globalization, and the effects on the way we work, play, and live our lives today. In today’s program, we will be talking to Alexander Nowroth, partner at the Dusseldorf based management consulting company, Lebenswerk Consulting Group. Alex has joined us here on the show twice before to talk about his consultancy business, and also to speak about one of his areas of expertise, which is ocean freight. And we spoke about that last year during the ocean freight crisis today.

                                           However, I’ve asked Alex to come back and talk to us about his core area of expertise, which is sales and his proprietary seals sales program. So in good times and bad, all organizations, whether they provide products, services, or both to their customers, they’re always looking to increase their sales performance because of course, without sales, there can be no business. So Alex is going to explain to us today how it’s actually possible to save 30 to 40% on your sales overheads while at the same time increasing sales revenue. So I guess a lot of people would be interested in hearing how you do that. So on that, welcome Alex. And thanks for being here with us again today.

Alex Nowroth:                 Yeah. Thank you, Patrick. Thank you for having me.

Patrick Daly:                     You’re very welcome. So maybe before we get into the serious things, or maybe this is a more serious thing. I was curious to know how you are getting on with your move from the Netherlands back to your native Germany. How is it going?

Alex Nowroth:                 Oh, thank you, Patrick. Very well. It’s with a laughing eye and with a sad eye. Laughing eye, I mean, of course I’m from Germany, can’t quite hide my accent. So it’s nice to be a bit closer to my home turf, but we are living less than 15 minutes from the beach by bicycle. So that’s not easy, but overall it’s going well after the summer holiday and we just took away also major great summer. So yeah. Thank you.

Patrick Daly:                     Yeah. So you’re going from near the coast in the Netherlands. Where are you going in Germany?

Alex Nowroth:                 To Dusseldorf.

Patrick Daly:                     Back to Dusseldorf, yeah. So yeah, I’ve moved country. Well, I moved away in 1986, moved back in 1996 and it’s always a kind of stressful time and undertaking. For you, any major differences in living between Germany and Netherlands, differences between those two countries?

Alex Nowroth:                 So I think in general, culturally, I think we are quite similar, but I would say from generally looking at certainly the current difficult times we are in, I find that the Dutch people are generally a little bit more of optimists. They’re really trying to make the most out of even a dire situation. And you can see that from the way, how they really look at COVID, not that they take it lightly, but they… Having a way of making the most out of it, looking forward and trying to find opportunities and the same also applies with the energy crisis.

                                           And so I would say probably there’s a more progressive way in crisis to look really ahead. And I think that’s also important. It’s often a state of mind. Most barriers are rather internal than external. That’s what I believe, especially today in our digitized world. And I think the Dutch have this certainly, in advance. On the other hand, the health system I would say is probably better in Germany compared to Netherlands, slightly better, but overall we really liked it here. Almost, about two years, and might be a good chance that we are back in a few years.

Patrick Daly:                     Yeah. Interesting. Possibly further moves in the future, yeah?

Alex Nowroth:                 Correct.

Patrick Daly:                     So sales, then. Let’s talk about sales. So what would you say are the key success factors for what could be termed a high performance sales organization?

Alex Nowroth:                 Right. Thank you. It’s a very good question. So I would probably divide us into strategic and the tactical part. Strategically, there are three major criteria, in my experience. The first one is, you have to really come up with a strategy which deserves the name strategy. Most strategies are unfortunately nothing else than just major complicated plans. A combination of actions. And a great strategy really is a target in which you want to be in a few years, and then you’re thinking about two or three ways in how to get there. And it’s also important that they are aligned, the strategy with the product strategy. If this is misaligned, what you always have in many organizations, then even the best strategy doesn’t really help you to get ahead. And secondly, the second criteria strategically is that you have to have an execution mechanism, which is very much progress driven.

                                           So focus on progress. Now, most managers who would listen in would say, “Look, I’m very progress driven. We all want to progress.” But if you really look at ways on how we actually track and measure progress, we will find that a lot of organizations are really measuring well, have we done this input? Have we done that action? Those number of meetings, which we had in our plan? Rather in asking, well, how do we actually track that we have progressed? And with that, you need a more agile way, which in my experience is for instance, the OKR, the objective key results approach. More to that later. And the third one really is that a strategic… Or strategy has to be very emotionally loaded. Otherwise it’s very difficult to motivate people to give an extraordinary performance. Just in numbers, it will be very difficult because they’re very abstract.

                                           Now from a tactical part, there are other three success criteria. The first one is, I find that the topic of recruiting talent is probably the most under… Neglected thing. Of course, people will now say, or a lot of people will say, “It’s very hard to find the right people.” That’s right. But I’m always saying, “Look at recruiting with a different eye.” How well do you get your current workforce to look in their own networks? How rigid is the process of really getting people on board? And don’t just find a new salesperson or any commercial person because there hasn’t been anyone else. It’s rather better to have not one, instead of making a premature recruiting decision. The second one is to look at the incentive system, but the incentive system is often very much extrinsically driven on monetary items, very strongly and with all different variations, with a cap or without a maximum a bonus.

                                           But more importantly really is to think differently, because most people lack a recognition internally. They rather say, “I’d love for instance, as an incentive to have one or two people who can help me maximize just on being outside with clients.” For instance, an assistant or maybe someone who’s doing the back office work. So thinking that differently. And the third one certainly is to always really think, “Well, where do people see themselves in three to five years?” Not every sales hero you have at the moment will forever be in sales. So really think ahead and think about in career planning, is there anything else they want to do? And it’s okay. Even if a champion says, “You know what? In a few years I want to do something different.” So I hope that answers that very complex question you asked.

Patrick Daly:                     Yeah. It’s interesting you mentioned the difference between intrinsic and extrinsic motivation. I’m reading a book, you may have read it, by Dan Pink called Drive.

Alex Nowroth:                 Yes.

Patrick Daly:                     Where he talks specifically about these differences and which apply to which type of work. And I think maybe the extrinsic motivators apply a lot to sales people in different roles. Would you think?

Alex Nowroth:                 It does. It does certainly. I mean, I agree also with Dan in those things, because what we do forget is we don’t stay at a company, or even clients don’t stay with a company just because they always have the best extrinsic factors, which is price, which is… Certainly, rather really a feeling of being taken care of. And this feeling of being taken care of, if you don’t have that inside a company, and if people, even your stars don’t feel like they’ve been taken care of at some point, even a great bonus will very quickly wear off. And there are studies that no matter how much you raise someone’s salary, after three months, they are as happy or as unhappy as they previously were, irrespective of the higher intrinsic factor.

Patrick Daly:                     Yeah. Interesting. In a sales team, most people listening to us are probably familiar with the 80-20 rule, or Pareto’s Law. And in a sales team, is the 80-20 rule, if you like, is it inevitable in sales? And if it is, how do we deal with this reality in a practical sense and what kind of insights does the 80-20 rule give us with regard to a sales organization?

Alex Nowroth:                 So you refer to the 20-80 as, and I think also for listeners, that 20% of any sales force as an overhead will deliver or will stand for 80% of the impact. 80% of a new business, 80% of client growth and so forth. So you are right. It is pretty much inevitable because you will always have a disparity, a difference in performance based on different experiences, based, people maybe just got lucky or just simply put that there is far less, really great, talented people out there than the majority, which is doing average performance. Now we can’t change that, but what we can critically reflect is, and this is kind of also linking them into the approach I have pioneered, is that inevitably, most sales organization are simply too large.

                                           So as an effect of that, you can really ask yourself, “Well, what is the magic bullets these top 20% are using, or these top 10 or 15?” Because sometimes you even have a 10, 90 share. And then the fact is to say, well, and then to think of, well, the remaining 80%, which only accrue for the rest for the 20% of the performance, is there any group of these 80% that with a higher focus, we can perhaps get close to or very much to the same level than the current top dogs? And this is inevitably also where I’m thinking where there’s a lot of impact and revenue to be gained on top.

Patrick Daly:                     It’s interesting. I do a lot of work in operations. Now, I know it’s a totally different field, but we have the same 80-20 rule appear, say with order pickers. And what we often find is that the disparity between the best performers and the worst performers is very wide. So while we understand that the 80-20 will probably always be there, what we’re trying to do often is to improve the performance of the lower pickers and reduce the variability about the mean so that there isn’t such a wide disparity. So we get a higher overall, notwithstanding the fact that the 80-20 rule is still there.

                                           So many sales teams probably over the last 18 months or so, probably seen their results going up ostensibly or apparently, if you like, but probably more because of rate hikes than because of anything else. So what advice would you offer to people who were managing sales organizations where this has happened?

Alex Nowroth:                 So there’s two or three things I would say. The first one is really volume, volume, volume focus. It’s really all about the number of units, be it in freight forwarding would be a number of TEUs, of chargeable weight. It would be maybe the number of track loads, the number perhaps of inverters or drive trains. If you work in a machinery type of business, you are pushing through to really focus on the volume. Because the thing is that a lot of organizations are very much heavily focusing on the profits, generated through the sales, often linked to the multiplicator of their own cost of company.

                                           So for argument’s sake, if the total cost of company of someone in Ireland is 100,000 euros, with expensive of everything, typically the calculation, Patrick, is two to three times, should be their return. But now in times of significant rate increase due to the market, not due to the performance of the sales, these two to three times factor can very easily be achieved, even from very little sales efficacy. And if you don’t link the measurement of sales with a volume target, then say your rate is quadrupling, or even going by factor five up, which has often been the case in freight forwarding sales, then you could lose… Even if you lose 50% of your volume, you have been twice as good as the year previously. And that’s the danger of that. So that would be my advice.

Patrick Daly:                     Yeah. So for example, if a container was selling at $2,000 in 2019-

Alex Nowroth:                 Yes.

Patrick Daly:                     … And at $20,000 in 2020.

Alex Nowroth:                 Yes.

Patrick Daly:                     If I’m not looking at the actual number of containers that are being sold well, then I’m going to get a misunderstanding of my performance. Is that it?

Alex Nowroth:                 Correct. I have one client where for instance, there was one particularly lucky salesperson. He got, I think, a low for digit bonus in 2020 and a year later, he almost got 100,000 euros. And because the rates have been 10 times higher later on, but he hasn’t gained 10 times the volume, but the company in the past measured too heavily on revenue and on gross profit. And that’s exactly then what happens.

Patrick Daly:                     Okay. Another angle on this. So what we’re seeing technology coming in lots of different facets of work, and it’s going to be coming, or it’s making its way into sales as well. So what do you see as the future for sales and how can sales organizations combine people and technology to best effect? And how to deal with… Because I know in sales you’re going to get a lot of traditionalists and a lot of skeptics. And how do you deal with that in sales organizations?

Alex Nowroth:                 Well, here’s the thing. I think people are often very skeptical because someone else decides what they now have to work with. But if you look in the real world outside work, it’s often the case that people on their own. What, get a new type of smartphone, maybe move countries every two years. They even adopt new apps. They try out new sports. So why is it so difficult in a corporate environment? Why is it so difficult that we accept change? And I think it’s often, Patrick, that something is developed by maybe a very small group of top line executives without the input what actually works and what it makes a difference in a sales life, without a sales group. So I think the best thing is, if you’re having such an organizational change program, to really involve people from the frontline, sales, sales managers and make them part, let them try out certain technology aspects.

                                           Yeah. This is number one. Number two is certainly you have to have the right culture for that because if it’s just the culture of the same old, same old, we want more, we want more, then it very, very hard for people to accept a new way of technology. Conversely, if you, for instance, incentivize people and say, look… If you, for instance, convert a certain number of customers, that they are having an EDI connection with us, or maybe they are adopting certain new, cool IT tools which cost money, but which are maybe only younger than five years, you get a far higher bonus. Then you get people to be more interested on that. And also on selling those. And the last aspect of your question, how do we deal with the traditionalists and technology skeptics, is always a group of 10 to 15% who will still not want to change.

                                           And let me tell you Patrick, that during Corona, I have actually observed that there is a reminiscence a little bit of, “Yeah. Now I can see customers and now… Oh no, I don’t need to use Teams or Zoom or anything else and I want to now call customers on my own.” So the number of customer visits, it’s largely overestimated which are required to make really a deal. People are doing this out of their own habit. It’s nicer to have a coffee somewhere. It’s nicer to have a face to face discussion. But the fact of the matter is that during COVID, a lot of multimillion dollar deals were done online. So it’s really that combination of things which I’ve mentioned, which will make the big difference for the sales efficacy of organizations going forward.

Speaker 3:                        93.9 Dublin, South FM.

Patrick Daly:                     What do you see the best organizations doing now with regard to managing their sales operations? And how would small and medium size enterprises, looking at those, how can they emulate the best operators out there?

Alex Nowroth:                 So I think what are the best organizations doing now? The future is decided now. A recession is more really effect on how seriously you want to take it. Again, it is easy to get carried away by external barriers like that. Of course we have the Russian, of course war. Unfortunately we have the energy crisis, but there are still some organizations who thrive. So it’s really thinking beyond and thinking, “Well, they have a very sharpened sales strategy,” to think, “Well, what is happening in a year or two years from now? And how do we anticipate the future?”

                                           And then to think, well, on what two or three fields, niches for SMEs, can we really be service leader or can we be quality leader, or both? And then I’m going to try and focus on those. And the second one is for SMEs really is to look very critically at your sales overhead and say, “Do I really need to have a physical FTE, which costs me 100,000 euros or more a year? And what efficacy do I actually getting for this staff?”

                                           To really critically look at that and say, “Am I getting, in terms of volume or gross profit growth, two, three or four times the amount back?” And if it’s not really the case, then I have to really think about, “Well, maybe I can, with lowering the size of my team, get a much more sharper focus and have a much better focus on developing my people.”

Patrick Daly:                     I’ve heard you say, and I’ve read some of your white papers and so on where you make this point about most sales teams being larger than they ought to be, and perhaps they should have fewer members. So how does that look? Like what kind of numbers? I think this is where you come up with this figure, maybe 30 to 40% reduction in overhead with the same sales or greater sales. Just explain how that would work in an example, or fictional example, even.

Alex Nowroth:                 Absolutely. So thank you. So I think what I want to really say at the beginning is that of course, every case out there is different. There are similar patterns, but I want to say, I’m not a fan of saying this one methodology, which works in every case. I can only really say I can came up with this program based on probably one or two dozen or so cases I had with very successful companies.

                                           And I want to draw your attention to a certain example. Say we have an organization of 20 sales people, and let’s just say for argument sake that all are in outside sales. These 20 sales people, if we do adopt the Pareto principle, it will mean that four out of these 20, right, Patrick, the 20%, will do far more sales than the rest of the 16. Correct?

Patrick Daly:                     Yeah.

Alex Nowroth:                 So we have this classical 20, 80%. So it means essentially that four staff out of these 20, and the 20 staff in total are costing probably 2 million, or one and a half to 2 million a year, really only generates their own cost times three or four and really justify a fantastic business case. So the question is, what am I doing with the rest of these 16? And now my suggestion is to look at these 16 and to cut this into two groups.

                                           So the previously mentioned top performers, those top four people, we’re going to call the Seals, kind of linked to the Navy SEALs from the US, the small, elite team. And the remaining 16 FTE which we have, we divide into the Seals developers and the other one, in the question marks. And the Seal developers are obviously round about eight people, half of those 16, which with a different set of training, with different career developments, and perhaps also with a change of their leadership structure, they are within. Because let’s not forget that a wrong leader can have a very, very bad effect on the performance, on the intrinsic performance of someone and the intrinsic motivation to be precise.

                                           So I could tell you from experience that minimum 50% of average performing people, I can turn. So that’s why the eight of the 16 is round about a good way to say, “They stay within the team.” And the other eight of the lowest performers who really, and just not looking at the numbers, but from having assessments with these people, there might be better suited, Patrick, in other divisions, perhaps in a product development, perhaps in a customer service function, perhaps even in an inside satellite sales function.

                                           And what you’re then doing is basically, I mean, it’s trying to do it as practical as possible to our listeners because I cannot draw anything, but you basically take the customers of these bottom eight people and reorganize them on the other eight Seal developers.

Patrick Daly:                     Reassign them, if you like.

Alex Nowroth:                 Yeah. Reassign them, correct. That’s the right word, reassign them. Thank you. So it basically means, out of the original 20 FTE, we are taking eight people out. And by that already, we have a reduction of overhead of probably around 40%.

                                           And it basically means though, that we still have the same number of people taking care of the same number of customers. And because the eight Seal developers will more or less only generate their own costs, they have far more room to grow. So what we’re basically saying is with now 12, instead of 20 people, we can manage the same number of customers and with an increased focus now of management bringing, and obviously with the program, to bring these eight people to the same speed to the four, we can even grow these people to the same performers, like the top four originally.

                                           So if we now make a sort of conclusion with that, we can say, “We’re taking around, if we say 20 FTE cost 2 million euros, we’re taking 800,000 euros out.” Eight FTE we’re taking out. So we are already saving 800,000 euros per year. And we increasing the sales efficacy of these eight Seal developers, that after six to nine, roughly 12 months, they have doubled their own cost of company factor. So that overall the return on sales not only increases by 800,000 euros off the cost we’ve saved of the sales organization, but also we are making each one deliver a far higher cost to company factor.

Patrick Daly:                     Got it. And you have actually a Seals Sales Team program. What does that program involve? How do you implement it with clients? What are the outcomes? What’s the investment and so on?

Alex Nowroth:                 Yeah, so I mean, of course it totally depends on how big the sales organization is. I’d say if you have a minimum number of 10 people in your sales organizations and outside sales, it actually makes sense to think about that. But I have clients, Patrick, who have organizations up to 150 or 200 salespeople, but also have very successful clients who are between 10 and 20 clients… Sorry, 10 to 20 salespeople per year. Again, I think the scope of our call probably won’t allow me to get into a great detail here, but overall I can say essentially, you’re really looking at what is the general objectives? Of possible customers or of your listeners. What is the outcome they are actually trying to achieve? Is it really about that, I’m saying, well, I’m not really sure how my people can in future deliver better sales? Or, I’m saying I’m pretty much sure, but yet I can’t really get them to really scale my business with new products.

                                           So it really depends then, but what we’re going to look at is we assess the current sales organization and say really, “Where are the top sales people?” That can be, often quickly been done. But we are looking at this from a neutral aspect where we say, we’re taking outside market elements where sales are not really having a share in, for instance, outside driven markets increases, market rate increase and so forth. And we essentially assess people and look at which are the ones who are still developers and which are the ones where we think, despite our best efforts, despite our best aims, it probably might be in everyone’s interest if they are not part of this organization anymore.

                                           And then of course, we come up with a very much progress driven metric with objective key results, with a very agile method where we track in every two and four weeks, the progress that we can really track and measure the return on invest of the source organization. And typically it’s a program between six and nine months. And the investment of course is depending on the case, and very happy to discuss this, when people are interested and reach out to me. But generally, you are looking at a return on invest, for the invest in me, to a really measured and proven outcome after six to 12 months of one… Sorry, 10 to one. So round about 10 to one return on invest of the investment of me. And I can demonstrates with several client references.

Patrick Daly:                     So that would mean if somebody were to invest a hundred thousand euros with you, they should be expecting something in terms of a million in-

Alex Nowroth:                 Correct. That’s correct.

Patrick Daly:                     Got it. Okay. So I guess we’re always against the clock on this show. So as we come to an end, I might just ask you, are you reading or listening to anything lately that’s inspired you, that you’d recommend to listeners?

Alex Nowroth:                 Great question, Patrick. Thank you. Yeah. I mean, I was thinking about this question now, when you’ve read it. And the first book which came to my mind is a really fantastic book called Humanocracy. Humanocracy from Gary Hamel and Michele Zanini. Humanocracy, as the name suggests, it’s all about how we make innovations a lot more innovative, a lot more agile and especially how do we change an autocratic leadership approach to a more meritocratic approach, on how we really enable people reaching the fullest potential and beyond. And that’s a fantastic book.

Patrick Daly:                     Excellent. I’ll check it out. Hopefully some of our listeners will as well. So to finish then Alex, how can people get in touch with you and find out more about your work and your services and of course the Seals Sales Team program?

Alex Nowroth:                 Well, I mean, of course you can Google me, or look me up on LinkedIn under Alexander Nowroth. I guess you will share my full name with your listener, certainly on the show. Also under WWW dot Lebenswerk Consulting dot com. I know it’s a long name, but probably the easiest is that yeah. If you want to get in touch with me also, listeners can directly go to you, Patrick and perhaps you can also help to link them up with me.

Patrick Daly:                     Of course. Pleasure to do so. Thanks Alex. It’s been a pleasure to talk to you again today and wishing you the very best for continuous success.

Alex Nowroth:                 Thank you very much, Patrick. It was an absolute pleasure and thank you for being such a great host.

Patrick Daly:                     You’re very welcome. Thanks also to our listeners. Keep well and stay safe until next time.