David Cummings on Startups

Category: Sales and Marketing

  • Iterating in a Startup – Part Three

    After initially building a small business SaaS product and subsequently licensing it to a larger company, we had finally settled into building the product that would ultimately be successful — a mid-market web content management system. Of course, at the time, we had no idea if it would be successful. What we did know was that robust website management applications were complex and there was no clear winner in the mid-market.

    We spent one year building the application in a vacuum — a luxury made possible by the pre-paid royalties we were receiving. Steve Blank and his book Four Steps to the Epiphany argue for customer-driven development whereby you build the product after you have customers telling you what they want. Not knowing any better, we didn’t operate according to his model.  However, we did have customers of our previous product and we knew some of the things they wanted. We also knew what functionality we wanted to manage our own site. I’m a big believer in eating your own dog food.

    We launched our new content management system on April 15, 2003 at the Internet World trade show in San Jose, CA and promptly won the Best of Show award. The outlook for the new product was bright. Unfortunately, a good product launch doesn’t always equal sales.

    After working non-stop trying to sell the new application, we only managed to sell one license by the end of 2003. Now, selling one server license for $30,000 (the price for our new product) sure felt much better than selling many of the previous, smaller product. But selling only one over the course of six months was discouraging.

    With version one of the product complete, an award under our belt, and our first full-price client (we had given several licenses away for free to get early users), the next major phase in the company was learning how to sell and market the product. Lead generation was the first area we focused on and continuously iterated. We tried these different tactics:

    • Cold calling
    • Channel development through partners
    • Pay-per-click ads

    Stay tuned for part four to learn what worked and what didn’t work.

  • Rethinking PowerPoint Presentations with BBP

    A friend of mine recommended Beyond Bullet Points by Cliff Atkinson last week so I promptly bought a copy on Amazon.com. I’m only a few chapters into the book but it already resonates with me and my thinking on how to do a presentation. Here’s the advice I’ve taken away from the book so far:

    • A presentation should be like a story with a beginning, middle, and end
    • The presentation should first be built in outline form in a separate program like Word
    • After the outline has been built, each slide should be made in notes view with the slide containing the presenter’s notes followed by one sentence and a relevent picture in the slide itself
    • With each slide containing no more than one simple sentence and picture, the presentation should be timed such that each slide is used for approximately one minute

    The book also does a good job of giving some theory behind how people learn and interpret new information. I’ll do a follow-up post once I’m finished with more insights from it. If you ever do PowerPoint presentations, I’d recommend reading the book as well as visiting the BBP community.

  • Pros and Cons of Free Product Trials

    We’ve been offering free trials of our software for years and have come to understand some of the pros and cons of doing so. 

    Pros to Offering Free Trials

    • Helps assess how serious of a prospect you have
    • Provides an opportunity for the prospect to interact with other members of your team (services, support, etc) and show them how great of a company you have
    • Sets prospect expectations of what the product does and aligns interests with the company, proving that it is a good fit
    • Provides a sense of urgency as the free trial will expire at a certain date

    Cons to Offering Free Trials

    • Usually more labor intensive, especially for more complex products as services and support teams need to be involved
    • Can lengthen the sales cycle as the prospect might have to get other people from his/her organization involved, and actually do real installation work
    • Some prospects will keep asking for free trial extensions, which can create an adverse situation with the sales person that wants to solidify the deal or walk away

    A couple other items of note:

    • The free trial is really a proof of concept project, and should be referred to as such
    • Before doing the trial, clear success guidelines must be set up and agreed to by the prospect (e.g. in the proof of concept, we will show x,y, and z working resulting in some benefit, and culminating in the prospect signing a contract)

    In almost all cases, I recommend offering free trials (proofs of concept).

  • Two Tiered Sales Process

    We recently hired several new sales people to start building a two tiered sales process. With this approach, tier 1 reps are responsible for setting appointments for the tier 2 reps who help the buyer through the sales process and close the deal. Phil Hill, previously of Vocalocity, is a big advocate of this approach, and convinced me we need to start down this path several months ago.

    I’ve been blown away by the results.

    There’s so much latent demand that is left dormant when cold-to-close reps chase the most promising opportunities. Inevitably, when things get busy, prospecting to load the top of the funnel gets neglected. I’m a big believer in playing to someone’s strengths and not trying to shore up their weaknesses. A two tiered sales process allows for specialization and focus on what reps do well, resulting in better results.

    Note: My experience with this is for selling software that is $10,000 – $70,000 over the phone and web with all inside reps.

  • Sales Commissions for Subscription Services

    I was talking to a very successful entrepreneur a few days ago about sales rep compensation plans. In his model, they sell an annual subscription for several thousand dollars to their service. What I really liked about it was that quota was done on a monthly basis whereby no commission was paid at all until 60% of quota was reached for that month.

    After 60% was reached, commission was paid on all previous deals and more sweetners were added when additional percentages of quota were reached. The result was that sales reps worked hard and that there was a spike in deals at the end of each month, when the reps could make the most money.

  • What’s your one liner?

    I was talking to two young entrepreneurs last Monday at Startup Riot (thanks Sanjay) about their stealth company. After asking tons of questions, I was finally able to distill it down and come up with a simple one liner. Fortunately, I read as many technology and entrepreneur blogs as I can (via Google Reader, of course) and had lots of example companies to choose from when coming up with the one liner.

    Why is it so difficult?

    Well, often times it is technology based, and sophisticated at that, so it is difficult to explain in layman’s terms. I recommend coming up with two one liners: one for technologists and one for your grandmother. Here are the one liners for one of my products:

    • Technologists: B2B Ning.com with CMS
    • Grandmother: Tools to allow people to communicate on a website and update webpages

    What are your one liners?

  • New Product Pricing

    Pricing for a new product is really just a shot in the dark. What features go into what editions? What are the up-sell hooks? In my experience it is much easier to lower prices than to raise them. I’d recommend starting out with a price that is twice what you feel is right. Why? It is very easy to give “preferred customer discounts” and come down on the pricing, making the new client feel special. Throw in membership to your “product advisory council” and you’re golden.

    Another huge consideration: credit card price range or CFO price range. This is a big deal. Having a buyer be able to put the product or monthly fee on their credit card is a much easier sale than one that requires a purchase order and needs sign-off from the CFO. Wait, aren’t there plenty of deals between the $1,000 (credit card) and $50,000 (CFO sign-off) range? Yes, those are available but you don’t want to play in that space. The amount of time to complete a $20,000 deal is the same effort as a $50,000 deal. If you have to do a full-service, long sales cycle process, make sure your package is at least $50,000.

    My final thoughts: don’t spend much time on pricing, go to market quickly, and listen to your prospects.

  • Complex Sale or Order Taking Sales Organization

    Do you have a direct sales team that works hard selling or do you have an order taking call center and website? That’s an important distinction when building a business. With a direct sales team, you have the following characteristics:

    • Bigger deal sizes
    • Longer sales cycles
    • Complex sales cycle and pricing model
    • More expensive personnel

    When sales come from an order taking call center and website, you see these characteristics:

    • Larger marketing budget as a percentage of revenue
    • Smaller deals
    • Shorter sales cycles
    • Free trials as well as “free” editions

    It is important to consider both of these options when thinking through the possibilities of a new business application.