Theory of Constraints and B2B Sales and Marketing? : Best Practices in B2B Demand Generation

by Jason Stewart

I read an interesting post recently at Salesforce Times ... Russian Scientists & the B2B Sales Process.
They give a little bit of background about Dr. Eliyahu M. Goldratt's book The Goal, a business book disguised as a novel that outlines the basic structure for Goldratt's Theory of Constraints (TOC). Bear with me through a brief definition of TOC to here how Salesforce Times (and I) connect it to B2B sales and marketing...

In a nutshell, TOC (according to Wikipedia) "...is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing throughput (flow) at the bottleneck process can overall throughput be increased."

What this means is that there is typically (at least) one "constraint" in the manufacturing process that is hampering the completion of your goal. Some sort of supply issue, some sort of technical problem, some sort of scheduling or personnel issue could be the key, if corrected, to improved performance. Where it gets complicated, and what Goldratt's book illustrates extremely well, is cutting through the distractions and "false positives" to discover what the constraint actually is. And of course, what might be even harder, figuring out what your goal really is.

If you lose sight of what the goal really is, then there is no way to identify the bottleneck.

Coincidentally, before I started at Demandbase I worked for a software company called Maxager Technology which sold exclusively to manufacturers. Maxager focuses on helping manufacturers optimize their product mix based on the products that have the highest "Profit Velocity" which is calculated by combining the profit margin of a product with its production velocity (how long it takes to produce). Production velocity is calculated at the "Velocity Measurement Point," which Maxager defines as "...the point in a manufacturing process where production speed is measured. It is often the constrained step in the manufacturing process."

Constrained, as in "Theory of Constraints." Maxager's roots in TOC happen to be why I read The Goal a few years back.

So how does this relate to B2B sales and marketing?

The Salesforce Times article looks primarily at B2B sales. Here's a quote:

"B2B sales is very much like a plant that ‘manufactures’ closed revenue opportunities. Leads and new opportunities flow into the sales ‘system’, they hit different sales stages and produce a certain amount of closed deals."

That's a good angle on the sales side...identify the bottleneck that is holding your team back from closing business...but I'm going to talk about B2B marketing, and I am going to make the assumption that your goal is "conversions." People who fill out your form, or download your white paper, or register for your webinar so that they can become leads that you pass over to sales.

One thing you will need to consider when thinking about the "constraints" to completing your conversion goals is what your "Velocity Measurement Point" might be. As any salesperson will tell you, some leads are more valuable than others. Webinar leads are valuable, for example, because of their commitment. These are people that sat through your webinar for an hour! However, when you consider the raw material costs of promoting, advertising, staging, and creating relevant content for the webinar you might find that your "profit margin" is thinner than you had originally believed...

As a B2B marketer, what do you think your "constraint" might be?

I would propose your website as a possibility...the organic traffic visiting your website is inherently valuable because they are proactively searching for something that you have to offer, but the problem is that even the most successful B2B websites "convert" less than 5% of their visitors. That sounds like a bottleneck to me! The question is, what are you going to do about it?

Comments

Boy, did this catch my eye. I'm slammed today so I can't think it out, but yeah, for 20+ years I've known a highly automated and efficient business card printer (an odd business I assure you) that's WAY optimized, high volume, using Goldratt. And then 15 years ago I met the smartest guy I know, major process geek and brilliant thinker, and he too espouses Goldratt.

Now I have thinking to do over the weekend. I imagine part of that thinking is in the background, but I haven't brought it to the fore. Great post.

Dave, aka @TimeTradeBlog

Posted by: Dave @ TimeTrade | March 06, 2009 at 07:12 AM

Got this email from my friend Rick re the post...I need to get him to post a comment next time!

--
Jason, interesting blog. However, off the top of my head, my thoughts - a constraint implies that "production" gets faster down the line. However, in the sales funnel, it gets narrower the further along one gets in the sales cycle. I would look at it instead as a hurdle problem. The web site is just one way of creating awareness about a product/service. Whether it is the web site, a piece of collateral or a sales call/visit, one needs to get the prospect over the hurdle of identifying a benefit that makes the investment worthwhile. Also until we have a context-driven web, there are always going to be many web hits unrelated to what the viewer is seeking - thus the efforts of optimizing search engine marketing key words.

Well, Rick...no one said it was a perfect analogy!

Seriously though, there is a sales example here and a marketing example here with different goals. Sales wants the closed/won opportunity and marketing wants the conversion. Different goals, different "hurdles."

And regarding "unrelated" web hits we can massage the numbers a little, and Demandbase can help to do that actually. You would have a new set of numbers like...60% of your visitors were from your target markets, and of those 8% converted. Which would still leave 55 visitors out of 100 who WERE relevant but DIDN'T convert.

Posted by: Jason Stewart | March 06, 2009 at 04:19 PM