Tag Archives: entrepreneur sales

Always hire Marketing people first over Sales

I have a friend who started a new SaaS company for larger (1000+ employees) organizations. The product is aimed at enterprises and must be “sold”, not bought, meaning while some of his potential customers have this problem, they are not actively looking for a solution. Instead they have used a band-aid to provide short-term fixes for the problem. There are no opportunities for a self-service solution, where someone can “try” then “buy”.

After the initial 5 beta customers (all paid, $120K ARR), and terrific feedback from them, he started to think about raising a $1-$2M round of funding. He had previously raised $300K from angel investors.

The approach to raising his round began with a discussion with his angel investors who each made 1-2 connections to other follow-on investors.

Many of those follow-on conversations turned into “we will wait until you are further along” passes or “you still need more traction for us to get involved” meetings. The company is in Seattle, so the number of investors in the target list was less than 10. A few meetings were in Silicon Valley as well, with similar feedback. None of them mentioned the market was small, but a couple did mention that it was likely a bigger company might be able to build this.

In search of traction, he started to think about hiring a sales person to increase ARR. His website is functional, mostly informative and has the basics. He is spending $1-2K per month on Google ads, getting 4-5 inbound requests from those efforts, but the pace of customer acquisition was slow.

He did connect with a BD / Sales person who he knew from his previous company and started to talk about having her join the startup. She was making $200K all in (base + commission) and wanted some assurances that she will be able to make that in a year. After realizing that it won’t be possible to give her that confidence, he looked at trying to get “commission only sales reps”. No luck there as well.

He finally got a friend-of-a-friend to recommend a young, sales person in New York who wanted to explore a career in technology after selling electrical equipment to large companies for 3-4 years. He was able to get the sales rep for $120K (60K base) all in, a jump of $20K for the rep from his previous position, if he hit his targets. The rep was to generate $500K in initial revenue from large companies in the New York / New Jersey area.

The first 2 weeks of the sales rep’s time was spent in demos and learning, while my friend helped him build a target account list. Then the rep started to build his “email list” of IT directors and managers with the titles that fit the company’s profile. That took 7-8 hours a week to research, collate and build over 2 more weeks. The rep also went back to his connections to ask for referrals to the right person in their organization, which resulted in 3 follow-on meetings.

They built a list of 250 targets with names & email addresses after combing through LinkedIn and another “IT database” from a vendor (DiscoverORG). After 1 week of emailing and cleaning email addresses, some of which bounced, trying different messages and subject lines (A/B testing), they got 2 emails back – both asking them to “remove me from your email list”.

2 months into the process, my friend realized his company was not ready for a sales person.

They did not have content, enough inbound traffic or interest to make the sales person effective. While he identified a few marketing tools – whitepaper, videos that he needed to get done, they were in the works, and he was using contractors and his own time to focus on those, which slowed things down.

He let go of the sales person 3 months after he hired him.

His angel investors provided bridge financing for another $150K for him to hire a marketing person instead and my friend eliminated 1 developer to make room for the marketing budget.

He hired a freelance marketing director for 3 months on contract and is the primary sales person, with a vastly improved website, whitepapers, 3-4 blog entries each month and has appeared in a conference as a speaker as well.

Results:

Sales person for 3 months – total spend ~$18K ($15K salary, plus travel expenses, LinkedIn navigator subscription, email tool – Outreach, database subscription – Discoverorg), etc.

> 23 meetings, 3 follow on discussions and no sales.

Marketing person for 2 months – total spend – $23K ($15K monthly retainer, plus whitepaper content, blog content, travel for conference, etc.)

> 32 meetings and discussions, 5 inbound inquiries, 3 initial pilots, 1 sale for $28K.

While not definitive, I see this consistently with SaaS and enterprise sales startups. The return on marketing dollars over sales is higher, more immediate and sustained.

Most technical founders think they only want a “sales closer” not marketing guy that “creates content” and does some “google ads”.

They dont realize that to make the sales person effective, they need marketing in the first place. Thoughts?

How to use “forcing function” events to buy time on your side as a sales person

Some VC’s are known to ask the question “Why is now the best time for your idea / startup / venture to succeed”?

That question is indicative of the key underlying themes of successful venture funded companies – they have to grow extremely fast in a very short period of time (3-5 years), unlike other businesses which take 7-10 years. That helps drive valuations of early stage startups higher quickly and soon.

The question also forces you to think about why a customer would buy or pay or use your product now, versus stall and not have a large reason to buy.

This is what most of us in sales call a “compelling event“. A compelling event is a forcing function that has a hard date for your customer to buy by.

If your customer does not buy from you by that day, really bad things happen – for example Sarbanes Oxley law required you to report certain items of your company or you would face stiff fines. Or your customer has an upcoming product launch within the next 2 months and they need to get a logo, website and social presences up and running.

There are some natural forcing functions, such as year end, quarter end, new product launches, regulatory deadlines, obsolescence of an existing solution or their current vendor withdrawing support for their current product.

In many cases, customers dont have forcing functions. They may not have them because the problem you are trying to solve is not a visible pain for them. It may be latent, so they dont even know that if they solve this problem they will benefit otherwise.

So, if your customer does not have a compelling event, or forcing function, can one be created?

Here are 3 techniques that I have used to create a forcing function:

1. Create competition by the date: This works best when you are trying to raise money, sell your startup or when you have something to sell that is produced in limited quantities. For example, if you have an event space or a training event and there are limited seats, you can let your customer know that their competitors might get the product which leaves them behind.

When does it backfire? When you truly have no competitors lined up, and claim to have them, and your customer calls your buff, you are left without a deal and an artificial deadline that passed. You leave the opportunity with no deal and also a customer who knows you are now possibly desperate.

2. Show the paucity of resources: This works best when you are selling consulting or services. If a client is taking too long to let you know if they can start a services engagement, some sales people let them know that the resources they want will no longer be available if the customer does not make a decision by a certain date.

When does it backfire? When the customer believes that resources and people are “replaceable” and so they can make do with any resource not just the person they want on the project.

3. Offer time-bound discounts: This is the most used and abused technique by software sales people. Offering a discount by end of the month or quarter (or any other time they are measured) helps the customer understand that if they dont sign up by that period, the offer is no longer valid and the negotiation process and sales process begins again.

When does it backfire? In most cases. Truly. This is what happens, when most sales people try to set discounts by their defined time schedule. The deadline passes, the customer does not buy and the sales person sets a new artificial deadline. Meaning, the discount is now valid for the next quarter, month or week.

Forcing functions or compelling events are rare. So if you have one at your disposal, use them to the fullest. Else, find another way to get time on your side, since the customer has the money.