Better, faster, cheaper

pie chart

Life Cycle provides a helpful visual timeline for estimating how the average consumer spends each hour in a day. NORTHCUBE.

Shawn Carolan of Menlo Ventures does a great job of giving examples of BFS, the Better, Faster, Cheaper ways that startups can differentiate themselves in the Forbes article Nobody Cares About Your Big Idea. People do care about one thing: What’s in it for them?

What sets successful consumer tech startups apart from the fads is how their products impact customers’ two most precious commodities: time and money. We’ve all heard the saying better, faster, cheaper; this is how to apply it with precision.

He gives a lot of great examples, like how Spotify successfully entered a market dominated by iTunes. However, one point he doesn’t make is that there are two ways to impact customers money: help them save it or help them make it. Obviously the former is for the consumer market, but the latter can be critical for the enterprise market. Salesforce is a great example of a successful startup that helped enterprise companies make more money by providing a much better CRM (Customer Relationship Management system) to their sales force, thus making them more productive. All of the successful companies Shawn lists are B2C, which are great for B2C startups; you are left to find your own B2B successful startups, a good exercise for you, if you are targeting the enterprise!

Here’s his last words on the consumer market:

Ultimately, the hardest part can often be picking a small, single challenge to get started on. Many opportunities remain for consumer tech to make a positive impact, including addressing key issues in transportation, housing, lifelong learning, mental health and much more. None can be solved easily, but by having a crystal-clear picture of your product, it’s still possible to capture customer attention in a busy and distracted world. Consumers will always look out for their own best interests, rather than yours. When both can be met simultaneously, great new companies are born.

There are many issues not covered in this relatively short post, of course. One of the major ones is are you a vitamin (nice to have) or a pain pill (must have)? This makes all the difference in the world in the B2C market, though it must be said that vitamins did become a billion dollar market!

It’s great to see advice for startups from someone who is both a founder and an early stage venture capital investor. Menlo Ventures was the first VC investor in Roku in 2008. Roku recently changed their business plan and that change, from just selling hardware – which is where they started – to selling subscriptions to streaming services, is a great example of an early stage company migrating to an adjacent market.

It is easy to figure out what cheaper is. And it’s usually not hard to figure out what makes a product faster. But Better needs to be defined. Amazon did a great job of providing better in two dimensions: ease of use, with their One-Click buying option, and a huge selection of products, far beyond what any brick and mortar store could possibly carry.

So the exercise I leave B2C founders (aside from reading Shawn’s post) is to determine just how you are better. Because I’m a firm believer that being cheaper means competing on price, which can result in a race to the bottom. Being faster may or may not result in a sale. But better to me is the sales maker. How is your product better than competitors or the current way customers are solving their problem?

 

 

Companies with great go-to-new-market strategies

As I’ve no doubt mentioned before, a very common problem with the founders whom I see is that they always want to boil the ocean. I encourage them to start by boiling a teaspoon! If they succeed there they can move up to a cup, then a pint, and so on. There are three mega-successful companies who have expanded to adjacent markets over time with brilliant go-to-new-market strategies.

Microsoft

In 1975 Paul Allen and Bill Gates founded Microsoft with a grand vision of Microsoft products in every business and in every home. A great vision that, of course, missed mobile. And interestingly enough forty-four years later, they are still missing in action in the mobile market.

But Bill and Paul started with the proverbial teaspoon: focused exclusively on programmers, for what were then called microcomputers. Being programmers themselves then knew their market cold. And they started with a single and relatively simple product, porting the BASIC programming language, developed by John Kemeny for Dartmouth students, to the first microcomputer, the Altair. Microsoft dominated the market for programming languages for microcomputers, in fact they had a monopoly. I can’t even remember who was in second place. Bill Gates was incredibly shrewd. When IBM came calling for an operating system for their then secret PC, codenamed the Peanut, instead of turning IBM away because they hadn’t developed an OS themselves, they cleverly purchased an OS from a developer practically down the street, did some polishing around the edges, and created PC-DOS for IBM. But brilliantly Microsoft managed to keep all rights to the software and thus created MS-DOS, which they licensed to all the IBM clones. Talk about a monopoly! For decades no one challenged Microsoft and MS-DOS. The point of the Microsoft story is they took what they learned from developing and selling programming languages to a huge adjacent market, operating systems; from which they expanded to yet another gigantic adjacent market, tools for knowledge workers, AKA, Microsoft Office. The rest was history – you can read it elsewhere, which I recommend you do.

Facebook

Microsoft is ancient history to virtually all my mentees who weren’t even born when Microsoft was founded, let alone when IBM helped make them a colossus. So what’s another example of a more modern go-to-a-new-market company? How about Facebook? Mark Zuckerberg saw how overwhelming demand from customers overwhelmed social network pioneer Friendster, constantly crashing their servers, and angering users to much that they were primed for another, robust social network. So Zuckerberg carefully expanded from his beachhead at Harvard, first to the Ivy League schools; then to other elite universities, like Stanford; then to high schools, and then to anyone with a .edu email account. This phased-in strategy enabled Facebook to build up their data centers in advance of demand, thus ensuring their users a robust app and picking up those users from Friendster as well as those from MySpace, who got tired of the personalized pages that looked like crazed graffiti walls. Of course, Zuckerberg was far from done.  Finally, confident that his data centers had the capacity, he let in anyone with an email account who was willing to use their real name – no anonymity was allowed on Facebook. Again, the rest is history (though some of it has proved to have a very dark side).

Netflix

Another great example of a company that found a niche and dominated it before they expanded to a new market, or in Netflix’s case a new mode of delivering its products to its customers. Netflix was founded in 1997 by Reed Hastings and Mark Rudolph. The niche they chose to start with was heavy users of video disks who were getting tired of paying late return fees to Blockbuster and other video stores that rented movies and TV shows on video disks. Again, my mentees might not be old enough to remember Netflix’s ubiquitous red envelopes they used to mail their rental disks back and forth to users.  Netflix solved a huge problem for users – no more late return fees! And you could keep those movies as long as you wanted. My family had a subscription for three movies at at time each month. When we returned one movie we could get another. But Netflix was not satisfied with this clunky way to deliver movies and TV shows to its users. The MP3 file format had enabled first downloads, then streaming for music. Video streaming was not that far behind and Netflix jumped on that technology with both feet. Now their users could get instant gratification, and no more fussing with those red envelopes! And while Netflix focused only on the U.S., the advent of streaming has enabled them to expand into the huge international market.

So while each of these three companies started with different customers and then expanded to new markets very differently, they all moved strategically into adjacent markets only when they had dominated their initial niche market.

You too can find a unserved niche market. My mentee venture Candorful helps returning veterans nail the job interview, even though most vets have never even had a job interview before. Candorful started with a focus only on returning vets, but soon realized that the spouses of those vets were also needed help landing jobs. So you don’t have to be a Microsoft, Facebook, or Netflix to find a niche and start by serving it extremely well. Candorful is just the most recent example I can give, some others are still in stealth mode. But if they can do it so can you: focus on a niche market before you expand to an adjacent market. Only expand to a new, adjacent market when you dominate your niche.

 

The pros and cons of channel sales for startups

channel

There are two types of B2B sales: direct and indirect. In the direct sales model the company has one or more sales reps who call on customers, to use the antiquated term, either in person or via video conference. (The latter is far less expensive and can actually be preferred by customers, as it is more time efficient.)

The indirect model means the company uses another party or company to sell its product or services to their customers. The typical term for this model is channel sales. 

What are the pros and cons of channel sales for a startup company?

Pros

First, I urge all startups to study channel sales, as all startups are resource-constrained and channel sales reduces the need to add resources, namely one or more sales people. Sales people are typically compensated by a base salary, incentive payments based on how much they sell – termed meeting or exceeding their quota or sales projection- corporate benefits, and equity. A large additional cost for sales people calling on customers in person is T & E, another antiquated term meaning travel and entertainment. Thus sales people can be very expensive. However, if they meet or exceed their quotas they should be a net benefit to the company.

By selling through another company you incur none of these expenses. Nor do you incur the time and possible cost (advertising, recruiters) of hiring a sales person and the responsibility of managing them.

But the biggest pro for channel sales is that your partner already has customers for your product. The channel partner is already in contact with potential customers for your product by dint of having sold them their own product. Here’s a simple example. Let’s say you have invented a new type of high performance tire for sports cars. You could sell directly to owners of sports cars and keep 100% of the sale. But imagine the difficulty and time and effort needed to reach individual sports car owners. It would be much more efficient to offer your new tire to existing tire companies, who already have customers, such as auto repair shops, tire stores, etc. Or you could target a specific car, like the Corvette and try to sell your tires through Corvette dealers.

Time to first revenue can be dramatically shorter by selling through a channel. Your product may be such a good fit with your channel partners that you enhance the sales of their product! That’s truly a win-win.

Finally you typically pay for performance: if the channel partners sells your product, they get a sales commission. No sales, no commission. However, some channel partners may ask for upfront payment to cover their expenses in taking on your product.

Cons

Number one: where do you find a channel partner? How do you determine that they can successfully sell your product? Way back in the last century when I was in the PC software industry there were established channel partners. They were called VARS for Value Added Resellers. Their value might be training, support or even customization of their partners’ products to make them a better fit for the customer. Today consulting companies often act as channel sales partners. The best way to find channel partners is through the customer discovery process. First you define a market you have evidence (beta tests, focus groups, surveys, successful pilots, etc.) your product will fit. You need to add a question to your customer discovery interview: “What products or services do you or your colleagues purchase from a third party rather than directly from the manufacturer or developer?” and the natural follow up is, “Why? Is that the only way to buy the product? or do they provide some service not provided by the manufacturer, like training?”

If you conduct enough interviews you will be able to compile a list of channel partners or resellers. Say you have invented a new medical device for people with sleep apnea. Rather than attempting to find people who have this medical problem and then selling them to them directly you might well try using a channel partner. But what if the channel partners sales reps don’t like your product? They might find it too complicated to explain. Or maybe it’s so inexpensive that the commission they’d gain is very small compared to other products they sell. Or perhaps they perceive there is too much competition for your product so they don’t make an effort.

After finding and contacting potential resellers you need to perform due diligence on the company. What is their reputation? What do their customers say about their sales reps? Are the well informed and helpful? Or bothersome and don’t know much about the products they sell? How does the company handle problems and complaints? How responsive are they? What other companies do they act as a channel for? What do these companies say about the channel’s performance?

Channel partners aren’t cheap. You may need to give up as much as 50% of your net sales price to incentivize them. You will have to train the reps on how to sell your product. Sales people travel constantly, just scheduling a training session can be a huge headache. Turnover at your channel partner may be a problem, resulting in you constantly having to train new reps.

By using a channel you are giving up the vital link to the customer. How will you get feedback on how your customers are using your product? Their ideas on how to improve the product? Even their ideas on complementary products? You will need to hammer out an agreement with your channel partner on how they will gather and share market intelligence. Negotiating a contract with a reseller may be time consuming and expensive (legal fees). Even if they have a standard contract, you may well need modifications.

In Summary

One way to think about channel partners is that they are your customer: you need to find them, qualify them, convince them that your product should be carried by their sales reps, train the reps, provide support, and of course negotiate a price and contract with them. But I urge startups to explore the channel sales option in enterprise sales. Fielding your own sales force can be very expensive and consume a lot of management resources. On the other hand using in-house reps who can sell via video calls can cut that expense.

The two major variables are cost of customer acquisition and the lifetime value of a customer. You need to model that out for direct and channel sales. The other critical item is access to customer data and feedback. How will you get that if a partner is selling your product?

There’s a lot more to channel sales, but hopefully this short post will get you started in exploring you options in bringing your product to market.

Beware of a contract’s exclusivity clause

contract

Writing about strategic alliances brings up the issue of exclusivity clauses in distribution and sales agreements. Someday, I hope, someone will write the full story of Software Arts, Inc., the company that invented the first electronic spreadsheet, VisiCalc, and foundered on the shoals of its original distribution contract. In brief, the founders of Software Arts had no interest in sales, marketing or distribution. Upon the advice of a Harvard Business School professor, they entered into a contract with Personal Software, Inc. to distribute VisiCalc. That was in 1979 or 1980. By 1984 that exclusive distribution agreement resulted in a deadly embrace that ended up killing off both companies.

The period when VisiCalc was launched was the dawn of the personal computer era and attorneys who understood both intellectual property law and software were scarcer than women software engineers of color.  During my time working at Software Arts and after its demise I was often asked the question why didn’t they patent the spreadsheet? Then Lotus, Microsoft, and any other company would have had to pay the inventors royalties, making the founders multi-millionaires if not billionaires. They did consult an attorney who told them software could not be patented, so no filing was made.

But that’s a side note to the crux of the issue: Software Arts entered into an exclusive contract with Personal Software, later VisiCorp, to market, sell and distribute its invention. When the two companies wanted to go their separate ways a few years later litigation over that ironclad contract knocked both companies out of the game, leaving a clear field for Mitch Kapor to dominate the corporate PC software market with his
Lotus 1-2-3 spreadsheet, a brilliant blending of an advanced version of VisiCalc with Mitch’s first successful product, distributed through Personal Software, VisiTrend/VisiPlot.

When mentoring founders who are in discussions or preparing to sign a contract with another party I ask them one simple question: What is the most important part of any contract? The answer is in my post; it’s the termination clause. In my view contracts are analogous to insurance policies. You hope to never have to pull out your home insurance policy to refresh your memory for what it covers because that means you must have had some untoward incident in your home – fire, theft, vandalism, etc.  Similarly with a distribution contract, when all is going well you have no need to try to enforce its terms and conditions. But when the parties have a falling out you need to pull out that contract and read the termination clause, because if all else fails that’s your one and only recourse. Suing a large company is just slow motion suicide for a startup. Large companies have in-house attorneys – a sunk cost – who will litigate you to death as you pay legal fees to combat them. Stay out of court at all costs!

The trap that Software Arts fell into, and here I would definitely fault their legal counsel, was to make the term of the contract co-terminus with the copyright to the VisiCalc’s code.  That was a huge mistake,  as we are talking many years here! So that brings up to the nut of this post: how do startup companies deal with prospective partners who insist on an exclusive agreement? No one likes competition, let alone sales or distribution companies. They want the whole market and nothing but the market.

The VCs who trained me hated exclusivity and constantly reminded me of this as I entered into contracts with Lotus, Software Publishing Corporation, and other PC software pioneers. But if you are really desperate for the help a large partner can give you then their demand for exclusivity must be met or countered. Here’s how:

Term: the length of the period of exclusivity should be limited in time. And that time should range from about one to three years. Do not tie the term into some other exogenous factor like the length of copyright!

Territory: startups by their nature lack reach. That’s why they enter into distribution contracts with large partners. By granting your large partner exclusivity in a territory you would have trouble reaching anyway you can hope to satisfy their need to protect their investment in sales and marketing. Typically for a U.S. startup granting exclusivity to one or more international markets is a good strategy. Just keep in mind that you must also apply a restricted term, as in the future your venture may be big enough to serve international markets itself.

Type of customer: often startups will decide to negotiate exclusivity around the type of customer they target, believing that if they can maintain exclusivity for those customers they aren’t giving up anything by granting exclusivity for other customers. For example, if you have developed a new social media platform aimed at millennials you might rightly feel that you aren’t giving up anything by allowing your partner to have exclusive rights to sell to corporations. But there are two problems with this strategy. One, it can be hard to predict who will actually end up being the users of your product. By locking out a market segment like corporations you will never have the opportunity to discover if they would be good customers. The other issue is that there are other markets you may not even be thinking about, such as government or education. By ceding all other markets than consumers to your partner you may well be giving up great opportunities in unexplored or untapped markets.

Version of the product:  at Addison-Wesley Publishing Company, where I invented the student edition of professional software products, we were able to convince developers like Lotus to provide us with a different, more limited version of their crown jewels, in the case of Lotus it was 1-2-3. You can modify software in many different ways: capacity and features being two of the most common. But taking this tack puts a development, testing and support burden on your venture – a cost you might not want to bear. And your market may rebel against getting an older or less capable version of the software. So granting exclusivity to a different version of your product can work, just be careful of those two issues. An interesting twist on this idea is how Tesla sells their vehicles. All Teslas have the same basic features and performance. But Tesla can “turn on” new features and enhance performance through remotely unlocking software – if the customer is willing to pay. This clever tactic can be used in other markets to sell different versions of the same product at different price points.

Performance:  my preferred way to grant exclusivity is to make it performance based. Thus your distributor can only maintain exclusivity by selling X units in a set period, usually one year, or they risk losing their grant of exclusivity. A good twist to this is to enable your partner to “buy up” – meaning if they don’t meet the agreed upon sales targets they can pay you as if they did.  Performance is also the best way to manage term. Your partner can maintain exclusivity so long as they meet agreed upon targets, which should grow year by year. The trick to this is it is very hard to forecast sales of new products from a startup, so you need to be careful about how you handle this condition of the agreement.

The bottomline is to avoid exclusivity agreements whenever you possibly can. The main reason is that it is so difficult to predict who or where your best customers will come from and to forecast revenues for a new product. But exclusivity can be a strong motivator for sales and distribution companies – it gives them a monopoly, the best way for them to profit by selling your product.  But no matter what type of agreement you negotiate – non-exclusive, exclusive or conditionally exclusive – make sure you have an escape hatch if things don’t work out. Get a lawyer who is familiar with sales, marketing and/or distribution contracts and knows how to craft that termination clause. That’s really your only protection from entering into an agreement that you find significantly disadvantageous, but it’s vital as and those of us who lost out big-time through Software Arts’ bad contract with Personal Software learned the hard way. As the saying goes, “Those who do not learn from the past are condemned to repeat it.” And the first priority of all startup is to learn!

 

How startups can sell to large enterprises

libeskind

I often find myself mentoring startups who are selling to large, established companies. But my enterprise sales experience has been limited to selling equity in my startup companies. In addition to selling to venture capital firms like Highland Capital, Greylock and Sigma, we sold equity to market leading firms including Apple [Computer], Silicon Valley Bank, Ernst and Young, Softbank, and Reed Elsevier.

What I learned from selling to these companies is you aren’t selling what you’ve done. And that’s not what they are buying. They are buying what you can do – for them. And most importantly they are buying what you can and will do that they can’t do themselves. They are betting on the future and betting on your startup.

I often find when mentoring B2B startups that they tend to try to sell on what they have accomplished and worry they don’t have enough traction to convince large companies to buy what they are selling. They tend to worry about what they haven’t done rather than focusing on what they can and will do. These entrepreneurs are looking in the review view mirror, not through the windshield.

My advice is always to be very frank and straightforward when questioned about their limitations. Whether it’s how long they have been in business, how many customers they have, or the years of experience of the management team. Be honest, but don’t be apologetic! You’re a startup, of course you aren’t going to have the customer list or years of experience of a large enterprise and that’s not why they are talking with you.

I still remember John Avalon, our contact at Ernst and Young, marveling at how quickly and cheaply we had built a web site that was far superior to their’s in 10% of the time and 5% of the cost. Big companies are talking to you because you have the magic! That’s what you are selling!

Reading The Wall Street Journal the other day I came across a great story of how David Libeskind, now a world famous architect, but then a teacher at Cranbrook Academy of Art in Michigan, in 1989, won a contest to design the Jewish Museum in Berlin.

As part of the interview process, a German senator asked about his prior experience. “I hadn’t built a single building, not even a garage,” Mr. Libeskind recalls today. But instead of telling that to the senator, he responded: “If you go by the past, Berlin’s not going to have any future.”

Mr. Libeskind outlined his vision for the building: “There is no door…You have to go underground…to penetrate through the darkness of the Holocaust to understand how the future would function.” He won the commission and went on to live in Berlin for nearly 12 years.

Keep in mind that like Daniel Libeskind, you are selling the future, not the past. You need to capture the imagination of your customers and their wallets will follow.

You can read more about Mr. Libeskind in the WSJ article Daniel Libeskind Thinks Buildings Should Tell Stories and in his new book Edge of Order, which tells stories about his buildings and the life experiences that inspired them. I’ve ordered my copy.

 

Why, when, & how you need a sales leader

money

Despite the fact that MIT boasts a top-flight business school, I’ve rarely seen Sloan students, faculty or alumni as members of the teams we mentor at MIT’s Venture Mentoring Service. It’s probably no surprise that virtually all teams are composed of solely of engineers and scientists, after all MIT stands for Massachusetts Institute of Technology.

I’ve learned the hard way how important sales is to the success of startups. Build it and they will come has worked for perhaps 1% of venture-backed startups like Facebook and Twitter. However, creating and selling enterprise products is far different from consumer products. Virality, which is instrumental in acquiring customers in consumer markets, seldom if ever works in enterprise markets. I’m not sure how many of these
all-engineers teams understand that.

Why do you need a director of sales, anyway?

Here’s a great story about the value of sales, told to me many years ago by Bill Warner, for whom I was working at the time. Bill is the founder of Avid Technology, which while becoming wildly successful selling it’s Macintosh-based video editing systems, didn’t take off like a rocket at first. As is typical amongst engineers, the engineers at Avid had no understanding of the sales process and didn’t see why Avid even bothered to have a sales director.

One day, very early in the company’s lifespan, the sales director had gotten tired of how Avid’s engineer’s didn’t value his work, so he decided to invite a few of the engineers on a sales call to one of Avid’s beta testers, a video editing studio in New Hampshire. The group was greeted by the owner of the studio who gave them a tour of the facilities and described the work being done with the aid of Avid’s video editing workstations. When the tour was over the owner, Avid’s sales director and the engineers sat down in the owner’s office to get his feedback on their beta testing of the Avid’s digital non-linear editing system. For about fifteen minutes the owner of the studio  relentlessly bombarded them with complaints about the system. When he finally finished all the engineers were slumping in their chairs and staring morosely at their shoes. But not the sales director. He looked the owner in the eye and said, “Thanks for the valuable feedback, Rick. Now tell me, how many editing workstations are you planning to buy?” When the owner answered, “Let’s start with eight” the engineers heads all snapped up to stare at the sales director in amazement. From that day on grumbling about why Avid even needed a sales department ended. (Please excuse errors in my recounting this story, I heard it a long time ago and the details have gotten fuzzy along the way.)

As I’ve written, there are only two jobs in a startup: building a product and selling it. Do you know what happens when an engineer-founder takes on the sales role? You gain a lousy sales person and lose a great engineer! That’s not to say that some engineers, like Bill Gates of Microsoft fame, aren’t good at sales. But unless one of your engineers has sales experience or happens to be a natural sales leader, you must bring on a sales director if you expect to succeed in the enterprise market. (For those firms in the B2C market resources should be first expended on a marketing wizard.)

When do you need a sales director?

Forgive the generalization, but as a rule sales people have very short term goals, “How much can I sell this quarter?” whereas marketing directors take a longer view, “How will we become the leader in our market?” Another general rule: sales people are motivated by cash compensation (short term focus) and marketeers are motivated by equity compensation (long term focus).  I liken marketing and sales to handed-ness. Your company need two hands, one is sales, the other being marketing. They need to work together. But few people are ambidextrous, they are either natural sales people or natural marketeers, but not both. At Course Technology, we were very fortunate to have an ambidextrous executive, Howard Diamond, who was our VP of Sales and Marketing

You should start looking for a sales director as soon as you launch your company, if not before. Why? Because it is extraordinarily hard to hire a great sales director. You will need to kiss a lot of frogs in this process. The search could take many months. If you wait until your product is ready to launch you will lose out you on any first mover advantage your might have had. And sales director don’t just sell! They also provide valuable customer feedback to engineering during the product development phase. Sales in the enterprise market – and even some segments of the consumer market – has a very long sales cycle – measured in months. And generally speaking, the larger the company the slower the sales cycle as battleships are far less nimble than smaller craft.

However, sales people can’t sell demos or even prototypes and have no motivation do do so, because a sales director’s compensation is heavily weighted on sales commissions. Which is why ventures often wait until they are ready to launch their product to hire a sales director.

To determine when to hire a sales person you need to understand the lifecycle of a product from the viewpoint of your customers:

  • Concept – usually conveyed by a presentation
  • Demo – a dynamic way to demonstrate the product concept, such as an animation, a video or very early version
  • Prototype – a version of the product that the customer can try out for themselves, but it’s not feature-function complete, nor robust or polished
  • Alpha – a version for the key stakeholders in the venture, like Board members, investors, advisors and friends of the company to try out and provide feedback
  • Beta – a feature-function complete version that needs a great deal of customer testing to help find bugs, ascertain performance, and find edge cases overlooked in the alpha testing process.
  • MVP – the minimal viable product, the first version released to customers

Because sales directors are driven by cash, you will need to have an angel or VC investment large enough to pay at least the sales director’s draw. (A draw is an advance against future anticipated incentive compensation (commission) earnings). He or she might be willing to accrue commissions until the first round of funding, but don’t count on it.

You don’t want to hire a sales director too early (even though you start the search as soon as you incorporate), as you probably won’t be able to provide incentive-based compensation – they have nothing to sell. But  you don’t want to hire a sales director too late as you will lose out on the market insights a good sales person can provide to engineering; waiting will extend the time to first customer revenue significantly. Worse yet, by waiting you could lose out to a competitor who gains first-mover advantage.

An important factor to understand is the role the team plays in an investor’s decision to invest or not. The stronger the team – expertise, track record, experience in the market – the less risk to the investor and the more likely you are to land a seed round or even a Series A round. So if you are fortunate find a world-class sales director who could join the team early on, try to hire them, so long as they can support themselves until you land that first round.

How do  you find a great sales director?

Great sales directors, like great engineers are probably already working someplace else. However, if a company does an aqui-hire the acquirer is most likely just after the engineers; the company already has a fully staffed sales organization. And venture-backed startups do fail, resulting in sales people being laid off and thus on the market. Your investors, especially VCs, should be able to help in your search, as they have very large networks.  Like engineers, a sales person can be a great individual contributor, but will fail when put promoted into a management role. You can’t afford to provide OJT – On the Job Training – to a sales person. Your venture needs a proven sales manager do build your sales organization and who is also great at selling.

In any hiring in a startup you need to lean on your network. That’s one reason I encourage startups to setup an advisory board early in their lifespan. Advisors should have great networks and should be willing to use their networks to help you find job candidates.

To find a great sales director you need to be a great talent tracker. Keep up with the startup world via social media, print media, conferences, trade shows, and informal gatherings. Great sales directors, like great engineers, will have multiple job offers. How to make an offer and how to compensate a sales director are subjects for another post. Keep in mind that landing a world class sales person is like sport fishing, once you get the hook in their  mouths is takes strength, experience, and expertise to reel them in.

Missionary marketing – what is it and why you might consider it

sales

I can’t recall exactly when I first heard the term “missionary marketing” but it was years ago when I was an active entrepreneur trying to raise capital from VCs.  Most likely it was from a VC explaining to me why he didn’t want to invest in one of my startups. But the term is just as relevant to startups today as it was decades ago. Translating from
VC-ese, “missionary marketing” means that you – the founder – will have to spend considerable time and money educating customers. Tying up capital and founder’s time explaining to customers why they should buy their product and how to use it for business advantage seems like a poor case of resource allocation.

Certainly the best way to educate customers is “peer education” rather than “venture education.” I don’t have data to support this supposition, but I wager that many users of apps that have grown virally have benefited from friends showing friends how to use newly discovered apps like SnapChat – notorious for its opaque and confusing interface. One of the best quotes from Antonio Garcia Martinez’s book Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley is “… marketing is like sex, only losers have to pay for it.”

The disclaimer I’d attach to this quote is that while it certainly applies to consumer markets where if you haven’t built virality into your product you will go broke paying customer acquisition costs, it doesn’t apply in the hyper-competitive enterprise software market. I assure you no corporate IT staffer would be caught dead teaching a fellow IT person at a direct competitor how to use an enterprise program like Salesforce  – that would be a sure way to get fired. What some founders don’t seem to understand about the consumer market is it is a non-competitive market – consumers don’t try to keep their discovery of great apps secret, on the contrary, they can win social points for alerting friends to the latest hot app as Instagram was only a few short years ago. That’s the secret to what is now called viral marketing but used to be called simply “word of mouth.”

But on the contrary,  what if you are in a B2B market where customers will rarely talk with each other for fear of giving up competitive advantage? That’s where of necessity you will have to do missionary marketing. While cloud computing is the IT trend du jour today, just a few years ago the pundits all thought it would never fly. What company would entrust its IT functions to some startup’s servers? Salesforce was probably not the first SaaS application, but it’s certainly one of the oldest and most successful. If we used the Internet Wayback Machine we might be able to find examples of Salesforce’s marketing of it’s cloud based application. Check out the Salesforce website from March 7, 2000. Great list of benefits!

What lead me to think about missionary marketing was noticing this graphic from the article Rethinking Guided Reading to Advantage ALL Our Learners, which I noticed when browsing Flipboard.

OLM-progression-full

A friend of mine has been marketing math education software to schools for years and we have often talked about the learning model in primary education. But what caught my attention was the middle column of this graphic. It looks a lot like how you would educate a corporate software buyer: first demonstrate your product; then provide customer testimonials and references to enable your prospect to share the experiences of satisfied customers; the provide hands-on system setup and training before finally letting the now-educated customer to use your product on their own successfully.

So while corporate business and IT executives are unlikely to warm to the idea that they are the students and you are the teacher that is the reality if you are launching a new and truly different product. And if you aren’t doing that then you are going to have to compete on price – good luck with that!