According to think-tank Deloitte, 2023 will see a continuation of the same trends that have permeated the last few years: decreased consumer spending, lower product demand, and falling market capitalizations—augmented by geopolitical uncertainty and increased regulations, especially vis-a-vis climate change and social impact.
Macroeconomic responses to these considerations include modernizing legacy architecture and contemplating mergers and acquisitions. But what does this all mean on the front lines of software sales? For many managers, it may mean restructuring the team—and not necessarily by downsizing.
An Abundance of Tech Talent
Dozens of software companies have initiated mass layoffs in 2023, including Salesforce (8,000 layoffs), Amazon (18,000), Microsoft (10,000), Google (10,000), IBM (3,900), SAP (3,000), PayPal (2,000), and Dell (6,650). Of course, the downsizing of Twitter by half of its workforce took up most of the limelight, in part due to the celebrity of its new owner—in the process eclipsing the larger story of tens of thousands of cut jobs.
But seen from another angle, all this downsizing means that there is suddenly plenty of talent on the marketplace. And for companies that are not looking to lay off hundreds or thousands of employees, this has created an interesting opportunity to swap out underperforming talent with more productive human capital through the process of topgrading.
Topgrading via the 20-60-20 Rule
A driving principle behind topgrading is The 20-60-20 Rule, which suggests that 20% of a team’s players are superstars, 60% are average, and 20% are sub-par. The topgrading process ideally involves removing the underachieving 20% and replacing them with superstars. In that sense, topgrading is kind of like cleansing the blood, without leeches or medieval doctors wearing bird beak plague-masks. It may however, still have its pain points (more on that later).
Tograding with the 20-60-20 Rule is more likely to yield fruitful results in a bad job market because there is more talent available—lots of potential upper-twenty-percenters looking for work. It’s less likely to be fruitful in a bad job market, because having someone who’s performing at 80% capacity is better than nobody at all. One in the hand is worth two in the bush, as they say.
Topgrading with a PIP
Some managers will pair the topgrading process with a PIP, or performance improvement plan, giving that bottom 20% a chance to redeem themselves. Certain studies have shown that PIPs do not actually facilitate workplace improvement, with 90% of flagged employees still leaving the company. However, a well-intentioned PIP built into the HR framework can become a good tool to cover your bases, especially if you are using topgrading to replace underperforming talent.
Topgrading with a PIP plan does have its risks. While a PIP can help you CYA vis-a-vis legal repercussions, it can occasionally result in a gap in the team. Typical PIPs give an employee 90 days to turn things around—however, upon getting a PIP they might start looking for another job. 90 days is also a long time for potential hirees, who may secure different employment over the course of those three months. In the end, you'll be left with no birds in the hand, or the bush.
Pros and Cons of Topgrading
Letting go of a sales rep is a serious decision that needs to have its pros and cons weighed against each other. Keep in mind that the 20-60-20 numbers are not set in stone, so that (for instance) in a workforce of 30 sales reps, maybe only two or three reps are underperforming—and a topgrading process won’t really require you to let go of 6 people. Moreover, even if a certain percentage of your workforce is performing underpar, that does not mean they need to be eliminated or even given the de-facto notice of a PIP.
But it might. There are some instances where the so-called 20 percent faction will out itself. Employees who are putting in minimum effort, uncooperative, or explaining away everything with excuses are most likely not star achievers. The same is true for employees who are not getting along with the rest of the team, who complain, or who clearly fail to invest in their own sales growth. The unfortunate reality of today is that a whopping 85% of employees are unengaged or even totally disengaged at work.
Topgrading can also put your organization into a better position for when the market will bounce back. Think of your payroll like the NFL salary caps on teams: sometimes a team can’t keep their key players around. Letting go of some less desirable players can free up the payroll to retain a star quarterback. In your case, with a similarly limited payroll, topgrading out your underperforming talent and replacing it with engaged sales reps can maximize your revenue through a better performing team.
Over time, the 20-60-20 breakdown will readjust itself into a new bell curve, and need to be repeated. But that’s a story for another day.
A Final Word about Topgrading
As mentioned, using a topgrading process can be helpful for maximizing the efficiency of your team, but when accompanied by the advance-notice and delay of a PIP, it can have some risks. Discussing a hiring strategy with an experienced software sales recruiter can go a long way towards creating a smooth talent acquisition process.
Alternatively, if you’re an employee and the topgrading process is showing you the door, a recruiter can help you find a better-fitting opportunity.
Either way, the plethora of talent on the market (in part due to layoffs) is making now a prime time for hiring new talent, and for talent to find a better fit.
Whether you’re a manager or an employee, I have almost four decades of experience in software sales that I can leverage to your advantage. Send an email to mike@michaelblair.com and let’s connect.