Replacing the Sales Funnel with the Sales Flywheel
The traditional metaphor for sales is the “funnel.” But today, a better metaphor is the “flywheel.” The actual flywheel was used by James Watt over 200 years ago in his steam engine, the invention that powered the Industrial Revolution. It is highly efficient at capturing, storing, and releasing energy. Using a flywheel to describe sales allows leaders to focus on how we capture, store, and release energy, as measured in traffic and leads, freemium sign-ups, new customers, and the enthusiasm of existing customers. It’s got a sense of leverage and momentum. The metaphor also accounts for loss of energy, where lost users and customers work against momentum and slow growth.
I’ve been using the sales funnel for 28 years, my whole career. This year, I retired the funnel — threw it a party, gave it a gold watch, and congratulated it on its move to a condo in Florida.
It was the right thing to do.
For one thing, in an era when trust in traditional sources has eroded — in government, media, and in companies and the marketing they employ — word-of-mouth from trusted peers wields greater clout than ever.
For another, the funnel fails to capture momentum. A boss of mine used to say, “The sun rises and sets on the quarter.” By the end of a quarter, she had wrung every ounce of energy out of marketing, and we started the next quarter from a standstill with no momentum and no leverage.
That’s no longer true. After years of inbound marketing, your company has assets: evergreen content; backlinks to your site; social media followings; and, of course, customers who advocate for your brand. For many of us, our marketing departments could take a vacation for a month, and new visitors and leads would continue to come in, and existing customers would continue to refer new business. That’s momentum.
These days, instead of talking about the funnel, we talk about the flywheel. For us, flywheel is a powerful metaphor. The flywheel was used by James Watt over 200 years ago in his steam engine, the invention that powered the Industrial Revolution. It is highly efficient at capturing, storing, and releasing energy.
Using a flywheel to describe our business allows me to focus on how we capture, store and release our own energy, as measured in traffic and leads, free sign-ups, new customers, and the enthusiasm of existing customers. It’s got a sense of leverage and momentum. The metaphor also accounts for loss of energy, where lost users and customers work against our momentum and slow our growth.
I’ve become obsessed with two dynamics that make our flywheel spin fast: force and friction.
The more force you apply to a flywheel, the more places on it where you add force, the faster it spins.
When I started my career, the most profitable application of force was in sales. Back in the 1990s, sales reps had a lot of information, while customers had relatively little. Sales reps leveraged that information gap to create a lot of trust. It made a ton of sense to hire a lot of reps back then.
Around 2005, marketing became a bigger force driving growth. In many industries, the sales rep and the customer now had more or less the same information at the same time. Competitive advantage went to those marketers who created useful content to pull prospects in.
Today, it’s shifting again. Now, delighted customers are the biggest new driver of growth.
I’m a sales and marketing guy, so it makes sense that HubSpot’s early priorities reflected my instincts, with all our energy and force applied to sales and marketing, trying to close as many customers as possible. These days, we’ve shifted our center of gravity away from that and applied more force towards delighting our existing customers, knowing that’s the best way to find new customers.
I made a couple mistakes along the way. First, I just said, “hey, we’re going to be a ‘delight’ company!” The intention was right, but there was no operational impact.
Second, I assigned this to our customer service department. I said, ‘you’ve to fix this problem, we’ve got to delight our customers.” Neither of those things worked.
What worked was getting the whole organization behind it — especially Sales and Marketing.
Take our commission plan, for example. In 2015, a sales rep earned commission on everything they closed. Now, we’ve made two important tweaks to it: a carrot and a stick. The stick was very unpopular. If a sales rep closed an account, and that account cancelled within eight months, the company would “claw back” that commission. Painful, but effective.
The carrot was easier, and also effective. The sales reps who do the best job at setting expectations, who have high retention rates and the happiest customers, receive a kicker, they got paid at a higher rate.
That carrot and stick have changed how we think about the “force” part of our flywheel. Our sales reps are focused not only on closing customers, but on delighting customers.
We’ve done something similar with the quality of our leads. Prospects that are more likely to be successful customers get a higher lead score, rather than leads that are simply likely to close. We measure the success of our marketing based upon the volume of those most-likely-to-succeed leads.
The second thing James Watt would recommend is to eliminate friction in your flywheel.
I’m a true believer in low friction. I woke up this morning on my Purple mattress. I put on my Warby-Parker eyeglasses, picked up my phone and played Spotify. I made my way to my bathroom and shaved with my Dollar Shave Club razor. I reached into my closet and put on my new outfit from Trunk Club, and then I got in a Lyft and came to work.
These six companies have woven their way into my daily life. They are all fewer than 10 years old; they all sell relatively undifferentiated commodities; and they are all growing like a weed? How do they do it? What’s the secret handshake?
It’s friction — they’ve taken all the friction out of their flywheel. When I bought that Purple mattress, there was almost zero friction in the process. I did it in a few minutes online; they shipped it to my home; and if I decided to return it, the process promised to be simple and hassle-free.
Two years ago, I bought my previous mattress from a traditional seller — a so-called full service store. But, full service means handoffs between humans, it means haggling. Buyers have become much less patient, and less forgiving of friction.
All of these examples are B2C. If your business is B2C, the train is about to leave the station. You’ve got to get 90% of the friction out of your model. If you’re B2B, the train is parked in the station, but it’s leaving soon.
One of my favorite business school professors used to say, “If you want to build a great company, your product has got to be ten times better than the competition.” Today, that advice feels out of date. If you want to build a great company in 2018, your customer experience has to be ten times lighter than the competition. It used to be what you sell that really matters, now it’s how you sell that really matters.
To eradicate friction, we have to turn some assumptions on their heads:
Customer interaction. In a “better product” market, 80% of the touches with your customers are handled by humans, your employees. Human touches entail friction. In a “lighter experience” market, 80% of your customer touches need to be self-service, and only 20% full service with humans.
IT investment. In a “better product” model, 80% of your IT resources is invested in making your front line employees more efficient. In a “lighter experience” model, 80% of your IT resources will be invested in making your customers more efficient.
Employee skills. In the “better product” era, when you grew, you added humans, and you placed them in specialized roles. In addition to a sales rep, you created a business development role for pre-sales, you hired a variety of hunters and farmers, you assigned an account rep to manage ongoing business. You hired and trained “I-shaped” employees who could dive deep into a specific domain. Specialists are great at handling specific customer issues. But, when you have multiple specialist roles, it means your customer is getting handed off from one specialist to another. And, if your customer is getting handed off, they are experiencing friction.
In the “better experience” era, you minimize handoffs. You hire and train “T-shaped” employees who can dive very deep in one discipline, but also have other expertise, and able to handle more complex customer interactions.
Unlike some changes in business philosophy, the flywheel is not an all-or-nothing proposition, Any tactical change to reduce friction, or organizational alignment of forces that optimize for customer delight, will have a measurable impact on customer experience. Early successes will breed increasing support for a full flywheel approach.
I’m glad we’ve ditched the funnel. The time has come for the flywheel.
Brian Halligan is the co-founder and CEO of HubSpot, a marketing and sales software company based in Cambridge, MA
Replacing the Sales Funnel with the Sales Flywheel
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