Category Archives: Sales

How to B2B is morphing into B2A, B2D, B2M

From the broadly 2 types of companies, those that focus on consumers (B2C) and those that focus on businesses / enterprises (B2B) there is an explosion of new types. While most of the new types are still a subset of B2B or B2C, the increasing sub segmentation of B2B is creating multiple niches among those trying to sell to the “enterprise”.

The problems with B2B are fairly well documented – Long & slow sales cycles, multiple decision makers with largely different agendas (procurement wants it cheap, CIO wants it to fit into their technology stack and end users want it to be usable).

There are a 2 very interesting articles over the weekend from Dave McClure and Christina Cordova  which document the changed landscape in B2C. What I am seeing among our startups in the Accelerator is consistent with what Christina mentions in addition to the initial problem with most mobile consumer startups – which is getting users.

Essentially the marketing mechanisms (ads, PR, email) create a lot more friction to getting users to try / download the mobile app versus the web app.

So you have to primarily use a combination of reviews, recommendations or in-app ads to get users.

What’s happening on the B2B front is even more interesting.

B2B is morphing into B2D (developers), B2A (Architects, as an example) or B2M (Marketers).

Thanks to SaaS and Cloud pay-as-you-go services, the products are inexpensive enough to get enterprise segments without the hassles of going through the entire Purchase order process for many products.

So most B2B companies are targeting a specific user who is also the person to approve, buy and select the product / service that works for them.

The implications are obviously dramatic and ones that change the landscape completely.

In a follow on post I’ll document the ways this changes the marketing and sales techniques.

Why you should not outsource your initial sales efforts

Most technical founders are not comfortable with the sales process or the disciple of selling. They tend to treat it as beneath themselves and “sleazy”. Given that most entrepreneurs I interact with are engineers, I usually walk them through an engineer’s approach towards selling, which tends to mirror the agile development process they are familiar with (more about this in a later post).

Many entrepreneurs do try to sell, and not seeing quick success, come to a conclusion that they should outsource their sales efforts to an “expert”. Usually this is after they have exhausted their initial contacts and get frustrated with the constant rejection that comes with sales, or after they have finished tapping into their entire list of first level contacts who could possibly be a customer. They tend to be more comfortable “convincing” people they know well rather than “selling” to people they dont know at all. Which is why I ask them to “dig their well before they are thirsty“.

Without sales there is no business.

Without sales there are no customers. No customers means what you are building is a side project.

Without sales there is no revenue. No revenue means what you are working on is an unsustainable venture.

I have heard of enough companies who have died because they could not sell, but rarely heard of companies that died because they could not develop or build a solution that was sold.

To me, sales is the headlights to your business. I would never recommend outsourcing your sales function in your startup.

Even large companies I know in other areas besides technology, outsource manufacturing, engineering, finance or customer service, but rarely outsource sales or marketing.

I dont consider selling via channel partners as outsourcing your sales. That usually means you have to “sell” and convince your channel partners.

There are 3 reasons why I dont like sales outsourcing.

1. You dont “own” the customer and dont get direct customer feedback. In the initial days of your startup, its absolutely important to have direct customer connections, feedback and input. Even after you grow larger, customer connections are the biggest source of innovative ideas. Without direct customer access you will get a warped view of the real problems and pain points they have, which results in a sub optimal solution.

2. It is very hard to predict predict consistent closure of deals and commit to financial milestones. When you outsource sales, the outsourced company has the eyes and ears on the ground to understand what moves deals, whose budgets are cut and when deals might happen. That information is critical for you to plan your quarterly projections. Without that information you will also find it hard to understand how to allocate resource towards projects and features the engineering team should be working on.

3. Even if sales is “outsourced” most outsourcing vendors will require your help to constantly tweak your positioning, handle customer objections, change pricing, etc. Even after 5+ years at a large software company with over 500+ in a direct sales function, I found us to be constantly changing messaging and positioning each quarter to keep up with customer trends.

Can some parts of the sales process (like the initial lead generation) be outsourced instead of the entire sale process? Possibly. If you feel that the biggest challenge for you is to get the initial meetings and you get a sense that after your get those appointments you are able to move the sales process forward, then I would suggest you look to getting help from a firm that sets up appointments, or does targeted lead generation.

Why do companies buy anything from B2B startups?

Yesterday I had a chance to talk with a software entrepreneur who has built a security product that’s primarily sold to mid-sized and larger companies. Over 8 months have gone into the development and he has been able to get fewer than 5 customers for the product. Surprisingly he’s been able to get enough interest from investors who have provided early funding to the tune of several hundreds of thousands of dollars. He has been able to also generate lots of interest from partners but that has not translated into customer sales. Given his developer  background, he was keen to talk about sales and how to generate some initial traction in the market.

Here is what I have learned from all my initial startup selling in the B2B space (i.e. startups selling anything – software, hardware, services, juice bars, etc. to other companies, not consumers).

There are only 2 reasons why companies buy from startups – The person buying has a very good relationship with the entrepreneur, or the person buying has a dying pain that she feels can be solved by the startup’s solution.

That’s it.

This is dramatically different from why they buy from Cisco, Office Depot or any other large company – where politics, budgets, executive management preferences or any other of over 100 factors also come into play.

Lets drill down into both those reasons.

I have personally only been able to sell the first 10 or so first customers for all my software companies through relationships that I built earlier. Which is why I always advocate digging you well before you are thirsty. Most of the software that I have built (B2B) did solve a problem, but I found that it was never an “immensely-horrible, I’ll-die-if-I-dont-fix-it” kinda pain. I avoided those because I did not have as much confidence in my ability to solve that type of problem since the scrutiny & pressure of “must-work-or-you’re-dead or this-better-work-or-you’re-out” causes buggy software.

So I focused on building relationships with key people (that usually took a few months), without me talking much about my product or service. It was purely to help the other person who I wanted to be friends with.

When you build a strong relationship, you will find people are more willing to forgive bugs, try unproven software or even give a no-name startup a chance.

Given my engineering background, I have a “formula” that I believe that will help you understand relationship building.

Relationships = Time + Trust + Mutual interest.

In this case, + is not addition, but an operator. More about this formula in a later post, but the summary is building a relationship takes time (quality not quantity) spent together, building trust by small commitments you deliver on and mutual interests you share with the other person.

The only other reason larger companies buy from small startups is that they are in a huge pain and they believe startup has a unique solution, offering or product to solve that pain in the fastest possible time. I emphasize “they believe” because they are really not sure yet since they have not built a relationship with that individual.

Relationships trump everything in sales. Everything. She who has the relationship wins.

Which is why you are better off getting a referral from one of your customers (who you have a good relationship with presumably) to another potential prospect (who they have a good relationship with).

So before you start you own B2B entrepreneurial venture, build relationships.

Should I outsource the sales function at my technology startup?

I am thinking of writing a series on technology sales, given that selling is my first functional love and I enjoy it more than anything else. (There, I admit it, and yes, more than development even though I am an “engineer” by education). So the next few posts will be focused exclusively on selling for entrepreneurs.

Yesterday I had a friend who came over to get some advice on his startup. 6 years into the business he’d built a $200K+ annual consulting company and had over 30 customers for whom he’d implemented various projects. The average sale was about $20K and since the company was fairly small, (15 people) the CEO and founder was the primary sales person.

Most of their lead generation was relegated to speaking at important conferences and events, after which they’d get a few interested people who were keen to leverage their expertise for implementing a project.

His question was around a proposal he got from another company, which was founded by a big-company sales person who’d built a good network of customers and prospects. The company was offering to help my friend outsource his sales and generate customers. In exchange they were asking for 30% (starting point) of the sale as their commission.

To my friend this seemed on the high side. He’d heard numbers like 10% or even 15%, but 30% seemed large.

So his question was “Is this the right number? Or should I negotiate a lower commission”?

We had an hour to chat about it. I was most surprised he never asked me the question “Should I outsource my sales”? Since I have been running the Microsoft accelerator for the last few months, I have refrained from answering questions I think entrepreneurs should ask, instead narrowly focusing on their specific question and giving them options they should consider or a framework they should look, at to evaluate their options.

Lets do some simple math, I told him. If you are looking to make $200K a year from a sales person, given that your ASP (Average selling price) is about $20K, you will need 10 (roughly) deals for them to make their quota. Since the projects they were selling were fairly complex in nature, the sales person they needed to hire would have to be someone who understood both the customer’s industry, the value of technology to that industry and build good relationships within that industry. So, a fresh out of school grad going for $10K – $15K (in India thats what they make annually) wont cut it.

He needed to hire someone who was a consultative sales person who could not only do the lead generation and selling but also some amount of initial “scoping” of the project. In India most of these people make about $40K annually. These folks would have about 8-10 years of experience (or more) and would have implemented several projects or performed the role of “solution architect”, at their previous role. About 60% of the annual pay of the sales person would be paid as base salary and 40% of it as commission on sale.

Since most of my friend’s customers were in India and primarily in the south, customer travel was going to be fairly minimal, which would cost about $2.5K annually at the high end. Assuming that 50% of his customers were outside the city he lived in and the average customer took 2 trips to close and some trips required 2 people (including my friend who would also help with the sales), the cost of travel was about $2.5K we determined.

To generate leads in a consistent manner, the sales person would have to supplement the speaking engagements my friend was using for lead generation with some events, and a few other techniques, which we estimated would cost another $2.5K.

So in total to generate $200K in business, my friend would have to spend about $45K in hiring, managing and helping his sales person.

Now these numbers are unique to India, but the model holds for the US as well. You might have to multiply each number by 5 to get to the US equivalent, but that’s the norm. Approximately 22.5% of his target or sales was going towards the sales person.

Realistically, the outsourced sales person asking for 30% seemed fairly reasonable.

Of course, I warned that my friend would still have to be deeply involved in the process so the “transparent costs” of the sale would increase the paid commission.

There are a few numbers that can change this equation dramatically. One is the average selling price, second the annual salary the sales person makes and third the target (quota), but by and large this is in the ballpark.

Always be an individual contributor as well

Most of the entrepreneurs I meet and share thoughts with, tend not to be engineers. Or at least not practicing developers, marketers, sales people or business development individuals. This is consistent with the anatomy of the Indian technology entrepreneur, who is typically male, between the ages of 29 and 40, has about 2-10+ years of experience and had been an individual contributor “several years ago”.

I read the quotes by multiple folks in the piece shelf life of an engineer in technology . They consistent theme is one of constant learning, which most of us are probably aware of. Ignore the age bias that’s blatantly obvious in the piece for a few minutes, which is what most of the 250+ comments are focused on.

Two things stand out: (1) Ferose’s quote on “I can’t be just a manager, I have to be technically hands-on.” and

Ravi ” In the first five years, the employee is a technical contributor. In the next five, he or she moves on to become a team leader or an architect , understanding the P&L (profit & loss) requirements of the company. Subsequently , the employee takes on much stronger leadership responsibilities”.

From what I have learned, there’ no choice but for every level of individual to be “hands-on” and play the role of an individual contributor as well at a startup.

If you are an engineer, you cant just be focused on hiring and managing your engineering team (however small or large it is). You have to pick up a few pieces of the puzzle and solve them yourself. Which might mean deploying, developing and shipping parts of your software.

If you are a marketer, then not copy writing or doing your own SEO, or running your ad campaigns is a disaster in the making.

If you are a sales person, and if you are not doing cold calls or opening new doors to customers each week, you will find it extremely hard to direct and motivate the team.

Most founders who come from larger companies have not been been doing any individual contributor roles for several years. So the reorientation is very hard on them. They find it hard to do things they did a few years ago and since in most every area the specifics have changed so dramatically over the last few years, the adjustments are hard.

The best way to do this is to keep 30% of your time each week to have a personal accomplishment.

What I have found is the the FIRST thing I do each Monday on my weekly to-do list is to identify one deliverable that I will work on to complete without anyone else’s help.

Over the last few weeks  it was working on website copy and mockups for the new design. Over the next few weeks it is cold calling multiple prospects for making some inroads for a few of our startups. The weeks of Dec 15-30 is mostly going to be spent on writing new pieces of our Borg’s UI using Twitter bootstrap (which is surprisingly easy to pickup).

So on your quest to be a leader and entrepreneur dont forget to be a doer as well.

In India, a customer does not buy a product, they buy a phone number

There are over 800 products listed in the productsmade.in database (out of 2149) that cater to the SMB market in India. Many of them sell only to the Indian market, and a few also try to target International markets.

The amazing part of selling in India is the ease of access to founders (promoters, they are called here) and Managing directors (CEO). Most have their cell phones listed on their website and many may have it listed on their ads.

Throughout the last few years when I ran relatively small (<20) person sales team, targeting companies with less than $2 Million revenue we found that getting appointments with CEO’s at small companies was extremely easy. A conversion rate of 50% from cold call to face-to-face appointment was not unheard of.

At a price-point which was less than a full-time resource to manage marketing, they found our solution relatively easy to adopt, but they were focused on quick ROI – meaning if they put $1 now, they expected $5 within the first month and an increase every month.

During the first few months, we spent an inordinate amount of time trying to simplify our product. We realized most decision makers & users at these companies were the CEO’s so we wanted to make sure they found our product easy to use. We did 4 sets of focus groups and removed a lot of features from the product, making it so that just one of two options were provided on each page. Navigation was made simple as well, with large buttons and primary colors.

After 2 months, we had an interesting problem. None of the CEO’s actually used the product. Every time they wanted data from our system, they’d just call the sales rep and ask him for information. We showed them how easy it was for them to look up the information on their cell phone, but they’d still call and “chat up” the rep, share more information about their business, their issues, etc.

We then provided a customer service team who would answer these questions so our sales person would be more productive. The sales person still got calls. One sales person left to join an MBA program. Even a year after he’d left, the CEO’s he sold to would call him to ask him for information.

That’s when we realized that Indian customers dont buy a product or a service. They just buy a phone number – a person’s mobile phone which is their user interface to the product.

Then I got to know about a central number system. Basically its a number that you can give and you can change it to any set of numbers by “routing” the call based on the number. We did not implement it fully, but the first few weeks of using it were a lifesaver for our sales productivity.

A new trend in pricing pages at SaaS applications

<Wordpress has eaten up 4 versions of this post, so I am removing all images and only providing links, apologies>.

The pricing and signup page of any SaaS application is the most critical part, which is the main reason companies spend weeks and months, A/B testing and validating pricing, options and packages.

A new trend I have noticed in 2 particular websites – Highrise and GetBallPark is something very different from most websites.

If you did not go to the links above and notice the change – they have put their highest priced offering on the left and the least priced offering on the right.

This was counterintuitive to me at first, since “everyone else” does the exact opposite. Progressively expensive options should go from left to right.

Most website heatmap track research suggests users read from top to bottom and left to right. So, I guess there are higher chances of getting someone to sign up for your highest priced offering if you put it on the left.

Any other reason others might think of designing the price offerings the “opposite” way?