The Truth About Outsourcing Sales Development Teams with Matthew Iovanni
Sales and marketing are constantly evolving, with a focal point on the role of SDRs for businesses aiming to boost growth.
On the Predictable Revenue Podcast, Collin Stewart welcomed Matthew Iovanni, partner at Full Funnel, for a candid discussion on the pros and cons of outsourcing the SDR function. Their conversation sheds light on differing perspectives, hinging on a company’s stage and market understanding.
The Outsourcing Debate: When Does It Work?
Matthew Iovanni brings a nuanced perspective to the discussion. He recognizes the significant benefits of outsourcing, especially for industry giants like Google or Microsoft. With well-established product-market fits and established sales processes, these companies can effectively use outsourcing to streamline operations and bolster their distribution efforts.
On the flip side, Iovanni highlights a stark contrast to smaller businesses and startups still navigating their place in the market. He argues that these organizations sometimes rush into outsourcing as a quick solution for demand generation without a deep understanding of their market’s unique needs. This hasty approach can disconnect the outsourced SDR activities and the company’s actual market fit.
SDRs: The Untapped Potential in Sales Strategy
Collin echoes Iovanni’s sentiments, emphasizing the crucial role of SDRs in identifying and capitalizing on existing market demand. He points out a common pitfall that startups tend to fall into using outbound strategies not only as a sales tool but inadvertently as a means to validate their market hypotheses. While widespread, this approach may not consistently deliver the desired results if the underlying strategy and market understanding aren’t robust.
Furthermore, they delve into the often underestimated role of SDRs within the broader spectrum of demand-generation programs. Iovanni astutely observes that many businesses overlook the strategic value of SDRs, relegating them to what is typically seen as low-level operational work. They argue a pressing need for a significant shift in this perspective.
Rethinking SDR Outsourcing
Iovanni and Stewart concur that many companies often see the decision to outsource SDR functions in black and white terms, leading to a quick dismissal if immediate results are not evident. Iovanni advises focusing on the quality of interactions facilitated by SDRs rather than just their ability to close deals. This approach is vital for companies effectively utilizing their SDR functions, whether outsourced or in-house.
Beyond Labor and Into Strategy
Matt sheds light on a common oversight made by companies in their approach to outsourcing SDR functions. He emphasizes that solely focusing on labor aspects overlooks the critical elements of strategic planning and management. This gap in understanding often results in companies undervaluing the role of SDRs, expecting quick results without laying the necessary strategic groundwork. Collin concurs, highlighting the pivotal role of SDRs in identifying existing market demand rather than trying to create it. He emphasizes the nuanced difference in effort required to convert warm leads from a founder’s network compared to the more challenging cold outbound leads.
When addressing the labor market, both Collin and Matthew acknowledge the difficulties associated with sustaining the traditional US-based SDR model, particularly in cities with high living costs. They recognize the short tenure of SDRs in these roles and suggest globalization as a viable solution. By tapping into the global labor market, companies can access experienced mid-career professionals who are more likely to be satisfied with their compensation and less inclined to seek rapid career advancement.
The Undervalued Role of SDRs in Demand Generation
Exploring the role of SDRs in more depth, Matt draws attention to the prevalent misconception that SDR work is low-level despite its significant impact on demand generation. He suggests a paradigm shift in which demand generation is recognized as a standalone department deserving of distinct KPIs and dedicated budget allocation. This repositioning acknowledges the strategic value of SDRs within the broader sales and marketing strategy.
One common myth to address is that SDRs possess the magical ability to create demand.
Both Collin and Matthew concur that the primary role of SDRs is to identify and engage with existing pain points in the market. They emphasize that the effectiveness of SDRs hinges on a company’s strategic approach to targeting the right audience. Companies often harbor unrealistic expectations, viewing SDRs as a quick solution to broader sales challenges rather than comprehending their integral role within a strategic sales process.
Structural Challenges in Sales Development
As for the structural issues within sales development, Collin and Matt identify a critical problem: the absence of a long-term career path for SDRs.
This lack of progression leads to a cycle where proficient SDRs are quickly moved to account executive roles, leaving a void in experienced SDRs and potentially resulting in an overabundance of less effective account executives.
Valuing and Investing in Demand Generation
Both experts stress the importance of companies re-evaluating and making substantial investments in demand generation. They advocate for acknowledging its strategic significance and making it an essential department. They argue that this shift has the potential to address many of the inefficiencies currently observed in sales development and ultimately lead to improved overall sales outcomes.
A significant aspect to consider is the SDR market’s evolving landscape, particularly the demand engineering trend. This innovative approach involves harnessing sophisticated tools and AI to enhance sales development strategies. Matthew highlights Clay as a platform he deems pivotal in this transformation, underscoring the requirement for skilled professionals to leverage such advanced tools effectively.
Understanding ROI in SDR Outsourcing
Matt Iovanni provides insights into the true ROI of SDR programs. He underscores the importance of aligning ROI expectations with a company’s financial framework and market position.
Matt highlights that a reasonable objective is closing one out of every five qualified deals. However, he places greater emphasis on the growth of the sales pipeline rather than immediate returns on investment. He observes that many companies hold unrealistic expectations regarding the immediate financial outcomes of their outsourced SDR activities.
The Misconceptions of Outsourced SDRs
Collin supports Matt’s sentiments, highlighting a common misconception among companies that see SDR outsourcing simply as renting an SDR. This view often overlooks practical SDR functions’ critical strategy and management elements.
Collin notes that companies frequently hesitate to invest in strategic planning, expecting outsourced SDRs to yield results without sufficient guidance or market understanding.
Internal vs. External SDRs
Matt and Collin acknowledge that the effectiveness of an SDR function depends on a deep understanding of the market and customers, which is often lacking in outsourced arrangements. They concur that internal SDRs outperform their external counterparts because of their closer alignment with the company and their grasp of market nuances.
Matthew highlights a significant challenge faced by companies looking to internalize their SDR function: a robust support infrastructure. This encompasses data operations, technology management, and strategic planning. Finding an SDR manager who excels in all these areas is a rarity and poses a hurdle in building an effective internal SDR team.
Sharing his personal experience, Collin discusses his difficulties when hiring in Canada and his decision to establish his company’s SDR team in Mexico. This approach proved successful as he recruited skilled professionals in the mid-point of their careers, possessing strong communication skills and contentment in their roles, resulting in a stable and effective SDR team.
Effective Budget Utilization in Building an SDR Team
Collin suggests that companies with a budget for 4-5 outsourced SDRs would benefit more from investing in an internal team. He argues that this approach could yield a better return on investment, considering the long-term benefits of having an in-house team aligned with the company’s culture and strategy.
The Role of Outsourcing Firms
Matt points out that while outsourcing firms can proficiently operationalize the SDR function, they cannot remedy a lack of product-market fit or a gap in executive understanding. He advises companies to take ownership of their SDR function once an outsourcing firm has established and operationalized it.
Collin adds that the actual value of an outsourced SDR function lies in its initial setup and operationalization, but it should not be viewed as a long-term solution.
The Limitations of Outsourcing Firms
Matthew and Collin discuss the capabilities and limitations of outsourcing firms in managing SDR functions. They acknowledge that while these firms are adept at operationalizing SDRs, they cannot rectify a lack of product-market fit. Matthew advocates for utilizing these firms primarily for setting up and initiating the SDR function, not as a permanent solution.
Collin concurs, highlighting that companies often have unrealistic expectations of outsourced SDRs, mainly when providing necessary onboarding and strategic guidance.
Accountability in Sales and Market Fit
Both experts agree that companies must assume responsibility for their sales strategies and market challenges. Outsourcing, they argue, should not be seen as a cure-all for fundamental product or market issues. Instead, it should be a stepping stone to establishing a robust, internally managed SDR function.
The Impact of Market Targeting on SDR Success
Collin highlights a fundamental truth in sales development: targeting the right market is crucial. He illustrates this with an example of selling SaaS software to an incompatible market, like farmers in Nebraska, which would inevitably lead to unsuccessful outcomes. Matthew reinforces this point by sharing his experience selling COVID testing during the pandemic. He credits the success to the dire need for the product in the market rather than exceptional sales skills.
The Lack of a Defined Career Path in Sales Development
Collin points out a significant issue within the sales development industry: the absence of a “guru track.” This gap leads to a scarcity of experienced SDRs, as many quickly move towards account executive roles. The lack of a defined career progression for SDRs results in a shortage of deep expertise in this vital function.
Internalizing SDR Functions for Sustainable Growth
While the initial setup and early stages of an SDR function can be effectively outsourced, achieving sustainable growth and effectiveness necessitates companies bringing their SDR functions in-house and taking full ownership. This approach not only aids in comprehending the intricacies of managing an effective SDR team and ensures a deeper alignment with the company’s overall sales strategy and market objectives.
Collin and Matthew agree that the SDR landscape is undergoing significant changes. Companies must adapt by globalizing their workforce or reevaluating their demand generation departments. Those who fail to adjust to these evolving dynamics may encounter substantial challenges in the coming years, underscoring the importance of maintaining agility and forward-thinking in sales development strategies.
Conclusion
The debate surrounding the outsourcing of SDR functions is multifaceted, with insights from experts like Matthew Iovanni and Collin shedding light on critical considerations. Outsourcing can benefit established companies with well-defined product-market fits, but it poses challenges, especially for smaller businesses and startups.
One key takeaway is the importance of understanding the strategic value of SDRs and recognizing the need for deep market and customer understanding. Successful SDR programs require a nuanced approach, focusing on closing deals and pipeline growth, market targeting, and long-term strategy.
Are you interested in boosting your sales and marketing strategies? Connect with us at Predictable Revenue to explore our services. Get started now!
Are you looking to optimize your SDR function? Reach out to Matt and Full Funnel for expert guidance and support. Explore their website to learn how they can assist your business.
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