We found a corporate culture obsessed with “best in class” quality and exceptional customer service. Senior management reinforced this culture at every turn, and it was echoed at all company levels. Their “on time” delivery was an admirable 92%, and cash flow was reasonable enough to manage continuing operations. Their technology platform was outdated, understandably drawing the attention of the CFO who wanted to invest in IT, yet we found their systems serviceable for the time being. We concluded, the issue was not with the company’s “back-end”, which was productive, well managed, largely efficient and even admirable.

Knowing that revenues had been flat for 3 straight years, we turned our attention to sales & marketing and systematically asked and answered questions to understand the root cause behind the company’s lackluster performance:

• Had industry demand fallen? Their industry was dominated by 4 manufacturers, with only one manufacturing in the US, so we turned to export / import data as a proxy for market demand and surprisingly, found a slight increase of imports in the company’s sector. We concluded industry demand was not a root cause of their revenue problem.
• Was competition stealing market share? We found their marketing spend was one tenth of 1% of revenue and while anemic, this spend was similar to prior years. The company had not changed their core message for some time, however our competitive research uncovered no major advertising changes that would affect market share.
• Was pricing or the sales team to blame? Almost immediately we discovered their sales tools, policies, behaviors, and “espirit d’ corps” was “set up for failure”. The staff themselves were competent professionals, but morale was at rock bottom and much of their activity lacked justification. To pinpoint every issue at the heart of the situation, we invested a full month interviewing all sales and sales management staff, listening as each person responded to our question “what do you think is wrong with sales?” and probing each area they identified.

After months of digging, we uncovered their root problem was quite simple: the parent company exerted 100% control of all sales activity in the US market. Through transfer pricing and approval of all sales quotes, they fully controlled gross margin. Further, the parent controlled where they prospected, required onerous opportunity update practices, and had poorly trained and equipped sales to answer common prospect questions such as, “why are you priced so high”? Admittedly, we were dumbfounded that the US sales force relied on the company’s brand and reputation for quality in order to justify their product’s premium pricing and further they could not “prove the economic value” of a $1M capital equipment expenditure.