What A Startup Needs To Start Selling

Over the last few weeks I've been helping a CEO of a very early-stage startup with her go-to-market strategy. She's planning to hire a head of sales in the coming weeks and she asked me to brainstorm what that person should be responsible for. To me, there are two broad buckets: 1.) that person should be able to get deals done quickly and 2.) just as important, that person should create and publish process, systems, collateral and other documentation (that should continuously be iterated) that will allow the company to scale.

With #2 in mind, I put together the list below. A lot of the things on the list are required to start selling, but many of them are there to ensure that the product and positioning of the product are setup to constantly be iterated. Most successful products and new product pitches look very different than they did when the entrepreneur initially went to market. It's critical that there are systems in place that enable constant change.

Pipeline

• Lead Framework
• Build Lead List
• Segment Leads (A, B, C)
• Key Contacts at High Priority Leads (email/phone)
• Inbound Lead Management Process

Access Approach

• Script(s)
• One-Pager

Collateral/Documentation

• Presentation Deck
• Presentation Scripts/Talking Points
• Proposal Template
• References Document
• Order Form (business terms)
• Agreement (legal terms)

Sales Cycle Management

• CRM System Implementation (e.g. Salesforce.com, Excel, etc.)
• Stage Development
• Key Leading & Lagging Metrics To Track
• Leading & Lagging Metrics Targets and Timeline
• Key Reports (weekly, monthly, quarterly)

Other

• Difficult Questions (and answers)
• Cast of Characters Document (who do we care about and what do they care about?)
• Urgency Angles
• Competitive Matrix
• Qualitative Results: What works / What doesn’t (documented weekly)
• Insights/Learnings (documented weekly)

Failure

People of Groupon, After four and a half intense and wonderful years as CEO of Groupon, I've decided that I’d like to spend more time with my family. Just kidding — I was fired today. If you’re wondering why … you haven’t been paying attention.

These were the first two sentences of Andrew Mason's letter to employees announcing that he had been fired as CEO of Groupon following a disappointing fourth-quarter earnings report. The letter goes on to explain some of his failures, as well as express his hope for the future of the company.

It was really refreshing to see Mason take this approach. This guy built an amazing company (I wrote about their growth a while back). And I give him a ton of credit for talking about his failures so publicly. This is so rare in public and private life.

When I interview job candidates I always ask them about the biggest mistakes and failures in their career. Candidates are so reluctant to talk about this topic. They often don't answer the question or talk about a failure where they didn't really fail. They're afraid that I'm going to view their failures as a bad thing.

But failure is a good thing, a great thing actually. Because it shows that you've tried things that are hard and have been through difficult times and persevered. And I want to work with people that have tried hard things and been through difficult times and persevered.

When you try to do great things you're going to fail. A lot. And failing is the best chance to learn. Personally, I learn much more when I fail than when I succeed.

When I interview someone and they can't think of a failure, there are three possible takeaways: 1.) the candidate isn't self aware 2.) the candidate is lying 3.) the candidate has never tried anything difficult. All of these are bad.

I hope we see more business leaders (and interviewees) become more open about their failures like Andrew Mason was last week.

Blocking Out The Competition

Over the last few months, Twitter has removed the auto-preview feature for Instagram Tweets. So now you have to click through the link in the Tweet to see the photo. Presumably Twitter did this to encourage their users to use their native photo sharing application. When LinkedIn redesigned their profile page about a month ago, they dramatically decreased the exposure of a user's Twitter account. In fact, it's not even on the main profile page, you have to click "contact info" to see a user's Twitter account. This is a drastic change given the LinkedIn/Twitter integration that used to exist.

So LinkedIn is blocking out Twitter and Twitter is blocking out Instagram.

I think this is dangerous for LinkedIn and Twitter. I've written in the past about how difficult it is to build a successful B2C business. Your product has to be so great and so valuable if you want to win. You don't have the luxury of a salesperson whispering in the user's ear giving them context on your decisions or information about what's coming soon and how the product will improve. The product has to be great, right now.

Of course, I don't know all of the facts behind these decisions. But I do know that the effect of blocking out applications that users like is bad. And in a B2C business, what's bad for the "C" very quickly becomes bad for the "B".

Snapchat & Sharing With Discretion

I've written in the past about the fact that Google+ is trying to fix social networking. While they’re not doing it very successively, the concept behind Circles is a powerful one. It allows users to easily share with discretion; i.e. to share certain updates and photos with selected groups (or circles) of friends. If Facebook favors 'open social networking', and Google+ is promoting 'discreet social networking', then Snapchat is promoting 'private social networking'.

From Wikipedia, Snapchat is:

a photo messaging application. Using the app, users can take photos, record videos, add text and drawings, and send them to a controlled list of recipients. Users set a time limit for how long recipients can view their photos, up to 10 seconds, after which it will be deleted from the recipient's device and the company's servers.

Sounds like something James Bond would use.

Snapchat was started back in September 2011 by a couple of Stanford guys. It now has around 200k monthly uniques, a $50 million valuation and users are sending 50 million 'snaps' a day.

Snapchat's success is a clear indication that there's a market for privacy. Social networks that don't facilitate the ability to easily share with discretion would be smart to take a closer look at Snapchat.

CEO Pay

According the AFL-CIO, the average Fortune 500 CEO made $12.9 million in 2011. After taxes, that's about $430,000 per month -- or $198,000 every two weeks. CEOs at big companies get paid a lot of money -- and my sense is that the top priority for most of them is to do whatever they can to keep those checks coming.

That's an important thing to remember the next time you're asking one of them to take a big risk on your product.

Individual Employee Budgets

The other day I wrote about the fast growing b2e2b business model where enterprise software companies make their product available (often for free) to individual employees. Then – after those employees love the product – they put pressure on their employers to buy the premium version or to buy the product for the entire enterprise. While I believe that this model is going to continue to grow at an extremely fast pace in 2013, there is no doubt that it’s inefficient – i.e. the employee has to go through a bureaucratic purchasing department to buy a tool that will make them better at their jobs.

That’s why I believe that, as we see b2e2b grow, I think we’ll also see this inefficiency addressed. That is, we’ll start to see more budgetary control put in the hands of the individual employee. Many companies – even large companies – already give their employees a cell phone budget. I think we’ll see this kind of control flow down to other productivity tools as well to the point that budgets won't be bucketed by division or group or team -- we'll see more and more money flowing into individual employee budgets.

Of course there are internal compatibility, security and scalability concerns that will slow down this trend, but I think this it's something for enterprise focused companies to watch out for in the coming years.

Enterprise Software & The Network

Fred Wilson posted a talk he did the other day on enterprises and networks. Including Q&A, the talk is nearly an hour. For me there is one incredibly important takeaway for software companies that are focused on the enterprise. And that is that in today's environment, in the long term, you must remember that your business model is a commodity, your software is a commodity, your customer service is a commodity and your sales team is a commodity. The thing that will provide you with sustainable, incremental value over the long term is your network of users. That is the one thing that is extremely difficult to copy in the long term. Enterprise focused companies that have large networks of engaged users that are adding value to the product simply because they use the product are the products that will win over the long term. Here are five good examples of enterprise software products that are successfully using their network to increase engagement and product value.

• Yammer (users are an extension of the sales force)
• LinkedIn (users -- i.e. job candidates -- are the product for recruiters)
• Mongo DB (users improve the code by using the product)
• DropBox (users are an extension of the sales force)
• Disqus (user discussion drives increased traffic and engagement to participating blogs)

B2E2B (Business to Employee to Business)

We all know b2b and b2c, and even b2b2c. I'd propose that an emerging software business model is b2e2b (business to employee to business). While it hasn't been called out clearly like this (trust me, I've 'Googled' it) there are many companies that are already using this approach (Yammer, Dropbox, Xobni and others). The way it works is that a company builds a product that can be accessed directly by a single employee of an organization. As the number of users within a company grows and reaches a critical mass, the company then has a salesperson contact the organization to make the upsell -- e.g. business to employee to business.

Of course, this model is interesting in its own right. But there are much larger implications for enterprise software. Chris Dixon and others have talked a lot about the fact that enterprise technology is far behind consumer technology. As I've written before, I believe that the reason for this is that enterprise technology can get away with being bad. For example, if you're a payroll provider and you provide a lousy interface for employees you can get away with it because you only have to sell one person in HR on your product (and then they force ten thousand people to use it). But if you're a consumer site like Mint.com you can't get away with being lousy because you have to sell 10,000 people, one by one. You have to be great or you'll fail.

And this is why the b2e2b approach is so important. It’s radically changing the way enterprise software is built and sold. And as a result, we should see the quality of enterprise technology begin to catch up with consumer technology. And when it does, those big b2b companies that continue to rely on their brand or their sales force to drive sales will begin to collapse.

Groupon, Chest Pain And Consumer Behavior

It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.

B2B E-Commerce

Erin Griffith had a good post on PandoDaily titled, Whatever Happened To The Promise of B2B E-commerce. I find this to be a super interesting topic. In short, Erin argued that "the trillion-dollar promise of B2B commerce may finally be on its way."

Personally, I'm not so sure. I posted the following comment -- though for some reason it never got posted to the post, so I thought I'd post it here.

Great post, Erin.

Though I’m not sure I agree that b2b e-commerce is finally on its way.  There are multiple, inherent transactional differences between b2b and b2c that, I believe, make a transition to b2b e-commerce nearly impossible in the short to medium term. There are so many steps in a large enterprise’s buying process that cannot be replicated in a scalable manner online (customized legal agreements, reference checks, price negotiation, unique purchase approval structures, payment terms and the individual emotions that drive big purchases). Just look at the legal side for a moment. Most e-commerce sites have their own “terms of use” section that dictates the legal terms associated with the use of their site. Large enterprises will want to review and customize these terms of use based on their own policies, procedures and appetite for risk.  It’s very difficult for e-commerce sites to allow for this in a scalable way across hundreds or thousands of clients.

Now you may argue that e-commerce has come such a long way that technology should be able to replace much of this bureaucracy. But in a large enterprise each of these steps represent a task that is completed by someone with a job. So you can either eliminate those jobs or assign those individuals to work on something else. But just like purchasing, reorganizing non-strategic job roles for an unclear upside will take a long, long time. And in my view, real growth in b2b e-commerce is simply going to have to wait.

MVP in B2B

Minimum Viable Product (MVP) has become an enormously popular way of releasing web applications. The idea is to get a product that works in front of users quickly and cheaply, watch them interact with it and constantly iterate and improve.  In some cases developers will release changes to the product every day, if not multiple times a day. This is also often referred to as an "agile" development environment. This approach is distinct from the old fashioned, "waterfall" approach where changes to the product are planned and implemented less frequently in well planned batches.

In a b2c environment, MVP works extremely well because a developer can release features and iterate based on data/learnings that they capture by watching thousands of users interacting with their code.

In a b2b environment, though, often this isn't so easy.  At the outset, there may only be one or two individuals using the product so good data and learnings may not be as easy to capture.  As a result, it's critical that when b2b organizations use an MVP approach they be super disciplined about setting up formal feedback loops where feedback is filtered quickly and regularly back to their product team. Most clients should support this as they’ll get to see much of what they recommend being built into products rapidly.  But it’s important to get buy-in on participation in the feedback loop from the early adopters.  This may be a new concept for them as most of their current software vendors are more than likely using the ‘waterfall’ approach.

Also, given the pace of change in an agile development process, it's important that the client-facing team is aware of the more significant product changes that are being made.  Often, an agile, MVP driven environment can lead to such fast paced change that b2b salespeople aren’t aware of the significant features or changes being released.  And an awareness of the substance and timing of product changes can be an excellent way to speed up deal movement and client adoption.

User Driven Valuations

I wrote about Facebook's IPO back in May pointing out how unbelievable it was to me that a company that started back in 2003 and really doesn't make anything of substance or have a very compelling revenue model could go public at a $100 billion dollar valuation. I ended the post by saying, "the world has changed".

Well, maybe not. A lot has changed for Facebook since then (see stock price chart above).

Their market cap is now below $40 billion and the consensus seems to be that their stock price is going to continue to fall. That said, their shares are still trading at around 32 times earnings -- so there's still a decent amount of hype around this IPO.

One of the primary reasons for all of the hype is that Facebook is so widely known and widely used. They have hundreds of millions of users; many of them use the product several times a day, every day. And the vast majority of these users know absolutely nothing about investing.  But because they use the product and know the product, they were compelled to buy some shares. As a result, the company was hugely overvalued following its IPO.

Contrast this with Globus Medical, a medical device company that went public on Friday with virtually no hype. It’s unlikely we’ll see this stock nosedive like Facebook. They have a fraction of the customers that Facebook has – they make medical devices used in spinal surgery – so there are far fewer people interested in owning a piece of the company. There’s far less hype.

There have been literally thousands of consumer web services started and funded over the last couple of years. Many of these companies have millions of users and no revenue or compelling revenue model. As a result, I’d expect to see more and more companies go public in the near future with inflated valuations that are propped up by their user base.

The Facebook IPO underscores a good lesson for amateur investors: just because you use a product every day doesn’t mean it should be a part of your portfolio.

A Shortage of Doctors

We’re currently facing a doctor shortage in the U.S.  And a recent article in the New York Times pointed out how this shortage is about to get worse as we expand medical coverage to 40 million uninsured Americans.  The Association of American Medical Colleges estimates that by 2015 the country will be short more than 62,000 doctors, and that number will more than double by 2025. In addition to healthcare reform the article points to a few contributing factors that are causing the shortage:

1. Increased Medicare coverage for Baby Boomers (older people need more care).
2. Declining physician compensation – to make money, doctors have to specialize, leading to a shortage of primary care physicians.
3. Aging doctors are beginning to retire at a more rapid pace.

There’s no doubt that we’ll need more doctors in this country moving forward.  But in parallel, I believe it’s critical to continue to find ways to make the physicians we have more and more efficient.  I’m excited to see increasing amounts of early-stage capital heading to companies that have that goal in mind.

Do Your Employees Know How To Work The Projector?

I've seen a few blog posts over the last few days about the lack of innovation that exists in large companies. One of the fundamental lessons I recall from business school was this: success leads to arrogance and arrogance leads to failure. The notion was that companies that get successful and big will inevitably become comfortable with their own success.  This comfort will encourage them to stop innovating and start putting bureaucracy in place that will protect what they have -- and that will eventually cause them to fail.  It’s a natural cycle that always exists. So my professor was encouraging us to be conscious of it so our companies might avoid that fate.

Over the years, I've met with companies big and small -- from startups with fewer than 10 employees all the way up to Fortune 50 companies with hundreds of thousands of employees. A small thing that I’ve noticed is that if the company has more than about 1,000 employees you can guarantee that something will go wrong with the presentation tools in their office. You can’t get online. The projector is broken. Nobody knows how to turn the videos screens on.  The cabinet storing the CPU is locked.  Literally, 95% of the time, something will go wrong when you're presenting to a big company.

This never happens when I meet with startups. Everyone knows how things work, there’s less security and bureaucracy and even the most senior people in the room know how to work the projector.

Obviously, on the surface, this observation seems meaningless. But I do believe it’s symbolic of the arrogance that exists naturally in a large company. Employees at big, successful companies either don't believe they need to know how to do simple things like this or the company has put so much bureaucracy in place that they're unable to learn.

If you're an executive at a big, successful company ask around and see if your employees are able to work the projector. If they're not, I wonder what else they can't do.

I Like Mike (Part 2)

Regular readers know that I'm a big fan of Mike Bloomberg. I wrote about him in an earlier post back in 2008. Chris Dixon interviewed him for TechCrunch’s Founder Stories series last November.  It's an insightful and inspiring interview -- I recommend watching when you have some time.  Here's some of the highlights/insights for me. I’m paraphrasing Mike, of course.

• One of the goals of New York City is to have a park within a ten minute walk of every New Yorker.
• The business goals for New York isn’t to pay companies to come here through subsidies, it’s to create an environment where people want to live.  That means great culture, parks, schools and reduced crime.
• Big companies are like governments in that they setup very reasonable bureaucracies to minimize risk.  But that bureaucracy is what prevents them from innovating.  That’s why we need startups.
• The United States is committing suicide by not giving citizenship to foreign entrepreneurs.
• People talk about making New York more of a hub for college education, much like Boston.  It turns out that there are more undergraduate and graduate students in New York City then there are people in Boston.
• There are 13 public golf courses in New York City and Staten Island's land mass is almost 25% park.

Entrepreneur = Salesperson

At the start of the first day of class my Entrepreneurship professor in business school said two things to the class.

The first was, “if you don’t want to do sales every day, all day, then don’t be an entrepreneur”.  Then he asked everyone that was in sales to raise their hand. After about a third of the class raised their hand he said, “90% of you are not truly salespeople, you’re order takers, because you don’t have a quota and you aren’t getting rejected every single day”. I’m paraphrasing, of course.

While harsh, there’s lot of truth to this. Entrepreneurs are salespeople and salespeople are entrepreneurs.  They put their success and failure out there for everyone to see. A lot of other roles in an organization can take cover behind things like shared goals and muddled metrics and a lack of a direct cause and effect on revenue. Salespeople can’t. They have an individual goal, with clear metrics and a direct impact on revenue.  Like the entrepreneur, salespeople put themselves on the line.

Jim Keenan had a great post on this a while back. To emphasize the point, I’ll post an excerpt from it here:

So why doesn’t everyone want to be a sales person?

Because  . . .

It takes guts to only have HALF your salary guaranteed

It is sucks to be rejected on a daily basis

It’s hard calling up people you don’t know and asking them to meet you

It’s scary asking strangers for things

It’s uncomfortable challenging people

It’s tough being held accountable to black and white metrics. You can’t hide from the numbers

It’s not easy having your results constantly compared, in the open, to your peers

It’s not easy losing

It’s tough being fully accountable for your own success or failure

It’s not fun doing something where you can fail so quickly after be successful

Not everyone likes being in the spotlight

Unpredictability SUCKS

Most people don’t want to be in sales, because it takes GUTS! It takes guts most don’t have.

SecondMarket & the Tech Bubble

There was a fantastic column the other day on Reuters written by Felix Simon titled, Facebook’s SecondMarket Puppets. The column points out how investors that put their money in Facebook using SecondMarket while Facebook was private have actually lost money since the company went public. This is interesting – and scary – for companies with upcoming IPOs that are allowing their illiquid shares to be traded on a secondary exchange. In theory, the value of SecondMarket was that you could get in on a hot company pre-IPO and make big bucks if/when they went public. But it seems that this isn’t a guarantee. Simon’s key insight is this: 

…it’s increasingly looking as though shares in private tech-companies are a bit like fine art prices: a place for the rich to spend money and feel great about owning something very few other people can have. The minute they become public and democratic, they lose a lot of their cachet.  And a lot of their value.

The level of hype propping up the valuations of some of the hot private and public internet companies is enough to keep me far away from these securities...and SecondMarket.

Soap Operas & The Internet

You may not know that soap operas are called soap operas because they were originally created as a way to sell more soap.  Putting a quality drama on television during the day is a great way to get peoples' attention.  Sprinkle in some ads for soap and you have a pretty nice business model.  This is what's known as the "interruption-based" advertising model.  The viewer shows up to watch a drama and gets interrupted every 10 or 15 minutes with profitable ads.

Many of the top internet companies are beginning to look a lot like soap operas.

Facebook is covered with irrelevant display ads and requires you to install all kinds of apps to work effectively.

Irrelevant advertisements have started to pop up in my Twitter feed.

LinkedIn has gone from a super clean site to a mess.

Spotify and Pandora ads are poorly targeted and happen too frequently.

Don’t get me wrong.  I recognize that these are businesses that need to generate revenue and I have no problem with them doing so.  I guess I’m just a bit disappointed that as internet companies have evolved into real businesses, they’ve defaulted to old fashioned disruptive marketing to make money. Each of the companies above have built great products and innovated significantly.  You can't say the same about their business models. 

The Facebook IPO

Facebook is set to go public today at a $100 billion dollar valuation.  For context, General Electric is worth about $199 billion.

GE was founded by Thomas Edison in 1890, has more than 300,000 employees and is a market leader in appliances, aviation, consumer electronics, electrical distribution, energy, finance, healthcare, lighting, oil & gas, rail, software & services and water treatment.

Facebook was founded in 2003, has about 4,000 employees and is a market leader in, well, display advertisting.  

It's official.  The world has changed. 

The Start-up of You

I read Reid Hoffman's (LinkedIn's co-founder) new book last week, the Startup of You: Adapt to the Future, Invest in Yourself and Transform Your Career.

The thesis of the book is that everyone (from CEOs down to the lowest level employees) should view themselves as entrepreneurs.  It argues that you need to manage your career the same way an entrepreneur would manage a new enterprise.

I agree with this concept completely, and for those that haven't been exposed to this thesis, it's worth the read.  If you're already familiar with this career approach, you won't find much value in the book.  It describes the concept effectively, gives several practical tips and action items to help get you there but largely it comes off as a long advertisement for LinkedIn.

That said, there were a few valuable insights that I took from the book.  Here are two:

The first is about managing your network and asking for help/favors.  When you ask someone for something like advice or an introduction, try hard to give that person something first: a link to an article they might be interested in, an insight you picked up that might help their business, a connection or recommendation that might help them do their job better.  Also, give them some thoughtful and insightful context on what you need.  Once you've done this, then ask for the favor.  Give them a "gift" before you ask them for help.  This is a neat approach to managing your network.

The second is about risk.  The book cites a Neurophysicist that explains that to keep our ancestors alive, Mother Nature evolved a brain that routinely tricked them into making three mistakes: overestimating threats, underestimating opportunities, and underestimating resources (for dealing with threats and fulfilling opportunities).  This caused our ancestors to be very good at avoiding dangerous tribes or animals that could kill them in favor of seeking out opportunities for more food or shelter or resources.  While this was a practical approach at the time (they had to avoid death), this instinct is far less applicable to the world we live in today; a bad investment or a poor career decision isn't going to kill us.  The book encourages the reader to keep this instinct in mind when navigating your career and to try to resist it.  You're likely vastly overestimating the risk and potential pain that could come from most career decisions.

In short, the book is a fairly engaging and quick read and the message is spot on.  If this is new concept for you, I'd definitely recommend picking up a copy.