Category Archives: blog

Why Lawyers Don’t Run Startups

Why Lawyers Don’t Run Startups

This article by Steve Blank is excellent.  The business decision-makers should negotiate the strategic issues and then engage the lawyers to draw a contract that reflects those agreements.

“Startups need to have a great lawyer, accountant, patent attorney, etc. But founders need to know how to ask for their advice and when to ignore it…

Strategy Questions Not Legal Questions

The issues our lawyer had raised about the contract, while correct, were strategy questions the founders needed to answer, not legal questions. Negotiating deal points before we thought through our strategy at best would have cost us a ton of money with little progress.

Looking at the Visio contract the question we were faced with was; how bad would the short term consequences be in signing the deal? The answer to that was easy – none. We’d have money in the bank and a reference customer.

The next question was, how bad would the deal points Visio was asking for screw us in the long term? This was more complex. Some of them would have limited our ability to sell to other software companies. Those were clearly unacceptable. Some of their other requests were just “comfort” issues like putting the software in escrow to protect Visio in case our startup went out of business.

Finally, there was a class of what I call “business development contract terms.” This happens in every company when a contract is passed around for review and everyone feels they have to mark it up with extraneous demands to feel like they had their say. Most of these points might have sounded great in law school but were impossible for a startup to deliver….”

For the complete article, go to https://www.linkedin.com/pulse/why-lawyers-dont-run-startups-steve-blank?trk=hb_ntf_MEGAPHONE_ARTICLE_POST

 

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Selling Tools or Solutions to the Enterprise?

Are you Selling Solutions or Tools to the Enterprise?

I regularly encounter SaaS application vendors who are having difficulty getting traction in Enterprise customer acquisition.  The founders think they have an Enterprise Solution because it has the potential to change the way work is done in the Enterprise.  Because they a)  have limited functionality in the initial version and b) have not done the hard work to understand and quantify the value to the customer, they price it low ($25K ARR or less).  The result is that prospects see the application as a tool or point product.  Enterprise executives, who have the authority and political capital to authorize changes in the way work is done are looking for solutions to their top priority problems.  They do not spend cycles on low-priced tools.  They delegate the evaluation to those who don’t have the authority or political power to change the way work is done.   Often, prospects see the app as a “nice-to-have” rather than a “must have”.   The result is low close rates and long sales cycles.  Sales reps try to solve this by forcing demos on every candidate they can find.  They focus on features rather than value for the customer because they have not been trained how to sell value.   The founders may see the traction problem as poor sales execution when it may well be product positioning, low price and the lack of a clear value proposition.

See a related post on Selling Value to Executives.

If you need help, contact Growth Process Group.

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Culture Clash!!

Making the Transition from On-Premise to SaaS Solution Provider

02The challenge for B2B Software Solution providers is that the growth rate of on-premise software is somewhere between single digits and negative while the growth rate for SaaS Solutions is 40% and higher.

The question is: “Should you change or die? The answer is obvious. The issue is how do you accomplish a transition? The devil is in the details.

On-Premise software solution providers license their products on a perpetual basis. Revenues are driven largely by new customer order bookings. This places primary emphasis on new account acquisition. Resources were slanted heavily toward sales & marketing with significantly less for customer support. The result was that few of these companies did a great job of insuring high customer satisfaction. Stories of long implementation projects with high costs and abandonment rates are legendary.

Cloud application (SaaS) providers (using subscription models) are driven to maximize renewals. It is generally accepted that these businesses need to achieve a renewal rate of 90% or better for decent financial performance. This leads to a focus on customer delight with appropriate resource allocation to that function. Customer delight & support is now elevated on a par with sales, marketing, finance & engineering.

Let’s take a look at how these two models lead to cultural differences that make the transition from On-Premise to SaaS provider difficult.

Key metrics for running the business:

On-Premise-the metrics are sales-oriented with new account bookings as the most important. We regularly heard the end-of-quarter announcements when a large deal did not come in on time and revenue suffered, along with stock prices for public companies.

The primary Saas metrics are Annual Recurring Revenue (ARR), Customer Acquisition Cost (CAC), and Customer Life Time Value (CLTV) and Churn. Ron Gill, CFO of Netsuite said it well: “With SaaS, companies are more model-driven than they are driven by new account sales”. Successful SaaS companies eat, breathe and sleep Customer Delight at every level in every department.

The Culture Differences
Sales
-The SaaS sales department has to set reasonable expectations with prospects. Promising the moon leads to disaster. Perpetual model reps are used to doing a couple of huge deals a quarter whereas cloud app sales are more of a high velocity model in which reps have to be good at managing many more sales cycles. Attempts to use the same sales team for both models usually fail, due to the difficulty in designing compensation plans that motivate reps to behave in alignment with corporate goals.On-Premise sales structure tends to be field-centric while SaaS sales structures are more apt to emphasize Inside Sales.

Marketing– Product Marketing in On-Premise moves toward community management in SaaS. Real-time User Analytics guide Feature Set enhancement for cloud app providers who implement many updates per month or week. On-Premise software vendors do periodic customer interviews with long delays to new features. A key challenge for SaaS providers is how to hold events that are not focused on new releases.

Engineering-In the On-Premise game, engineering could work on cool features that were favored by management. Different customers often have their own unique source trees with the attendant support headaches. In a cloud model, there is a single source tree and user analytics drives the allocation of engineering resources. In On-Premise, there may be one or two product releases per year. In SaaS, we see many releases per month, per week and in some cases per day.

Operations-With SaaS, cost of goods sold (CoGS) is significant whereas it typically runs less than 5% in the old model. Security becomes the obligation of the vendor where it was managed by the customer in the old model.

Services-in the On-Premise model, the services often were 2X to 5X the license price while SaaS provider services tend to run around 30% of ARR. Interestingly, the services are very different. In SaaS, there is an emphasis on Business Process Re-engineering (BPR) more so than lower level data integration. This places a need for providers to hire different skills.

Finance-In the on-prem game, an order has a huge impact on revenue for the current period (assuming that implementation does not delay revenue recognition). This leads to the high volatility in earnings of these companies.   In SaaS, revenue is recognized ratably over the life of each contract. The result is that an order booked in the current period has a very small impact on revenue for the period. The unearned revenue that builds as orders are booked leads to low earnings volatility and dramatically more accurate revenue forecasts. Chris Cabrera, CEO of Xactly said it well (paraphrased):”If you have a mixed model (SaaS and On-Premise), perpetual license revenue becomes a drug that enables you to mask an otherwise bad quarter by booking a big (On-Premise) deal”.

The Culture Clash!
03
As you consider making the transition to SaaS, you need to recognize that it is likely to be disruptive. Not all your existing players can or will make the change. Some of your On-Premise team may try to protect the existing (On-Premise) ways of doing business as you bring out your cloud application. This can be counter-productive to achieving a high level of customer delight.

The way of the future is SaaS. This is driven by the tremendous new capabilities, value and TCO advantages that SaaS Solutions provide customers. Large software providers like Oracle have the resources to create separate divisions where the cloud application providers have an appropriate culture.   For small (<$100M) companies, we believe the smart approach is a complete, rapid transition accomplished in a year or less. Note that such a fast transition is not easy, but stretching It out over a long period increases the risk that you will not accomplish the change.

We have only identified one company that is successfully providing solutions as both On-Premise/perpetual and SaaS/subscription from the same business unit. If you know of any, please identify them, as we want to learn more about this important issue.

If you face these challenges and want to learn more, contact me at Growth Process Group on how best to make the transition.

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Implement Sales Process to Improve Sales Productivity

We are often asked: “What is the best methodology for our company?” This is the wrong question. Any methodology, when consistently applied, can yield significant Sales Productivity benefits. The better question is:”How do we make our Sales Process useful to the reps and used uniformly across the team?” The challenge is the consistent application in a fashion in which the reps buy in.

One of the keys to improving Sales Productivity is the consistent use of a dynamic Sales Process. According to CSO Insights and others, companies that utilize Sales Process have significantly higher Sales Productivity than those that do not. When you implement Sales Process, you will be more effective in focusing on the highest potential opportunities.

This does not mean that every rep in your company should sell exactly the same way. However, you should: a) Have a consistent approach to measure where a deal is in the prospect’s buying cycle and b) Enable your Sales Leaders to provide coaching to your sales reps on best sales practices that apply to specific sales cycles in their individual pipelines.

When we ask clients about their sales process, they often respond that they have one, but that it is not consistently used across the sales force. We often find that problem is less with the Sales Process Design and more due to the lack of commitment to implementation. Why is this?

In our view, it is that VPs of Sales are often unwilling or unable to deliver culture change. The implementation of a Sales Process (where none existed) is severe culture change. Some of your best performers will resist. And the Sales VP is compensated to focus on the current quarter and half of the next quarter. To expect an executive who typically is in the job for a total of 18 months to take arrows in their back to drive a change that has long term benefits may not be reasonable unless he/she has the strong commitment of the CEO and executive staff. I don’t suggest that clients spend the resources on Sales Process design unless that commitment is evident.

If you need to improve Sales Productivity and/or forecast accuracy, consider our Sales Assessment service to identify the strengths and weaknesses in your approach to acquiring customers.

Growth Process Group
408-252-5518

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Sales Huddles-The New Way to Coach Your Reps

Elay Cohen, CEO of Saleshood, has the viewpoint that first line sales managers need to improve their ability to coach their reps to improve their performance. His new book titled “SalesHood” is a good read.

I really like this quote in Chapter 4, Nurture Social Learning, from Benjamin Franklin: “Tell me and I forget; Teach me and I may remember; Involve me and I learn.”

As Elay says “These principles apply beautifully to salespeople and sales training. The most effective parts of sales training are those where salespeople share real life deal scenarios and where they can demonstrate and apply their skills.”

He likes small, modular coaching sessions which reinforce learning. One of the changes that he advocates is to hold frequent sales huddles that are led by first line sales managers as more effective than grandiose annual training events.

SalesHood is available on Amazon in hard cover and Kindle formats.

I recommend it for all sales leaders and sales trainers and I am adding SalesHood to the recommended reading list for my Cloud Computing Course (BUS 105-Selling & Marketing SaaS to the Enterprise) at Stanford which is taught in the evenings to serve the needs of those currently working at and those seeking to join cloud application companies. For info and registration, click here.

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Generational Differences Impact Sales

I really liked this post from Carew International on the generational differences and the impact on sales. It provides some interesting insight for sales leaders. The detailed Generational Differences Chart, provided at the Workflow Management Coalition website, is worth a look.

I also recommend “Not Everyone Gets a Trophy”, a book on the topic by Bruce Tulgan.

Increased generational diversity in the workforce means that getting into the “Odds Are” of customers is more complicated and challenging than ever before. Currently there is a big generational shift underway with the rapid exit of Boomers, due to retirement, the increasing proportion of Gen Xers among decision makers, and the arrival of Millennials into management positions.

While we must be careful not to cast blanket stereotypes, we can all benefit from increased awareness and attention to generational influences if we leverage these specific values and expectations for superior sales and customer service effectiveness. In general, “Baby Boomers” tend to be more structured and formal, “Gen Xers” more casual, and “Millennials” (also known as Gen Ys) still more relaxed. This distinction impacts every aspect of the sales process and customer relationship.

Generational influences may be most obvious in the area of customer communications, including format, frequency and style. For example, Boomers appreciate in-person interaction and personal relationships as part of business. In written communications, they expect proper grammar and punctuation. Boomers appreciate recognition of stature/authority. They are more likely to invoke regularly scheduled meetings, updates or phone calls.

In contrast, Gen Xers respond to more direct/blunt communications. They are less interested in “regular” meetings, but they expect more timely and frequent communication. Gen Xers are not as concerned with authority and rank, but expect their sales rep to learn their language and meet them in their world.

Millennials are far less interested in in-person meetings. They greatly prefer the efficiency of electronic communication, and expect immediate response to questions and requests. Their collaborative tendencies mean Millennials want to be included as you develop solutions for their organization. Millennials are more likely to buy in groups, versus Baby Boomers who tend to assume and assign single decision makers, and will be more definitive about who is in charge. It is important to understand who the decision maker is, and if it is indeed a committee making the purchase decision.

The key is to be aware of generational influences, and then be flexible in the style, rhythm and format you apply to different customers. Mentoring with different aged sales professionals on your own sales team is a great avenue for ongoing insight and feedback. With every new challenge comes new opportunity. Leverage your generational insight and awareness effectively and you will create a differentiating sales advantage.

Of course, these insights are just the tip of the iceberg! Want to take a deeper look at generational influences? The detailed Generational Differences Chart, provided at the Workflow Management Coalition website, is an excellent reference resource.

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What Is Sales Enablement, Anyway?

This very good article by Jason Jordan on the range of elements that are included in the term :Sales Enablement”.

Among the sometimes-vague sales terms that get tossed around, sales enablement may be one of the worst offenders. Sometimes, it’s a code word for a sales operations group; other times, it’s code for sales training. CRM can come into it, as can other technology. So what does “sales enablement” really mean?

In the research that led to our best-selling book, Cracking the Sales Management Code, we discovered how broadly people use this term. Then, in order to clarify it, we organized some of this information in the infographic below.

Basically, we found that sales enablement is a collection of tasks and tools that are intended to improve the execution of key sales activities—activities like making sales calls, pursuing opportunities, managing major accounts, and targeting top prospects. But our research also revealed that these tasks and tools all fall into one of four categories—categories that interestingly mirror the lifecycle of an employee.

For the complete article, click here.

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Making the Transition from On-Premise to SaaS Solution Provider

NIxon-Beatles-image-300x156

The challenge for B2B Software Solution providers is that the growth rate of on- premise software is somewhere between single digits and negative while the growth rate for SaaS Solutions is 40% and higher.

The question is: “Should you change or die? The answer is obvious. The issue is how do you accomplish a transition? The devil is in the details.

On-Premise software solution providers license their products on a perpetual basis. Revenues are driven largely by new customer order bookings. This places primary emphasis on new account acquisition. Resources were slanted heavily toward sales & marketing with significantly less for customer support. The result was that few of these companies did a great job of insuring high customer satisfaction. Stories of long implementation projects with high costs and abandonment rates are legendary.

Cloud application (SaaS) providers (using subscription models) are driven to maximize renewals. It is generally accepted that these businesses need to achieve a renewal rate of 90% or better for decent financial performance. This leads to a focus on Customer Delight with appropriate resource allocation to that function. Customer Delight & Support is now elevated on a par with Sales, Marketing, Finance & Engineering.

Let’s take a look at how these two models lead to cultural differences that make the transition from On-Premise to SaaS provider difficult.

Key metrics for running the business:

On-Premise-the metrics are sales-oriented with new account bookings as the most important. We regularly heard the end-of-quarter announcements when a large deal did not come in on time and revenue suffered, along with stock prices for public companies.

The primary Saas metrics are Annual Recurring Revenue (ARR), Customer Acquisition Cost (CAC), and Customer Life Time Value (CLTV) and Churn. Ron Gill, CFO of Netsuite said it well: “With SaaS, companies are more model-driven than they are driven by new account sales”. Successful SaaS companies eat, breathe and sleep Customer Delight at every level in every department.

The Culture Differences

Sales-The SaaS sales department has to set reasonable expectations with prospects. Promising the moon leads to disaster. Perpetual model reps are used to doing a couple of huge deals a quarter whereas cloud app sales are more of a high velocity model in which reps have to be good at managing many more sales cycles. Attempts to use the same sales team for both models usually fail, due to the difficulty in designing compensation plans that motivate reps to behave in alignment with corporate goals. On-Premise sales structure tends to be field-centric while SaaS sales structures are more apt to emphasize Inside Sales.

Marketing- Product Marketing in On-Premise moves toward community management in SaaS. Real-time User Analytics guide Feature Set enhancement for cloud app providers who implement many updates per month or week. On-Premise software vendors do periodic customer interviews with long delays to new features. A key challenge for SaaS providers is how to hold events that are not focused on new releases.

Engineering-In the On-Premise game, engineering could work on cool features that were favored by management. Different customers often have their own unique source trees with the attendant support headaches. In a cloud model, there is a single source tree and user analytics drives the allocation of engineering resources. In On-Premise, there may be one or two product releases per year. In SaaS, we see many releases per month, per week and in some cases per day.

Operations-With SaaS, cost of goods sold (CoGS) is significant whereas it typically runs less than 5% in the old model. Security becomes the obligation of the vendor where it was managed by the customer in the old model.

Services-in the On-Premise model, the services often were 2X to 5X the license price while SaaS provider services tend to run around 30% of ARR. Interestingly, the services are very different. In SaaS, there is an emphasis on Business Process Re-engineering (BPR) more so than lower level data integration. This places a need for providers to hire different skills.

Finance-In the on-prem game, an order has a huge impact on revenue for the current period (assuming that implementation does not delay revenue recognition). This leads to the high volatility in earnings of these companies. In SaaS, revenue is recognized ratably over the life of each contract. The result is that an order booked in the current period has a very small impact on revenue for the period. The unearned revenue that builds as orders are booked leads to dramatically more accurate revenue forecasts and low earnings volatility. Chris Cabrera, CEO of Xactly said it well (paraphrased):”If you have a mixed model (SaaS and On-Premise), perpetual license revenue becomes a drug that enables you to mask an otherwise bad quarter by booking a big (On-Premise) deal”

The Culture Clash!

clash-of-the-titans4a-300x187

As you consider making the transition to SaaS, you need to recognize that it is likely to be disruptive. Not all your existing players can or will make the change. Some of your On-Premise team may try to protect the existing (On-Premise) ways of doing business as you bring out your cloud application. This can be counter-productive to achieving a high level of customer delight.

The way of the future is SaaS. This is driven by the tremendous new capabilities, value and TCO advantages that SaaS Solutions provide customers. Large software providers like Oracle have the resources to create separate divisions where the cloud application providers have an appropriate culture. For small (<$100M) companies, we believe the smart approach is a complete, rapid transition accomplished in a year or less. Note that such a fast transition is not easy, but stretching It out over a long period increases the risk that you will not accomplish the change. We have only identified one company that is successfully providing solutions as both On-Premise/perpetual and SaaS/subscription from the same business unit. If you know of any, please identify them, as we want to learn more about this important issue. If you face these challenges and want to learn more, contact me at Growth Process Group on how best to make the transition.

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Can Your Sales Reps Communicate Value to Business Executives?

Never-Expect-300x120According to a number of research reports, the number one reason deals do not close is a sales rep’s inability to present value effectively. As Geoffrey Moore pointed out years ago in his book, “Crossing the Chasm”, Early Adopters and Innovators are enamored with features, but executives in the Majority make decisions according to their perception of your value in solving their critical problems. Clear communication of Value is required to sell to top level executives.

A Value Proposition is a concise (quantified) statement of the:
• Revenue Increase,
• Cost Reduction or
• Control Improvement
that your solution provides your customer.

If you can’t quantify the value you provide, you may not have a viable business that will survive.

Value Propositions answer these questions:

  • What can you do for me?
  • Why is that important to me?
  • Is that more than I’m getting now?
  • Is that better than I’m getting now?
  • Is that sooner than I’m getting now?
  • Does it cost less than what I’m spending now?
  • Is it less risky than what I’m doing now?

Before I hold the first class session of my Stanford course on Cloud Computing, I warn the students (who are managers and executives at tech companies) that I expect them to be able to state the Problem They Solve for Their Customers in 15 words or less without talking about product features. I go around the class asking them to provide their problem statements and more than half fail the test. Product feature focus is a syndrome of many technology companies.

As this research report from Insideview.com shows, the top drivers of customer loyalty are reps that provide value.

Customer-Loyalty

At Growth Process Group, we use a proven process for developing clear Value Propositions. This is a simplified process diagram.

Value-Prop-Process-Diagram

Achieving Simplicity is key. We begin by describing the Problem Solved from the customer’s perspective. Then, we develop Before & After views in simple graphical representations. We map Value to Pain by Title Type with a TCO perspective. Messages are crafted only after your Value Proposition development is complete.

The criteria for Problem Solved selection:

  • View the problem you solve from the customer’s perspective
  • Focus on customer pain
  • Is it a differentiator (or “me too”)?

Rank by

  • Target Market size
  • Importance in the customer’s mind
  • Your credibility at this time

 

Here is an example of an Initial Problems Solved list:

Companies

  1. Rogue spending for Services is too large
  2. Companies need to reduce the total time spent sourcing services
  3. Reduce Cost of Purchased Services
  4. Gain benefits of existing  system for Services

Procurement & Accounting

  1. Procurement-improve control over Service spending
  2. Total Cost of Purchasing  Services is too high (manual process)
  3. Reduce Accounting  Error & Rework Rates for Services
  4. Reduce Reconciliation Effort for  Services Invoices

LOBs

  1. Need to reduce the time & effort  for Sourcing & Purchasing Services
  2. LOB Mgrs have to mend time reconciling  invoices for Services Suppliers
  3. Purchasing can’t translate LOB requirements to Suppliers
  4. Enable ability to get desired services, but ‘in the system’

 

Often, the first iteration of such a list is too long and the challenge is to focus on the Problems Solved that are most important to customers at the current point in time.

This diagram shows a simple Before/After graphic we created out of a thick technical features document.

Before-After

Transforming detailed descriptions of technical features to clear, simple statements is a talent that is rarely found in those who are closely tied to the product or service development. When I show this graphic to an audience, I ask: ”Who here does not get it?” No one raises their hand due to its’ elegant simplicity.

How often do you visit a web site to find a detailed description that does not express customer value?

Here is an example Value Proposition:

We Improve Customer Satisfaction, Improve Retention & Reduce Cost

• Churn reduced > 10%
• Support costs reduced > 30%
• Break even in < 3 months (including TCO) questions resolved in < 24 hours (vs. 60% took > 36 hours previously)
Notice the simplicity and clarity that results from very few words. Also, there are no product features.
The next phase of the process is to craft messages by title type (personas) based on the key interests of that position. Examples of the concerns of various executives are shown below:

  • CEO‐Investor Relations & Share Price
  • CFO‐Profits & Cash
  • COO‐Productivity & Cost
  • CMO‐Strategy, Positioning & Lead generation
  • CSO‐Revenue Growth & Cost of Selling
  • CIO‐ROI & Efficiency
  • Users‐Great Functionality
  • IT‐Ease of Support

 

Growth Process Group’s Value‐Pain Matrix methodology is used to determine which problems and messages are appropriate for each prospective title type. This often results in Aha! moments that reveal incorrect assumptions on who to sell to. We list the key Problems Solved for the Customer and the Title Types that should be involved as shown below.

Value-Pain-Matrix

For each Problem Solved-Title Type intersection, we assign attributes to each cell as follows:

  • Which Title Type has Acute Pain for this Problem?
  • Which Title Type has Budget Creation capability for this Problem?
  • Which Title Type has Political Power to change the way work is done for this Problem?
  • Which Title Type Owns the Problem (you would like to avoid selling across departments where possible?

 

Next, we find sweet spots that have all of these attributes in one cell and direct our reps to sell that Problem Solved to that Title Type (and not all of the Problem Solved). We find that when we do this, win rates go up and sell cycles decrease.

Here is an example of an in-process Value-Pain Matrix:

Value-pain-Matrix-

When we take the team through this on a several meeting, iterative exercise, AHAs! sometimes occur, such as the CEO says we have to get to (name your Title Type) when the that Title Type has none of the required attributes for any of the Problems Solved, or the reverse where she had assumed that sales reps should not approach (name your Title Type) when that Title Type does have all of the desired attributes for a particular Problem Solved and can be a great sales opportunity..

Contact Growth Process Group if you need to improve your rep’s ability to communicate value.

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What is the Best Enterprise SaaS Sales Model: Viral or Focused?

Changes-Ahead-Road-Warning-Sign1-300x300

Are you going to market with an enterprise app that promises to improve revenue, reduce cost or improve control? Often, these products propose to accomplish success by changing the way work is done in the enterprise.

There are many enterprise SaaS market entry attempts starting with a low price (<$25K ARR) and the expectation that the customer will love the app so much that it will expand to enterprise-wide deployment. The approach is to encourage viral expansion. Free trials, web sales and freemium models pervade.

When the enterprise expansion does not meet expectations, the response may be to bring in an experienced team for enterprise sales, marketing and support. The investment required to do this is often well north of $100M. Successful examples include Zuora, Box, Marketo, Yammer, and salesforce.com. This process is endorsed by the VC funds pumping money into the space.

The issue here is the probability of success with a low end offering when there is the requirement that work flow in the enterprise be changed. Changing work flow requires the endorsement of an executive who has the authority and political power to change how work is done. Top level executives, who have the power to change how work is done, do not spend their time on small (priced) problems. They delegate decisions these to those in the departmental ranks. Lower level managers rarely have the political power or authority to change enterprise work flow. So there is a dilemma. When your price point is low (and there is an implication that your value is commensurate) and you may have difficulty getting attention from executives who are focused on strategic initiatives.

So, the question is what are some alternative sales approaches?

Top Down Sales

In this model, the focus is on enterprise-wide adoption. The sales goal is get top management adoption of the solution. Because the deals tend to be large, sales cycles are typically long and the cost of acquiring each customer is high. The sales model is complex with committees on the customer side and multiple resources deployed by the ISV. However, the risk of enterprise wide adoption is low, assuming the SaaS solution solves the customer problem. Early customer sales may focus on the vision of the future solution rather than the current MVP capability. Customer executives that commit to this approach are visionaries with strong political power. Siebel Systems mastered this in the client-server days. Today, Workday is a leading SaaS ISV employing it.

Land & Expand Model

Here, the focus is to capture a departmental unit and expand within the corporation once initial customer success has been achieved. The goal is departmental management commitment. The sales cycles are still complex, but usually shorter and lower cost than those in the Enterprise wide model. Building strong references for the solution within the customer is key to success. There is greater risk (often due to political issues) that the SaaS solution may not achieve enterprise-wide adoption. RightNow Technologies perfected this model before the Oracle acquisition. Other examples would be business intelligence, customer success and variable compensation applications.

Bottom Up Model

In a bottom-up approach, the initial targets are individual users who will become advocates of the product. Price points are low. Selling costs per unit sale are low and sales cycles are short. However, revenue growth may be slow and there is greater risk of not achieving enterprise-wide adoption because the users do not have the authority or political will to change the way work is done. Examples include salesforce.com (in the early days), Box.net, Zuora and Yammer (before the Microsoft acquisition). To achieve sustainability in the enterprise market, the investment requirement for the bottom-up model is typically over $100M (with the notable exception of Veeva). Many SaaS solution providers trying to gain entry with a product offering that will improve productivity that requires work flow changes initially positioned as low end offerings. Clearly, this approach can be successful if the firm has the intention to raise megabucks and the VCs will back it.

What sales model are you using? One of these or more than one? How is it working?

Let me know if you have experience with other approaches not discussed here.

Contact me if you want help sorting out the alternatives.

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Sales Pipeline Management-Are You Generating Enough Qualified Leads?

Developing a Pipeline Requirements Model
Developing a Pipeline Requirements Model

Sales Productivity is a critical measure of the viability of your sales force. One of the important ways to improve Sales Productivity is to provide each rep with an adequate pipeline of qualified leads. The more time that your reps can spend moving prospects through their funnel (rather than hunting for qualified leads) the more productive your sales organization. Yet, we regularly hear that reps do not have adequate deal flow from field reps and their managers. When companies do not adequately project the number of suspects required to meet the sales goals or they use very optimistic assumptions on conversion rates, the result is missed goals and high selling costs.

This article is focused on developing a Pipeline Requirements Model for subscription revenue businesses. It incorporates conversion and lead time metrics.

diagram-of-sales-pipeline-stages-e1302556813916-300x177

Explanation of the model An example of such a model is shown below.

Pipeline-Reqts2-300x290

The second row states the Revenue Goal for the year ($50M in this case) and row 3 shows the Renewal Revenue Estimate of $42M. An assumption in this version is that Renewal Revenue takes Churn into account. If not, you should add in specific Churn Estimates by quarter and compute Net Renewal Revenue before proceeding down the model. The Average New Account Order Size (Row 4) is an important element to estimate how many new accounts are needed.

Next, management states the desired distribution of New Account Revenue by quarter (shown in row 6: 10% in Q1 growing to 35% in Q4). Sales Leadership estimates the number of New Accounts to be Closed from the Current Pipeline by quarter (row 8: Total = 290 in this example). Multiplying the number of New Accounts to be Closed from the Current Pipeline by the Average New Account Order Size provides the revenue for a full year after the order is closed (assumes all contracts are for one year). Multiplying that by 25% (the assumption that the subscription service is provided equally each quarter may not be correct in your case) provides the ratable revenue that is recognizable each quarter (row 10). The difference between the New Account Revenue Goal (row 5) and the Revenue from New Accounts to be closed from the Current Pipeline (row 10) reveals the Revenue required from New Accounts Not yet in the Pipeline (row 11).

The calculation of New Account Orders to be closed that are not in the Current Pipeline (row 13) is (Revenue from New Account Orders not in the Current Pipeline X 4) / (Average New Account Order Size). Now, with the Number of New Account Orders not in the Current Pipeline, we can proceed to develop projections for the number of Qualified Leads, Prospects and Suspects or Targets required to meet the plan.

It is important to use conversion rates that meet a sanity test and to progress to a point where most of your Qualified Leads and some of your Prospects are generated in earlier quarters than the order close quarter. This assumes that the sales cycle for $80K+ deals is more than 1 quarter. The number of Suspects, Prospects and Qualified Leads needed to satisfy the revenue goal is often much larger than the company executives think is necessary.

As we see here, we need to touch more than 200,000 Targets to get 109 New Accounts not currently in the Pipeline. This can be reduced if the conversion rates for Qualified Leads and Prospects improve. If we can close one of every two Qualified Leads, the number drops to 136,000 (which is still significant).

Assumptions in this model

  • Renewal revenue estimate includes revenue lost due to Churn
  • All orders are for one year contracts
  • Subscription service is provided equally per quarter
  • Average order size is a meaningful number
  • Sales cycles are more than 1 quarter

Companies need to apply this approach globally as well as to the individual territory, Different territories have different needs. Marketing programs should be driven to serve the needs of each sales territory. For this to work well, the Marketing team needs to have the philosophy that Sales is their number one customer.

Adequate Lead Generation and Qualification is very important and should be guided by your Target Markets and Ideal Prospect Criteria. There are several new technology approaches for generating and tracking new opportunities. Refer to the extensive excellent subject matter resources at Marketo.com and HubSpot.com.

You can view this and our other blogs here. If you would like help in building your Pipeline Development Model or improving other Sales Productivity issues, contact me.

Chuck DeVita
Growth Process Group
cdevita@growthprocess.com
408-252-5518
@SellingSaaSPro

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Improve Forecast Accuracy for Complex Transactions

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At Growth Process Group, we focus on complex sales scenarios involving large transactions with medium to large companies.

A common definition for forecast accuracy is the percentage of the bookings dollars that were closed in the quarter as compared to the forecast at the start of the quarter. Some companies use a monthly metric.

To improve forecast accuracy, you need to adopt a consistent sales process. We advocate the development of Sales Process Models that include the desired prospect/customer commitment action at each stage. When you measure pipeline position by customer action, rather than sales optimism; you have a much clearer view of the pipeline quality and you are able to start improving your forecast process and accuracy. Here is an example of a portion of sales process model with customer commitment added at each stage:

Sales-Cycle-Model-300x202

We suggest the use of specific “Exit Criteria” to help sales leaders determine if a sales cycle is eligible to proceed to the next stage. This is an example showing specific exit criteria:

Sales-Cycle-Exit-Criteria-300x145

The next step is to assign probabilities to the stages in the model. Probabilities should be based on past date, if it exists. If not, experienced sales leaders can assign reasonable probabilities as a starting place. These should be modified as soon as sufficient transaction data is available. With this approach, weighted forecasts move more toward data-based than opinion based.

It is important to recognize that not every sales process follows a serial path. The definition of acceptable alternative paths for deals helps sales leaders coach their reps on how and whether or not to proceed on a deal. This shows an example of alternate paths:

Alt-Sales-Cycle-Paths-283x300

Notice the “STOP” element. Many sales organizations do not have rules on when to stop selling. If your sales team is effective at terminating sales cycles early for deals that are unlikely to close, they can focus on the high quality prospects and sales productivity improves. Doing this well means you have to develop good criteria for deals that are good fit vs. those that are not. Implementation of Rules for Stopping sales cycles is a key element in improving your forecast accuracy.

To improve your Forecast Accuracy, develop and apply Perfect Prospect Profiles, Qualified Lead Criteria, Sales Cycle stage exit criteria, Forecast Rule Sets and win probabilities that are data-based. If you adopt a continuous improvement method for each of these elements, the result will be improved forecast accuracy.

Contact Growth Process Group to improve your Forecasting Process and Forecast Accuracy.

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How Sales Complexity impacts your Startup’s Viability

By David Skok, General Partner, Matrix Partners

There is no question that success for the entrepreneur starts with a breakthrough (or at the very least great) product or service. Yet too often, entrepreneurs fall into the “field of dreams” mentality (in the words of Terence Mann, AKA James Earl Jones: “build it and they’ll come”). But the truth is that defining the product is just the beginning. Entrepreneurs must spend significant time thinking about the complexity of their sales process and the cost of customer acquisition, as these factors will strongly impact a company’s ability to make money and attract investors.

An obvious requirement for a successful startup is that they are able to make more money from a customer than they spend for a customer, i.e. Lifetime value (LTV) should be greater than cost of customer acquisition (CAC) (see my prior blog post, Startup Killer: the Cost of Customer Acquisition). In this post, we’ll focus on the complexity of the sales cycle for various different types of B2B software and hardware products, and looking at how that impacts the viablity of startup business models by increasing CAC. And I will introduce a “zone system” that entrepreneurs can use to help evaluate different start up sales models.(Note: This post is primarily about B2B technology companies. Some of the concepts may apply to B2C internet, or to other industries, but it was not written with them in mind.)
Understanding Sales Cycle Complexity

Let’s start by looking at the sales cycle spectrum. Some products/services are easy to sell, and buyers will feel comfortable buying them online the first time they visit a web site, while other products and services require complex sales cycles with multiple on-site visits, meeting with various decision-makers, a protracted proof-of-concept trial of the product, etc.

The following diagram attempts to portray the spectrum that exists from the simple to the complex:

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(Note: The categories shown are not hard and fast ways to define sales complexity, but are designed to provide a framework for discussion. For simplicity, I have also left out channel sales at this stage.)
Freemium

In this model, some version of the product or service is given away, with the goal of up-selling or cross-selling over time. Think Open Source products like JBoss, MySQL, and Asterisk, and web services such as DropBox and SugarSync. (Note that only some portion of the free customers will likely convert into paying customers.)
No Touch Self-Service

Here you drive traffic to the web site using SEM/Pay per Click ads, SEO, Inbound Marketing, Freemium, etc. Visitors convert to paying customers without any need for salespeople. The product needs to be simple to understand, and have a compelling value proposition.
Light Touch Inside Sales

In this model, you might provide some light level of human touch such as email exchange to answer questions and provide customer support. A slightly higher level of touch might involve a phone call with an inside sales person.
High Touch Inside Sales

Here you still sell your product/service over the phone, but the amount of work in closing the deal requires several phone calls, sales engineers, and/or web-based demos.
Field Sales, and Field Sales with SE’s

Now you require an on-site visit using a field sales organization. You might also need multiple on-site visits, selling to several decision-makers, use of SE’s (sales engineers), and perhaps on-site proof-of-concept installations that take considerable SE time.
Impact of Sales Complexity on Customer Acquisition Costs (CAC)

If you are like me, you would expect the Cost of Customer Acquisition (CAC) to rise as sales complexity increases. So the first time I talked about this topic, I drew the following simple graph:

image_thumb1

However, when I looked a little deeper into the costs, click here for the full article.

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Debunking three myths about software as a service (SaaS)

By Marc Dietz, director of IBM SaaS strategy & marketing

Software-as-a-Service (SaaS) is not a new delivery model. The SaaS market has enjoyed rapid growth over the past few years and shows no signs of slowing. In fact the SaaS market is estimated to grow at a CAGR of 24 percent to reach by $66.9 billion 2016 and the applications segment is expected to grow to $36.9 billion by 2016. The SaaS market has been evolving as it’s been accelerating but there are still quite a few myths about SaaS. In this post, I’d like to debunk three of them.

Myth No. 1: SaaS is only about reducing costs. For many solutions and many companies, the economics of the SaaS model are certainly one key aspect of the value proposition. What is less known is how organizations are embracing SaaS for its real value: competitive advantage. While a recent IBM Global SaaS study did find that reducing total cost of ownership (TCO) was the top driver for adopting SaaS, 47 percent of IT and business respondents reported that SaaS was actually transforming their businesses and providing a competitive advantage in the market. The primary sources of this competitive advantage are speed, both in terms of time to value and agility to make future changes; and innovation, made possible by freed up IT resources, ongoing updates to business applications, and unique advantages of cloud solutions over on-premise solutions. In other words, SaaS is not just another delivery model and while it offers multiple economic advantages, the real value goes beyond the economics.

Myth No. 2: SaaS is only for business users and that means bypassing IT. Just because SaaS is easy to purchase and deploy by business users and has given rise to “shadow IT” and “rogue buying” in the enterprise, this is a big myth for two key reasons. First, cloud computing is disrupting and shifting the entire software industry, including software for IT practitioners. In fact, a recent study showed that IT practitioners “go rogue” and bring unapproved SaaS apps into the business MORE than line of business users! More and more IT management applications, such as workload automation and application performance management, are now in the cloud as well, with many more middleware and other IT SaaS apps to follow. The second major debunking factor for this myth is that innovative CIOs and IT shops are getting more involved with SaaS – and not to “clamp down” on shadow IT with iron fists, but rather with open arms. In a recent IBM Global SaaS Study, we found that in Pacesetter organizations LOB and IT strongly collaborate on SaaS selection and deployment and 65 percent of pacesetters actually describe the IT and LOB relationship as a strategic partnership. SaaS also allows IT to enable the business with innovative solutions much more quickly and then focus resources on more strategic business initiatives. Security, privacy, integration, hybrid environments are all certainly still important, so IT and the collaboration between the business and IT needs to consider functional business needs as well as these factors.

Myth No. 3: SaaS is for mid-market not enterprise. Another declining but still common belief is that SaaS is really only for small or mid-market companies, not large enterprises with mature IT departments and comprehensive data centers. SaaS, and cloud computing overall, is a great option for smaller organizations, of course, but many big companies are moving to the cloud for all the same reasons: economics, agility, innovation, competitive advantage, and more. Some enterprises do still evaluate solutions in a SaaS model and then bring on-premises. But more and more we see companies start with that intent, but then never make the change (why fix what isn’t broken?). And some enterprises are even now taking a “SaaS-First” approach for business applications and I predict we’ll see much more of that in the months and years to come. The reality of course is that major enterprises will have hybrid environments even if they start a “cloud-first” approach now. They need to evaluate how SaaS solutions fit with and integrate with other legacy applications, but with capabilities available today to integrate, secure, and orchestrate dynamic, hybrid cloud environments, this particular myth is definitely fading and is certainly short-lived.

The companies that are getting beyond the myths and embracing SaaS solutions are finding success in the market. These SaaS Pacesetters are collaborating better both internally and externally and improving business relationships. They are leveraging analytics across the organization and making better decisions. And they are increasing innovation and responding faster to market changes.

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Do’s and Don’ts of Pivoting to the Cloud Model

Excerpted from a Sandhill.com article by Peter Yozzo, Founder and CEO, ThinkHR titled ” What to Consider Before Pivoting Your Business to the Cloud Model”, dated Tuesday, May 27, 2014

Pivoting your business to the cloud? Here are five things you should do and five mistakes to avoid when making the transition.

Do …

  • Have a clear vision and be fully committed to the cloud business model.
  • Make adjustments and create a plan including a detailed multi-year financial model using a SaaS or cloud methodology.
  • Ensure your board and key investors are in alignment and supportive of the strategy shift.
  • Have adequate funding. Moving to a subscription model requires a longer cash “runway” to break even.
  • Make sure your existing customers understand what you’re doing. Create a clear and compelling communication plan.

Don’t …

  • Attempt to pivot without first testing your hypothesis with potential customers.
  • Attempt to pivot with the existing management team only. It will require different skill sets and a different culture to be successful.
  • Force existing customers to convert to the cloud option immediately. Create a comfortable migration plan.
  • Maintain both business models indefinitely. It’s organizationally confusing, complex and expensive, especially for startups.
  • Expect immediate success. Be ready to work very hard with little to show for it for a substantial period of time.

For the complete article, click here.

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