QuotaCrush

I recently spoke at the NY Xpo for Business at the Jacob Javitz center on the topic of “Knockout Sales Presentations” and one of my tips that drew the most controversy was when I said, “During a sales presentation, you never, ever, ever, ever give a demo.”

Before I fully explain my position, I want to give credit where credit is due.  Much of the basis of my presentation comes from the Pitch Coach himself, David S. Rose, who provides advice to entrepreneurs looking for angel investors.  If you want to view his presentation, its on his blog here.  What my presentation did was rather than look at presenting to raise money, it was how to take theses ideas and apply them to making a killer sales presentation.

I plan to post on all of the points that I brought up in the presentation, but I’m going to start with the most controversial point: NO DEMOS!

When I mentioned this in my presentation, I immediately had about 10 hands go up to challenge my claim.

“But… my company sells video conferencing, and I have to show them how my quality is better than my competition.”

“But… unless I show them my great interface, they won’t understand how I’m better than competitor X.”

I challenge all of this.  If you can’t articulate the value that you provide over your competition, or that value you bring in general without a demo, then you aren’t going to get the sale anyway.  If you make video conferencing software, then tell me that your algorithm was developed by listening to the mating calls of owls or whatever makes your technology great.  If I can grasp and believe WHY you built your product the way it did and am sold on your thinking, then the demo is icing.  If I don’t believe it, then the demo is wasted time.

Demos are a chance to screw up.  What if the product doesn’t work during the demo?  You lose all credibility with the prospect and you killed the sale.  Convince the customer of the value that you bring to them, and you don’t need a demo.  If you convinced them of the product benefit, then the demo either confirms the sale that is already won, or it kills it.

Why are salespeople so shocked by this statement?  Because giving the demo is easy.  It takes up a lot of time in the presentation.  You feel busy, as if you did a lot to move the sale forward.  But you didn’t.  Spend that same time focusing on how to convince the customer of your value and save the demo for after you’ve sold them on the value of your product.  I have even gone as far as to say that software salespeople should not even be given a way to log into their software.  When you focus on the features of your product, you take focus away from the value that you bring to them.

I sold a $2M contract before the customer ever saw the software.  I convinced the largest marketer in the world to trust me for SMS voting on a live TV program without ever seeing the software.  What did I talk about in my sales presentations?  Why my company was great.  Why we were different from the competition.  How we were providing great service for their competition, and other companies in industry.  How our algorithms would protect them, etc.  THESE are the things that matter - not what my interface looked like.  The interface can change, but the reason we were a great company - is much harder to change.

I just read a great post by Jeff Stewart of the UrgentGroup on Sales as R&D in a startup.  The article talks about how in a start-up, your sales team is your R&D.

The wrap up to his post echos a lot of what I say to my teams:

Many engineers I talk to have the misguided “if we build it, they will come,” approach to sales.  To this I say: Bull.  In 1999, I had the chance pleasure of meeting most of the Google sales team in a hotel bar.  Let me tell you, they weren’t talking about algorithms.  While the PHDs at Google deserve a lot of credit for building a great product, we can’t forget that the innovations of the sales team developed for the company.  They are very responsible for getting Google to where it is today.

“Discovering” how to sell your product is as important as coding your software. No one likes to hear “no i won’t buy from your company” any more than they like to that their code won’t compile, but both are important vital parts of the development process.

In start-ups in particular, the sales team needs to be continually finding out what the market needs and bring that information back to the company.  And, the company needs to be able to take that information in and, diseminate which of it is real, and put that information back into building a great product.

When I founded my first firm, I had the advantage of being both the salesperson and the product designer.  While I spent most of my time funding customers, I held the CTO title.  (Gave the title up at one point to my head engineer, but ultimately took it back).  I ran a very sales driven company, and as a result, I had quite a few suitors for the company AND its products.

Of course, you need to be careful that you keep you eye on your ultimate prize in building your product, but your customers will tell you quite a bit about what the real need is in the market. If you focus on value sales, then you will be actually building something that people need, that they want, and most importantly - WHAT THEY WILL PAY FOR!

Since I started writing this blog, I’ve looked for sales lessons in everyday life. I blogged a few months ago on sales lessons in a chick flick.  This week, I was treated to a very nice sales lesson from my seven year old daughter.

The other nite, my wife called me and asked me how long it would be before I got home from work because that nite, Erin, my seven-year-old daughter had to go to the PTA board meeting in town and my wife wanted to know if I could watch the other two kids, while she took Erin there.  I wasn’t going to make it home in time, but determined that if we met each other at the school, we would arrive just as the meeting would start.  We could meet there, Erin could do what she needed to do, and then we could all grab a quick dinner.

When I arrived, I saw the father of one of Erin’s best friends, and I started chatting him, and he said, “I see Erin was one of the finalists too.  Isn’t that great?”  It turns out that in order to teach the kids about the election, the school had put together a mock election where each student put together a platform for what should be the official healthy snack food for the entire school.  Each student wrote an essay, and then it went through an entire election process.   The top students in the school were asked to present at their platform at the board meeting.  My daughter and her best friend were one of the top students.

When I asked my daughter about the selection process, and how she got selected and about what am amazing feat this was for her, she actually looked surprised that I was so proud of her.  It never occurred to her that this was a big deal.  It just was what it was.

I am telling this story not to gush about my daughter (ok…maybe a little), but to illustrate something amazing about kids that we often forget about - and something critical to good sales people:  humility and the just do it attitude.  My daughter didn’t think about failure.  She didn’t think about self-glory.  She only did what she was supposed to do, and she did it to the best of her ability.  Because she didn’t really worry about failure, she wound up performing well above all of her peers.

She went out and just DID IT.  When we as salespeople create imaginary obstacles in front of ourselves, we can lose before we win.  We have to just go out there and try our best, and not worry about rejection, and not worry about losing deals, we need to just go for it.

Exhibiting humility, as well, is something that is key to a good salesperson.  No-one wants to deal with a cocky or pushy salesperson.  Your amazing feats will speak for themselves, and the customers themselves will be your badges of honor.  Think about how MORE proud I was of my daughter because she didn’t (and hasn’t since) gloated about her honor.  Our customers do the same, and reward us with additional business.

I’ve been having this discussion lately with a number of angel investors about the title “sales” and the title “business development.” 

In the traditional sense, business development people deal with creating channels, partnerships, and stategic opportunities for the company.  Sales are the people that go and get people to give you money for your product. 

Since “sales” can have, in some people’s minds, a negative connotation, there has been this trend to call sales people, “business development people” which I think is supposed to have the effect of making them seem less like people trying to get you to give them money.  Business Development people often have no revenue quota, and instead are managed by objectives.  So, by tagging someone a “Business Development” person, you, in theory, are making their contact with potential customers less threatening.

However, I think that the core of every successful sales strategy is one of honesty.  If you are starting the relationship as dishonest, then you are certainly starting on the wrong foot.  If you are tasked with going out and finding revenue for a company, you are a sales person.  You can call yourself an account executive or account manager, if you are tasked with establishing and maintaining relationships, but you should always be honest about the fact that you are trying to get them to purchase your product.  In my entire sales career, when people asked me what I did, I said, “I run sales for XXX” or “I’m in charge of sales for the north east region,”  etc. 

I’ve never been a ruthless salesperson.  I’m always looking for the win-win of selling value, but I never hid the fact that the entire reason I was having a conversation with the prospect was to determine if there was a way that I could improve their business - and that they were going to PAY me to do this.

I am not slamming business development.  Business development is an important function in every company - especially start-ups.  And, very often a company will have business development and sales under a single person or department.  In those cases, I say that sales and business development should be in the title so again, there is no confusion, on what the person’s intentions are.

The bottom line is that I object when the term “business development” is somehow used to trick the customer into thinking that the sales person is not a sales person, but trying to find some “partnership” with the firm.  If you are looking for a way to get someone to pay you for your product, then you are a salesperson.

And…. its OK to be proud of being a salesperson.  Sales people bring tremendous value to our clients and our companies.

When I was selling software in my first start-up (Dynamic Mobile Data - wireless dispatch and vehicle location software), the world of software was very different from when it was today.  Other than small consulting projects around my software, I was never selling anything for less than $200,000.  The idea was to have few clients each year at a high dollar amount.   I sold to Fortune 500 companies a large enterprise-wide solution.  This included desktop software, server software, database set-ups, and more.  Each of my software sales had an 18% annual maintenance which included product updates, phone support, and more.

I will admit, when the whole ASP (what we now call SaaS) revolution started, I was quite resistant to the change, and certainly did not see the immediate path to success in an ASP mode.  This feeling was for several reasons:

• Having years of product development on a desktop application, I wasn’t exactly hot on starting over on a web based solution.
• Web technologies such as AJAX and all of that were not yet available and my competition’s products that were evolving were insipid in comparison
• The companies that I sold to were not yet warm to the idea of having their data external to the enterprise.  They still wanted to have all the data within their own data centers.  (Something that has changed considerably.  Most companies are comfortable with this now)
• And most importantly:  it was hard to leave that enterprise sale!  Getting a big six or SEVEN figure check from a client to go to a model where you get a LOT less was something I was having a hard tim wrapping my brain around.

Nonetheless, I knew this was the inevitable direction of all software, so I worked hard to figure out how to get moving with adding a SaaS solution to the mix.

What we did was to take our desktop application and remove the “client-server” communication guts, and replace it with web services, so we ultimately were selling a desktop application that communicated across the internet.  We sold it for $35 per user per month - which was actually an acceptable price to our new prospective client base.  (Market research showed that $100 per month was the threshold and our software plus a mobile device lease plus wireless service totaled about $100).  The new prospect list was not only the Fortune 500 companies, but also every small business that had field service reps: every landscaping business, every delivery business - essentially anything with a dispatch function.

We were mildly successful with this approach and would have been more successful with it as time went on; however, the market crash of 2000 happened so, like today, finding funding partners was extremely difficult.  As many companies today are aware, in order to build an SaaS business, you need a lot of customers.  That means that you have to do a lot of marketing and a lot of sales.  It takes a while for the recurring revenue to get to a level that supports your business - so you need funding in order to bridge that initial gap.  What I did in my company, was to fall back into enterprise sales.  I could fund my company for many months if I could close a $500,000 sale - and I could weather out the storm.

Its 2008, and while I’m no longer at my start-up, the company is still alive.  The company has been able to fund itself through the enterprise sale and with the recurring revenue of maintenance contracts.

So.. this is a long story to get to my point.  I am NOT suggesting that companies abandon the SaaS model NOR am I suggesting that you forget the business of getting lots of customers at a low or free price, but perhaps it is time for many start-ups to start thinking about the enterprise sale again - bring it into the mix.  Is there a way for you to package up your offerings, or increase them, and as a large bundle sell a large ticket item to a Fortune 500 company?  I think that for many companies there probably are - but just as I had trouble thinking initially about the web 2.0 sale, I’m sure many start-ups will have trouble figuring out the enterprise sale - but I’ll bet its there.

Here is an example: I have a start-up client that makes software that is typically charged on a per-use basis.   Corporations sign-up for an account - but they are not charged unless they use the service.  In 2007-8, this was not necessarily bad because you were increasing your client-base and increasing market share which you planned to turn into revenue later (or not depending on what your exit strategy was).  In 2009 and beyond, this won’t necessarily work..  because you need cash in the bank.  So….in my sales-plan design session with this client, we talked about how to turn this into an enterprise sale.  How?  By going to a corporation and offering them an unlimited-use package for up to 3 users, in exchange for a twelve month paid contract.   We don’t know if this sales method will work yet, but initial reactions from the larger organizations is positive.

While organizations (and individuals alike) loved getting cheap and/or free services and software, I also believe that in this unstable economy, if a larger corporation is going to consider using a start-up service, they will feel better too knowing that you have some cash to survive through their contract.  Therefore, your enterprise sales pitch should show how you have thought through how you are going to service them for the long haul - and that the enterprise sale is the way to that end.

The customers will expect more from you because  they are paying more - but you will get richer adoption from the customers that elect this method.   You may get fewer clients with this approach - but ALL will be cash-flow positive for the company.

As the credit crisis holds, many start-ups are going to start looking to make sure that they hold onto cash as long as they can.

That may include the decision to eliminate and/or outsource a portion of your sales staff.  And, this can often be a very wise business decision.  Of course, the cartoon to the right takes it to the extreme, but as start-ups and other companies decide to eliminate sales staff, the challenge becomes on how do you continue (and accelerate) your trajectory in sales with less sales staff and potentially less resources (minimized travel budget, etc).

The key, as I’ve blogged on before is designing the right compensation package.  You can get amazing things from salespeople, if you give them a path to make a lot of money and it is OK to expect BIG things from them to get that money.  The compensation package should be reasonable and achievable, but should also be challenging.

It is certainly time now for ALL companies and especially start-ups to re-evaluate the staffing levels, the compensation packages, and start expecting more from their sales team - and rewarding them appropriately for achieving large goals.  The best compensation plans have lots of milestones along the way that reward performance, and also have a sense of competition in them.  And… this is critical… they must NOT be unrealistic.  If no-one is making any money on the sales team, then you actually will see sales decrease.

A compensation plan should never be designed in a way that ensures the company does not pay anything out.  It should be designed to motivate and drive sales.  And you should make sure that when you design your plan, you are not designing it in such a way that you are focused on how not to pay out commissions - but that you are focused on how to motivate people to sell what you want.  And when those salespeople do so, rejoice.

I’ve started to work with several start-ups on their sales strategy and on designing compensation packages for the 2009 reality, so I know it is not easy to design one that motivates people correctly - especially if you haven’t created one before.  However, I think that there are also a lot of opportunities for getting a lot of performance out of hard-working sales staff when it is done correctly.

Outside monthly prizes, contests, and other SPIFs, I’d be interested in hearing about clever compensation ideas that companies have used to motivate sales people.  Anyone have anything interesting that they have used?

OK - so this post has nothing to do with sales really.  Its more that twice a year I sit and ponder the absolute lunacy around Daylight Savings Time.  The amount of money the world governments have spent deciding whether or not to move clocks twice a year, and when to do it just drives me insane.

But… you get an extra hour of sunlight.  Um… no you don’t.  You are just moving the clocks..  But, you save energy by getting up in sunlight.  Ah… so get up at a different time.

To me its as crazy as those that set their watch or alarm clock 15 minutes ahead to “fool themselves” into not being late - yet they are still late because they know that they have that extra 15 minutes so it is negated.

So… back to sales.  You’ve got an extra hour to sell this quarter.  Just remember that Q1 is one hour less tho!

I’ve gotten into two lengthy discussions recently about draw as a sales compensation component.  Specifically, since I work with start-ups, the questions were around whether or not you should offer up a draw or not as part of the compensation package.

I have some very strong opinions about draw, and I want to start by going over the basics.  Draw is compensation offered to a new salesperson coming on board.  There is a “draw period” which is the time over which the draw is paid.  (typically 3 to 6 months).  There are two types of draw:

• Recoverable draw:  This is set amount of commission that is paid to the salesperson in advance of actually being earned.  It is pre-paid commissions, that get credited against earned commissions.  If, at the end of the draw period, the salesperson has not sold enough to cover the amount of the draw, then he/she needs to pay the company back the unearned portion of the draw.
• Non-Recoverable draw: This is a set amount of commission that is paid to the salesperson in advance of it actually being earned, but at the end of the draw period, the salesperson is NOT responsible for paying back the un-earned portion.  Think of non-recoverable draw as essentially a higher salary during the draw period that drops down after the draw period is over; however any actual sales commissions made during the draw period get crediting against the draw.

Why do salespeople deserve draw?  Isn’t it all about their performance?  A salesperson should just work harder to get their commissions faster, no?

Well… some of that is true, but the fact is, as I have always said, that sales compensation plans are designed to drive behavior.  They should always be designed to drive the behavior that the company wants.  So, as a component of a compensation plan, draw can be a very important part.

The most important thing that you want your salespeople focused on is SELLING.  When a salesperson is worried about getting their first sale because without commissions that cannot pay their mortgage, and other bills, this is distracting from their focus.   So, a draw helps keep the salesperson focused on making the sales they need to make during their start-up phase.  Once the salesperson has built a pipeline and is moving - then I think its all up to their performance.

There are many situations where draw make a lot of sense.  Some examples:

• Your product has a long sales cycle.  If a realistic time frame to close a deal is 9 months, then even if you have a superstar salesperson that brings a rolodex with him/her, you know that it will be several months before any sales are made.  Its reasonable to offer a draw to help that salesperson stay focused on selling in the initial 6-9 months.
• The salesperson is walking away from large commissions.  One of the hardest things for a salesperson switching jobs is that after you have built up a large pipeline, that salesperson could be walking away from a large potential commission payout.  If you really want this person selling your product, you can offer the draw to compensate for that loss of income (essentially a signing bonus - but tied to sales in your firm).
• Your product/market/pricing is unestablished.  Of particular relevance to start-ups is asking a salesperson to come on board and trust that your product has a market, that the pricing is correct, that your product works, etc.  For all these reasons, it is reasonable to offer a draw to a salesperson while he/she flushes all of that out.  What you don’t want is for the salesperson to be thinking about moving on, stalling your momentum, because he is too focused on when he will start making commissions.
• Your comp plan is mostly commission.  If you are offering a compensation plan which is very low base salary and mostly commissions, a draw can make sense in order to mak sure the salesperson has some income dring their startup phase.

The bottom line is that you should be expecting big things from your salespeople, but EVERY salesperson has a start-up phase and it can take a while before he/she sees a commission check - not because they are a bad salesperson, but because pipeline building can take time.  When a salesperson is walking into a virgin territory, new product, etc. it is reasonable to offer them a draw to make sure that they stay motivated and focused while they get up to speed.  In fact, I think that offering a draw can help ACCELERATE sales in the short term because you keep the salesperson focused on selling.

Since draw is credited against actual sales commissions, if the salesperson does succeed in the short term, then you don’t double pay the salesperson. 

Should you offer recoverable or non-recoverable draw?  I think this is really part of your negotiation.  Of course, non-recoverable is better for the salesperson and recoverable is better for the company.  Asking for the recoverable money back at the end of the draw period certainly is a de-motivating exercise; however, it protects the company in the event the salesperson really cannot perform.  In my own experience, offering up non-recoverable vs recoverable is based on the person and also the maturity of the product.  If I’m confident in the saleability of my product (already proven it can be sold), then a recoverable draw makes sense.  If I’m working with a known entity (the sales person has succeeded in 10 other companies), then a non-recoverable draw may be more appropriate - thinking that if he/she doesn’t sell its a function of my product and not him/her.  Relatively new salespeople should probably be offered recoverable draw until they prove themselves. 

Bottom line:  There really are no hard rules around this - and should be part of negotiation with the sales rep.  Start-ups need to be realistic about the task they are asking the salesperson to go into, and while they are getting risk/reward for their sales efforts, keeping them focused during the start-up phase for an unprovien product with a virgin market and untested pricing is essential - and a draw may make the difference between you winning or losing.

In many large companies, departments get “use-it-or-lose-it” budgets.  What this means is that they get dollars for projects for that year, and if they don’t use up all of that money by the end of the year, then they don’t get to spend it.  It does not roll over until the next year.  This is where salespeople looking to finish out their own year great can capitalize.  It requires you to be flexible in your pricing technique, but you can very often push through a sale that might otherwise take a very long time to close.

A manager at BigCo has $150,000 left in his budget for the rest of the year.  He is evaluating your product for an initiative next year, and your product costs $400,000.  Currently, in his mind, your product is completely on next years budget.  But, you ask about his unused budget and find out about the remaining amount.  You determine with him the best way to bill him the $150,000 now, and the remaining $250,000 next year.  If you can convince the manager of this, not only do you secure a sale this year, you lock up your sale for next year, and leave the manager $150,000 extra on his budget for next year.

So, how do you flush out if there is an unused budget.  Often it is as simple as asking.  Managers may not even think of this as a possibility because its never been proposed to them before.  If they are not very forthcoming, and you really want to flush it out, you should continue to ask.  One sweetener I have often used to get managers cosy with the idea is to offer them $1.10 credit for every dollar they spend with me today.  So, If they handed me an invoice for $150,000, I would credit $165,000 off the cost of the project.  This essentially makes the next year cost of my project an additional $15,000 less.  Initial hesitation is often because they may not be sure that they want to use your product, or if what you suggest is OK with their company.  But, most managers, knowing that they have money that will dissapear and that this method will free up cash for next years projects, will want to at least explore the option in my experience.  And if you have a manager willing to think outside the box, you will get the sale, and an appreciative customer who will alreayd know that you are the type of sales person in for the win-win.

Of course, you DO need to make sure that you aren’t getting a manager into hot water, and I would never suggest something that circumvented corporate purchasing policies, but there are often creative ways to unbundle or unhook your product that makes it fit perfectly into this existing and disappearing budget money.  Sometimes, the reason your product is scheduled for the next year is because it is part of some capital project that has dollars assigned to it.   Once, I had a customer who had money left in his budget for professional services, but not for software.  Yet I was trying to sell him software.  Well, my software typically included installation services, training, first year support, and some data-loading services as part of the core product.  All of those services were completely valid to be billed against his unused professional services budget.  So, I unbundled these services for him, billed him in December for those items, and then billed him for the remaining software licenses in the next year.  The tactic served me and the manager well.  I got a sale in the current year, cash in the bank in the current year.  He got to use this years dollars for next years project, and freed up more money in next years budget (which I took too!).  I also guaranteed that I was going to get a sale in the next year because by doing the first invoice, there was very little chance he would not take the second part.

As I’ve written before, you should be building relationships with your customers - not just selling them.  This is actually one of those instances where what you are doing actually benefits everyone involved.

Knowing that there are about 10 weeks left in the year, and that it can take several weeks to get the contracts done and pushed through, you should be asking about this unused budget and making the deals… TODAY!

I read a short post on Startup Spark about making sure that entrepreneurs don’t forget that they need to find customers for their new ventures.

Ah - how true… and who makes that happen?  The sales team.

Sales for start-ups is not easy and its certainly not for everyone.  You are building your product and your market at the same time you are trying to build a customer base.  But, when you can convince those companies to give your start-up a chance, its one of the most rewarding feelings for a sales person.