The Importance Of Relationships In Enterprise Sales

One of my favorite questions to ask when interviewing a potential sales hire is: “given your experience in sales, if you had to write a book about sales, and you wanted to sell a lot of copies, what would be the theme or the thesis or the title of the book, what insight would you bring?” Much to my dismay, the candidate will often sit back and say something like, “that one is easy, relationships, it’s all about relationships”.

This is a disappointing answer. And it also isn't true. I don’t think it is all about relationships. Especially when selling innovation. People buy from a seller because they think they believe it'll move their company forward or, more selfishly, they'll get a raise or a promotion or a bonus at the end of the year after they roll out the product. They don’t buy from a company because they like playing golf with the salesperson.

That said, for some products it's different. For some products, successful selling is driven by good relationships.

This got me thinking about which products are sold based on relationships and which aren't.

I think a lot of it is driven by the life-cycle stage of the product and the level of competition in the product's vertical.  For example, when Salesforce.com when out to sell their first cloud-based CRM product to its first group of customers, it wasn’t about building a relationship. It was about convincing early adopters to completely rethink the way they manage their customer data. It was about getting big companies that were stuck in their ways to make a massive mind-shift. You can't do that with a relationship. You do that with thought leadership and creating a vision and great communication. Of course, it probably didn't hurt if they built a nice relationship along the way but there’s no way that was what was driving their deals at that stage.

On the other hand, when Benjamin Moore sales reps sell paint to a commercial real estate developer, it probably is very much about the relationship. The products are more of less the same, so it comes down to price, and how much the buyer likes the seller.

This chart illustrates my point:

When a product is brand new and innovative, relationships matters less than when the product is mature and commoditized by lots of competition.

Of course, the line is probably not this linear. For the first 1 or 2 customers, relationships typically matter a lot (often these are friendlies) and the importance of relationships probably levels out at some stage of product maturity. But I don't want to over-think the simple point.

It’s worth salespeople taking some time to think about how they sell and whether or not the product they're selling is at the right stage for their skill-set.

You might not want a relationship salesperson selling structural innovation and you might not want a disruptive salesperson selling paint.

The Death Of Enterprise Sales

A few weeks ago I was chatting with a guy that specializes in something called "disruption consulting". Basically he goes into mature companies and works with their management teams to help them think through how they would disrupt their own business. This is a healthy exercise for large, successful organizations and something individuals ought to think about with regard to their own company and -- more importantly -- their own role in their own company. This got me thinking about enterprise SaaS sales and the theory that salespeople have become less of a necessity in this new world. As I've written in the past I actually think the opposite is true. Sales is growing, not shrinking, in importance. That said, here are some of the trends that I've seen out there that are giving the skeptics some ammunition:

1. Micro budgets. With the 'consumerization' of enterprise software, lots of companies are letting their employees directly buy and expense their own productivity tools circumventing the traditional buying process. 
2. Pay-per-use contracts. Traditionally enterprise salespeople have sold large buckets of access to their software -- e.g. Salesforce has negotiable pricing tiers based on the number of licenses purchased. Companies like Slack and others are getting away from this model and are pricing based on who actually uses the system. At the end of a month, they look at how many people logged-in and then send an invoice accordingly. This pushes the revenue responsibility pendulum far away from sales and much closer to product.
3. Freemium enterprise software. This is a model where software can be accessed for free by an individual employee and an enterprise deal gets triggered at some critical mass of employee usage (e.g. B2E2B).
4. Standardized contracts. More enterprise software companies are creating click-through agreements that can't be negotiated by the buyer. And there does seem to be a very slow but steady move towards more consistency across companies in what they want a contract to look like. Corporate attorneys will make this really difficult, but the idea does seem to be gaining momentum. 
5. Data in the cloud. The advent of the cloud has made the old-fashioned, big, CIO-based sale a bit less prominent. Cloud-based software programs require much less of an implementation burden and thus much less of the need to sell the bureaucratic IT department. That said, much of the work these teams do has moved towards integration into the cloud, which still requires a hefty sales process.

There's no doubt that the landscape in enterprise sales has changed. And all of these trends are worth watching. But what the skeptics miss is that this is nothing new. Buyers and sellers always been trying to minimize the cost of their transactions. These are just new variations of that process. It simply means that to stay relevant enterprise salespeople must continue to shift their energy towards larger, more complex deals and higher value sales activity.

When real estate listings became available to everyone on the web, real estate brokers didn't disappear (in fact, there are more of them now). They simply started focusing on higher value activity. Instead of their core asset being access to listings, their new asset is helping someone navigate the process of buying a home (over half of home buyers find their home online, but 90% still use a broker to make the purchase).

Similarly, when employees begin buying their own software, enterprise sales teams will just shift their activity towards more strategic, higher value deals. They'll focus on the things that can't be bought or implemented by a single employee.

In short, enterprise sales drives new and incremental growth. It's the hard stuff. The easy stuff gets automated. And diffusion of the greatest innovations and the highest value deals can't be automated.

Companies that aren't growing their enterprise sales teams are likely either very early-stage and don't have enough product to sell, or they're later stage and aren't trying hard enough.

Why Are Salespeople Paid On Performance?

Andreesen Horowtiz had a great podcast a few weeks ago on the topic of Getting Sales Right.  It was a conversation between Peter Levine, a GP at the firm, and Daniel Shapero, who helped build LinkedIn’s initial enterprise sales team. Levine asked a question about sales compensation, and why are salespeople paid mostly on commission where almost every other role is paid a flat salary. Surely companies care about getting the best out of every employee, why isn’t every employee paid mostly on commission?

Two interesting insights came out of this discussion.

1. Salespeople are unique in that they spend most of their time facing the outside world and are constantly being told ‘no’. They face rejection on behalf of their company all day long. To offset some of this pain, when they finally do get a yes and a big win, it’s something that should be celebrated; both in the form of compensation (commission) and public recognition. The commission helps keep salespeople motivated to go get the next one in the face of all that rejection.
2. There have been studies that suggest that when a person is paid largely on commission, they’ll tend to go after a win at all costs. They’ll look for shortcuts and take the quickest path to success. There are lots of roles where that “win” isn’t so easy to define and measure. Further, for some roles like product and engineering, shortcuts could cause longer term damage and stifle creativity and long term thinking.

For these reasons most of the sales teams I've seen are paid largely on commission. But the other side of this issue is the failure rate of sales versus other roles. In nearly all of the companies I’ve worked with, salespeople fail at a far higher rate than any other role. This also begs the question, why?

Are recruiters just really bad at hiring for sales roles and really good at hiring other roles? Of course not. In my view the reason for the discrepancy is that the performance of a salesperson is easy to measure. If a salesperson is failing, everyone knows it. If an engineer is failing it's not as easy to see. That's why you'll often see 30% variances in termination rates between these roles.

The best companies I've seen are aware of this and take this on as a challenge and expose these numbers and try fix the imbalance.  If the termination rate of a sales team is 40% and the termination rate of other roles is 5% then non-sales managers either aren’t measuring performance or they don’t have a high enough bar for success. Measuring success in non-sales roles is hard (that’s a topic for another day). But measuring the difference in the failure rate of a non-sales team versus a sales team is easy. And an important thing to expose. 

7 Lessons From A Tough Negotiation

Lots of people that know me know that I'm huge fan of Bill Belichick, the coach of the New England Patriots. The thing I like about him more than anything else is that he never, ever makes excuses. When the Patriots lose a close game, the media will ask him about the weather, the referees, the tough schedule, the rules, the player injuries, you name it. And he never acknowledges any of it. He only talks about the things that his team can control. As a result, he's the winningest coach of the last decade. He obsesses about what he can control and ignores everything else. That is the exact approach people should take at work -- especially when negotiating a deal. You can't control the prospect, the prospect's attorneys, the bad economy, your product capabilities, the law, or your executive team. You can only control your own actions. And when you fully take that approach, you'll find that your energy won't go outwards towards things you can't control, but will instead go inwards towards things that you can. That's how you get better. That's how you win.

I recently finished a long, painful and frustrating 3 month negotiation. Thinking back on it, I'm tempted to blame the other side or blame other factors for why it was so long and so frustrating. But that's not helpful because I can't control any of that. I can only control what I do and try to do it better.

So with Bill Belicheck in mind, here are seven tactical things (that I can control) that I'll do better next time:

1. Never assume the deal is done. Make sure you have asked and asked and asked about the other side's approval process. More often than not someone is going to come along to do one final review of your deal. Document their process and track to it.

2. When you've created urgency, continuously validate that the other side values that urgency. Over a long negotiation they may not.

3. In addition to urgency, throughout the negotiation continuously reinforce your value and why the other side should want to partner with you. Don't get too caught up in the weeds and the specifics of the deal and neglect to remind the other side why they wanted to partner in the first place.

4. Have a 'time and energy walk away point'. Most negotiators know the concept of BATNA (best alternative to a negotiated agreement) but don't forget to include your own time and energy in that calculation. Take this really seriously. Focusing on a deal that is too time consuming has an exponentially negative effect. You can dig yourself deeper because you're not focusing on other opportunities and you lose your leverage (you need the deal more now because you have fewer options now because you've been too focused on this one deal).

5. When you're down to the last few items, setup a recurring daily meeting with the other side until it gets done. It's amazing how you can lose weeks if you don't do this. People get busy and each side may use time lags to build leverage.

6. When things get ugly, negotiate in person. Your situation will improve 10x faster in person than it will over the phone.

7. Bring in other people. I tend to be a lone wolf when it comes to these things. It's better to have multiple personalities involved. Two people are harder to read than one and the other person will always think of things you haven't.

Pitching Innovation: Short & Simple

I've never been a big fan of the psychology of sales. I've always felt that if you're challenging a buyer, providing insights, selling efficiently and helping them understand a problem, the psychological side will sort itself out. But the fact is there's absolutely a psychological impact that comes with your approach (hopefully a positive one).

I thought about all of this a few weeks ago while sitting on a plane reading Pitch Anything by Oren Klaff. Early on in the book he talks about the evolution of the human brain. There are three fundamental layers of the brain that have been built on top of one another as the human species has evolved. We started with the 'crocodile brain' and then added the mid-brain and then added the neocortex part of the brain.

The first and most fundamental part of our brain is the crocodile brain. This is basically the thing that keeps us alive. We use it to recognize danger and threats. It's an extremely simple part of our brain. It can't think critically and it can't reason. Its only purpose is to protect us.

When you walk into a room to pitch something this is the part of the brain that your buyer is using. The buyer's crocodile brain is on high alert. The buyer is asking themselves questions like: Is this person going to hurt me? Is this person trying to fool me?  Is buying this product going to get me fired? Should I trust this person?

In that first interaction, these are the things that the buyer cares about. That's their focus.

The problem for you as a seller is that when you're pitching, you're not using your crocodile brain. You're using your neocortex brain -- the most sophisticated part of your brain. You're thinking critically. You're giving insights. You're talking about details. You're probably showing detailed charts and graphs. You're probing, engaging and being thoughtful.

But the crocodile part of the brain doesn't understand the neocortex part of the brain. So you're completely missing the mark. You're speaking different languages. You might as well be speaking German to someone that only speaks English. Being smart, in this case, is actually hurting you.

As I said, I don't like diving into the psychology of sales, but there are some good lessons in here.

This insight is a great reminder that when you're meeting someone for the first time, talk to their crocodile brain. Keep it short, simple, concise and clear and don't try to do too much. Save the fancy charts and data tables for next time. Nobody is going to seriously engage with you until you have credibility and some level of trust. That's the goal of the first meeting: build credibility and trust. And try to get to the next step of your education process. But forget about complex models and detailed financial analysis. They won't listen to it, they won't digest it and they definitely won't believe it. Save all of that for the next meeting, after you've satisfied their crocodile brain.

Also, on the topic of keeping your presentation short, Klaff points out that in 1953 when James Watson and Francis Crick introduced the double-helix DNA structure (e.g. the secret of life), the presentation that earned them the Nobel Prize, was five minutes long. That's right, the most important scientific discovery of our time was pitched in five minutes.

Regardless of what you're selling, something tells me that in your next meeting you don't need to be pitching for the full hour.

Enterprise Software: Sales Still Matters More Than Product

Last week I spoke to a guy that works for a multi-billion dollar, publicly traded company that makes the software that runs a health system's daily operations. The software that he sells is used by thousands of health system employees all day, every day. He told me that, in most cases, when selling his product he does not do a demo. No product demo at any point in the process. So the executive team at a health system buys his software and then forces thousands of employees to use it every day (locked into a 5+ year contract) without ever seeing or testing its usability. As I've written many times in the past, this is why most B2B software is awful. Because it can be.

In big enterprise software, good selling is unfortunately still far more important than a good product.

A Mid-year Gap To Goal Analysis

Today is the second day of the second half of the year. It's worth taking a couple minutes to assess where you are against your goal for the year. This is a great exercise whether you're running a sales team or selling yourself. Below is a sample of a model I've used in the past. Note that to build this for yourself you'll have to fill in the fields in blue to match it to your pipeline (definitions of each field below).

Definitions:

• Goal - 2014 goal
• Actual - revenue closed to date
• Value of late stage deals - deals that are either in contract or just about to be in contract
• Late stage close rate - likelihood that late stage deals will close (in the next 6 months)
• Number of highly engaged deals - number of early stage deals that you're speaking to weekly
• Highly engaged close rate - likelihood that you'll close the average early stage deal (in the next 6 months)
• Average deal size - for early stage deals you very likely don't know how much their worth; go back and look at the last 5 to 10 deals that you've closed and take an average

The number in red should give you a very good sense of where you need to focus your time for the rest of the year. That is, should you focus on executing and growing deals that are already in motion or do you need fill up the pipeline with new opportunities. Based on this number, it's a good idea to write down three things that you're going to focus on over the next six months to ensure that you get to goal.

If you'd like the model in Excel feel free to email me

5 Counterintuitive Sales Tips

To state the obvious, if you want to be much better than the average salesperson then you have to do something much different than the average salesperson. With that in mind, I've picked up a few things over the years that most salespeople definitely do not do but that do seem to improve sales outcomes significantly. I've written about some of these before. Here are five:

1. Never leave an introductory meeting without talking about your product's flaws. If you tell a prospect that your product doesn't have weak areas you're either lying or your product hasn't chosen an area where it can add significant value. Be proud of your product's flaws -- be proud of the areas where you've decided to focus and those areas that you've chosen to deprioritize. Those decisions are what make your product unique. You'll gain much more credibility by discussing those areas with a buyer.

2. Never criticize the competition (because you have no competition). No two companies prioritize the same features and do things exactly the same way. There is no competitor that does what you do. It's simply not possible. So instead of saying, "we're better than the competition", point out the areas where you've chosen to focus and the areas you've chosen to prioritize. Help the buyer line up their priorities with the right seller. If the competition is a more appropriate fit you should tell them that. Again, you're far more credible when you take this approach.

3. Instead of "always be closing" you should "always be leaving". I've written about this before and I think I first picked it up in Mastering The Complex Sale. Remember, you are not talking to a buyer because you're there to close them. You are talking to a buyer to determine whether or not you can create a mutually beneficial relationship. Be laser focused on mutually beneficial relationships. Have a healthy paranoia that the person you’re talking to doesn’t care about what you’re saying. If you don’t know, ask them. Walk away from prospects and people that aren’t interested. You’re bringing value and your prospects are bringing value — if there isn’t a match, walk away. In short, don't be a salesperson.

4. Don't ask too many questions. There's nothing worse than the seller that starts a presentation asking a bunch of questions about the buyer's business. What are your biggest priorities? What keeps you up at night? I get it. Sellers want to be appear that they care about the buyer's business. But don't ask too many questions. It's annoying and insincere. You're there to determine if a partnership makes sense. Get to it.

5. Be confident but not certain. Whenever you get a question from a buyer and you're unsure of the answer don't be afraid to tell them you're not sure. Walk them through your thinking on the issue, but don't be certain when you're not certain. Buyers are afraid of sellers that know everything. Think things through with the seller when you don't the answer.

SaaS & Minimizing Buyer Risk

Andreessen Horowitz had a podcast recently on software company valuations. All of their podcasts are excellent by the way and definitely worth listening to when you have some time. This one discussed the fact that, traditionally, big enterprise software deals were sold as "perpetual" licenses. This meant that the enterprise would pay big money upfront for software that could be used forever. This was a nice thing for the seller from an accounting point of view. You'd get big bucks on day one that you could use to pay your engineering team and sales force. Your financials would look really good in that period. The software as a service model (SaaS) is much different. With SaaS, the license is sold as a subscription and revenues and costs are spread out over the life of the agreement. At first glance, the SaaS model doesn't make a seller's financials look so good. When the deal is closed the seller has to pay their engineering team and sales force upfront. All that cash is out the door but the revenue is collected and realized over several years. This is why Castlight Health was called the most overpriced IPO of the century when they went public a couple months ago at a valuation of $1.4 billion on only $13 million in revenue (an outrageous 100x revenue multiple). I don't have a strong opinion on the company or their valuation but what many people in the media missed is the fact that most of that multiple was being driven by the company's "deferred revenue" -- or deals that have been closed but not yet realized from a revenue recognition perspective. Deferred revenue is a critical measure of a SaaS company's health.

I say all of this to make a related point. One of the challenges in selling enterprise software is the buyer's concern about risk -- e.g. a buyer might say "what if we make a big investment in your product and we find that it doesn't work for us, do you provide a guarantee?" When you're selling SaaS (as opposed to a perpetual license) it's important to explain to your buyer that you are totally aligned on risk. The entire SaaS model is built around getting renewals. During the initial contract period, the cost of selling the software likely exceeds the revenue collected so it's critical for the seller to get the buyer to renew. The good news for the seller is that over time the costs are amortized and when the client renews the relationship becomes quite profitable. So the entire model is setup to drive customer renewals -- in many cases, most of the risk is actually on the seller. It's worth explaining some of this simple accounting to a buyer when they push back on risk.

Unlike a perpetual license, the buyer and seller's interests are completely aligned: the buyer needs great software and the seller needs a renewal.

The Contrast Principle

Another tidbit from To Sell Is Human by Daniel Pink (the book I wrote about the other day) is the notion of the 'Contrast Principle'. Pink tells the story of when two ad executives were walking through Central Park and came upon a blind man begging for money holding a sign that read, "I'm blind."

They found that the man had only collected a few coins.

One of the ad executives decided to help. He asked the man if he could make a small change to his sign.  The man complied and the exec added four simple words to the sign.

Immediately, the execs noticed that people began to give the blind man more and more money. This continued throughout the day and the blind man had his most profitable day ever.

The four words that the exec added to the sign? "It's spring time and...".

"It's spring time and I'm blind."

By contrasting the experience of the person walking by with the experience of the blind man asking for change, the sign was able to give people better perspective on the blind man's situation.

Who knows if this story is true. But the point is a great one. Providing buyers with a contrast is critical. For innovation sales to work, there has to be a significant contrast between what exists now and what will exist in the future. The buyer must fully understand the current state.

Humans notice the difference between things, we don't notice absolutes.

Sales 3.0 & 'Problem Finding'

I've been reading To Sell Is Human by Daniel Pink, a great book that argues quite persuasively that we are all salespeople; that the most important thing that each of us does every day -- regardless of whether or not we're in sales -- is to sell. Selling your family, your friends, your colleagues, your customers, your boss. And he argues that most of the jobs of the future (mostly focused around education and healthcare) are going to be all about "moving people", e.g. selling people. Pink also puts a fine point on what I wrote about the other day where I compared Sales 1.0 and Sales 3.0. He notes that today's sales environment is more about “problem finding” than “problem solving”. He uses the example of someone purchasing a vacuum cleaner.

A guy might say, "I need a new vacuum cleaner". So the problem, is: he needs a new vacuum cleaner. It used to be that to solve this problem he would drive down to a a store and talk to a vacuum cleaner salesperson who would explain the options, features and pricing. This salesperson no longer exists -- or if they do, they're not that valuable anymore. Information on vacuum cleaners is easy to find on the internet. You can educate yourself on everything you need to know about buying a vacuum cleaner while sitting on your couch. The information is now a commodity. So the “problem solver" type of seller is going away. We don't need salespeople to solve the "I need a new vacuum cleaner" problem anymore.

But suppose that this guy’s problem isn’t that he needs a new vacuum cleaner. What if the screens in his house are letting too much dust into the house? Or what if his carpets are of poor quality and are attracting too much dust and replacing them would solve his problem?

This is what sales 3.0 does. It gives buyers insights (that's where the value is). But not insights on how to solve the problem, but what their problem actually is. Remember, information on the solution, in most cases, is now a relative commodity.

I love the vacuum cleaner analogy.

Sales 3.0 is about helping buyers understand their true problem.

Related to this, this is why RFPs (request for proposals) are now so backwards. Large enterprises don't need to execute an RFP to figure out what feature set will solve their problem at the lowest cost, they need advisers (sellers) to help them figure out what their problem is.

As more and more salespeople adopt the sales 3.0 approach, I think we’ll start to see the perception of salespeople begin to improve. If sellers are sincerely trying to provide buyers with insights on their business and helping them think through their problem, buyers won't avoid salespeople, they'll seek them out.

Sales 3.0

I've written about this topic here in the past but lately I've been thinking a lot about modern methods of selling and figured it was time to update my thoughts. Over the years, I have witnessed three phases of sales:

Sales 1.0: Pitching and objection handling. This is the old fashioned approach of 'sell, sell, sell' and 'always be closing'. This is where a salesperson talks about themselves and their company and their product's features and makes bold claims and defends their pitch by responding to objections. It's selling with brute force. There are lots of salespeople still using this approach.

Sales 2.0: Consultative or solution selling. This is where a sales person focuses most of their time learning about a prospect's business, asking questions, understanding the prospect's challenges and problems and 'what keeps them up at night'. The trick, of course, is that the answers to these scripted questions result in the prospect believing that they need the seller's product to solve their problem. This is almost the exact opposite of Sales 1.0. The thinking is that the sale is not about the seller, it's about the prospect and the prospect's business. I've found that most people still believe this is the right way to sell.

Sales 3.0: Disruptive selling. With the emergence of the Challenger Sale, this approach is becoming more and more popular. With disruptive selling, a seller is basically saying this:

I don't know much about your business, but I know a lot about the specific area that my product focuses on. And the way that you are currently addressing the problem that my product solves is completely inadequate. I'm not here to sell you something and I'm not here to ask a bunch of questions about your business. I'm here to challenge you on a very specific part of your business and to get you to think about it differently and change the context with which you think about it. I'm here to educate you and inspire you and move you. Again, I don't know your business all that well but I do know this area much better than you do. I think about it all the time and I talk to your peers about it all the time. So I'm going to give you our perspective on it. If at any point you don't think what I'm saying is interesting or don't think that a partnership makes sense, please tell me and we'll shake hands and I'll leave. And if at any point I don't think a partnership makes sense I'll do the same. This is not a sale, it's a discussion about an issue that is relevant to you and an opportunity to determine whether a partnership might make sense.

The seller likely wouldn't say this so bluntly, but you get the idea.

Sales 3.0 is most frequently used in selling innovation, but from what I hear it's becoming more popular across all industries. The world is incredibly complex. It's simply not possible for an executive to understand and manage all aspects of their business perfectly. And that's ok. And that's why they need specialists (salespeople) that are super competent experts in their domain to challenge them aggressively on different aspects of their business. Increasingly, for salespeople, knowing the product (Sales 1.0) and knowing the customer (Sales 2.0) are commodities. That should be a given.

Salespeople should know everything about their domain: products, customers, competitors, trends, the history, the future. Everything. And then use that extreme expertise to challenge a prospect on that aspect of their business. With Sales 3.0, salespeople shouldn't sell or ask a bunch of scripted questions. They should be interesting. They should give insights. They should have a point of view. They should influence. They should challenge. They should find authentic synergies.

And if authentic synergies aren't there, they should leave.