Tuesday, August 29, 2006

Is the Pipeline a good metaphor for our list of opportunities?

My short answer is no.

After having given you some hints that should help prevent you from suffering from “Sales Executive’s Tunnel View” when faced with too thin a pipeline, let us allow ourselves to be a bit more philosophical today. I promise that this discussion will provide the platform for more practical topics I plan to bring to you in subsequent entries.

Let us however not get into the discussion about right and wrong models. Roger Schwarz in his book The Skilled Facilitator” cites George Box who said: All models are wrong; some are useful. Models are always an abstraction of reality. So they never cover the whole complexity of reality. When I thus say that I do not believe that the pipeline metaphor is a good model for our purposes, I mean it is not useful.

What makes a model useful then? For me a model is useful if it cannot only give us an explanation why something has happened, but also is capable of giving a prediction of what will happen within the context of a certain set of assumptions. It is my opinion that actually the pipeline model cannot even explain to us what has happened.

A pipeline has a constant diameter and thus allows for a constant flow of the liquid to be transported. Whether the pipeline is full is just a matter of the pressure the liquid is filled in at its beginning. Can you see the connection of this picture to our discussion about pumping up the pipeline (August 27, 2006). Also the rule of thumb we are using to see if our pipeline is full enough to make our numbers contradicts the model. I feel the rule of thumb is better described by a funnel.

I have used the funnel metaphor for quite a while now until recently. I presented the concept in my usual way in a seminar and one of the participants told me that there is also a flaw using the funnel as a graphical representation of our opportunity list. He reasoned that the funnel suggests that all deals sooner or later will have to come out of the funnel. The reality of selling is, that not all the opportunities in our list turn into revenue. He reminded me of my rule of thumb I had just presented to the audience.

Since then I have revised my model and I talk now about a leaking funnel. Had I read the book by Don Thomson “Keeping the Funnel Full” before giving that seminar, I could have saved myself the embarrassment. Don however does not call his model a leaking funnel. He uses the picture of a funnel with horizontal pipes. These pipes represent the outlet for the deals we abandon or loose while trying to push them through the funnel.

So then why does the pipeline remain such a popular concept with sales people? I think it is a reflection on their generally optimistic mindset. They need this to be able to do their job. You as their leader however have to avoid that this optimism leads to a heavily biased view of the state of your business.

You run the risk that the state of the business is presented to you as it ought to be and not as it is. Following the route of what the business ought to be might prevent you from being asked difficult questions by your superiors for a while. Sooner or later reality might hit; the latest at the end of the fiscal year when you are held accountable for the sales being way lower than what was expected in the business plan. The mildest of the questions you will hear now is why you had not given a warning signal earlier. You know the standard answer to this. You and your team had hoped that the short fall observed earlier in the year could be recuperated later as you had encouraging signals from the market. In the end however the market did turn out weaker than expected.

You might have had fewer hassles with your superiors during the year. The blow now at the end of the fiscal year can however be so hard that you do not recuperate from it. Your tenure in your current position might end. The choice is yours. It is your business life.

For those interested in ideas on how to reduce this bias towards a too optimistic presentation of the state of the business, I will show in one of my next entries how this can be done by extending the leaking funnel concept.

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