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You’re the Boss Blog: Why We Hired a Sales Consultant

June 17, 2013 by Leave a Comment
Staying Alive

The struggles of a business trying to survive.

Editor’s note: This week, Paul Downs is writing a series of posts about his decision to hire a sales consultant.

A year ago I was in the middle of a collapse in sales, which caused me a great deal of anguish and led me to try a number of solutions. In the fall, I wrote about puzzling through the reasons for the slump and my putting a solution in place. At the time, I believed the problem resulted from a change I had made in my Google AdWords marketing and that the solution was to restructure my campaigns.

I still think that AdWords was an important contributor to the problem, but I am now convinced that the real solution came from another change I made, one I gave short shrift in my first look at the situation. In June of last year, I hired a sales consultant to provide a critical evaluation of our selling methods, to suggest changes and to work with us to carry out those recommendations. The contract for that work has just expired, and I’d like to share my thoughts on why we hired a consultant, what we learned about selling and whether I should renew the consultant’s contract.

I should start by pointing out the obvious: the solution to a shortfall in sales is — wait for it — more sales. And for me, it was not just about returning to the right number and type of inquiries but actually closing deals at an acceptable rate. Fixing my AdWords campaign did restore the number and type of customer calls we got. But to declare that that was the whole solution to our problem is to ignore what happens after an inquiry is received.

In our case, closing a deal involves a lot more than picking up the phone. We make an expensive custom product, conference tables. We need to inspire enough confidence in our customers that they will send us large amounts of money for a product before it even exists. And so we have a complex process that we use to convert a curious caller into a committed buyer. I ignored all of that when I wrote about AdWords — in part because I was still figuring out what we were doing wrong and how we could do it better.

Here’s a quick recap of our sales process at the time the trouble started. Inquiries were coming to us in two forms: as an e-mail or a phone call. In either case our response was the same. We would ask a series of technical questions meant to reveal the functional aspects of the potential client’s table needs. We wanted to learn the desired size, the anticipated number of users, the size of the room, the wiring requirements and whether we were matching any existing furniture. We would also ask about the budget.

If we received answers, we prepared a proposal. This was a pdf document that contained images of the options we recommended and information on wood choices, power/data options and pricing. These proposals were impressive. We saw them as a good way to demonstrate our engineering skills and craftsmanship, and they took advantage of all of the advances in software and communications that had become available to us. I had developed the format myself, and we had used it to good effect, with more than $16 million in sales since 2003.

I had also developed a game plan for the proposal that, in retrospect, was more a reflection of my own inclinations than a rationally thought out method. Keep in mind that I had started out at the bench, making furniture, and that making things is in my blood. I learned to sell only because it was a way to keep working. But I soon found that I had some talent for it — I’m a smooth talker, when I need to be. By 1992, I had stopped working at the bench and for the next 20 years I spent most of my time selling. I found that I enjoyed meeting new people, showing them what we could do for them and closing deals.

For many years the volume of incoming business was manageable, but in the period that has followed 2010, as we recovered from the recession, increasing call volume strained my capacity to keep up. So I developed an assembly-line method of writing proposals: ask questions, design like crazy and send them off. Next!

When I promoted one of my bench guys, Nathan Rossman, to sales representative, I taught him the same method. And when I added another sales rep, Don Wuest, a year later, he worked in the same manner. We were brilliant at responding to requests, but we did no follow-up. The funny thing is that it was working. At least it was until it wasn’t.

Tuesday: Our Sales Process Stops Working

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/06/17/why-we-hired-a-sales-consultant/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

No S.E.C. Inquiries Harmed by Document Destruction, Report Says

November 2, 2011 by Leave a Comment

But the report, by the S.E.C. inspector general, found no evidence that any of the investigations were harmed as a result.

The inspector general, H, David Kotz, said the agency violated federal rules by giving incomplete information to the National Archives last year about the records. The S.E.C. failed to tell officials at the archives that the agency’s 20-year policy had been to discard all documents in closed inquiries that did not become formal investigations, the report says.

The report comes after accusations from an S.E.C. enforcement lawyer, who said the agency improperly destroyed documents related to thousands of preliminary inquiries of big Wall Street banks, Bernard L. Madoff’s Ponzi scheme and other cases.

The report stopped short of saying no harm was done by the destruction of records. Mr. Kotz said he did not make “an exhaustive audit or review” of the potential impact.

Mr. Kotz said he was referring the matter to the agency’s enforcement director for instruction or counseling of the senior enforcement officials who dealt with the National Archives.

Darcy Flynn, the S.E.C. enforcement lawyer, has claimed that more than 9,000 records related to preliminary investigations were destroyed. Ms. Flynn said they included inquiries into Goldman Sachs, Bank of America, Wells Fargo, Deutsche Bank, Lehman Brothers and Mr. Madoff.

Mr. Kotz’s report mentions documents related to Lehman Brothers and Mr. Madoff. It says that from 1992 through July 2010, 10,468 preliminary inquiries were closed without developing into formal investigations.

The S.E.C. acknowledged in September that some documents were probably destroyed under an agency policy that was changed last year. But the S.E.C. said it did not believe that any current or future investigations were harmed by the policy, which allowed documents to be discarded in cases that were closed when staff members decided a formal investigation was not warranted.

The current policy requires all documents to be kept, whether they are part of a preliminary inquiry that is closed or a formal investigation.

An S.E.C. spokesman, John Nester, said Tuesday that the agency was pleased that Mr. Kotz’s review “found no evidence of any improper motive on the part of current or former S.E.C. staff” or of harm to investigations.

Article source: http://feeds.nytimes.com/click.phdo?i=c08e72543ab85552aa11e38d46c99669

Filed Under: Business News Tagged With: , ,

Accounting Board Criticizes Deloitte’s Auditing System

October 18, 2011 by Leave a Comment

In an unprecedented rebuke to a major accounting firm, the group that oversees the industry released a report criticizing Deloitte Touche, saying that it lacked an adequate system of quality control in its audits.

In a report released Monday, the Public Company Accounting Oversight Board chastised a Deloitte culture that it said placed too much faith in officials of the companies being audited.

“In too many instances,” the report stated, inspectors from the board “observed that the engagements team’s support for significant areas of the audit consisted of management’s views or the results of inquiries of management.”

In some cases, Deloitte auditors did not bother to even consider whether accounting decisions made by companies were consistent with accounting rules. Instead, auditors accepted management assertions that the accounting was proper, the board’s report said.

The report was written in 2008 and covered audits conducted in 2007. It was kept private under rules that say such criticisms must remain confidential for a year, and then may be released only if the firm has failed to make sufficient progress in correcting the problems.

Until now, the accounting oversight board, which was created by the Sarbanes-Oxley law in 2002 in the wake of failures at Enron and WorldCom, had never released such a report on a major firm.

In an interview, Joe Echevarria, the chief executive of Deloitte who took over this year, said the firm had addressed many of the issues raised. “In all of the areas that are mentioned, we have made significant investment. I have complete confidence in our professionals and the quality of our audits,” he said. But he added, “There were, and always will be, areas in which we can improve.”

Deloitte, however, is one of the Big Four firms that audit the vast majority of major companies in the United States.

The board also criticized Deloitte for the way it worked with foreign affiliates, who use the name Deloitte in other countries but are separate partnerships. It said American partners who chose to retain foreign affiliates to help on audits of multinational companies often had no way to assess whether that firm’s personnel were adequately familiar with American accounting and auditing rules.

Board officials have been increasingly critical recently of the failure of the major firms to improve. “Our inspectors have conducted annual inspections of the largest U.S. audit firms for eight years,” James R. Doty, the board’s chairman, said in a speech this month. “They have reviewed more than 2,800 engagements of such firms and discovered and analyzed hundreds of cases involving what they determined to be audit failures.” He said the firms had made efforts to improve, but that each year more failures were found.

“I am left,” he said, “with the inescapable question whether the root of the problem is auditor skepticism, coming to ground in the bedrock of independence. The loss of independence destroys skepticism.”

On Monday, the accounting oversight board issued a statement saying audits should protect investors.

“The board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report,” the statement said.

The statement added that the board “devotes considerable time and resources to critically evaluating whether the firm did in fact make sufficient progress” in fixing the problems, and goes public only “when a firm has failed to do so.” Officials at the board declined to discuss the Deloitte report.

The 2008 report cited problems in 27 of the 61 Deloitte audits it reviewed, including three where the issuing company was forced to restate its financial statements. It did not name any of the clients.

In each of the cases where the accounting had to be changed, the board said Deloitte auditors had failed to consult with the firm’s top experts to determine appropriate accounting policies. It said there was “cause for concern” that the firm’s policies did not result in appropriate consultations.

In a 2008 reply to the board, also released Monday, the firm disputed many of the conclusions and said Deloitte partners’ “reasonable judgments should not be second-guessed.”

The report pointed to “a firm culture that allows, or tolerates, audit approaches that do not consistently emphasize the need for an appropriate level of critical analysis and collection of objective evidence, and that rely largely on management representations.”

The Deloitte response protested that “such a broad statement by the board mischaracterizes” Deloitte’s practices.

That response indicated that Deloitte believed there was nothing wrong with its quality control procedures. That the board decided to release the report is an indication that those procedures did not change enough to satisfy the board, at least within the following year.

Each year, the board inspects all major accounting firms, and it releases part of the report that deals with specific audit problems. But it keeps confidential the other part that covers the firm’s quality control problems, if there are any, and goes into greater detail on the audit problems found. That is the part of the 2008 report that was released Monday.

The most recent report on Deloitte, released in 2010, cited problems with 15 audits, including some where it said the audit firm had failed to do work needed to assess whether management assertions were correct. The quality control portion of that report was kept confidential.

In addition to conducting inspections, the board has the power to take disciplinary action against firms and individual partners, with penalties up to barring a person or firm from participating in future audits. But the Sarbanes-Oxley law requires that such enforcement proceedings be kept confidential until they are finally resolved, which can take years, so there is no way to know if the board has taken action against Deloitte or any of its partners.

Article source: http://feeds.nytimes.com/click.phdo?i=6ef9f626d8e5b5787f56d5d733fe2f50

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You’re the Boss Blog: My Struggle With Pricing

September 20, 2011 by Leave a Comment

Staying Alive

The struggles of a business trying to survive.

We had plenty of inquiries, but no sales in the last week of August and the first two weeks of September. Frankly, I’m a little bit nervous. Dry patches are not unheard of in this business, but three weeks is about as long as I have gone without a new order. Maybe it was just the end of summer, and decision makers weren’t around to make decisions. We could well get a clump of new business soon — we have lots of proposals sitting out there, the clients swear that the jobs are still alive, but still. Why don’t they pull the trigger? Is it fear of a recession? Or could it be our pricing? At the beginning of August, after months of good sales, I made a very slight adjustment to our pricing, adding in an extra 2 percent for the salesmen. Did that slight hike make a difference?

Back in Economics 101 we learned that there’s a direct relationship between sales (cleverly called “demand”) and pricing (cleverly called “pricing”). If you want more buyers, the theory goes, lower your price. If you raise your price, you get fewer sales. Unfortunately, this theory is pretty much useless in real life. It doesn’t take into account the idea that you should be selling your goods for more than they cost you, which sets a floor on your pricing.

Nor does it tell you what exactly will happen when you raise prices. How many clients will you lose? Lots of them or just a few? Will the increased revenue make up for the fewer transactions? It doesn’t incorporate the idea of a tipping point, the price where interest in your product entirely disappears. And it doesn’t take into account the idea that pricing that may seem reasonable in good times might be excessive when clients are scared. In my situation, where sales have been strong all year, and then suddenly stop, it tells me neither what is happening nor what to do about it.

Let’s back up a step. How do I set my prices? When I first started out, I had no particular system. I would literally make up a number that seemed reasonable. This may sound incredible, but that’s what happens when you are young, dumb, and have no access to information on competitor prices and no system for tabulating costs. After a few years I settled on a different but still dysfunctional system. I would check to see what my competitors were charging for items similar to ours and try to sell for 10 to 15 percent less. I had been in business for 10 years before I started tracking the number of hours it took us to make our products, and another 10 before I even tried to figure out what the material costs would be for each project. I know this sounds unbelievable, but that’s what I did. Now, I never made a profit in any of those years. As I have recounted in other posts, steadily growing sales volume made up for losses in day-to-day operations. Usually.

On the occasions when I tried to figure out costs for each design we made, I was stymied by the variable number of hours that different workers took to make each piece. Joe might be able to make a chair in six hours, Jane in four. What should I charge? Which number was correct? Add to that the variation that Joe and Jane both experienced, depending on their energy level and the availability of machines they needed. It was impossible to achieve consistent times, even on pieces we made over and over. Tracking the material costs wasn’t much easier. Wood comes to us in chunks that vary widely in size, and contain knots and other imperfections that greatly affect yield. The number of parts we could get out of our wood orders was not predictable. I was never able to come up with actual costs for our residential designs, so I just set prices based on my perception of their value.

When we switched to making conference tables, we were finally able to set up a system that worked better. Although our tables vary greatly in size and shape, they are composed of a limited number of types of parts. We wrote spreadsheets that took into account factors like estimated design time, size, number of top segments, woods used, number of base pedestals, type of finish, and special hardware requirements. We used factors to make predictions of the number of hours allocated to building, finishing, and packing the table. The amount of materials used was estimated by a formula that assumed certain waste factors, and we could easily choose among different types of wood. Simply amassing the pricing of every kind of material we used was a task that took months, and, frankly, we haven’t updated those costs since 2007. There hasn’t been anyone with the extra hours available to do it. We mark up the estimated materials by 48 percent, and the labor hours get charged at a shop rate of $80 per hour and then marked up an additional 9 percent. And if it’s a rush job, or I suspect we can get the client to pay more than the estimate asks for, we mark it up some more. How much extra is a straight judgment call that I make.

The best thing about our system is: it’s an actual system. Compared with the idiocy I lived with for years, it’s a dream of precision. Because the spreadsheets are detailed, we can give logical answers when our clients ask us what it costs to make a table 16 feet long, or 18 feet long, or what’s the price difference between cherry and ebony. I can look into an estimate written by either of my salesmen and see exactly how he came up with the numbers quoted to the client. I can compare the estimates with the actual build data and see whether the assumptions we made were reasonable.

How well does this system work? On the macro level, it has been generating prices that a reasonable number of clients find acceptable, which generates sufficient cash to run the shop and leave some profit. In aggregate for this year, the number of hours that we have actually used to make our products is running 6 percent over the estimated number of hours. We were doing worse at the beginning of the year, but now that we have our splicer and sander going, we are running ahead of the estimates. Look closer, however, and the model doesn’t work so well.

On some projects we beat our estimate by a little, on some by a lot, and on some we miss by a little. And then there’s the occasional bloodbath where our hours are way, way over. There are lots of reasons for this: mistakes in the estimate, mistakes in the drawings, mistakes on the shop floor, machine failures, material defects, you name it. We do better with the materials. The big markup means that we rarely spend more for them than we charge, but we still are bedeviled by the varying yields we get from a given amount of wood. So all that I really know about the accuracy of our estimates is that the current system is not causing me to go broke. Which, in custom work, is something of a triumph.

Are my prices reasonable? Who knows? It’s very difficult for me to find out what my competitors charge. The shops that come up in Google searches do not list their pricing on the Web. As far as I can tell, we are the only shop that does this, and even so we don’t have a price on every table on our site — many of the tables have special features, invisible in photographs, that can make for shocking numbers.

We ask our clients to send us other proposals that they receive, but I have actually laid eyes on only two, and in both of those it was hard to tell whether the product was comparable to ours in build quality. I have heard that we are somewhat less expensive than one of our competitors that works primarily with architects. In reality, the product we make is extremely custom, and direct apples-to-apples comparison is not feasible. I leave that to our clients. They presumably gather a variety of proposals before they make their decisions, or maybe they don’t. Most of the people we deal with have other jobs, and buying a conference table is a very once-in-a-while thing. We do our best to make our proposals so good, and our communications so clear, and our integrity so apparent, that choosing us is the easiest thing to do. We close about 25 percent of the proposals we write. Clearly there are other choices out there, either close competitors, or much cheaper mass-produced alternatives, or doing nothing.

We ask for a client’s budget with every project, and we try to design to that number (if we get one). Even when people give me a number, I don’t know the thought process that led to it. Sometimes the requested budget is reasonable, but clients often confess that they have no idea what they expect to spend. Other clients request impossibly low numbers, and then we have to decide whether to even bother with a proposal. Once we submit a number for a particular design, we are stuck with it. If a client rejects a design/price combination, I have found, there is no good way to back down the price. For some reason this simply doesn’t work. I guess it’s because Americans are not natural hagglers. Offering a discount after trying for a higher number seems shady, I guess. If we need to retreat, we do it by simplifying the design. It is very, very rare that a client even tries to beat me down in price. More often, the transaction is simply abandoned.

We are also hampered by the small number of transactions we do and the wide variety of sizes and configurations we offer. Because we do custom work, we almost never offer the same item at different prices to different people. So we don’t have a good way to experiment with our prices to see what effect raising or lowering them might have.

I often hear the advice that if we get busy we should raise our prices. Conversely, it’s accepted wisdom that lowering prices would lead to more transactions. I am afraid to do either. The system is, broadly speaking, working. I don’t want to lower prices because I have no evidence that it would actually increase sales, and it would certainly decrease revenue. I don’t want to raise prices because I can’t tell what percentage of my clients are already at the limits of their tolerance. So I am constantly looking for more profits in other places, particularly on the shop floor. Raising productivity increases profits as effectively as raising prices.

Now that I’m no longer selling eight hours a day, I plan to start a close examination of our pricing spreadsheets and to, at the very least, update the material cost database. But pricing highly custom work is inherently complex, and I’m not sure I’ll ever be confident that my system is perfect.

How about you? Do you have trouble setting prices?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

Article source: http://feeds.nytimes.com/click.phdo?i=69a99e3445cf7d4d97474e92dcb16052

Filed Under: Small Business Tagged With: , ,