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13/07/12

Adopt the ABA Revenue Model

Are you in the process of establishing or growing an early stage web business?  If so, I thoroughly recommend the ABA revenue model.

What is it, I hear you asking?  It’s the “Anything But Advertising” approach.

Over the last twenty-four months we have detected a shift in the type of technology start-up being established in London.  For whatever reason (and I suspect a $100bn initial public offering may have something to do with it), the proportion of B2B versus B2C businesses seems to have changed markedly.  A number of commentators have already noted the number of “Global Vice Presidents of Sales” floating around the Old Street roundabout – usually residing in start-ups with two other employees (one a President and the other an Executive Vice President).

I read a nice set of statistics recently on LinkedIn’s blog that demonstrates the dangers of assuming eyes plus hours equals cash – an assumption that I fear underpins a lot of these start up businesses:

  • LinkedIn users spend an average of 18 minutes a month on the site. Facebook users spend 6.4 hours a month.
  • LinkedIn gets $1.30 in revenue for every hour those users spend on site. Facebook: 6.2 cents.

Surprising, aren’t they?

How to monetize website based business is something we’ve debating at Rapid Innovation Group recently – and I was pleased to find earlier that we are not alone in this debate, with this Wharton professor expressing a similar ABA preference.  However, other than Professor Clemons no one seems to be addressing this issue.

So why wouldn’t you depend on advertising revenue as your main source of funds, other than on the basis that Facebook cannot make substantial amounts of money from it?  Firstly (and sadly), when things go bad in the economy advertising revenues tend to get hammered – and secondly, how many other businesses (starting with Google) are trying to make money from the same source?  Yes, the answer is lots.

I do not have a definitive answer for you, but what I will say is this: if you are creating or seeking to grow a business, you need to be looking for sustainable revenue streams.  If you are providing a product or service that is to be used day in, day out, you do not want to be dependent on the vagaries of wider economic performance for your end of quarter sales figures.  Identify another way of extracting value from your customers early on, have a rational reason for setting your pricing point, and then stick to your guns.

Examples you should be considering:

  • Do people go to your service on a regular basis?  Then use a subscription model
  • Do your customers want different amounts of something each time they visit?  Then use a transactional model
  • Do your customers need to understand your service before they can see value?  Then use a no-charge-but-I-need-your-credit-card-details-in-advance trial model

Whatever value your service or product provides, please do not kick off into the market on the basis that your customers might be interested in a General Motors Chevy Cruze or a package holiday to Spain as a result (unless you are selling cars or Spanish package holidays)!

Pricing models and points are difficult issues for early stage businesses to address – but they set the tone for the business over the coming decade, and demark your limits of growth to an extent – so make sure you get them right!

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23/04/12

Insights from a complex negotiation

Most readers of this blog will be interested in getting to the point that a current client finds themselves in, so I thought I’d record the process we are working through to resolve it.

Picture this: you’ve found an enthusiastic sponsor, got them to buy into your proposition ….. you then find they have opened an opportunity bigger than you could have dreamed of (or given them credit for!).  The opportunity is business changing …. it smashes that sales target ….. the world is about to take a serious change for the better!

You’ve dealt with the sponsor and business user all the way through the sales process, everything makes sense …. then you hit (corporate) reality – an unhappy procurement function.  Why are they unhappy?  Your sponsor decided (almost certainly correctly) that if they were involved early on they’d kill the whole thing stone dead – and the business needs your software so they didn’t want it killed off early.

The call is set up, the agenda point is ominous – “commercial discussion”.  That’s where we find ourselves today.  Time for some scenario planning.

Position-based negotiation – a brief segue 

Just like in position-based warfare, you either win or die in your trench.   Positioned-based negotiation is the same – and thus to be avoided unless you have nowhere to run!

Back to the point

What will come up?  In reality there are actually very few things that procurement can say / do.  They either need to tick a due diligence box to say they checked it all out and understand it – or they are going to try and beat you down on price.

As I see it, there are only really three start points you should prepare for:

  1. The price is too much
  2. They don’t like the pricing structure
  3. Justify the whole piece

The price is too much

So let’s start with the first point – the price is too much.  The price is too much?  How is that possible, we spent all that time with the business users who hold the budget working through it and making it the right fit.  How can it suddenly be too much?

In my experience it can be too much because: a) procurement has a corporate target for reducing initially quoted prices e.g. everything down by 10%; b) the budget that the sponsor and business users identified got spent and they weren’t aware of it; or c) procurement isn’t particularly evolved in this corporate and is spectacularly unimaginative when it comes to negotiation!

So how to respond?  Remembering to avoid a position based approach (“it’s the best we can do”), ask a question: “why is it too much?  We have spent time with X and Y, who confirmed the budget was available, so you need to explain this to us”.  It’s a killer – now the procurement person has to explain their rationale for their statement – if they aren’t coming clean, try a couple of other questions: “do you have a corporate target? Has the budget been spent elsewhere?”  This puts you in the driving seat as you are now asking the questions.

We don’t like the pricing structure

This for me is a classic.  I have a tendency to specialise in subscription-based businesses – I like the model, as it lowers the cost for users to adopt and provides the business with on-going revenue to pay its employees and further develop the software.

However, subscription-based software isn’t old hat to everyone – in fact, some people still think that all software is sold on a license / maintenance basis.  This is not good, because you might have to explain the whole rationale of subscription based software to them, and then break the news that they won’t even own it – and some procurement departments hate not having something they can take away (even though in the long term they are totally powerless to develop it in house!)

There are several ways to address this:

  1. That’s our business model – take it or leave it (bad position-based start!)
  2. The pricing structure is like this because it reflects how we deliver the software – a lot of our costs are in on-going development for your benefit, as well as server space to deliver it across all those different geographies
  3. Give them a quick calculation of the license / maintenance cost – hey, if they want to buy it like that then why not!  So your £50k per annum software is now £127k (£115k+£12k) year one and then £12k for the following two years.  Obviously that’s good for my cash flow and bad for yours, Mr Procurement, plus we won’t be able to deliver you with any of the development benefits over the three years because we are going to have to create a separate instance of the software for you on another service, and once that’s in place we won’t be able to tinker with it in case something goes wrong and affects your business
  4. Ask them why they don’t like it – then knock off all the responses with the standard SaaS arguments – it won’t make them look good, so hopefully they will stop making stupid points fairly quickly!

Justify it…..all of it

This has to be the worst one …. not because you can’t do it, but because it takes so long to do.  You have confidence in your pricing, otherwise you would not have put it in front of them, and you’ve probably already been through this with the sponsors and business users – so it’s just tedious.

Do get some practice in beforehand though – time spent in preparation is time well spent.  In all likelihood the question that keeps coming up as you go through will be “why is that like that?  And why is that like that?”   As I said before, you have confidence in your pricing …… you are just going to have to spend a long time explaining it.  And there’s always the risk that either “that’s too much” or “I don’t like that” is going to come up – if so, I reference you back up to the previous two sections.

Final Thought

Generally you don’t get to a negotiation unless the customer wants to work with you.  Keep that in mind….and you’ll have a successful outcome – and lastly, the only business worth winning is profitable business!

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20/04/12

“The only guidepoint is reality” – Interview with Andy Hutt of triOpsis

Andy Hutt is founder and CEO of triOpsis, a real-time visual intelligence company designed to provide technology that allows enterprises to use mobile devices to track the status of products and services on the ground.

I can’t promise any words of wisdom at all, but I can promise words.

1) Why did you decide to become an entrepreneur rather than go down a more traditional career path?

Lots of answers to that. As with most things in the world, life is a bit more complex than, I woke up one day and said, “Fantastic! I’m going to do this.” Life evolves to a point and you make some decisions. For me, one of the most important ones, and it is only one of many, is when I looked at a traditional career path, I just saw boredom. My background is in finance; I’m a qualified accountant. Way back when I worked for PwC, I worked in Private Equity Transaction Services at Deloitte, I worked in corporate finance, blah, blah, blah. And the problem was whenever you looked at the career path of any of those, it was frankly just boring. And for me, I didn’t want to spend 30-40 years of my life doing that. At all. So it’s about how to make a change. And any change is very difficult to make.

For me, the obvious one with the skillset I had was to go and set up a business. It was possibly a bit of a random choice in terms of where we went, but you have to use what you have around you. I had no background in software prior to this, I had no background in retail, no background in utilities, never set up a business, all those kinds of things. But you have to make a decision that says, I need to change something. I need a more interesting path in my life, I need to do something which I find more satisfying, more enjoyable, and I have more control of.

2) What new skills and specialisms did you have to develop as you got triOpsis going? How did you develop new skillsets?

One of the skills a potential entrepreneur has to have is risk taking. Risk taking possibly equates to stupidity or arrogance, because if you knew all the risks, you probably wouldn’t do it because you’d assess you’d fail; or you understand the risks, and you’re so arrogant that you think you can succeed anyway.

A lot of people are very risk-averse when it comes to trying different things. I’ve never set up a business before. Ok, fine, how do you do that? You just go and talk to some people, get a bit of guidance, and do it. And a lot of it comes down to just doing it. I’ve never run a technical team before, in terms of coding, never run a PR campaign before, I’ve never been a salesman, I’m going back to when I started the business, and it’s about risk taking, just dive in and do it. And if you work out you haven’t got the skills, learn. So, can I be a salesman? Yes. If you can’t afford a salesperson at first, that’s what you have to do. You can’t say, “I don’t have those skills!” You have to dive in, do it. The key thing is, if you’re prepared to take that initial risk—which is basically whether you’re prepared to show yourself up, whether you’re prepared to effectively fail—you need to learn quickly. Dive in, learn quickly, chuck it at the real world and off you go.

In terms of acquiring new skills, it’s partly about risk taking, it’s partly about confidence, and it’s the ability to learn quickly. A large chunk of my view of the world, when it comes to learning and entrepreneurship, is about surviving enough failures to succeed.

Most of the time, until you’ve made your business, you’re assembling a collection of small failures. If I go back to the first sales pitches I did four years ago, I cringe. I’m like, “My God, did I ever actually pitch something as stupid and vague as that?” But you have a go and you just learn, and that was a failure. You’ve got to collect these failures. And in terms of how you fund the business, ideally with entrepreneurship, you need to get enough funding to survive enough failures to have learned enough to succeed.

People view failure as though there’s only one way to fail, which is, you know, like the Eurozone at the moment: BIG! And actually, entrepreneurship is lots of little failures. “I tried that, it didn’t work. Put that to one side. I’m going to try that, ooh that didn’t work, ooh that does, let’s do more of that.” Ideally it’s not catastrophic. I got a good piece of advice early on, which is, “Never bet the ranch early on any particular given path.” Some people say, “You’ve got to do it the whole hog, just go for it!” And if you did that, put all your money in one strategy, one path, one thing, and it fails where do you go? I’d rather spread the failures, and then try and learn where I passed. “That bit did succeed, I’ll put some more money over there.” With failures you learn. Success doesn’t actually teach you anything, it’s just like, Oh, I got lucky. More of the same.

3) How do you balance breadth across industries and depth within an industry?

It’s a really good question because for me, success only comes if you focus. But it’s actually the point I was making a second ago about failures, because you don’t actually know which market, which product is going to be a success. So what you have to do, and what we did, is we started off in brands and we tried retail, and we’ve ended up in utilities; we ended up in water, and we’re now in gas and electricity. It’s a case of the same learning curve, but the ultimate goal has to be a focus. As a small company, you don’t have the resources to do lots of stuff. Provided you understand that to start with then you may succeed. If people don’t understand that to begin with, if they think they can have a go at everything, they will fail. You can’t. Unless they’ve got a really big bank balance, in which case, good luck to them! So, what you have to say is, ultimately I do have to focus to succeed, but I don’t know where to focus, so it comes back to how do I learn? How do I fail, etc.? And what you try and do is get into a niche where you think, yeah I’ve got something real. And that particular point to me in terms of business is what I was talking about earlier: you have to get that in the real world. You can’t sit in an office and think, right, it’s going to be this. That’s the way for me. You have to take the risk and then actually go and talk to that particular client. And they’ll probably go, “Oh that’s rubbish.” So you go back, you have a think, you listen and then you go back and you try that again. And ultimately it comes down to, sadly, what will this generate in revenue for somebody or will it save them money? You need to understand that as an end point.

The only guide point is reality, and that’s the bit when I was talking about risk taking earlier. A lot of people aren’t prepared to take a risk. And a risk is standing up in front of people and actually potentially looking a bit stupid. And for a lot of people, they’re not prepared to do that. The ultimate arbiter of everything is reality. You can’t sit in an office and make a profit. You have to actually physically go into the real world, get your product into the real world, and get real world feedback. Think of anyone who sits in an office and says, “Yeah, this is the best thing since sliced bread!” For our products, we could say, “Yeah insurance market, hey! We can do all of this stuff!” But actually if you spoke to someone in insurance they may turn around and go, “Err, you can’t do it for these reasons.”

4) What is the lifestyle of an entrepreneur like?

The lifestyle of an entrepreneur? It varies. In the world of big corporates, hard work is when you have lots of work on. For a small business, when you’re an entrepreneur, that’s easy. I’ve got work. The hardest part is when there’s nothing. You know, there aren’t any projects. You haven’t got a team of people, you have to sit and you have to go, I need to do something, I just need to create something from scratch. That’s hard work.

 

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16/04/12

The ‘differentiated’ sales force

As technology advances and the manner in which technology is consumed changes, traditional software sales jobs are fast becoming an anachronism. The selling of largely standardised solutions using a direct sales force has been replaced by an internet-based, self-service, sales-less model in which marketing comes to the fore. Recommendation and virality create and drive demand. The change is marked.

If you are running a direct sales team today then you are in the business of selling higher value solutions with a degree of complexity. The sales force is no longer merely the execution channel; they are a constituent part of the solution’s differentiation. Sales skills alone are not enough; they must offer the prospective customer expertise. This value-add is integral to the sale. Sales consultants must become ‘consultants’ in the true sense of the word. They must have domain expertise and problem-solving skills that are valued by the customer. They must be ahead of their customer’s thinking. They must be able to challenge and educate the client. Value is created though collaboration. While the technology at the core of the solution must remain scalable, the skill in creating a dialogue around the client’s needs and configuring an attractive solution is not. Building this type of differentiated sales force requires know-how and investment.

This type of shift is significantly changing sales management from management of a sales force that can articulate differentiation to one that is in itself part of that differentiation. This is a significant evolution that impacts selection, training and development, and sales practice. Where it is not practical or desirable for all the knowledge required to execute a sale to be contained in one individual, team selling (an anathema to the traditional software sales manager) may emerge from being the exception to being the norm. Incentive and remuneration structures will change to facilitate this. Where developing specialised domain knowledge is a core competence, a ‘hire and fire approach’ (always an excuse for poor management) makes no sense. This world of sales demands the brightest and the best. Those that have both IQ and EQ in abundance.

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04/04/12

The Risks of Awesomeness Marketing

There are many strategies for marketing, but one that has been growing in popularity, particularly in the United States, might be affectionately called “Awesomeness Marketing.”

As a type of viral marketing, the concept is pretty simple: associate a product or service with something awesome. Often, the connection between the product and the awesomeness will be tenuous at best. The association between a car and a Greek god, for example, is irrelevant; but putting the product next to something witty, outlandish, and intelligently over-the-top associates the product with favorable qualities and a sense of enjoyment.

Recently, the startup Dollar Shave Club has attracted a lot of attention because of its YouTube viral advertisement video:

The video appeals to a range of audiences, pushes on a real pain point most men have (overpriced razor cartridges), and includes a number of more subtle riffs, including having the guy getting his head shaved reading a copy of Eric Ries’s The Lean Startup. Nice touch.

For a video of this nature to be effective, it cannot dance with any middle ground of reality: it must be clearly and decisively over-the-top. Otherwise, the company runs the risk of being taken seriously in its boasting. Or, worse, just flopping. Video advertisements of this nature shamelessly extol the awesome powers of the products they sell: “Anything is possible,” says the Old Spice man after passing seamlessly through an impressive series of fantastic set changes. Furthermore, by claiming to be so “awesome” that nothing can come near, the company builds into its marketing a solid defense against inevitable attack. They can say, “Hey, don’t you have a sense of humour? We were obviously joking…”

“…But we really are awesome.”

In order to create the desired effect, however, one must be very careful to actually produce something amazing. Trying to be awesome can be fatal and will be worse than more traditional forms of advertising. In many ways, working with the real selling points of the product can be dangerous; every message needs to pass through the twisted gates of hyperbole.

Awesomeness Marketing is high risk/high yield. Do it right, produce a legendary campaign, and your brand will stand as legendary in the minds of consumers (provided the product is actually decent). But if your advertisement falls short of awesome, or worse, if in trying to be awesome, it comes across as juvenile or offensive in some way, then you have big problems.

One can never be certain that a video will go viral, even when the requisite qualities of brevity and over-the-top humor have been included. For an example, see the Zeus Scion commercial below, which does not have the same viewership as other similar ad campaigns. The video itself does it right, but it has not enjoyed the same success as others. Not going viral is always a risk when aiming to produce a video of this kind. But equally, there is the risk that the video actually will go viral. What then? Can you scale quickly? Is everything ready to fill orders on a large and perhaps international scale? Are all mechanisms in place? Is the product actually any good?

Awesomeness Marketing is also risky because of its implications in terms of social media. When a commercial goes viral on the Internet, there is no time to have a legal team vet all social media correspondence. Tweets, Facebook posts, responses of various kinds all come in and must go back out very quickly in real time. The team in charge of handling that social media presence must be sharp and switched on, able to respond quickly and appropriately without approval from corporate boards or legal teams.

The customer’s initial reaction to “Awesomeness Marketing” typically has nothing to do with the product itself. The product is in many ways irrelevant. The goal is to get the viewer stirred up and to think, “That was awesome!” The product can almost be an afterthought, which is one of the reasons the advertising is effective: the customer does not feel pushed. Gradually, and perhaps long after seeing the advertisement, the customer’s awareness—and the association with awesomeness—will shift to the actual product itself.

The efficacy of this kind of marketing comes down to the way in which the association with the advertisement shifts to the product:

Distributive Property of Awesomeness

Customer —> Awesome Commercial

Awesome Commerical —> Brand

Awesome Brand —> Product

Awesome Product

Customer —> Product = Awesome

 

Awesomeness—in terms of advertising—appears to be highly transferable.

Awesomeness Marketing will find a stronger appeal among the younger generation, but that is not to discount its effectiveness with other demographics. Who doesn’t like things that are awesome? It can be an incredibly powerful tool, especially because it requires relatively little resource to use, but it is likewise an incredibly dangerous tool and one that should be used carefully and only when one is certain the advertisement will be effective and the company is prepared to handle the responses.

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23/03/12

Key challenges in sales and marketing for entrepreneurs and growth-stage firms

Permasense corrosion monitoring systems provide engineers, inspectors, planners, and plant managers insight into condition and capability of critical oil and gas assets. Potentially it is a technology with wide appeal. Given this, what are the key challenges in the sales and marketing process? What are the key steps and challenges entrepreneurs face in taking a product like Permasense successfully to market and what would you advise they do to overcome them? We asked the CEO of Permasense, Peter Collins…

Identify the product champion

Identifying the individuals in a company that are ‘own’ the problem your product or service is addressing is the place to start in finding the individual to champion it in your target customer.

For example, in Permasense’s case, this person my be an asset integrity, engineering, corrosion or inspection manager.

Identify all that have to sign off on adoption

If you are selling a system solution, impacting on a number of functions or business processes, you must also win the buy-in of these gatekeepers. For example in Permasense’s case this includes IT, safety, plant operations and frequently others.

Identify the economic buyer

It’s as old as sales itself – no sale without a budget, and it’s so easy to believe you’re close to a sale, when the person who has to sign the cheque hasn’t even been brought into the sales process, let alone convinced.

Whether you or your champion, or both of you together, convince the economic buyer will vary – but you will need to be clear with your champion how that final step to sale is going to happen…

Realistic time plan

Entrepreneurs and their financiers should not underestimate the length of the sales cycle, and thus how long to positive cash flow. For business-to-business sales like Permasense’s, this cycle can easliy be 6-12 months. And that following achievement of reference sales. So make sure to plan your cash management accordingly.

Know your product

Know your product, believe in it, communciate that passion – but don’t oversell it! Having the appropriate background – in Permasense’s case, an engineering background – is, I believe, so important.

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12/03/12

Facebook stalking is a transferable skill

I joined Facebook on 17th August 2006, back in the days before the doors were thrown wide to the general public, before Farmville and mobile updates and timelines, when Myspace was still the most popular social network and Twttr was a group SMS service from Odeo. Scary, dark times they were indeed.

I graduated high school a year early at the tender age of 17, a gap year looming ahead of me in which I would be too young to travel and too apathetic to do much of anything else. I had already been accepted to university for deferred entry and so had little to do but continue to slog it out at my minimum wage job and wait for my life to begin.

And Facebook.

I spent my first few months on the site finding my feet, hesitant to leave behind the comfortably garish sphere of Myspace that I had come to trust. But I got there – I added more friends, posted my first photos, and even wrote a couple of notes (remember those?) along the way.

Where it really kicked off for me was in January 2007 when everyone in the UK received their offers for university places. Suddenly I didn’t have to wait for my life to start any more: Facebook was delivering my future university life in England direct to my snowy Wisconsin doorstep. I could reach out to people who would soon be on my course, or at my college, or who shared in my angst about the seemingly inadequate preparation a US high school had provided. We commiserated, anticipated, and waited together within the blue and white walls of Facebook.This is probably the only time in the past five and a half years that I really used the site for ‘networking’ per se.

I arrived at university and my friend tally shot up:  people I met on nights out, through sport, in lectures, but largely people with whom I did not regularly speak or stay in touch. What proved fruitful from my year out was the ability I had developed to identify the people I wanted to find on Facebook with very little information available to me. I could find a friend of a friend of a friend from a different university knowing only a first name and irrespective of privacy settings. I had learned to pick out the small, relevant pieces of data and manipulate Facebook to find what I really wanted: information about people and their networks.

Faced with the real world, I thought my days of endless Facebooking, stalking friends from America to friends who lived next door, would be put to rest, to be replaced with scrutinizing the rigour of my privacy settings on a regular basis and reading the Financial Times.

In fact, what I learned on Facebook have been some of my most important research tools. Replace Facebook with LinkedIn, and it turns out that the time I thought had been wasted on procrastinating was in actuality time spent honing my transferable skills!

In executing a complex sale in a large organisation, identifying the key members to engage in the buying centre is a principal task in opening a successful deal. However, many companies will not openly share names and contact details if you simply call them up and ask. This is where LinkedIn is a potentially valuable tool in business development, for being able to identify the key individuals you need to contact in a company.

Putting aside the problem that not everyone is on the network, LinkedIn constantly challenges us by concealing surnames, making certain features premium, and taunting us by only allowing us to see who has viewed our profiles if we allow others to see when we view their information.

The key is to be able to repackage and rephrase information creatively using a range of search tools in order to narrow your field of results to the most relevant. Not all individuals in a given position will simply call themselves ‘Business Development Directors’ or ‘Finance Directors’, so the ability to think around the language and possible key words is essential. Not everyone will openly share their full name or role, so locating other places on the site where these individuals might hang out is an important activity. The same sort of creative research is also often necessary in identifying email addresses for the individuals targeted via LinkedIn.

Maybe I can’t claim all my time on Facebook as personal development. But I can certainly say that the creative research skills I developed have been invaluable in opening complex sales into multinational organisations in terms of identifying and engaging the key players in the decision making unit.

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09/03/12

The balance between capturing new clients and retaining existing clients

Anybody who has ever tried to secure new clients for their business will know that this is a crucial process of growing businesses. It is also commonly known that it is just as important to retain existing customers as securing new ones. In fact, in some cases, it can be more valuable. We asked Tony O’Shaughnessy, a renowned entrepreneur, whether he has any tricks of the trade that he can pass on to entrepreneurs on how to secure new clients, retain existing customers and balance the interest of all concerned parties whilst meeting your own company goals…

Securing new clients

“Firstly, I would suggest that you should take a step back, put a clear-cut structure and plan in place, and work consistently to that.

Secondly, you need to understand exactly what it is that you do that makes people buy from you. Then create a simple message at marketing level that puts exactly that point across to prospective clients.

Thirdly, you must identify the people you should be marketing and selling to. You should really take time to understand that. There is a big difference between people who are ‘interested’ in your product/service and then there are people who would ‘buy’ your product. You must distinguish between the two.

Finally, you must be transparent and honest to your clients. If you are having problems, tell them that you are and what you are doing to fix it.  Be realistic to your clients about what you can achieve.

What made Rapid Innovation Group stand out from the crowd was the fact that you had the answer to: ‘What can you do for me and why nobody else can do it for me?’”

Retaining existing clients

“I believe keeping good relationships with your existing clients should be intrinsic, not only a strategy. Honesty and transparency are not only key for gaining new clients, but are also crucial for retaining existing clients. Essentially, they want to trust you, and these are the ways to attain that. You should not look to blame somebody for any mistakes made, rather you should find a way to fix it. You must be loyal to the relationship between yourself and your clients.

For example, ninety-five per cent of the companies give bigger promises than they can keep. You must position yourself in the remaining five per cent. Do not offer something that you cannot materialise, because that will not be honest.”

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02/03/12

Competitive differentiation – are you the WiFi or the cinnamon?

Around our offices in Red Lion Square there must be 50 cafes within 5 minutes’ walk. There are the big chains – Starbucks (two of them), Caffe Nero, Costa Coffee; there are bakery cafes; there are outdoor stall cafes; there are sit-down-for-lunch cafes; there are takeaway cafes. Lots of choice.

Sitting in one of the two Starbucks the other day, to which I’d been coming regularly for 18 months, I realised that Starbucks had successfully differentiated itself in my mind as one of the better options for me.

For a long time Starbucks was the only major coffee shop chain in London to offer free wireless internet to all its customers. It was also the only one that stocked cinnamon shakers so that you could add your own cinnamon to your coffee.

So for 18 months I’ve been going regularly to Starbucks despite the fact that it’s not the most friendly cafe in the area; it’s not the best coffee; it’s not the closest to the office; and it doesn’t do the best food. But it has free wireless internet (I don’t care much for cinnamon).

In fact I can’t imagine there are many people who would consistently choose Starbucks for its cinnamon shaker whereas I know plenty who go there for its internet.

I often meet entrepreneurs that are competing in very crowded markets – particularly in the B2C world of apps or consumer internet – and they talk through their “significant”, “compelling”, and “unique” competitive differentiators and USPs.

Unfortunately a lot of the time those differentiators can sound like cinnamon and not like free internet.

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15/02/12

The differences between traditional enterprise sales and the Yammer approach

New business models and sales approaches rarely receive much attention until a company comes along and really makes it succeed.

Enterprise social networking is a growing area and Yammer has become its poster child. Moreover, it is an interesting case because its non-traditional sales approach outflanked the competition. Now it counts over 80% of the Fortune 500 as customers.

A few years ago I met with well-funded competitors to Yammer in the UK and in France that had developed strong technology to enable the socially-connected enterprise – businesses whose employees could build social networks across department and country boundaries with all the associated productivity and communication benefits. However, the companies I met were trying to sell to major corporates – the more major the better – through a traditional enterprise sales model; and it didn’t work.

By following the traditional enterprise sales model I mean that they hired a sales team, which tried to engineer access and sell directly to a corporate budget-holder, who would then in turn procure the technology and take responsibility for its adoption by the rest of the organisation.

Initially this seemed to be a very effective route to market. Like a lot of enterprise software startups they started by going through their management team’s existing personal networks to gain access to some impressive companies. Some of them became customers, and on the back of this early success the startups raised additional financing to expand the sales team, and to hire marketing and PR professionals in order to support it.

Gaining access to corporate buyers then started getting more and more difficult. In the early days they were able to call on CEOs, who were attracted by the ideas behind bringing social networking into the enterprise. But as the sales team got beyond the few evangelist buyers they were steadily pushed further down the prospect’s organisational chart and budgetary discretion decreased.

As sales targets were missed the sales teams were disbanded and reconstructed several times over. Sales Directors were brought in and given three months to turn things around before being moved on again. As it got harder and harder to get sales signed off management gave permission to do one-month free trials so that prospects could see the tool in use and perhaps develop a business case based on real data. But too often the trials ended without much user adoption and with even less basis for an ROI.

Yammer’s approach, which has been well documented elsewhere, was to ignore the traditional corporate buying centre altogether and just think of the user base as consumers. It was a B2C company selling to corporates (it forced users to register a work email address) and it made adoption easy because the platform was free to users.

By encouraging early users to use and share the platform with their colleagues Yammer was able to grow a large user base and then generate revenues from the corporates that wanted to ‘claim the network’ – and all without having to hire an enormous sales team.

At first glance this approach might suggest a revolution in sales strategy. Why would anyone hire sales teams that have to worry about accessing senior stakeholders and getting hold of budgets when instead you can simply give access to the users and generate revenue thereafter?

I put this table together to show some of the differences between ‘traditional’ and ‘non-traditional’ approaches (click on the table to enlarge it).

In the case of Yammer and enterprise social networking, they were in an area that allowed them to focus on the right-hand column – what I’ve called the ‘non-traditional’ approach. The product was inherently ‘social’ in the sense that using it to its fullest potential required users to involve other people; it was simple (especially to users who already had other social networking accounts like Facebook); it provided standard functionality; and it didn’t require any input from corporate IT to function.

But this is not true in all cases and not every startup should pursue the same strategy. You can’t say that one of these approaches is ‘better’ than the other in general terms.

One of the most important indicators for which one is right for your startup is whether or not you are solving the same problem for many different customers. An ERP software company will try to sell systems that cover all sorts of different issues in a corporate; they require complex integration with existing systems; and so they need talented, consultative sales people to uncover the prospect’s real issues and customise the technology to solve them. On the other hand, mobile app companies do not typically need any customisation.

The other major factor to consider before selecting a sales approach is where you see your sustainable advantage. Technology companies selling to complex organisations like government authorities may have to invest a lot of time talking to procurement officials and IT teams but once those boxes have been ticked they represent a significant advantage over the competition, which has not made the same investment.

Your choice of sales approach has an impact on the whole of your business as a startup. Following the ‘non-traditional’ approach requires a skilled product team that can excel at the user experience and a marketing team that knows how to build brand awareness across a wide user base. The ‘traditional’ approach will impose different constraints on product and marketing, for instance, the technology must be more configurable to different customer demands and marketing must be able to generate real demand for the sales team.

It’s also possible to combine aspects of both approaches, as long as it is well thought-out. Don’t try to gain additional competitive advantage by building a relationship with your customer’s CFO if you can’t point to a strong ROI case; and don’t rely on a user adopting your product quickly if it is too complicated and there isn’t immediate value to them.

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27/10/11

How to approach an initial sales meeting

I wanted to write this post to follow up a previous one which covered the importance of having an effective sales process. The post began with a comment that entrepreneurs have a fantastic passion for their products and are able to convey this deep enthusiasm in sales pitches.

The risk is that this can lead to relying upon a solution-centric approach which takes no heed of the prospect’s challenges. Founding CEOs frequently turn up at a sales meeting and wax lyrical about the features, capabilities and benefits of their solution. But how can you presume the solution will solve the prospect’s problem, without understanding what that problem is in detail? Getting this right is especially important at the early stages of your company’s life, as feedback from these early sales meetings can be vital to helping you refine product / market fit in the wider sense.

A meeting (or meeting preparation) should always begin with a focus on identifying the prospect’s key challenges. In addition to taking this approach for our clients, we also use it with our own prospects. I thought I would lay out the high-level methodology I employ when meeting potential future clients, because although we are selling services, the same approach should be used as part of a consultative sales process for an enterprise technology solution.

Set a clear objective

E.g. ‘To understand the {prospect’s} key growth objectives, strategies and the accompanying challenges. From this, to determine whether our capabilities and experience could be utilised to help address these challenges and as such accelerate the growth of the business’

Understand their challenges (to determine whether they can be addressed by your competencies / capabilities)

  1. Elucidate these through a series of insightful questions. This serves a number of purposes beyond identifying their challenges:
    1. By asking the right questions, you demonstrate your expertise
    2. It gives a chance for you to highlight issues / opportunities which the prospect may not have been aware of
    3. It shows you have done your homework on their company, demonstrating that winning their business is of value to you
  2. For example, I often try to drill down to the crux of a prospect’s challenges by structuring questions under the following headings:
    1. Market and competitive landscape
    2. Growth objectives / window of opportunity
    3. Market focus and rationale
    4. Market strategy and proposition
    5. Demand generation activities
    6. Sales and sales management processes
    7. Partnering capabilities
  3. Explore potential synergies / areas of collaboration
    1. Give a relevant (according to the answers to the questions) background to your company / solution
    2. Discuss how a relevant selection of your competencies / capabilities could be used to address their most strategic challenges (elucidated earlier on)
    3. Add credence to the discussion by referring to appropriate case studies

Next steps (if appropriate)

  1. Agree to structure the discussions into an objective driven programme of work
    1. If well put together, this document will in itself give you significant credibility, as well as laying out the value the prospect will gain from the collaboration
    2. Suggesting to put together this programme of work should be compelling for the prospect – they should get value from it even if they end up not choosing you to execute upon it

If you are thoughtful, effective and easy to work with during the sales process, you give direct assurance to the prospect that this will be the case after the sale. As well as using what you learn to tailor the relevance of your offering to the company in question, it also helps you develop your overall proposition and further refine your product / market fit.

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