Jonathan Byrnes is a Senior Lecturer at MIT, the chairman of Profit Isle, and the author of the brand-new book, Choose Your Customer: How to Compete Against the Digital Giants and Thrive.
In today’s episode of the Salesman Podcast, Jonathan reveals how salespeople can identify and grow their most profitable accounts.
Featured on this episode:
Resources:
- ProfitIsle.com
- Book: Choose Your Customer: How to Compete Against the Digital Giants and Thrive
- Article: 3 Strategies for Managing Your Profit-Drain Customers
Transcript
Will Barron:
This episode of the show is brought to you from the salesman.org HubSpot studio. Coming up on today’s episode of the Salesman Podcast.
Jonathan Byrnes:
The traditional way to look at profitability is to look at aggregate revenues for the whole company and to look at aggregate costs for the whole company. And if the revenues are higher than the cost, you’ve made a profit and you can be happy. When you pull apart a company, there’s an incredible complexity. And the absolute wrong thing to do is to equate revenues and profits. The company has to understand where it’s making money and where it’s not. With good software, that can be configured and put into action in a matter of a couple of weeks.
Will Barron:
Hello sales nation. My name is Will Barron. I’m the host of the Salesman Podcast, the world’s most downloaded B2B sales show. On today’s episode, we have Jonathan Byrnes. He is an MIT Senior Lecturer. He is the chairman of Profit Isle, and he’s the author of the brand-new book, Choose Your Customer. And on today’s episode, we’re getting into how you can identify and then grow your most profitable accounts.
Will Barron:
Everything we talked about in this episode is available in show notes over at salesman.org. And so, with that said, let’s jump right into it. Jonathan, welcome to the Salesman Podcast.
Jonathan Byrnes:
Thank you very much, Will. It’s very nice to be here. And I really appreciate your invitation.
Will Barron:
You’re more than welcome, sir. I’m glad to have you on. Okay, so on today’s episode, we’re going to take a look at how we can identify and grow our most profitable accounts, seemingly something incredibly important in the current environment that we’re living in. But I will ask you a massively loaded and loaded question here.
Is Identifying Our Most Profitable Accounts as Simple as Looking at Who’s Driving The Most Revenue? · [01:40]
Will Barron:
Is identifying our most profitable accounts, is it as simple as just pulling this spreadsheet from our CRM, look at whoever’s driving the most revenue, and scooping off the top five to 7% of those individual accounts? And then, just going after those, regardless of anything else. Is most profitable accounts as simple as that? Or am I underselling it slightly?
“The traditional way to look at profitability is to look at aggregate revenues for the whole company, and to look at aggregate costs for the whole company. And if the revenues are higher than the costs, you’ve made a profit and you can be happy.” – Jonathan Byrnes · [02:06]
Jonathan Byrnes:
Well, thank you for the question. That’s a great question, Will, and it’s a very good introduction. Because the traditional way to look at profitability is to look at aggregate revenues for the whole company, and to look at aggregate costs for the whole company. And if the revenues are higher than the costs, you’ve made a profit and you can be happy. So, people say, “Therefore, we should get more revenues, and we should have less costs.” It turns out that that will tell you whether the company is profitable. But most importantly, it doesn’t tell you where it’s profitable.
“In virtually every company that we’ve seen across many, many industries, from distribution to retail, to manufacturing to service, 20% of the accounts and 20% of the products will produce 150% to 200% of the profits. And 30% of the customers and 30% of the products will erode well over half of that. And the rest of the company, the other 50% is sitting there doing nothing.” – Jonathan Byrnes · [02:38]
Jonathan Byrnes:
And in fact, and virtually, every company that we’ve seen across many, many industries, from distribution to retail, to manufacturing to service, 20% of the accounts and 20% of the products will produce 150% to 200% of the profits. And 30% of the customers and 30% of the products will erode well over half of that. And the rest of the company, the other 50% is sitting there doing nothing. As we say here in Boston, it’s living at the waterline where the barnacles are. So, basically, when you pull apart a company, there’s an incredible complexity.
“And it turns out that going after the super high-profit accounts is a completely different sales methodology and organisational methodology, than turning around the unprofitable accounts.” – Jonathan Byrnes · [04:07]
Jonathan Byrnes:
And the absolute wrong thing to do is to equate revenues and profits. And the other really incorrect thing to do when we’re proving this statistically, in our software company on over 100 billion, that’s with the B, billion dollars, in client revenues is to equate gross margin with net profit. They are uncorrelated in any company that we’ve ever seen. So, you therefore need to have a way to dig into the company itself and figure out where the money is. And then, to incent the salespeople to go after it. And it turns out that going after the super high-profit accounts is a completely different methodology, a different sales methodology and organisational methodology, then turning around the unprofitable accounts.
“Simply maximising overall revenues doesn’t do the job. The underlying issue, of course, is that most salespeople are compensated on maximising all revenues. And since there is more unprofitable business as a percent of revenues than profitable business, it’s a miracle that most companies aren’t driven into unprofitability.” – Jonathan Byrnes · [04:51]
Jonathan Byrnes:
So, that was what we discovered, I guess back in the 1980s, and work that we were doing. We put that together into a number of consulting projects. And now, we have a SAS software company that does that. And we’re getting anywhere from 10% to 30% year on year sustained profit improvement everywhere. So, that’s why simply maximising overall revenues doesn’t do the job.
Jonathan Byrnes:
The underlying issue, of course, is that most salespeople are compensated on maximising our revenues, all dollars or pounds or whatever currency people are dealing with incent them to go after everything. And since there is more unprofitable business as a percent of revenues than profitable business, it’s a miracle that most companies aren’t driven into unprofitability. That’s especially a really critical issue.
Jonathan Byrnes:
Today, when your digital giants like Amazon and the others, Alibaba, are eating away at market share. Companies have to figure out what to invest in keeping and growing. And if they try to keep everything across the board and grow everything across the board, they’re going to go broke. And that’s the underlying reason why so many companies have gone bankrupt in the pandemic.
Jonathan Explains Why He Believes 20% of All Accounts In Most Organisations Are High Profit Accounts · [06:07]
Will Barron:
So, I want to get into the new methodologies to target and have success in highly profitable accounts versus focusing on the lower profitability ones. But before we get into that, Jonathan, is this ubiquitous across all marketplaces and B2B and even B2C perhaps that you have this 20% top line of high profitability accounts within organisations?
Jonathan Byrnes:
Absolutely. We’ve done work with B2C companies, state of the art, digital companies, nondigital companies. We’ve done work with bricks and mortar companies. We’ve done work with manufacturers in the US, in Europe, in Asia, with service companies. Consulting companies would be a very good example. I’d almost bet that a company like yours would have the same mix. It’s almost like, a law of nature.
Will Barron:
Sure. I could have been more prepared. And I could have actually calculated some of this. So, maybe I’ll do this in the show notes of the episode. The problem with us is we only have about five customers from both an enterprise perspective from the sales training that we do, and then from the sponsorships on the podcast and that side of things as well. So, there might not be enough numbers there to pull out these data points to make them statistically viable. But I’ll do that show notes for this episode for sure.
Whose Responsibility is it To Go After The High Profitability Accounts Within an Organisation? · [07:26]
Will Barron:
And just a final thing before we get into methodologies and how we can be practical about this, just to frame up the conversation here, Jonathan. Let’s assume that the salespeople listening and some of the managers listening are proactive on this. They want to go after these profitable accounts. But whose responsibility within the organisation?
Will Barron:
Is it to make this happen to perhaps change how salespeople are compensated or to nudge people in the right direction? Is this something that should be done from the ground up or is this something that should be done from the C-suite down to focus on profitable accounts?
“At the upper level, typically with the CFO, the company has to understand where it’s making money and where it’s not with good software that can be configured and put into action in a matter of a couple of weeks.” – Jonathan Byrnes · [07:55]
Jonathan Byrnes:
That’s a great question, Will. Thank you for asking it. And the answer is both. At the upper level, typically with the CFO, the company has to understand where it’s making money and where it’s not with good software that can be configured and put into action in a matter of a couple of weeks. It’s really that simple with most companies’ data. The two questions, one is, what methodology do you use to go after the high-profit accounts, and what do you use to go after the money-losing accounts because they’re very different.
“The single most important thing a company can do to make a tonne of money is to go after your super high-profit accounts.” – Jonathan Byrnes · [09:03]
Jonathan Byrnes:
And then, what we find is that to go after the super high-profit accounts, you really need a dedicated multi-capability team, particularly on the B2B side. So, you’ve got to have your salespeople working with your marketing people, working with your supply chain people, working with your finance people, and to some extent, IT. By the way, the single most important thing, if I could communicate anything to your listeners, the single most important thing a company can do to make a tonne of money is to go after your super high-profit accounts.
Jonathan Byrnes:
In most people, it’s counterintuitive. Most people will say they’re already good accounts, shouldn’t we go after getting more and getting different ones? And the answer is when you do the right thing, profits grow in your highest profit accounts that are giving you over 150% to 200% of your profits by 35 plus percent per year, profit growth of 35 plus percent per year. And that’s in the most highly penetrated accounts. And so, that’s where the money is. It takes a multi-capability team to turn around a bad account. It’s almost like, a bank workup group, but there are ways to do it.
Jonathan Byrnes:
And I can explain that. And then, in dealing with your, what we call, profit deserts, the ones that are neither here nor there, typically very small accounts. The trick there is to drop your cost to serve. That’s where you put in your digital transformation and automation. And again, that’s yet a different team.
Jonathan Byrnes:
So, I think that the days of the single warrior salesperson, as somebody once said, “The loan shark in the ocean-going after prey are really coming to a close.” And we’re moving into a world that requires a more sophisticated methodology. And the actual way to do that would depend on whether we’re going after the super high-profit or the super money losers.
Identifiable Characteristics That Define Highly Profitable Accounts · [10:45]
Will Barron:
Sure. So, again, we’ll get into the methodology in a second, but are there any trends to these highly profitable accounts other than just the pure numbers? Are they the biggest accounts that a company usually has usually? Are they the most complex sale with the most decision-makers within them? Is it the biggest company that perhaps the organisation is selling into if they’re selling into the enterprise? Are there any trends within high profitability accounts? And where I’m going out here is, so that we can start to identify perhaps future potential high-profitability accounts in the future?
Jonathan Byrnes:
Yes, another great question. This is a great interview. I really appreciate your wisdom in picking out the key issues. And the answer is almost yes to everything you said, but not quite.
Will Barron:
Okay.
“Typically, your super high-profit accounts are at the intersection of quite big and quite profitable. So, if you were to draw a two-by-two matrix with size on one side, that’s revenues and profits on the other, it’s your super big super profit accounts. And your big money losers are super big and super losing.” – Jonathan Byrnes · [11:33]
Jonathan Byrnes:
Not, typically, your super high-profit accounts are at the intersection of quite big and quite profitable. So, if you were to draw a two-by-two matrix with size on one side such revenues and profits on the other, it’s your super big super profit accounts. And your big money losers are super big and super losing. So, your little accounts are typically in that so-called profit desert group. So, there are a couple of things that are happening. And particularly, it’s decelerating in the pandemic, which is that the digital giants like Amazon and Alibaba, Apple, Google, and all the rest, they are making the science after going after the small accounts.
“So, if you were to look at Amazon’s strategy, what you’d find is that they focus like a laser on doing one thing unbelievably well. And that is arm’s length, information-rich relationships with small customers. Amazon does not feed the production line at General Motors, or Rolls-Royce. Amazon gives me the book I need and the Cheerios I need.” – Jonathan Byrnes · [12:22]
Jonathan Byrnes:
So, if you were to look at Amazon strategy, and I have probably close to 100 former students I teach at MIT, in Amazon, including the number two person, what you’d find is that they focus like a laser on doing one thing unbelievably well. And that is arm’s length, information-rich relationships with small customers. Amazon does not feed the production line at General Motors, or Rolls-Royce. Amazon gives me the book I need and the Cheerios I need.
Jonathan Byrnes:
And that’s what they do. And they have taken what in most companies, the small accounts, this big, long tail, that nobody knows what to do with. This is the pain in the neck for most companies. They focused on company’s problem accounts and made a science out of it. That’s what’s really interesting about Amazon, and all of them did the same thing. So, what that means is that when they go after a traditional company, call it a distributor, like Bunzl, really good UK companies.
Jonathan Byrnes:
It’s also big in the US. And we’ve worked with them for quite a number of years. They’re going after their small customers. They’re not going after the really big ones. They’re not going after the complex sales. You’re not going after anything that the salespeople have to spend time on. That they don’t want to spend time in any customer. They want to automate it. And they have automated warehouses and all the rest. So, what that’s doing to the incumbent firms is taking away their small customer business. And that’s what’s causing the drain.
Jonathan Byrnes:
And that’s leaving them with these two big buckets of big profit, high-profit customers, and big low-profit customers. And when a company goes after the high-profit customers, it’s a complex sale. And the reason it has to be multi-capability is because you have to make your customer more profitable.
“Simply cutting your price and knocking out your competition is never going to make it in a super high-profit company. You need to figure out a way to make them more profitable through vendor-managed inventory, partnering with them much more sophisticated, higher service offerings.” – Jonathan Byrnes · [14:29]
Jonathan Byrnes:
Simply cutting your price and knocking out your competition is never going to make it in a super high-profit company. You need to figure out a way to make them more profitable through vendor-managed inventory, partnering with them much more sophisticated, higher service offerings. And we’ll get to the low profit ones and I guess in a minute, but let me stick with the high profit. Since if you do that, Will, you double your profits. And I mean double, D-O-U-B-L-E your profits.
Jonathan Byrnes:
So, that’s what people have to really focus on. So, if you look at this relationship that people are developing, if you’re just selling nuts and bolts to companies everywhere, you don’t have to do much in the way of service and integration. But if you’re coupling up, say, Bunzl with a very complex grocery chain like Sainsbury, you have to really understand Sainsbury, and you’ve got to understand Bunzl, and you’ve got to have the relationships up and down the organisation. And the other grocery chains will have different needs.
“And that means that salespeople, number one, have to be able to recognise where to aim their capabilities. Number two, have to understand how to work with the counterparts in the other areas of the company. And number three, have to understand how to integrate and get very close to their major cost high-profit customers in order to give them what they need.” – Jonathan Byrnes · [14:56]
Jonathan Byrnes:
So, the market is becoming much more fragmented. And that means that salespeople, number one, have to be able to recognise where to aim their capabilities. Number two, have to understand how to work with the counterparts in the other areas of the company. And number three, have to understand how to integrate and get very close to their major cost high-profit customers in order to give them what they need.
“In a complex relationship with a super high-profit customer, you never close. You never want to close. You want to keep getting better and better and doing more and more. You want them coming to you and saying, “What else can you do? And you go to them and say, “Hey, I got an idea.” And so, you never want to close.” – Jonathan Byrnes · [16:48]
Jonathan Byrnes:
And it’s going to be a little bit different from company to company. So, you can’t just give them a Stampin’ Up product. And that’s so different from the way that people have always done it, which is have a set of products, go knock on the door and say, “Would you like this? Would you like that? Would you like this? Would you like that?” I want to be your trusted advisor. I want to have you, whatever it is. I want to be able to close. In a complex relationship with a super high-profit customer, you never close. You never want to close.
Jonathan Byrnes:
You want to keep getting better and better and doing more and more. You want them coming to you and saying, “What else can you do? And you go to them and say, “Hey, I got an idea.” And so, you never want to close. You want to continually build the account. So, it’s a completely different way to sell. And my fear would be that for many salespeople, they would consider that really different. But it turns out that it’s more interesting, more fun, and much more productive, and much, much more lucrative.
“Simply comping salespeople on revenues or gross margin is absolutely last century’s way to do things. And we’re in a different world.” – Jonathan Byrnes · [17:27]
Jonathan Byrnes:
So, simply comping salespeople on revenues or gross margin is absolutely last century’s way to do things. And we’re in a different world.
Jonathan Take on Sales Relationships, Profits, Potential Growth, and Other Representations of High-Profit Accounts · [17:54]
Will Barron:
Love it. If we were to make this visual, perhaps we had a Venn diagram and perhaps profits is the North Star here, the account. Could be including that Venn diagram then perhaps, relationships might be a better word to describe that, but relations with that organisation, and then also perhaps potential growth or potential profit, just to double down on this idea of visually representing a highly profitable account. Is that fair to say? And then, is there anything else that would go in that Venn diagram as well?
Jonathan Byrnes:
Yes. And that’s a great way to put it. It’s very enjoyable to work with you. You’re very, very perceptive. I appreciate that. We’ll have to have you talk to my class at MIT one of these days?
Will Barron:
I don’t know about that. I appreciate the comment, though.
Jonathan Byrnes:
Okay, well, the people listening are very fortunate that they have access to the way that you think about things. I appreciate that. And the answer to your question is yes, there also has to be a time dimension. Because markets are changing. And what’s high-profit today may not be high profit in five years. So, what a company is building today will come to fruition in three, four, five years.
Jonathan Byrnes:
And so, therefore, they have to be able to project where they will be making money, and they have to not only do what makes the most sense for today, but what makes most sense for tomorrow and create a transition from one to the other. Because you can’t just simply cut over. You’ve got to have the cash flow to ease the transition. And then, you have to change your metrics, the compensation. And you’re aiming to say, “Okay, let’s start to draw this one down. And use it as a so called-cash cow, and use it to build over here where the opportunity is arising.” And there are all disruptive forces that are in play now.
Jonathan Byrnes:
I think that everybody would look at Amazon and the other digital giants and say, “Well, obviously, we have to be careful about that.” But if you’re in a B2B situation, I use a good MIT example. There’s a new technology called additive manufacturing. Today, the way that companies do metalworking is that they basically sculpt a piece of metal. And they shape it. If it’s complex, they have to glue different parts together. What additive manufacturing does is it actually will create out of either metallic or non-metallic powder, the shape you want, and then treat it with hate to harden it. And that in and of itself for many industries is a tremendous disrupter. Right now, it’s about 6% of the market.
Jonathan Byrnes:
It could go up to 20 within five to 10 years. So, we have a group in mechanical engineering that does that morning, noon, and night. And you see that with body parts, for example and biotechnology, speaking of an old, familiar area for you. So, it’s important to be really careful about understanding where things are headed. And I guess that means that the day when anybody in a company can be set in their ways and say, “Okay, I’ve got my accounts. I bring them donuts. I sit in the warehouse. I’m pretty careful not to drop the boxes and mislabel them. I look at my focus groups, and they tell me what they like.”
“Very often, what will happen in five to 10 years is something the focus groups have no experience with. I mean take a look at Apple, virtually all their products were invented with no marketing. So, I think that that time dimension is really important.” – Jonathan Byrnes · [21:40]
Jonathan Byrnes:
Very often, what will happen in five to 10 years is something the focus groups have no experience with. I mean take a look at Apple, virtually all their products were invented with no marketing. So, I think that that time dimension is really important. So, you want your Venn diagram is three-dimensional, right? One is revenues. One is profits. But then, the third dimension is how it’s transforming over a period of time.
Will Barron:
Sure. I guess we want to target the accounts of the profitability and the margins that are available now versus five years. And we can plan ahead for those larger accounts in any combination or changes within industries as well. You slightly blow my mind here, Jonathan, of some of the, I guess, profitability diagrams, charts, and work that we need to do whether it’s internally, whether it’s, this is led by sales leadership, whether this is higher up in the C-suite. Experts, consultants like yourself, come in and help us with some of this.
How Salespeople Can Predict and Grow High-Profitability Accounts Through Transaction-Based Profitability Strategies · [22:40]
Will Barron:
But we need a roadmap, right? So, let’s assume some, the salesperson is listening to the show now. And just going, “This is great. Love it. I’m totally on board. This makes total sense. I want to be in sales next 10 years. I love this industry, like I did medical devices. I love selling these products to surgeons, to CFOs. I’m committed to this.” Perhaps, a best-case scenario here. Perhaps, he’s got a multidisciplinary team around him. He’s got himself.
Will Barron:
He’s got perhaps a logistics person who can bring in equipment and sort that stuff out. He’s got a marketing assistant, who can help integrate, customise marketing for an entire account as opposed to doing it more broadly. And whoever else needs to get these deals done. Perhaps, he’s leveraged this Venn diagram, and he’s sourced out the most profitable accounts and the other variables. He sourced out the accounts that he has good relationships with.
Will Barron:
He’s worked on the time elements of this, and he knows what accounts are most likely to grow in the meantime versus accounts that might grow in five years, 10 years from now. What’s the next first step from this? Very practically, does some ring up is best relationship within the account to, say, “Hey, what can I do for you? What else can we do? How do we develop this?” Or, is there a more succinct strategy to growing a profitable account once we’ve worked out exactly who we should be going after?
Jonathan Byrnes:
Yes, there are a set of steps. Okay, the first step is for the company itself, probably at the CFO level to do what we call transaction-based profitability. So, there’s software out that will actually look at every single invoice line. Every time the company sells anything to any customer, they will look at the specific line and the computer does this. And you use a general ledger, and you create a P&L on that line. So, if you go into a store and you buy two pencils and eraser and a ruler, that’s three lines. Each one will have a full P&L including overheads carefully assigned, not blanket allocated. Which store was it?
Jonathan Byrnes:
Who was involved? What’s the product? Who was the vendor? Et cetera. It’s like you’re trickling the transaction down to set of costs tables. Using that methodology, you can figure out exactly where the company is making money. Every product and every customer every time, you can manipulate it any which way. And there are very powerful databases that do that. So, you wind up with what we call a profit landscape. Okay, I’m making money here, I’m making money there. I’m losing it here, I’m losing it there. That’s part one.
Jonathan Byrnes:
Part two, which is a joint venture between your salespeople and your finance people. And is to say, “Well, where are we making money? Where are we losing it? And what do we want to do about it?” So, you need a game plan to attack it. And these are customers we want to grow. These are customers that we want to turn around. These are products, et cetera. And for that, what we can do or what can be done is imagine that you’re selling to, say, a supermarket chain, or you have a chain of furniture stores, then you can look at what we’d call peer groups of types of customers in a steady shopper, occasional shopper, et cetera.
Jonathan Byrnes:
And mattresses versus lounges versus sofas. So, you can take your whole company and look at a peer group of all of the similar transactions and say, “Which are the super high-profit transactions? And which ones are less, and exactly why? Is it order pattern?” That’s something that most salespeople probably aren’t dealing with, but in repetitive buying situations, whether somebody orders once a week or three times a week will make all the difference between high and low profit.
Jonathan Byrnes:
So, you can say exactly, “What do I have to do to move everything up to super-high profit?” Okay. At the same time, I can say, “Okay, well, that segment be profitable in the future? Is it profitable now? Should we be in this segment or not that segment? So, you wind up with a set of profit opportunities. And then, you can bring it down to the sales manager or salesperson who will have a dashboard saying, “These are my accounts. These are the profit opportunities for each product in each account, prioritise by upside.”
“When you’re going after a super high-profit account, what you want to do is, number one, you want to solve any operating problems. There’s always a little something that has to be fixed.” – Jonathan Byrnes · [27:57]
Jonathan Byrnes:
Or the sales VP and the other VPS may say, “Focus on changing these accounts to those accounts. And don’t worry about fiddling with a few products at the margin.” Or they may say to the salesperson, “Go after whatever is in front of you.” And the salesperson will have, with the manager, the prioritised set of profit opportunities, by product and by customer. So, what you need to do is mobilise the whole company. Now, when you’re going after a super high-profit account, what you want to do is, number one, you want to solve any operating problems. There’s always a little something that has to be fixed.
Jonathan Byrnes:
But basically, you need what I call a profit showcase. And what that is, is you send a team into the customer for maybe two to three weeks, maybe a month, and they look at every aspect of your product. How is it ordered? How is it used? What else can we do? How can we build the so-called extended product? Maybe they need better information. Maybe the customer needs to do it differently. Maybe they need to have you deliver it to the factory floor and not the receiving dock. What is it that will give them value?
Jonathan Byrnes:
And then, you’re building your extended product, which is the package of services and physical product into that specific customer based on the customer’s need. So, go to your medical example. I know that that’s your background, and it’s mine also. Back in the 1980s, I invented what’s called vendor-managed inventory. That’s where you manage the inventory and operations within your customer. And we did that up in Canada.
Jonathan Byrnes:
That was the first one. Now, it’s one of the major parts of Cardinal Health, which is $150 billion company. They’re still running it. They call it ValueLink. And there, we placed a team in a local hospital in Toronto, Canada. And they spent a month looking at the way that people use products. And it turned out that they were selling intravenous solutions, IV solutions. And they were having price wars, Baxter and Abbott. I was working with Baxter at the time.
Jonathan Byrnes:
And they didn’t know what to do about it. So, we went into the hospitals and we said, “Can we just watch you? And then, let’s go out to the receiving dock. Let’s see you put it away in the stock room. Let’s see you bring it up to the nurse’s station and clinic. Let’s sit with the nurses for a couple of days and just watch what they do and talk to them, and so on and so forth. And out of that came the idea that what was going on inside the hospital was tremendously inefficient, because hospitals aren’t logistics companies. Okay.
Jonathan Byrnes:
So, we invented a business where we could operate all of the supply chain within the hospital. It’s called vendor-managed inventory. And most companies, I’m sure that your listeners will be familiar with it, because they’re running it. And that was the origin. That was the origin. But what happened is that if you were selling a litre of IV solution at the receiving dock for $1, it was $7 by the time it got to the patients’ arm. And of that $6 increments, seven minus one, $3 were addressable by joint efficiencies. And that was a sales issue.
Jonathan Byrnes:
It was also a supply chain issue. That’s why you needed the multi-capability team. So, we created that business, and it began to grow. We verified it in a few other customers. And basically, three things happen. Number one, the hospital costs went down by 20%. And instead of being in a price war, the hospital managers came to us, the CEO, and said two questions. Number one, can you do it? And number two, can we trust you? And the answer was yeah. And all of a sudden, we were their strategic partner. Number two, our costs went down by about 30% because we now control the order pattern.
Jonathan Byrnes:
If you look at a flat of little bars of soap that you get when you go in a hospital, there’s about 100 and a flat. They were ordering three soaps from us to replenish the flat. And we stood here having another flat. And all of a sudden, all the picking, I mean, it sounds like nitty-gritty warehouse stuff. But it turns it into super high-profit. It was a 30% cost reduction. And most companies have that opportunity by the way and nobody ever looks at. And the salespeople should be on top of that. A good transaction-based system will throw that up as an opportunity. So, that was number two.
Jonathan Byrnes:
Number three, sales went up by 35% in the highest penetrated accounts in the country. And it was driven by the relationship between the head nurses and the person that we put it in the hospital, who was not a salesperson. He was somebody out of the warehouse, who was personable. And they were like the sergeants in the army. They’re the ones who make things tick and make it work.
“When I have a customer that’s being adversely affected by these forces of change. I can help the customer move over to a higher profit position, because we’re partnering and then I’ve got an inside track on a super high-profit customer who really is beholden to me and can’t do what they’re doing without the partnership. So, that’s the ultimate win.” – Jonathan Byrnes · [33:30]
Jonathan Byrnes:
And so, that drove sales up. And then, what happened which was really interesting was at the hospital said, “We really need to put in remote clinics and surgery centres. And we can’t do that because we don’t really trust our supply chain. But now that we’re working with the supply chain expert, we can do it together. And now, I can change my business and I can migrate over. So, that’s what has been missing and what we talked about earlier, which is when I have a customer that’s… and the customer is being adversely affected by these forces of change. So, I say I don’t want to work with that customer.
Jonathan Byrnes:
I can help the customer move over to a higher profit position, because we’re partnering and then I’ve got an inside track on a super high-profit customer who really is beholding to me and can’t do what they’re doing without the partnership. So, that’s the ultimate win. And I think that in my experience, these showcase teams and they’re not pilots, they’re going on a journey of exploration, and saying, “How can I build a so-called extended product?”
“And that’s what I’d call a strategic marketing or strategic sales management, which is how can I change the game? How can I get in the centre of my customer becoming a much better company? And when you do that, you’re a strategic partner, and you just go through the ceiling together.” – Jonathan Byrnes · [34:13]
Jonathan Byrnes:
And that’s what I’d call a strategic marketing or strategic sales management, which is how can I change the game? How can I get in the centre of my customer becoming a much better company? And when you do that, your strategic partner, and you just go through the ceiling together.
Will Barron:
Jonathan, this is why I love these conversations. So, I tend to on the podcast regular listeners, we call the audience sales nation. Sales nation know that I try and stay away from very tactical like to call, pick up the phone and do 123 because I don’t think there’s much value in those interviews once you’ve done two or three of them. You’ve just explained to me the reason why one of the medical device companies I worked for was doing what they were doing. I didn’t realise this when I was a quota carrying salesperson.
Will Barron:
So, I would sell both full camera systems, operating rooms, and also the endoscopes themselves. Anyone who isn’t familiar, I might actually have one around here. For everyone, people watching on video, this is an endoscope. There’s a series of lenses in here, because inside the patient, there’s a camera on the end. The surgeon can see inside the patient by doing minimally invasive surgery.
Jonathan Byrnes:
Thank you for showing the colonoscopy device. Thank you.
Will Barron:
Well, this is an urethra scope. So, this goes right up a gentleman’s willy to look into the bladder. It has been cleaned and washed since it was last used on a patient. And I’ve never used it myself. I’ll frame things up with that. But the-
Jonathan Byrnes:
I’ll send you an email if it’s my turn.
Will Shares How The Company He Used to Work For Strategically Targeted and Scaled High Profit Accounts · [35:55]
Will Barron:
The reason I bring this up is, the strategy now makes total sense. We were encouraged at this medical device company to get the endoscope and literally follow it from when the surgeon hands it over to the surgical nursing staff. It then gets packaged up all neatly and tidy. And then, it goes off to be sterilised in autoclaves. What would happen, nine times out of 10, the hospitals would have tonnes of repairs because the surgeon, even though the surgeon would be really delicate because they know the value. They’re about 1500 quid, three grand each. And it depends on the size and the model and that side of things.
Will Barron:
The nursing staff would be very careful because the surgeon is staring at the back of their heads, because the surgeon doesn’t want to get one back that’s broken, and they have to open another one and another one. And it slows down their procedures and ruins their throughput in the theatres, which they’re targeted on. So, the nursing staff would be very care… and it would go off on a car to be relatively carefully pushed around. And then, it would get to the individuals who were high level disinfecting it. And then, autoclaving it.
Will Barron:
And sterilising it. And they’d be dumping it in a metal sink. They would get thrown around and they’d be thrown in the autoclave, and they’d get wrecked. So, we were encouraged to follow the physical scope that been used in the procedure that we’ve been observing all the way through the processing cycle back to the surgeon. And of course, we picked up on these individuals who were essentially breaking these endoscopes.
Will Barron:
So, what we would do on the back of the repairs that we were offering, were offering the hospital, were costing the hospital a fortune, hundreds of 1000s of pounds a year in one of our local hospitals here that we did this in. And it wasn’t particularly profitable for the organisation that I worked for, because they weren’t really repairing them. They were sending them off to be stripped for parts that could be saved. And then, they were giving them a new scope in return, even though it was a call to repair. So, it wasn’t a win for anyone.
Will Barron:
So, what we did instead, we then installed a member from the hospital, an ex-member of nursing staff who worked for this medical device company to manage some of this process. And we charge them a service fee rather than a capital fee for the price of the scopes themselves. The scope throughput worked perfectly. They weren’t getting broken. It was more profitable for the organisation. The hospital was happier, because the service was uninterrupted. And every time they open an endoscope in theatre, it worked perfectly. It was seamless. And then, of course, what happens? They start buying the camera system. They start buying the operating theatres, and the account scales up. Now, I did this very literally, Jonathan, I practically did this and did local account to me here.
Will Barron:
I probably did $200,000, $300,000 worth of managed services in the first couple of years of me working for the organisation. But I didn’t know why we were doing it. Well, that wasn’t communicated with me. So, in the end of my rant here, that’s why I love these podcasts. That’s why I love having people like yourself on, Jonathan, because that little bit of explanation back then would have made a lot more sense and would have encouraged me to go after the more profitable accounts to instil these managed services as opposed to sell in the capital scopes, which is clear day and night and very obvious.
Will Barron:
And so, I thank you for your insights on this. It makes so much sense when you’ve explained it. I like the way you’ve explained it.
What Are The Super Unprofitable Accounts? · [39:02]
Jonathan Byrnes:
I appreciate that. Let me just shift for a second if I could, to the super unprofitable accounts, I called profit peaks, the high profit ones and profit drains, the low profit, and profit deserts, the nothing.
“The profit deserts in almost every company are consuming 50% of the resources because you have to take their orders, you have to ship them. And typically, it’s 50% of your company’s cost structure is doing absolutely nothing. Think about that. If you really want to make money, that’s where to head.” – Jonathan Byrnes · [39:15]
Jonathan Byrnes
By the way the profit deserts in almost every company are consuming 50% of the resources because you have to take their orders, you have to ship them. And typically, it’s 50% of your company’s cost structure is doing absolutely nothing. Think about that. If you really want to make money, that’s where to head.
“So, on the super low profit, the profit drainers, in our experience, we have rarely seen price be the issue because in almost all cases, the issue is cost to operate. And that’s because the operational cost is not being managed.” – Jonathan Byrnes · [39:36]
Jonathan Byrnes:
So, on the super low profit, the profit drainers, in our experience, we have rarely seen price be the issue because almost all cases, the issue is cost to operate. And that’s because the operational cost is not being managed. You’re doing things in an all the same way. In the super high-profit companies, you’re making so much money. You can invest in more expensive services. So, you can afford the extra costs. In your money-losing accounts, in almost all cases, fixing the operational problems are a win-win for both companies.
Jonathan Byrnes:
Your customer makes as much money as I do. A classic example would be order pattern. And I’ll give you an example with beer. So, we do a lot of work with beer distributors, no pun intended. And especially, they’re moving into craft beers. So, if you take a typical beer distributor, they’ve got two big bundles of product. One is your so-called Anchor brand, which would be Budweiser or Sam Adams. I’m using US examples. Miller, Heineken, et cetera.
Jonathan Byrnes:
And the other of these exotic craft beers. So, on your Anchor brands like Budweiser, they have low gross margin, but they have no cost. They’re shipping big pallets, and there’s never a return and it’s just flows through. So, you have very high profit with low gross margin. On your craft beers, you’ve got very high gross margin because you have a high price and it’s very expensive. So, when you take a look at that, your big cost is in the small customer side of the business.
Jonathan Byrnes:
So, you have these little corner grocery stores. In New York City, they’d call it the bodegas or the groceries. And they’re ordering five cases of Budweiser and two six packs of this and two six packs of this and two six packs of that. And the salespeople in almost all cases are compensated on how many orders they take per day, because they look at their daily order count.
Will Barron:
Sure.
Jonathan Byrnes:
And so, that’s driving them to take too many orders. If you do it with a big customer, okay. If you do it with one of these small customers, you’re shipping three or four times a week. And your Anchor brand like Budweiser is not going to make much difference, because the gross margin will cover your picking and shipping cost. But on your craft beers with low volume, you don’t have enough gross margin dollars or quid to pay for the picking, shipping, and order taking. I know it sounds like a real warehouse, dirty fingernails issue.
Jonathan Byrnes:
But if you order twice a week instead of three times a week, the whole thing flips into super high profit. Now, do the salespeople look at that? They’re actually incented by their company to cause it. Because nobody ever looked at it. So, that’s an example where we’re looking really carefully at every aspect of the cost of operations as opposed to how can I create more value on the high-profit side? How can I get these stupid costs things out, because every time I ship, they got to put it away, and they have to order it? So, it’s a win-win for both of us.
“So, if you take, say, 10% of your super high-profit customers, which is 2% of your total customers, 10% of 20%. And you take 20% of your low-profit customers, which would be 6%. So, that’s less than 10% of your customers. And you flip them into super high profit or you supercharge them, that’s going to give you a 50% profit increase.” – Jonathan Byrnes · [43:34]
Jonathan Byrnes:
And then, that flips into super high profit. So, if you take, say, 10% of your super high-profit customers, which is 2% of your total customers, 10% of 20%. And you take 20% of your low-profit customers, which would be 6%. So, that’s less than 10% of your customers. And you flip them into super high profit or you supercharge them, that’s going to give you a 50% profit increase.
“The number one most important factor for Salesforce productivity was task clarity. If the salesperson knew what he or she wanted to accomplish, they got it done.” – Jonathan Byrnes · [44:29]
Jonathan Byrnes:
And you’re talking about less than 10% of your customers. Because quite a number of years ago when I was a doctoral student at Harvard Business School, I had a classmate named Steve Doyle. We did a doctoral thesis on Salesforce productivity with Ben Shapiro, who is a great sales professor at Harvard. He’s still a great guy, good friend. And they figured out that the number one most important factor for Salesforce productivity was task clarity.
Jonathan Byrnes:
If the salesperson knew what he or she wanted to accomplish, they got it done. If they said, “Go get them. Be a good closer. Make a cold call. “Nothing happened. So, what I’m arguing is more sophisticated and updated version of task clarity. High-profit customer, that’s what you do. Low-profit customer, you have a different multi-capability team. And all they do is they go around to low profit, low profit, low profit, low profit, and stamp out operating improvements.
Jonathan Byrnes:
That’s what they do. On the other hand, for the high profit, it’s find new ways to create value, find new ways to create value. And so, it’s task clarity. Once again, and that’s really the secret to making the whole thing work. And the leverage is unbelievable. Again, we have a book coming out in May, and we got endorsements from people. One of the senior partners in Boston Consulting Group who’s looked at our stuff carefully, wrote in print, it’ll be on the back cover of the book, that this gives a 20% to 30% profit increase. Just like that.
“Knowing what to do in the right place. So, there’s no magic to it. It’s really being able to say, “Here, I do this. There, I do that. Here, I do this with these people. And I do that with there with those people.” But it does say that the company’s organisation has to be able to accommodate that.” – Jonathan Byrnes · [45:57]
Jonathan Byrnes:
Knowing what to do in the right place. So, there’s no magic to it. It’s really being able to say, “Here, I do this. There, I do that. Here, I do this with these people. And I do that with there with those people.” But it does say that the company’s organisation has to be able to accommodate that. So, the day of the vertical sales force and the day of the vertical supply chain people, and they never talked to each other, the famous stovepipes or smokestacks or whatever you call it.
“You need a multi-capability team on your super high-profit customers and a very different multi-capability team doing nothing but cost reduction. And then, on your profit deserts, the trick is to automate it. That’s where you get your digital transformation and your portals and your menus and all the rest of the stuff.” – Jonathan Byrnes · [46:35]
Jonathan Byrnes:
You can say, “Well, that’s not fashionable. But I’m here to say that it’s not going to work.” Because you need a multi-capability team on your super high-profit customers and a very different multi-capability team doing nothing but cost reduction. And then, on your profit deserts, the trick is to automate it. That’s where you get your digital transformation and your portals and your menus and all the rest of the stuff. There are ways to deal with it. But remember that those guys are going to get eaten up by Amazon.
“When it comes to prospecting for new accounts, once we know who’s the high profit and we know who’s the high profit, high revenue, we know whose low profit, high revenue, the big drains and the big peaks, we can send them a survey, how do you buy, what do you like, et cetera. But we keep the two groups separate.” – Jonathan Byrnes · [47:10]
Jonathan Byrnes:
So, I wouldn’t invest a whole lot of money there. So, as we’re moving into the high profit, and now when it comes to prospecting for new accounts, once we know who’s the high profit and we know who’s the high profit, high revenue. We know whose low profit, high revenue, the big drains and the big peaks, we can send them a survey, how do you buy, what do you like, et cetera.
Jonathan Byrnes:
But we keep the two groups separate. Now, typical marketing would send it to all the big customers. And because 1.5 times as many drains as peaks, you’re going to go fishing for drains. But this way, you can identify the peaks, and say, “What are their characteristics?” And then, when I go fishing and prospecting, I’m going prospecting for the peaks and not the drains. And so, prospecting the whole account acquisition cycle is affected by this profit landscape. So, that’s the glue that keeps the whole thing together.
Jonathan Byrnes:
And so, you can’t really say it’s a sales thing because it’s also, it’s a finance thing. And it’s a sales thing, and it’s a supply chain thing. And it’s a marketing thing. And by the way, it’s probably an IT thing also. Because as an example, going back to your endoscopy, my former student and business partner, John Wass, and my co-author, started a company called WaveMark that does RFID for medical devices, being able for a medical device companies to see what the cost structure was step by step by step, exactly what you were doing.
Jonathan Byrnes:
But using RFID, which is they now call it the Internet of Things, to do that tracking. And so, that’s how this whole, in this new world of sales, that’s the reason for it. And that’s the way that it’s shaped the way it is. And that’s how to win.
Will Barron:
I’m going to jump in because I’m conscious of time, but I would genuinely love to have you come back on and dive into this in more detail. So, I think we’ve covered on a reasonable level, the high-profit side of things. It’d be interesting to then cover conversion of the other side of things in more detail as well. I think that’d be really valuable for the audience. But I think what I’m covering from this is an exciting time for salespeople rather than being worried that Google, Amazon is going to come along just gobble up all the market share with automation.
Why It’s an Exciting Time For B2B Salespeople Going Into Accounts and Fixing Problems Without Worrying About Digital Giants and Automated Selling · [49:53]
Will Barron:
It seems like if you’re actually interested in what you’re selling, if you’re interested in the markets, if you’re interested in the logistics going that few steps further, you are as a salesperson or your sales team, the multi-disciplinary silo that we’re building here around the salespeople and the marketing people. You are the differentiator versus an Amazon who perhaps can do things seamlessly, who can do things perhaps quicker but can’t identify problems as well as a not yet anyway until AI takes over the world and we’ve got Terminator going into accounts and selling on our behalf. Until we get to that point, Jonathan.
Will Barron:
An individual going into an account whether it’s physically or metaphorically, and looking for problem, solving problems, looking at supply chain, all this is I think that’s really exciting for B2B sales, as opposed to a lot of the doom and gloom which is marketed and printed in the media about salespeople becoming redundant over time.
Parting Thoughts: Jonathan’s Book, Website, and How to Contact Him · [50:50]
Will Barron:
It seems like for salespeople who are real professionals who are experts in the space, they’re becoming more and more valuable. And with that, I want you to wrap up the show by telling us about the new book, what’s it called, where can we find it, and where can we find more about you as well, Jonathan.
“You do not want to go head-to-head with Amazon. If you’re a salesperson trying to fight Amazon, you’re in the wrong ballpark.” – Jonathan Byrnes · [51:17]
Jonathan Byrnes:
Well, thank you very much. The new book coming out is called Choose Your Customer, How to Compete Against the Digital Giants and Thrive. And the long and short of it is you do not want to go head-to-head with Amazon. If you’re a salesperson trying to fight Amazon, you’re in the wrong ballpark. As they say, what would happen if… I don’t know your… what are your soccer teams over there?
Will Barron:
I support Liverpool, from Liverpool. So, I’d be shot if I didn’t support them.
Jonathan Byrnes:
What would happen if Liverpool played the New York Yankees? And the answer is it depends on what you’re playing. If you’re Liverpool, you don’t want to get into an Amazon. You need to go to the places where you’ve got differentiation. And so, we talk about how to figure out where that is. Three things. Number one, choose your customers. Number two, align your company so that everything you do is going after the right customers. And number three, manager organisations so that you can do exactly what we talked about with a high profit and a low profit and doing the right thing everywhere.
Jonathan Byrnes:
And that’s what we do. If you want to find out more about it, I have an article that just came out yesterday in Harvard Business Review. It’s hbr.org. And that’ll give you a pretty good summary of the book. You can also look at the website for our software company. It’s called profitisle.com, P-R-O-F-I-T-I-S-L-E.com. And we have software that does all of this.
Will Barron:
Okay. So-
Jonathan Byrnes:
So, thank you very much, Will, I’d love to come back. I enjoyed the conversation immensely. It made for a very nice morning for me here in Boston. And I’d love a chance to get to know you better and be able to help out if I possibly can.
Will Barron:
I love it. I appreciate that, Jonathan. And for the audience, everything that you mentioned then, we will link in the show notes over at salesman.org in the show notes for this episode. Jonathan, I want to thank you again for joining us on the Salesman Podcast.
Jonathan Byrnes:
Well, it’s my pleasure, and I will recruit you for my class at MIT.
