Chicago Booth Review Podcast Why AI Won’t Take Over the Sales Department

Episode Transcript

Hal Weitzman: Selling to customers drives all companies, but it's very different for a startup versus a big established corporation. So what are those differences? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking insights in a clear and straightforward way. I'm Hal Weitzman. Today, Chicago Booth's Michael Alter talks to us about the sales process. When should an entrepreneur hand over the task of selling to a dedicated professional? When should you start to standardize sales techniques and how is AI changing the sales process? Michael Alter, welcome back to the Chicago Booth Review Podcast.

Michael Alter: Thanks for having me again.

Hal Weitzman: Well, we had such fun talking with you last time about sales and how important sales is for every different function within an organization and how to do it. We wanted to have you back thinking about this idea that you mentioned in our last conversation about scaling and how the same type of sales techniques or the same salesperson that you have when you're starting out as a company organization is not necessarily who you want, just I guess in the same way managing a company. The founder doesn't necessarily manage the company once it gets bigger and bigger. So just as a basic question to start off with, why is it different? Why is sales different depending on how long the company's been around or how big it is?

Michael Alter: Well, I think sales to me is situational. And I probably should clarify that when I explain and talk about things, I'm really talking about the majority of the time, right? There's always going to be an exception to the rule, but I think if you're building a business and thinking about scaling, you want to manage to the rules. And so these are all sort of comments meant to the rules as opposed to, well, this one person I hired was so good, yeah, they could be, but more in terms of the general aspects of it. And when you think about it, in scaling your business, the types of skills you need early on are often very, very different than the types of skills you need in the middle and the types of skills you need when you're more established. And some of that has to do with the more established you are, usually the bigger your brand is, the more well known you are, the more data and analytics you have and understanding on what the process is.

When you've been selling something for 75 years, you have a pretty good idea what the three or four objections are and you have a pretty good idea what the two or three pain points are for somebody you want to buy. On the other end of the spectrum, when you're creating something from scratch, you may think you have that, but more often than not, you don't. And that's why we talk about pivoting early on in a business, trying to get that right fit between sort of, I'll call it sales channel fit. Some people call it product market fit, but the idea that we know what the value proposition is we should be selling against the right target market and do we have that right fit? And over time, early on when you're selling, you got to be iterating around to say, "Is this product for enterprise? Is it for medium-sized business? Is it for small businesses?"

And at the same time, do I have the right sort of value prop for them, the right messaging, the right approach to do that? And so if you sort of bring that back around to sales and when we talked maybe a little bit on the last podcast about this idea that entrepreneurial selling is very, very different than established selling. And a lot of that has to do with the stage of the business.

Hal Weitzman: Is it more creative?

Michael Alter: I don't know that it's always more creative. It's certainly more ambiguous, so you have to be creative to figure out how to solve it.

Hal Weitzman: You got to be comfortable with that uncertainty and lack of data that you talked about and also that as you say, you're kind of finding your way. You don't know if the customers you're talking to are your actual customers or even the product sometimes that you're selling is going to be the product ultimately that you're...

Michael Alter: Right. And then do we have the right way of selling it, the right channel to sell it through? And so you're really trying to find this sort of channel product sales market fit piece. Whereas in the more established organization, we have that. And when I call somebody up, I might have a brand behind me. They might take my call because they know my brand or a meeting with me. In the other case, they have no idea who I am. And so it's a lot harder to get that traction and get started.

Hal Weitzman: Yeah. You're reminding me when I was a student, I spent one terrible summer selling windows over the phone and I was terrible at it, but there was a script and I hated the script because I didn't even know what the script meant. I wasn't very versed in the windows, but it makes me think I was a very bad salesperson, Michael, for this company. I was only trying to get appointments. I wasn't even trying to sell the windows and I couldn't even get the appointments. But I was really bad. Was I bad because the script just wasn't me? If I could have been more myself, would I have been better? Because I'm thinking that a lot of big organizations have systems like you talked about. They have data, they have rinse repeat, they give someone a script, person just reads the script. Nowadays, it could be AI.

Michael Alter: Right.

Hal Weitzman: Is that going to work or is it really that you have to be a good salesperson regardless of the context?

Michael Alter: Right. Well, I think you're asking a slightly different question, which is can anybody be a salesperson or not?

Hal Weitzman: Right. Okay. There you go.

Michael Alter: And so when I think about that-

Hal Weitzman: You're a much better interviewer than I am as well.

Michael Alter: I've seen a lot of data around this and I think the answer is really pretty much most 90 plus percent of the people can be very effective in selling as long as they sell in their own style. And the study that I did, I can't remember to cite it where it came from, but it was basically, if you looked at introversion versus extroversion, a lot of us think that the best salesperson is the one who tells the best jokes, who's the life of the party, they're the good drinker, everyone's smiling. Everybody wants to be in the room with them. And I'll call them sort of extroverted versus the introverted person who's much more thoughtful, much quieter, maybe doesn't love to be with people. And what the study looked at is they looked at sort of a bell-shaped curve of the degree of extroversion on one end and introversion on the other.

And what they found was except for the extreme tales of either sort of 5% on either side, the 90% in the middle could learn to be a very effective salesperson as long as they sold in their style. So depending on where you are on that sort of introversion, extroversion strategy, if you will, going back to your window selling, I think you would have been a better appointment setter had you been able to do it in your style and adapt the script instead of just use their script. And so they either should have been hiring for someone that they knew fits that script or they should give you some flexibility.

Hal Weitzman: Actually, the script sucked, Michael. I think that was the problem because I remember thinking at the time, I'm not able to make a connection with these people first. I'm immediately into asking them about their windows and when they were last replaced rather than just ask them about their lives.

Michael Alter: Right. Which is another, again, challenge around sales. A lot of people think we can be very transactional because I got to get this product sold versus I need to actually build some rapport and connect with somebody. And the connection is what's going to really drive you to buy something.

Hal Weitzman: Hard to do over the phone.

Michael Alter: It's not easy to do over the phone, but it's not easy to do in general.

Hal Weitzman: Okay. So let's go back to the entrepreneurship stuff. So I would imagine that a lot of entrepreneurs have a great idea. They're actually not very good at selling it, which is why your class exists because they want to learn those skills. And one of the things they want to learn is how can they build a process? Like you said, they get one sale, they get very excited, but it's not repeatable. How can they think about building a process that actually is repeatable and might help them to scale?

Michael Alter: Well, I think one of the things that I teach in my class is that the entrepreneur has to be involved early on in the sales process. And one of the challenges that you have with entrepreneurs is they think, "Hey, I'm a product person. I'm a technology person. I'm a finance person, ops person. I don't sell. I'll just go hire somebody to sell my great idea." And that almost never works. And the reason it never works is because you got to take this idea and translate it. And oftentimes we're just not right with the product market fit like we just talked about the first time out. And so the entrepreneur has to be involved in the process because they've got to take this vision they have and keep iterating it around to come up with what the right answer is for the right customer. And so they have to be a part of that process.

Now they could have someone that sets up a meeting for them like you were doing in the windows business kind of thing, but they have to be in front of the customers early on and iterate and discover that. That's very, very different once you've got an established company because we understand a lot more what that process is and so we can start to outsource or we can bring in skills and people to do that. So the real challenge is how do I sort of go from this early world of discovery trying to figure it out and I got a few sales into this world of rinse and repeat? And here, that's a skill set that is almost like a unicorn to find because you have to find people that can sort of understand that ambiguous world and then start to listen into that world and understand the structure and process that you need in order to get there.

And so you almost think about it, you start out in founder-led sales, then you sort of have a small village, if you will, which is the sort of growth stage of the business. And then you have that sort of giant urban city where everybody knows what to do and how they do it. And so we're really talking about that middle, that sort of scary middle there.

Hal Weitzman: And that's the part of which, so if I start a company, I'd run the sales myself. When I get to a certain size, you're saying then I start to hire people.

Michael Alter: You start to hire people.

Hal Weitzman: But just the type of people I hire will be the more, I don't want to say creative because you said it's not necessarily creative, but the people who are comfortable with ambiguity.

Michael Alter: Initially. And then as you're starting to make that transition into that sort of little village, you're bringing in people that still have probably a lot of generalist skills, but they're good at sort of listening to different things, if you will, and putting some structure and process around it. And these are the builders. They're going to build your structure. They're going to build your sales process. And they're not going to take a one-page script and hand it to everybody and then leave the office for two months. They're going to build a script and they're going to iterate around till you get that script just right so that you can then start having somebody use it, if you will, and even know which parts of it we should let people use their own style versus which we have to have in it. And then they're going to start to put some of those funnel metrics and the process and structure that we talked about around things.

And then there's a lot of tools that you could start to bring in, whether those are more traditional SaaS tools or more AI tools, but to sort of drive and manage the process, the forecasting, all the structure around that.

Hal Weitzman: Are those the same people? So the village people, if I can call them that, great band. Are they the same people as the people who are basically delivering a well-honed script with all the data and the software and everything feeding into that?

Michael Alter: So usually they're not. And again, situation, I'm sure there are some that are, but if you think about the person that is the entrepreneurial salesperson, they're a very, very different breed than that established person. And the person that's leading that organization is very different as well. And so this sort of village person that you were just talking about is really, they love the rapid pace of scaling. We're hiring a bunch of people. We got to put them in place. We got to figure out how to train them. They're not all going to work out. So how do we quickly run through that process? How do we figure out what that process is? We're going to have a lot of sales meetings and start to scale up and go into new territories, new geographies, maybe new product categories, new industries. How do we quickly learn what works and what doesn't and are okay failing in the process because the failure is what we learn.

I like to say we make new mistakes, not the same mistake twice. And they love that sort of new mistake kind of world. If you then move into that established world, we don't get to make mistakes when we got to hit our industry, we got to hit our quarterly numbers, we got to be within 1% of the earnings per share number. So we better be forecasting right. We better be driving in our sales process right. We better have the happiest of customers. And so you're learning, maybe you're doing learning, but you're learning in a very different way and the pace is different. The big established company is this engine that's sort of moving in one direction. The other, we're just sort of getting momentum and we're trying to sort of harness and ride this wild beast that is the scaling process. So they could be the same person, but usually the person that gets their energy and excitement about that village is very different than the person that's running the big organization.

Hal Weitzman: Michael Alter, in the first half we talked about growing a company and how salespeople, the different kind of sales strategies, techniques, people that you need when you're a solo entrepreneur or a small scale startup versus what you called a village and I called the village people and then moving on to a big established company. Let's talk about that big established company. For someone who's leading a sales team and a big established company, what are the skills that they need versus what you talked about in the kind of medium size growth stage?

Michael Alter: Yeah. And obviously there are some overlapping skills that you need in general, really understanding your customer, your markets, things like that. But a lot of what these folks are really good at and the large organization is creating process and structure that has real guardrails so that we're really operating within a very narrow bandwidth. And what that means is they're really good at saying, okay, where do we need to be a year from now, two years from now? What are those skill sets? Example, how many employees do we need to have? If our particular salesperson can sell X, how many do we need to hit our scaling numbers? And then setting up a structure all the way from recruiting processes, onboarding processes, training processes, pipeline management, forecasting processes, where you are now putting in place more and more structure around what you're doing. Same is true in a comp plan, right?

We got to have one comp plan for 2,000 people is very different than the comp plan when I had 7 and the process and the structure of how you do that. And so these are very senior sophisticated managers. They understand the skills that they need to hire for, but then they're looking at how do we get more productive in what we're doing? So how do I get my existing sales reps to sell more and how do I get my new sales reps to be more productive faster? And what are the paths? And so there's a whole strategy component here around what other products can I sell through my existing channel and relationships as well as how do I make sure that I can hire more and more of those folks? And you're really a manager of manager just like you are in any other job.

So it's a very, very different role as a manager of manager. When you're starting out as an entrepreneur, you can see the people down the hall. They're actually probably in the same, sharing a desk with you. Here you've got a global organization all over the world, you're obviously managing through reports, you're managing through your managers. And so it's a very, very different skill set when you're thinking about that.

Hal Weitzman: I mean, if this is not too stupid a question, standardization, is that the key to growing a sales business? Do you have to standardize like we talked about scripts and everything else?

Michael Alter: Yeah, because what you're really doing is you're playing the odds. And so the odds are that, as an example, salespeople that come from this type of background, 80% of the time are successful with us. Salespeople that come from another background are only successful with us 20% of the time. So let's just hire more of the 80s and then let's figure out how to figure out if they're one of those 80% faster. And so it's all about sort of structure and process.

Hal Weitzman: What about a brand? Because you kind of think of a brand does a lot of the sales for you or does it? If you work for a well-known brand, does that change the role and the function of a sales rep?

Michael Alter: I think yes and no. Certainly when you have the wind at your back and you're known and you're trusted, you're just at a different starting point. And again, I spent my early career at IBM and there was always a saying when I was there, you never got fired for buying IBM because the brand would always stand behind you and help you. And that's clearly a lot easier to sell when you have that. But in the world that you're selling in today, you're likely if you're that IBM sales rep, to be selling against other big companies who have similar trusted relationships. And quite frankly, you're selling against a bunch of challenger brands who are trying to knock you off because they have the latest AI tool. They have the latest approach to solve that problem. And so what you're really doing then is you're selling on what your strength is that the other side can't get as much.

And so you would probably even want to push the trust and the value of the brand even more versus when you're starting out trying to knock somebody off.

Hal Weitzman: Okay. I wanted to ask, you mentioned AI there. I wanted to ask you about AI because people have this impression that with AI, you can just bootstrap a business and suddenly you and I can sit in a room and develop a $20 billion business with just the two of us. Is AI changing this dynamic? Is it changing sales? How is it changing it?

Michael Alter: I think it's going to fundamentally change it, but I think there will be a couple of truths that sort of hold through to everything. So the way that I think AI is going to change the sales world is it's going to make sales people way more productive, which is going to give them more time for face-to-face selling. And the old adage is sort of, again, people buy from people they like, people buy from who they can have a connection with. And again, if we go back to sales being situational, if I'm selling you pencils and you've already bought pencils from me for five years and now I can have an online reorder, you don't need the salesperson anymore. And I think some of that same things will be true in that more and more of the ongoing sales, once I've made it, you're not going to need as much of a salesperson as you don't in a lot of cases today.

But where there's a salesperson involved in the process, what will happen is they will be more productive and so they will have more time to sell face-to-face. And if you think about the skills that are out there, when I'm making a real sophisticated sale, I'm usually asking the other side to spend a lot of budget and in some ways to bet their career that I'm the right choice. I don't think AI is going to work there. I don't think we're going to have one AI bot talking to the other and we're going to try something for three million bucks and bet some careers.

Hal Weitzman: But I'm just thinking about when you're thinking about this idea with last podcast, you spoke about curiosity and listening. I mean, that's time consuming. I'm guessing that for some organizations, they just have time to sit for an hour doing discovery with clients that might not buy anything ultimately. But with AI, you can do as much. It's free to do all that discovery, collect all that information, and then maybe that feeds into a salesperson, but there's a lot of the process that might be able to be automated, no?

Michael Alter: Yeah. I'm sure that a lot of the process and a lot of the understanding of what I'll call requirements can be done. But in the end, the personal connection can't go away. And so salespeople, the skill that's going to be most valued in a salesperson going forward is those that have great people skills, great listening skills, and great communication skills. If you think about the world and you just have a two by two matrix in terms of skills that are sales or communication skills, which I think of as sales skills, and technical skills, the person who's got bad skills in both, they got a problem, right? That's an issue. And it used to be that the person that had the great skills in technical and communication skills was the most successful, but then the second most successful was the one with the strong technical skills, but maybe not as good at communication skills because I don't really need to communicate as long as I can do this job that nobody else can do.

I've got this coding capability, I've got this ability to figure out how to configure a pump for you, whatever it might be. And then the sort of third most successful was the person that had great communication skills, but not the technical skills. What AI is doing is it's leveling all the technology side of things and the differentiating skill is the communication skills. Now, certainly AI can help me write a better email. It can help me have a better conversation. It can help me think through different challenges, but in the end, sales are still going to be one person to the other. And so the skill is the communication skill.

Hal Weitzman: Do you think that AI is going to change entrepreneurial sales? So you said we'll still have the one-to-one. We think of entrepreneur like a startup. It's definitely going to depend on me having a relationship with you and you trusting me. Can that be automated, do you think? Because that's really where the bootstrapping happens, isn't it?

Michael Alter: Yeah. I mean, I think, again, I don't know that I have... I certainly don't have the answers for how AI is going to do everything and what's going to happen, right? But when I think about what are the most important skills to have as AI accelerates its capabilities, it's the communication skills because the last part of what AI will get better at is that communication capabilities. Right now it's already got the technical side of all of the bootstrapping and the other things. And I believe especially in the entrepreneurial world where really the entrepreneurial sale is not usually, while this is the greatest thing I've ever seen and it solves all my problems. It's I, as the buyer, have this real problem. I've tried to figure out how to solve it. I may even have budget. I may have even paid people to do it and I can't solve it and I got to fix it and I'm betting my career on somebody that's going to fix it.

That's a trust equation because the other person's like, "Well, I don't have a real product. I'm listening to you. I've got this belief I can solve it and I'm going to go away and make sure that I solve your problem." And so you're really trusting someone. And I think in today's world, we still need a face-to-face conversation where we've engaged on what we're doing before you're willing to bet $2 million in your career that I'm your answer. I just don't think you're going to do that with a chatbot yet.

Hal Weitzman: Okay. I want to finish by getting some advice from you. So if somebody's in startup, has an idea for a startup or they have a startup already and they have the vision that at some point this is going to be a huge established organization, what can they do now that will make sure that this growth stage is as smooth as possible?

Michael Alter: Well, the first thing they should do is they should get out of their quiet room and go talk to real live customers and potential customers and get the reaction from those customers. Because more often than not, people spend all their time building this perfect thing before they then go out and talk to people. And they make all these rationalizations for why they're right and why they know the problem, how they've marinated in it. But the only way you can-

Hal Weitzman: And they let AI tell them what a great idea it is.

Michael Alter: Exactly right. And it can build it for them quickly. You have to go out and talk to real live customers because they will help you shape and understand the pain points and the problem that you're trying to solve. And I'm not saying that your customers are going to tell you the answer, but your customers are going to give you a lot of information to help you come up with that answer.

Hal Weitzman: Okay. So that's the biggest mistake you see people making is just building stuff without really seeing if there's a market for it?

Michael Alter: Right. Right. And believing that they know the market better than their customers and saying, "Hey, I'm Steve Jobs. I knew people needed an iPhone and so I just am going to tell them what's right." The number of people where that really works for are very, very few. Most of us need to get out into the market and hear and understand not what the solution is, but what the problem is because once we know that we can solve it. I think it was Albert Einstein that said, "Hey, listen, if I got to solve a problem and I only got an hour, I'll spend 55 minutes trying to understand the problem because once I truly understand it, it's easy for me to solve." And you can only get that understanding engaged and out in the market.

Hal Weitzman: So if you are focused on problems and solving problems, is that the thing that's going to take you through to become a big company ultimately?

Michael Alter: Well, I think it's the thing that gets you started because solutions change over time as problems change. So you better understand how to do that problem. So the first thing is you've got to be out in the market. You got to be a really good listener. The second thing is you have to be a little bit irrational because you're going to see something in the world that others haven't. And are you seeing a mirage, in which case you're wasting your time? Or are you seeing something because you see something different than everybody else does and that's what your success is going to be built on. And so balancing that between it's a hallucination versus it's something real. And again, the way you're going to learn that is out talking to customers and understanding. So I think that whole piece is really critical to scaling. There are other characteristics that make great entrepreneurs that allow them to scale.

One is ruthless focus, right? They're willing to say no or not now to things because they're ruthlessly focused on what they're doing. And I think that's a really, really important skill to get success and to get early traction along the way. And then the third is adaptability. And it's kind of weird when you say, "Hey, someone's going to be irrational. They're probably not that adaptable." But over time, what they fell in love with is the problem, not the solution, and the solution has to change over time. The solution that worked for my SaaS business three years ago is probably not the solution that's going to work going forward because of AI and all that technology.

Hal Weitzman: So that focus on the problem enables me to pivot and change the solution.

Michael Alter: Exactly. Right. I'm not wedded to the solution. I'm wedded to the problem.

Hal Weitzman: Love that. Okay. Michael Alter, thank you so much for coming back on the podcast, talking about scaling, the village people is a new one for me.

Michael Alter: Yeah.

Hal Weitzman: Thanks very much for coming back.

Michael Alter: Thanks for having me.