The Grow Show: Business Growth Stories from the Frontlines

Episode 23: The Business Development Formula

September 30, 2022 Scott Scully, Jeff Winters, Eric Watkins Season 1 Episode 23
The Grow Show: Business Growth Stories from the Frontlines
Episode 23: The Business Development Formula
Show Notes Transcript

A lot of time, work and effort goes into making your annual budget, but there's a simple formula you should follow to set some baseline goals. Listen as our hosts break down the equation and learn more about budgeting principals like board, target, and stretch goal setting in this week's episode.

Access our annual budgeting worksheet here: https://bit.ly/3CkhYXj

Thanks for listening!

Eric Watkins:

Welcome back, everybody to the grove show. I'm here with my partners and grow Scott scoli. Hello, everyone, Jeff winters. Hi, guys, we have another beautiful episode today, we're excited to talk to you all about no textbooks. No theory, just only real experience from the front lines. But before we get started, Jeff, little baseball tournament action this weekend. Tell us about it.

Jeff Winters:

You know, your kids, when they start getting to a certain age, they start playing sports. And then you go to the games. And I've said on this podcast before for all your loyal listeners, the only thing you don't want when your kid plays baseball is to watch him strike out like over and over again. Not for him, he'll be fine. But for me and my wife, it's painful. And that's what we're going through for a few weeks. It was a lot of strikeouts and you were just praying for rain. You know, like I don't want to have to see this please. Right now, please right now. But he got on the tee at home hitting the baseball hitting the baseball and this weekend. He wants them for eight, seven for eight.

Eric Watkins:

That's a big improvement.

Jeff Winters:

Ah, amaze for. Again, forget him for me. couldn't have been better. couldn't have been more important.

Scott Scully:

Jeff, I have to ask. Yeah. Do you have the bumper stickers?

Jeff Winters:

I'm very I have a lot of team gear. You have the wagon? No.

Scott Scully:

Do you have the wristbands?

Jeff Winters:

I have the chair that rocks you rock flat bill. I have I have gear. I have for those of you

Scott Scully:

that don't you wear your son's number, the t shirt, the dirty

Jeff Winters:

the underbelly?

Eric Watkins:

Do you paint your face children's baseball.

Jeff Winters:

You'd be shocked. There's big speakers. There's wagons. There's tents. There's promotional gear. Yeah, support your family

Scott Scully:

just took one pitch to get me out of that game for good. When my son got hit. It was the best day of my life.

Eric Watkins:

When he was like, I'm done, I'm done forever. It he was done.

Scott Scully:

And I was done. And it was a celebration. It was almost as good as the day that he quit Cub Scouts.

Jeff Winters:

All out on Cub Scouts. How do I how do I prevent I need preventative medicine against cubs?

Scott Scully:

Oh, you're not gonna have a hard time because you're gonna build a really shitty car that comes last place. He's gonna be embarrassed. He's gonna be he's not going to be

Jeff Winters:

I'm not doing Cub Scouts. Whoever

Eric Watkins:

should have been. You should have been a Cub Scout. You'd be a lot further ahead in life right now.

Jeff Winters:

Yeah, there's a lot of things that mean Cub Scouts have in common? Yeah. Real outdoorsman? Cub Scouts, by the way. Great, by the way. Great, great organization.

Eric Watkins:

Yeah. Scout. It's not it's not Cub Scouts, or Boy Scouts or Girl Scouts. It's just scouts. Even better. Yep. Everybody's included.

Jeff Winters:

Eric, you got anything for us? Ah, I can see you over there. The wheels are just turning for how to turn this into the podcast. Yeah,

Eric Watkins:

no, I shared with Jeff. I've had a little bit of car trouble lately. My my tires on my right on the right side of my car have been deflating consistently. And I was driving home the other night, with a little outing to celebrate all the transition we went through. And the light came on where you know, the warning went off. I had to fill it up. So I don't know anything about cars. Helpless in general with just about any any sort of like handy stuff. I guess it's not even really being handy being able to fill up your tires. But I digress. I got to the gas station. And they had the air pump there. And you know, I was like I don't have one of those things to measure the pressure and it didn't have it on it. So I was like, you know, I'll just eyeball it right? Like why not just eyeball it. So I filled it up and instead of 35 psi filled it up to 54 psi you didn't 48 Yes, yes, I did. And then

Jeff Winters:

dangerous. Like what happens? What's the I'm helpless on this day?

Eric Watkins:

I don't know. I didn't do a whole lot of research as a little worried. I thought I was gonna pop and break my leg or something. But what do you do

Jeff Winters:

like any mature adult business leader? You did? What any one in that position would do you did what I call

Eric Watkins:

my dad called your dad. Yeah, I said dad to hire sir about to pop. What should I do here? And he said, You know, there's a which I didn't I'm just making myself look terrible here but it's alright, we'll continue there's a needle in the tire where if you push it in and let's they're out Did you know that I'd like to stay Let the record to state that Jeff did not know that anybody there's a needle in that much less what I could do. So I did that. let the air out drove home. Unfortunately, the needle stayed in overnight and I woke up with a flat tire. So yeah, and it's punishment for trying to do something myself and then

Jeff Winters:

again, like any responsible business leader, would you do?

Eric Watkins:

It took my mom's car to work. Yeah, drove my mom's car to work. Yeah. Came home tires fill The UPS thanks thanks to the pot, right? She's not hosting the podcast, you know, she'd be here if we wanted her to be she's a saint. She's a saint, they both are. But yeah, that's a good segue into, you got to protect your business, you got to protect your car, you got to protect your investment. And you got to know how to do that. And one of the ways to do that is to be able to forecast for your sales. So what we wanted to talk to everybody today about is how do you forecast for your 2023 sales? And one thing we talk about a lot, is what is your business development formula? How do you know that as an organization, so you can then plan around that? And Scott, I'll let you kick this off? What is the Business Development formula? Like? How did you sort of come into this over time? And why do you think it's so important for business to know that

Scott Scully:

either, I didn't know we were gonna get here yet, I thought you're gonna make fun of Iowa. And like, how we can do that how that could actually predict wins, which would mean that of course, they need their defense. But then they also need an offense,

Eric Watkins:

yes, they do need an office. Safety's, safeties, punt returns, kick returns, you guys might score 11 points against Michigan,

Scott Scully:

I'm embarrassed to be an Iowa fan. That's alright. Um, so there's a lot of people out there that say, I'm, we're gonna grow, when I grow my business this year, this is gonna be the year, I promise. And then they get at it, you know, they get into the year, and they're a little disappointed. As far as where they ended up. Little be a little bit easier to swag it in the beginning, when you're just starting. It's not hard to grow from zero, or from half a million dollars in sales to a million dollars in sales. But as you start to get bigger, and you have a client base, and you're gonna have a little client loss, you really need to look forward. And as we got bigger, we needed to look at our retention rate, our average client size, our closed rates, and really put a formula together to predict the type of sales pipeline that we needed to have available to actually be able to land at the growth percentages that we had projected for ourselves in the next year. It seems simple. But most people don't do it. Right. Somebody may say, hey, I want to grow by a million dollars, I want to grow by 20%. But then when you start asking questions and getting a little bit deeper, they don't know what their current retention rate is. So they don't know next year, if they're going to lose a client or three clients. They don't know how many meetings it takes actually, to get a new client. They don't know their average client size, the end of the day, they can't put the math formula together to say, I need to see this many people each month, based on this current close rate, and this average client size to get to the end of the year and be at the growth rate that I want. Seems a little crazy. But I bet eight out of 10 people that are running businesses don't put that formula together. Therefore, they can't predict where they're going to end up.

Eric Watkins:

Yeah, and I actually talked to one of our sales reps today, actually, because I knew this was going to be the topic. And they asked this question, you know, we do 500 pitches a month on the abstract side. And they asked this question all the time. And I said, put a number to it. What percentage of people do you think actually know how many leads they need to be able to achieve their growth goals? And he said, maybe 5%, which is crazy. So this is a big topic for everybody listening out there. Like this is something if you master it will take your business to the next level.

Jeff Winters:

Yep. And let's let's focus on the meeting piece of that. So you've got revenue, less attrition, plus new sales equals future sales. That's the formula. Let's talk about the sales part of it. Because I see a lot of especially operationally focused presidents and CEOs focused on a costs and then sort of saying, Okay, we want to get X amount of sales. So let's go do it. And that hope is not a strategy. Hope is a wish. So, so far as sales is concerned, just trying to give some practical advice here. The idea is, okay, I absolutely need to know how many leads convert to how many meetings convert to how many proposals convert to how many sales will just make it very, very easy. And I want to give people what I think is the most underutilized part of that, which is the meeting too close rate by channel, in the business growth formula. If you're going to start doing this and you go, you know what, let me get with my sales group. Let's figure out how many meetings Does it take? What's the meeting to close rate, you know what I hear a lot of, well, I meet with people, and I close like 80% of them, and you go great, well, I'll just plug that into my formula. 80%, close rate seems like all we need is 100 meetings, we'll close ADM, it'll be awesome. And what you fail to recognize and the sounds basic, what you fail to recognize is, that channel is generally referrals. So if you've built your business largely on referrals, because you do a great job and satisfying customers, and they refer their friends, that's awesome. That is not a closed rate that will scale with you and your business. So what we would recommend would be, hey, we're gonna have a referral channel, we're gonna have a channel, people that come into our website, then we're gonna have a channel of people that we cold call that we are channel that people that come in through social, and we got to make those percentages different, so that we can get all the way through the sales piece of our business growth formula, and it adds up and it's predictable.

Eric Watkins:

Yeah, I think that's a great point, especially with, you know, when you think you're, you're starting out a business, you know, the first thing you do is go to friends and family, and you know, who around would be interested in our services, and you get referred a bunch of work, and then you probably started the business, because you're good at the service. So you're good at the service, deliver a good service, and then they refer you to others. And then that sort of dries up, and then you get to the point where it's like, how can I get more people coming to me, so then you website, ad spend whatever it can be, to have really that comfortable sale. But to really control your growth, you need that outbound approach, like, if you look at our company, not that we're the perfect example. But year to date, you know, about 17% of our sales come from referrals, about 23%, come from email, LinkedIn, about 18% come from the web. And the rest come from us cold calling. Like that, that's where we get and really email. LinkedIn is a cold outreach, as well. So if you're sitting there as a business, and you're like, you know what, we don't really have an outbound strategy, I feel like you're missing out on about, let's say, 50% of the sales that you could have, because you're not capturing people, before they get into the buying cycle.

Scott Scully:

You know, what I think it's interesting, I think people are looking right now at next year. And they're talking about growth, and maybe even coming up with exact percentages or revenue amounts. And then they're putting their budgets together, right, we're going to increase by a couple million dollars. So we're going to add these positions. They're netting it out, and they've got a budget says I'm gonna make X amount in EBITA. And I think where we're different is, before we get to any of that, we're literally at the table, talking about the fact that we need, I'm going to get the exact number wrong, but we need 1700 pitches a month. That literally is the first conversation we're having before anything else. Now, we did say we want to go from about 60 million to about 80 million. So you do that. But then the very first thing that we talk about is how many pitches that we need. And then we start backing up into this formula. Where are we going to get those pitches? How many from the web? How many referrals? How many through cold outreach? Email, right? And what's our retention rate to start putting that math together? And isn't that what it is about 1700 pitches that we're going to need on a monthly basis to bring in, you know, the right amount of business monthly to grow over our client attrition. Before we even put the budget together, people don't do that. Right.

Jeff Winters:

How you start the budgeting process is so important. We start with top line we start with it's ours is a top down approach, meaning you've got our executive leadership to and this is the approach I would advocate by the way, executive leadership team sits in a room, some people go okay, well, we want a bottom up approach that's really, really hard. It's hard to get like the entire business to coalesce around numbers. It's like no, we're gonna give a number. So we start with a number we say, we want x amount of revenue, when 80 million in revenue, whatever, okay? Then we go through the business growth formula. What does this mean? We need in sales, based on our last number, we're gonna get x and then we go right to pitches we take for granted. And this is an exercise that I would highly recommend every listener do, and I recommend you do it this way. You go straight from revenue, right to pitches, because I think if you do it this way, you would be you sort of take for granted the fact that what a lot of people do is they build up from their costs. They go okay, our profit is x and we want our profit to be x times 150%. So we're going to grow our profit next year. That means we have to sell y and we're going to go about it that way, as opposed to starting with pitches, start with pitch, go straight from top line to new sales, to pitches and focus on pitches. If you hit pitches, and the formula is right, you will more often than not win. If you don't, it becomes really hard to get the sales side of the equation to work,

Eric Watkins:

it's always easier to go fix profit, in my opinion than it is to go be 200,000 behind in revenue. And I think that's important beginning of the year, right, especially in the beginning, because you're carrying that revenue. Throughout the year, I'm gonna go through a quick example, just if you're if they're listening, and they're not following, I think this will paint the picture really quick. So you did 1 million in revenue and hypothetical business here, 1 million in revenue in 2022, they want to get to 2 million, they want to double by 2023. And they estimate based on past stats that they're going to lose $200,000. So in order to grow, they need to get to 1.2 million in sales, their average deal size is $50,000. So their number of deals needed is 24. So 24 times 50,000 gets you to that 1.2. And then they have a blended close rate between all of their channels of 15%. So that means this company is going to need a hook before you even factor in sales cycle, they're going to need at least 160 new leads that they're going to need to get in front of, I think it's helpful just to get context, because that's where we get to, and then you build your infrastructure around the number of leads you need, right, you build up your expense. From that standpoint, the other thing I wanted to throw out, is in our budgeting approach, and I don't know, this is really the only budgeting I've done for a company. So this is my only experience. And I don't know if a lot of people do this, but it was super helpful, is we put a revenue per person. So like per key position throughout the organization, we have it broken down, where there's triggers, based on us growing by X amount of revenue. And it's so helpful for me to know throughout the year and to, you know, people in different spots are always going to feel like they need more resources, or they're not necessarily going to admit when maybe they're running a little heavy. And this is a way to just keep that on track, take the emotion out of it, and create vision for our people.

Scott Scully:

The whole thing is a formula, throw a 20 million extra on the board. And you know, when you add X number of STRS, a manager implementation person, the next person in training, everything's a formula, it's all modeled out. And if you can get yourself set up that way, you can win, right, you put gas in the tank, and you get to where you're going. There's a lot of people that budget, don't think we're trying to be insulting, right, and suggesting that people aren't trying to plan where they're going next year. And they don't even get into a budgeting process. I just think though, a lot of times people say, Alright, we've got some big growth scheduled for next year, we got to throw another three salespeople at it. And you don't know that three salespeople are gonna get you the right amount of pitches. Unless you actually have that model doubt, and you are aware of the fact that each salesperson that you add, allows for X number of pitches, but today, you know, good luck there, right? Because they don't want to do that cold outreach and create their own pitches. So I would suggest you need to be looking at something other than that you need to know exactly how many new sales presentations you need, on a monthly basis, factored into the formula that these guys are talking about to be able to get to your numbers. And understory.

Jeff Winters:

And that's the biggest mistake. I think people make Scott, people go from, okay, we want to do X amount of revenue. And that means we're going to hire a few more salespeople, because our each of our salespeople should be able to close X. What we're saying is, don't do that go to pitch us pitches first. If you have the pitches, it makes the sales easier and more realistic. If you say we want each salesperson to sell 50,000 in revenue, so we're gonna hire four salespeople, and they're gonna get us 200 grand, they could show up with 10,000 at the I mean, it could be so low. You hire salespeople, you get attrition, you didn't train them? Well, they weren't the right fit. Like there's so many reasons why tying revenue growth to salesperson growth is not the best way to do it. If you tie it to pitches, the probability of things going south and going south in a hurry is way lower. Because the pitches are the I think we would all agree the pitches Have a gas. I mean, that's what you need like that is necessary. The fuel like I can so narrowly say, Okay, if we get our team of whoever 1000 sales pitches, they're going to close at some rate, that's, that's reasonable. Like, you're not going to have an enormous miss and hit your pitch goal. If your formula is right. And I think that's the the key piece of advice here to listeners out there is go from revenue growth, and revenue required straight to sales pitches, not to number of salespeople,

Scott Scully:

you know, it could be happening. There's a couple of different types of listeners and you know, the person that's at a larger organization with sales enablement, and play is probably saying, what are these guys? Of course, what are they talking about? We've got all this model doubt. But that's not most businesses. Most most businesses are small to medium size, don't have sales enablement, departments, and quite frankly, don't have their business formula, you know, their business growth formula put together. They they know how much they want to grow by next year, but they don't have the exact formula put together. And it is the biggest reason why most businesses go down. And the ones that are in business don't grow the way that they want to grow. And it's because they don't have this figured out.

Eric Watkins:

Yeah, and I overdoing this for the past, I guess it's probably six years now. I think the number one lesson I've learned is to challenge your budget. And we start doing it now around like we just do it and don't even think about doing it. But run the numbers, work it all out, and then start running some scenarios. Okay, your top sales person quits, are we in shape to hit the budget? No. Okay, well, maybe we need to relook at it. Or inflation goes up another 2%. Okay, is our close rate gonna stay at the same level? Nope, maybe we need to relook at it. What you, Jeff, were you introduced to our company, which I really, really liked. Instead of just having a goal, and everyone has the same goal, you introduce board, target stretch. So talk a little bit about what board target stretches for everybody.

Jeff Winters:

So, board, target and stretch is a way to budget and forecast that meets everyone's needs and keeps honesty in the business. And it solved a huge problem for us years ago. Because most of the time, when you're budgeting and you only have one number, like one, whatever your key number is revenue, profit EBIT, whatever it is, you go in one of two ways you go, we want to be really ambitious. And then you set a super high number, and everyone fails to hit it throughout the year. And everybody feels like shit. That sucks. Then you get to the end of the year. And you're either like, Okay, we actually kind of like Wink, wink, real quiet, hit it. But we didn't hit the real numbers. So you're in this weird spot. The other way you go, is you go, alright, let's set a very realistic number and sort of almost like make it too low. And then you get to the end of the year. And even if you hit it, you're like, Well, let me kind of hit a number that wasn't high enough anyway. So I'm super not like those are both bad scenarios. And so what I introduced, and what we came to do for a long time is called board target and stretch, meaning you have three goals. So you have a goal that you present to your quote unquote board of directors, that's the goal you never miss. That is the goal you cannot miss. That's the bottom bottom bottom line, and you budget to that number. So you're not budgeting like your costs to the outrageous stretch goal because you can get in trouble there. Next is your target. The target is the goal that is presented to the company. That's what you want to hit, you never present your board goal, or the bottom bottom bottom line to the entire business. And last a stretch. Stretch is what you bonus toward. So if you're getting toward the middle of the year, and things are looking rosy, you can start to budget up a little bit. And bonus people to stretch President's Club people to stretch, motivate people to stretch. But those are your three buckets, I'd really encourage listeners to do this a board goal which you never miss, which only gets discussed with the executive team, a target, which is the target you share with the whole company, and a stretch goal, where you incentivize people to hit it.

Eric Watkins:

Yeah, that's good stuff. You know, it's uh, you hit hit the nail on the head, like you'd always be in this world where you'd either have to almost lie of like, okay, in the back room, we're gonna have this goal, but out there, we're gonna have this goal. And then it's like, you know, you want to you want everybody to be on the same page. You want to be honest. But you do also want to be like, we need to stretch this thing. Like we're trying to grow this business. Yeah. You want to be ambitious, too. Yeah. And I in the budget process. That's another thing you said like the leadership team meets in the beginning. I think that's so important that you don't have your individual in charge of sales come up with their sales goal for the year now. Make sure it's realistic based on the business formula and what you're going to work out. Don't set them up to fail. But you're going to in all parts of the business, you know, you're gonna be they're not dumb. They know their compensation is gonna be based off the goals that you set like, you should be coming up with those and then having them provide you, you know, what's the plan and resource to be able to hit achieve this?

Scott Scully:

I feel like this is necessary. Why should you listen? You know, what are these guys know about growth, right. And I don't like to do this a lot. Because I'm more humble, you know, we like to put action into place and not necessarily talk about it. But I just believe so much in the fact that you have to do this, that I'm just gonna go backwards. And I'm going to let you know why. I've been doing this for 30 years, I've never been part of a year where we didn't grow. I learned this a long time ago. We are 14 year strong at abstract we've grown every single year, we grew during COVID. And this last year, and then the year that we're putting together are going to be some of our biggest growth years, being a pretty mature organization. I don't know that it's because of us. It's definitely because of the team that we've assembled. And because of some of the things that we've learned along the way, you can turn your business into a math formula. And if you haven't done it, you need to do it immediately. Because you're not, you know, you're going to be able to rest at night, you're going to feel more confident that you're going to achieve your goals and get to where you're going. But seriously 30 years of growth. And it has everything to do with planning it out. Pounding on that formula, what if scenarios, just to make sure that you're safe. And you know what? Worst case scenario? You grow. Right? Maybe not as much as you wanted to, but you grow and you're not going backwards. And you're not in a scenario where you have to lay off or furlough people. And your business is healthy and strong. financially secure. You got to learn how to do this.

Eric Watkins:

Absolutely. So if you're listening to this, get off now. Go get the well not yet. Let me finish. And then get off. I might have some more stuff to see your team, you got something else to say?

Jeff Winters:

No, I'm just saying you said Get off. Now. I'm not necessarily done. Oh, well,

Eric Watkins:

we're done with you. Okay, fair enough. Get your team in a room, go up to the board. Right? Get the board going? What's your target for next year? Work it backwards? How much loss you're going to have? What do you actually need to sell? What's your average deal size and get down to that number of leads? And then determine make your whole budget off this? I mean, it's, you can use your accounting software that you have or you could throw it into good ol Excel. Can I say? Go ahead, man.

Jeff Winters:

I like that. But there's something missing from what you just said. There's got to be somebody in that room? Who goes 50 million? Why not? 60? You gotta have somebody that does that. Because if you're in a room, I've been in that room, what are we going to do? Well, last year, we did this this year, we're gonna grow 20% Let's go get chicken salad. Like, oh, fuck that. Like, who is the person that saying, and in this little situation that Scott, he says like, 70 Fuck that, like, why not 90, you know, you got to have that person. If you don't have that person, then you won't stress test up. And if you don't challenge, then you're not going to have that you could be leaving greatness in your in your bag.

Eric Watkins:

Agree? Agree, that's a good point. Thanks for interrupting me, appreciate it well worth it just sayin.

Scott Scully:

There's there's a lot of people out there that are in certain businesses where a bunch of the stress is laying on their shoulders. And it's because of the size of the organization. They're not big enough to have added a layer to eliminate some of the stress. And they don't have a predictable formula in place. So they don't really know if they're going to accomplish their goals next year. And they live year after year after year like this, and that aware way on you. Big time I've seen it. I've talked to a lot of people that run businesses, where the businesses running them they're not running the business.

Jeff Winters:

Right? That's so right. And it's how many business owners you talk to you go steady three to 5% three to 5% 5%. And you go I'm not trying to say anything, because I'm out of the business of giving unsolicited advice to friends and neighbors because it's gone south on me 100% of the time so far. But I'm sitting there thinking like, why not 20 like I wonder if somebody in that room and just said hey guys, we're not going to do five next year. We're going to do 30 Bring me a plan for 30 and I'll green light or red light costs are will settle between 25 and 25. But I've done with this 5% for this business, I want 30% Show me how we're going to get there and then walk the fuck out. Try that exercise. Where were you saying?

Eric Watkins:

I don't know. We wrapped I was fired up? No, I was fired up fired

Jeff Winters:

up. The years we did that I know the years we didn't the years we did. It always works. I

Eric Watkins:

think it's a good point. All right. So great episode today. Know your business development formula. Do your goals for the year, board, target stretch, make sure that stretch makes people think about what could really be done. And don't confuse the sales with the service side. Right? Come up with your sales goals. Then back solve for how you're going to service that revenue. I know a lot of you are thinking how am I going to find the people, etc. That's a separate problem. Right? You got to continue to grow and create opportunity, or you're not going to have those people there to service the work that you have. Appreciate it. Hope you all had some good takeaways. Always be growing.

Scott Scully:

Always be growing. Always call abstract talent solutions if you need to hire people,

Jeff Winters:

abstract talent, and we know how to solve it.

Eric Watkins:

Thanks for listening to the growth show. Leave us a review and let us know how we're doing or if there's a topic you'd like us to cover in the future.

Unknown:

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