If you’re basing your sales strategies on this principle, you might not get the desired results.
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If you're like most people, you might have investments in a mutual fund. It could be a direct contribution or indirect like a 401(k).
But, here's something you might not know: When mutual funds boast of "excellent returns" on investments, they don't tell the whole story. When they tout how their funds are outperforming the market, they leave out certain facts.
For example, mutual funds often exclude their "deceased" funds. These are funds they started several years ago, but no longer exist. The attrition could be because of liquidation, mergers, poor investment strategy or management.
So, an investment company could have 100 mutual funds in a 10-year period, and after five years, only 40 of the funds exist. But, when the company touts its "excellent returns," the data will exclude the 60 funds that did not survive.
In fact, one of the pioneers of the mutual fund industry, Vanguard, released a report that captured this reality. It found that for the five years ending on Dec. 31, 2011, 62 percent of surviving large-cap value funds outperformed their style benchmark. Here comes the shocking part: If you account for the deceased funds, that percentage dropped to 46 percent. This means that if you were an investor five years ago, you only had a 46 percent chance of picking a large-cap mutual fund winner.
But, this article is not about how to pick investments.
How to survive in sales
Here's the point: This phenomenon of only calling out winners thrives on the survivorship bias. It's the logical error of two things: One, we concentrate on the people or things that made it past some selection process. Two, we overlook those that don't make it past the selection because of their lack of visibility. These two errors lead to false conclusions and opinions in several different ways.
The problem is not only with mutual funds. We often find the same problem in B2B sales and prospecting.
Let's say I close a significant deal from a lead that visited my website from a Google ad. As a result, I conclude that paid search is the best channel for getting new business. In fact, one business owner told me recently, "I was able to connect with one CEO on LinkedIn. So, I want to focus on LinkedIn marketing."
But, here's the problem: This survivorship bias leads people to spend tons of money investing in those channels. And later, they start saying "This does not work."
There's nothing wrong with those channels. The only challenge is how they came to those conclusions. They've fallen victim to the survivorship bias.
The lessons I learned
We can avoid false, survivorship-bias-influenced decisions by understanding two factors: time and predictability. Let me explain.
First, let's talk about time. By time, I mean how long it takes for you to use the strategy. Were you consistent? In B2B sales — especially complex deals — time is a significant factor.
The author of Fanatical Prospecting, Jeb Blount, talks about the 30-day rule. The rule states that the prospecting you do in a 30-day window will pay off in the next 90 days. If you're looking for a quick fix for sales, by skipping the process, you will be disappointing yourself.
So, depending on how long it takes to close a deal, you need a fair amount of time to see if a channel or strategy is working. How long is enough time? Ninety to 150 days. This will be good enough time to execute and see if a strategy is worth it or only an outlier.
The second factor is predictability. Here's how I learned to define predictability: If someone else took the same steps I took or used the same strategy (after say, the 90-day period), will that person get the desired — if not same — results I had?
Predictability does not mean causation. But, at least it is the closest to a fair way of knowing what works, and what doesn't.
I had the chance to work with one client who wanted to connect farmers in Iowa to an online solar energy marketplace. We launched the project in October. Soon, we realized that was a harvest season and all the farmers were not available to speak with us. If you picked up the same sales process we did and implemented it in say, February, you might get different results.
Predictability is vital for a sales manager with a team. If you're hiring a new salesperson, ask yourself, "What's the goal?" Do you know which channels or activities your new hire can take to achieve the success you desire? Or is your goal for the new hire to figure it out? Either way is fine — only make sure the expectations are clear on both sides.