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Avoiding Post-Acquisition Product Sales Failure
By Kevin Schimelfenig, Managing Partner of SalesForce4Hire®
When Post-Acquisition Product Sales Fail To Meet Expectations
While mergers and acquisitions stalled in the wake of the global financial crisis and concerns over healthcare reform, activity has begun to resurge in recent months. M&A supplements the product pipeline of mature healthcare companies and is an important aspect of continued revenue growth. Healthcare companies represent medical device, diagnostics, pharmaceuticals, consumables, capital equipment, information technology and services.
In seeking to diversify, risk-averse healthcare companies are looking for acquisitions with successfully commercialized technologies and demonstrated revenue as the most attractive targets for potential M&A. Yet because of venture capital constraint and other economic factors, many smaller public or privately held companies, although ripe for M&A and with excellent products in their pipeline, have been unable to prove the market acceptance and commercialization potential of their innovations.
This places the burden of proof of commercialization on the acquiring healthcare company, and places it during a time when the industry is expecting healthcare companies to provide more comprehensive solutions than the piecemeal ones of the past. Not only that, the healthcare industry increasingly expects quantifiable financial justification for these comprehensive solutions.
In this complex environment, the possibility of failure looms large. After a merger or acquisition, it is not at all unusual for post-acquisition product sales to fail to meet expectations.
Validating an Acquisition and Creating an Optimal Revenue-Generating Sales Team
Performing your marketing due diligence in M&A involves validating which products to be acquired will fit into your existing core sales channel and deciding how to optimally integrate these products. In making these validations and decisions, there are four primary considerations:
- Margin Considerations
- Product Considerations
- Channel Considerations
- Talent Considerations
1. Margin Considerations
To ensure success, you must determine whether an acquired product will generate the margins necessary to fit into your core sales channel. Many healthcare companies require high profit margins to justify placing a product in a core sales channel. If margins prove to be simply marginal, your company may decide to divest the product.
2. Product Considerations
You must ensure that an acquired product will be non-disruptive to the existing sales channel and complementary to existing products. A sales prototyping process allows a company to quickly identify the value or viability of the product while minimizing financial and HR risk. The prototyping process should involve development of a scalable sales model to accelerate revenue.
3. Channel Considerations
The channel considerations include whether the product will be marketed through direct sales, distributors, group purchasing organizations (GPOs), inside/telesales and/or clinical support specialists. To seek the most economic road to market, you should consider operating single or multiple (concurrent) small-scale sales models to analyze the most optimal sales strategy. Other related considerations include sales support functions, field training, and the development of standard operating procedures and sales marketing collateral.
4. Talent Considerations
Does the skill set required to sell the acquired product match the current sales skill set of your core sales team? While many multi-billion dollar market segment leaders are very good at scaling up an existing sales force, they often lack focused resources to implement a sales prototyping model prior to the full-scale launch of a newly acquired product.
Healthcare Companies Must Diversify and Implement Innovative Business Models
Existing sales outsourcing business models for handling post-acquisition product sales no longer suit today’s ever-changing economic climate and are incomplete when it comes to providing answers to the margin, product, channel and talent considerations described above. To begin with, healthcare reform has altered market dynamics. And during these times of ever-slimmer profit margins, healthcare organizations are demanding that new products show justifiable economic value in addition to providing more comprehensive solutions and patient outcomes. Industry pundits are warning that to continue to succeed in an uncertain economic climate, mature healthcare companies must do more than simply acquire—they must innovate and implement new business models.
The Value of New “Shared Risk-Shared Reward” Partnerships
Many leading healthcare companies are looking for new and innovative “shared risk-shared reward” partnerships, with a focus on customizable and scalable sales solutions. For M&A purposes, a strategic partner with an invested and aligned interest in the market success of the acquired products offers an innovative and creative approach. In this type of “shared risk-shared reward” business model, if the healthcare company does not win, neither does the strategic partner.
The selected strategic sales partner must have a highly successful track record in building sales models, with sales support and operational infrastructure, as well as have the ability to manage all aspects of the sales execution, mitigating financial and human resource risk. The function of the strategic sales partner is to accelerate sales and revenue through a custom sales engine designed specifically for your company and your newly acquired product or service.
In response to this market need, SalesForce4Hire, LLC®, a McGeever, LLC® Company, executes a proprietary business model called Sales Prototyping®. Each sales force we develop is a prototype, carefully designed and targeted to help determine a particular product’s ultimate viability in the marketplace. We align our interests in our clients’ success by operating a “shared risk-shared reward” business model. If our clients don’t win, we don’t win. Flexibility is a key component of our business model; therefore, companies may choose a fee-for-service, fee-for-equity, fee-for-royalty or a combination arrangement.
An additional advantage of our innovative business model is that clients will benefit significantly from leasing an accruing asset which is managed by SalesForce4Hire®, as a strategic partner that can focus on building customizable and scalable sales teams. Once the sales team is generating revenue, it is now ready to be transferred back to the client, who has benefited by acquiring an asset that has increased in value, without the financial and HR risk.
When Margins, Products, Channels and/or Talent Do Not Align With Existing Core Sales Channel
Guarding against post-acquisition sales failure becomes especially important when you must validate a non-core asset acquired as part of a merger or acquisition. What if margins, products, channels and/or talent do not align with your existing core sales channel?
In this case, you must prepare the non-core product for the highest return at a liquidity event. This is another innovative example where the value of a strategic sales partner such as SalesForce4Hire® becomes critical. The non-core product will be sold at a higher return after validation and optimization through Sales Prototyping®, where you will be able to match strategy to attract a potential acquirer at the highest value and ROI.
A great way to avoid this problem is to engage early with SalesForce4Hire® prior to M&A, in a fee-for-service relationship. This will help you answer the critical questions, early on, to help determine if margins, products, channels and talent align.
The Innovative Business Model of Sales Prototyping®
Sales Prototyping® is the blueprint we use to design small, focused sales teams and to validate a product’s appropriate exit strategy. Our proprietary Sales Prototyping®process, which guides us as we create a scalable sales force, is designed to optimize market launch speed while minimizing business and financial risk.
Once the sales prototype is designed, we deploy our Sales Accelerator System® to literally build a revenue-generating sales team. There are key steps to sales acceleration, including qualifying the right prospects, prioritizing your resources, and measuring risk, barriers and reward. Following these steps, you must create a decision matrix and an operational infrastructure. Finally, you must execute the sales process, including deployment, measurement, management and reporting.
Each phase of the Sales Accelerator System® builds the value of the revenue-generating system, the emerging sales team and the supporting infrastructure. The Sales Accelerator System® culminates in the Customer Acquisition Process®.
The process helps us gain insight into the value exchange at the point of sale with the target prospect —insight that guides the sales team’s building process in terms of optimal skill sets, intellectual capacity, motivational factors, required experience and sales sophistication, compensation considerations, and required detailing and sales intensity.
The Customer Acquisition Process® includes:
- Sales model optimization (direct, shared-bag, independent, GPO, sales support or custom mix)
- Sales team recruitment (missionary, hunter, farmer, commodity/distribution or telesales)
- Sales team training
- Sales team motivation and leadership
- Sales team management
Conclusion
For mature healthcare companies, mergers and acquisitions are an important aspect of continued revenue growth. A healthcare company can maximize its newly acquired product debut through proper preparation and the help of the right strategic sales partner. Even if post-acquisition margins, products, channels and/or talent do not align with your existing core sales channel, the strategic sales partner can help you prepare the non-core product for the highest return at a liquidity event.
Healthcare organizations today are demanding that new products show justifiable economic value in addition to providing more comprehensive solutions and patient outcomes. To continue to succeed in an uncertain economic climate, mature healthcare companies must do more than simply acquire—they must innovate and implement new business models.
The “shared risk – shared reward” business model with the right strategic sales partner ensures an aligned and invested interest in the success of a sales model, with sales support and operational infrastructure.
After a merger or acquisition, it is not at all unusual for post-acquisition product sales to fail to meet expectations. To avoid failure, the right strategic sales partner is critical to help with the detailed implementation of new strategies accelerating your sales and revenue through a custom sales prototype designed specifically for your company and your acquired product.
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