We sat down with Michael Back, founder & CEO of Honk, the easy way to find and pay for parking. Michael talks about the evolution of outside sales to inside sales, 100% commission compensation plans, and the trait he most respects in a sales person
Michael Back (MB): On the consumer side, Honk is here to make it easier to search, find, reserve and pay for parking. On the owner and operator side, it's about putting more cars in their parking lots. That’s really what it boils down to.
Jamie Scarborough (JS): Collective POS, your last business which you built for 13 years, was also about convenience of purchase?
MB: That’s correct– Collective was a transaction processing business. We built one of the largest non-bank credit card processors in Canada. What was happening in the credit card world was something very simple. It was less about processing transactions and more about adding value around the transactions. When I sold Collective, it was then about what other industries needed disruption. It didn't take us very long to think about the parking industry. If you think about the parking industry, the major innovation was adding a meter at every single space. Having the payment background that I did, Honk was started as a business to make parking about more than the parking meter.
JS: How is the business doing?
MB: Honk’s been around for 4 years and so much has changed already. We’ve realized it’s going to become so much more than the parking meter. We want to disrupt parking the way companies like Travelocity and Expedia disrupt travel. We are already starting to play with autonomous vehicles and connected cars. If you think about a car that in the very near future is going to drive itself, it has to know where parking exists, it has to know how much it costs and has to be able to transact, all without human interaction. That's where Honk is going.
JS: With Collective POS, you used a more traditional sales model. From what I understand, a huge part of that workforce, that sales force, was an outside sales profession.
MB: It was a combination. At first, we had feet on the street all over the country, knocking on doors and presenting to small merchants on premise. As the business grew, we built an inside sales capability.
JS: Which is more modern-- almost all inside sales is in that format. It is much less about being a lower version of sales, in fact it’s actually replacing almost all sales. We rarely call them ‘inside’ or ‘outside’ anymore. But at that time, outside sales was for the more senior people and inside sales was for the more junior people.
JS: How did you measure those outside sales people when you had so many transactions? I'm assuming it's not an easy task to keep track of all of the salespeople and how many meetings they're having?
MB: Absolutely. I was in my 20's, I didn't know anything about business so it was just about tracking how many deals each person was able to get. We were mostly just tracking the results: revenue, number of accounts and the type of accounts that were brought in. It wasn't so much about inspecting the inputs or the activity, it was really just noticing the outputs. Eventually the company got to a size where our phone started ringing and something very interesting happened. Say we got a hundred inbound leads, we would sell 50 deals. Then we got 200 inbound leads, we sold a 100 deals. Then we got 300 inbound leads and we still sold a hundred deals. Then 400 inbound leads and a hundred deals. What we realized was our math was all wrong. What we really needed to track was the fact we weren't closing 50 out of every hundred deals. When we put it like that, the funnel looked very different. That’s when someone introduced me to Salesforce. To this day, I live by it. I believe you need to inspect what you expect and look at all aspects of the funnel. At Honk, there is no concept of inside or outside. A sales person here uses the tools that are available. We do what it takes to win business.
JS: To be efficient in sales there’s this notion that you need to be in front of someone and shaking their hand to close a deal because that’s how all of the the big deals are closed. Now it seems as if people are doing millions of dollars worth of deals using remote technology.
MB: I actually think it's the opposite now. People don't want to see you. There are times and places where people will and that's where the trade shows and conferences come in and that's great because you can wine and dine... But beyond that, you can accomplish more in a 15 or 30 minute phone call than you can on an hour long meeting. People are so pressed for time today that people only buy from those that they know or like. Developing that relationship is important.
JS: The older model of sales was all about relationship building; playing golf or going for drinks. Now it’s entirely different. When you were looking at your Salesforce data did you find that it was so much easier to measure your inside sales compared to your outside sales?
MB: We could both measure and influence them. You knew when someone was doing presentations or sending out contracts because you actually saw them doing these tasks. There’s a certain type of camaraderie that comes with being in the office on a daily basis. It also brings a certain level of competition amongst all of the salespeople internally. There is something to be said about what happens by the water cooler, in the lunchroom or after work drinks. It's all of those intangibles that I think push your sales force forward.
JS: As you were building Collective POS how did you start paying people? Was it really high commissions, low salaries, no salaries?
MB: Absolutely. First of all, I was the first sales person.
JS: With the best companies that's always the case.
MB: So, I started that business by walking up and down the street and knocking on doors. Then I started thinking about elevating my process, building an infrastructure and getting more people in place to help me sell more product. That's when we started building a sales force. After that, what ended up happening was I couldn't afford to pay them, so it was all transactional. It was all tied to winning an account. They were 100% commission. We paid a lot so it was very lucrative for these people.
JS: They were bound to do well if the pay was there.
MB: Correct. Then we ended up growing to a point where we were able to put people on salary. That's when we started bringing the inside sales folks in. It was very interesting because at the time we were competing with the likes of Salesforce.com and Rogers. Our customers were the same small businesses and our salary packages and commission packages were very similar. So we were competing in the marketplace for human capital. It was never by design. In terms of structure, our base was lower but our commissions were higher- that was sheerly because we couldn’t afford to pay anything more. So what happened was, the people that were competing with Rogers and Salesforce ended up self selecting out. If we were offering a $35K base back in the day and say Rogers was offering $40K, our $35K came with uncapped commissions and Roger's $40K capped out at $60K. So the person who left and said, "I'm not going to take your opportunity and take a $40K that caps out at $60K instead”… turns out, that’s not the person we wanted in our sales force anyways.
MB: We ended up having people who started with a $35K base around 8-10 years ago. Obviously salaries have gone up since then… but people would start with us at a $35K base and instead of capping out at $60K, they were walking out of our office with $75K, $80K. Our top performers making $100-120k. So, it's amazing when they say necessity is the mother of all invention. We never designed our construction that way. Philosophically, I wanted a structure where there is no such thing as a cap, but most successful salespeople should get paid the most amount of money. There should be no reason to stop. These people are your stars.
JS: They're hungry.
MB: That was something that we fell backwards into, but ended up being one of the key reasons that we were able to attract great talent, hungry salespeople, top performers and the ones that took the risk averse solution and went to the big company, versus the ones that were risk takers and went to the small company. Our people were very well rewarded for it.
JS: How did you choose who to hire?
MB: We hired for culture, we hired for fit and we wanted people that were hungry and aspirational. We wanted people who wanted to buy cars, houses and eventually get married. People who wanted to build a career, wanted to learn.
JS: People who were going to stay hungry.
MB: Correct. That was the profile we looked for. We wanted the money hungry people. It’s interesting, if you say to someone, "hey, do you want to make a million dollars?" very few people would say, "no, not me." But what you do find is that some people fall off at a $100,000, some people fall off at $200,000, but as I said, we wanted the hungry people, we wanted the money motivated people, and it worked.
JS: How do you identify that the first interviews?
MB: You know it's an easy question to ask and it's a hard one to answer. I used to joke back in the day that I was very good at making bad hiring decisions. It was really just hiring for culture because you can always teach business. I knew nothing about parking when I started this 4 years ago. I knew about payments and I knew as a customer I had to park my car... but I didn't know about the inner workings of parking and everything that goes on. I always hired the person not the experience.
JS: By the time you sold Collective POS you had approximately 80 people. How many of those were salespeople?
MB: Around 30 or 40 on the street and about 30 or 40 in the office.
JS: A legitimately large sales force for Canada. How many managers would you have had at that time? Was it that formulated?
MB: There was around one manager for every 8 sales reps. By the end we had a VP of Sales and directors. The inside sales group of around 30 had 4 directors and 3 managers. It was never 1 manager to 20, 30, or 40 sales reps.
JS: How did you learn this? Was it all trial and error? What were the biggest changes you made to your business? Did they come from trial and error or did they come from other experts giving you advice?
MB: I joined a CEO group early and I would go to these meetings once a month, non-competitive. There are various companies that put these together. They are still close friends to this day. I just happened to be at a meeting, talking about the fact that even though our lead volume is increasing, we can't seem to be increasing our conversion rate. We hit a glass ceiling in terms of the number deals we could write in a month. It didn't matter if I added more people... we were stuck. That’s when I was introduced to salesforce.com. That's when the world opened up.
JS: Because you were seeing data that you just never knew existed.
MB: Correct. I was realizing that even though the lead came in on Monday, perhaps it took us six months to close that lead. My math was really linear and tied to the month. I started to understand people's performance, knowing what the average close rate was, the average length of a pitch, frequently asked questions, objections; all kinds of metrics. So that's when the world kind of opened up. A lot of it was trial and error, but a lot of it was some good advice.
JS: And it is that interest in data.
JS: While a lot of people have access to data, not everyone dives deep or has an interest in it. Were you always that way or did you surprise yourself?
MB: First of all, I have a degree in finance, so I would say that I was always analytical. We definitely made sales mathematical.
JS: What are the biggest KPIs that you look for as you are managing your sales team?
MB: I like effort. Well certainly, the numbers, the finance, the results… But when I am looking at salespeople and I am figuring out who the good salespeople are, I want to see hustle, I want to see effort– however you measure that. Maybe it’s calls, proposals, meetings… The sales cycles at Honk are longer than the sales cycles were at Collective. I’m looking for that person who shows up everyday and is organized, has defined next steps, comes in with goals and knows what they are going to do, those are the people that I have all the time for in the world. I really believe those are the people who achieve the best results. While there are exceptions to every rule, I would say that that one holds pretty true.
JS: Michael, you have been really open. I always appreciate the conversation.
MB: My pleasure. Thank you. This was fun.
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