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Thought leadership selling for enterprise software October 31, 2013

Posted by Bernard Lunn in Enterprise Sales.
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There are two core jobs in enterprise software; you either code it or you sell it. All the other jobs, vital as they are, facilitate those two core tasks. In the great companies there is a culture that synthesizes the best of the coding world and the best of the sales world. In those companies, both techies and hustlers respect each other and know that they depend on each other like mountain climbers roped together.

Sadly that kind of mutual respect culture is all too rare. For the first generation of enterprise software, the sales guys ruled and they often abused that privilege. It is therefore no surprise that in the next generation, characterized by consumerization, many technical founders sought to write the sales guys out of the script.

In the consumer world, there is no selling (door to door salesmen are only in history books), there is marketing and that is tightly integrated with the product (lots of AB testing to find out what gets consumers to hit the buy button).

Marketing has become a science. The creative folks and their hustlers, who we watch with such amusement on MadMen, have been banished to the history books along with door to door salesmen. We now have a perfect quantitive feedback loop of analytics feeding into Marketing Automation feeding back into product management feeding back into analytics….

That would be OK if selling to the enterprise one user at a time – the consumerization story – was all that was needed. It is a venture life-stage issue. You may get early traction, the foot in the door, one user at a time using Freemium. To grow your share of budget you need to engage with the people who manage these enterprises (or sell to an acquirer who can do this but that is a very limited pool of acquirers).

In order to sell the big ticket deals to the Global 2000, you need a qualitative feedback loop integrated with this quantitative feedback loop. That needs flesh and blood humans, there is no way algorithms can do that.

These humans need to practice a form of creative thought-leadership selling that has become a forgotten art. It is an art not a science because you need to interact with a lot of smart, powerful people and no amount of process will replace a talent for convincing people. It is a forgotten art because enterprise software has been in a coma for the last decade. Most of the best minds moved into consumer ventures.

Unfortunately when you find the folks who still know how to do big ticket deals with the Global 2000, many of them are uncomfortable in the new consumerized social media data driven world.

Here is how Forbes describes thought-leadership sales people as the new rain-makers.

The money quote is here:

“Take Salesforce.com as an example. This was an organization that took cloud-based software-as-a-service for customer relationships into the mainstream marketplace. There are several elements to its success, namely a strong product, but it also has an army of thought leaders who specialize in app development, sales lead development, sales management, etc. that helps customers do their jobs better. Salesforce’s model, driven by product success and thought leaders, has led to a familiarity with “the cloud” and a willingness to accept it in a corporate environment. These achievements not only helped the cloud computing industry with adoption rates, but helped make Salesforce a leader in the cloud-based CRM space.”

I think of this more simply as “bloggers who sell or salesmen who blog”. I use “blog” as short-hand for insightful trend analysis about your market (fully recognizing that lots of blogging is empty drivel).

It is no longer good enough to have thought leaders blog and sales people sell. The buyer has to want to meet the sales person. They can get the insights from the blog. Why would they want to spend an hour with a sales guy who will just parrot the same info you just read on the blog?

This is easy when all the selling is done by a founder, which is clearly not scalable and is a tough transition for many ventures. Getting a whole team of thought-leader sales people is harder.

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Crossing The Chasm through the Bowling Alley to: rapidly entering niche markets. October 15, 2013

Posted by Bernard Lunn in Deal-making, Enterprise Sales, start-ups.
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For years Crossing the Chasm was the closest that Silicon Valley startups had to an operating manual. It fell out of favor when the focus was on digital consumer ventures, but people are dusting off their copies as we are now in an enterprise software renaissance.

The way to Cross the Chasm to the mainstream is through the Bowling Alley:

“Market momentum picks back up in the Bowling Alley phase, as early pragmatists in certain
customer segments overcome their reluctance toward discontinuity and adopt the new
technology to solve niche-specific problems. By their nature, pragmatists are reluctant to
adopt new technology and prefer to follow the herd. Early pragmatists are forced out of
their comfort zone to find solutions for broken, mission-critical business processes.

The Bowling Alley phase takes its name from the market strategy that is appropriate. The
key to success is to provide a complete solution for one segment while identifying closely
aligned segments that could benefit from a similar solution. When the momentum from
successfully capturing market share in the first segment (the lead bowling pin) is felt,
this momentum is leveraged into adjacent segments. By dominating several segments, your
company may start to emerge as a sector leader.”

That describes the strategic mission – that is the easy bit. Actually winning those deals and delivering those move-the-needle projects is a lot tougher, particularly today after “enterprise software’s decade in a coma” has left many of those skills rather rusty from lack of use.

Each niche is like a foreign market. Literally, niches like this have their own lingo, the jargon that feels like listening to a foreign language. You can translate the jargon, study the subject, but you will still feel like a foreigner mangling French in a Parisian cafe getting supercilious stares from the waiter. The people in these niches all know each other
well, these are dense networks which spit out antibodies to reject outsiders.

You can break through into these niches but it requires creative selling techniques that have been forgotten in the last decade. Consumer start-ups don’t need to sell, they market online using their product. Consumerized SaaS startups believe that this is also the way to win the enterprise. It may be the way to get your foot in the door of the enterprise, but to really win the big tickets you have to solve really big pain points.

These creative selling techniques usually start with some variant of asking “what keeps you up at night?” You are looking for the kind of pain that is so acute that the customer will overlook the fact that you are a startup with radically new technology.

It is good to first read the guide books to this foreign land and talk to people who have lived there. You need some familiarity with the lingo of this niche market, understand “what makes it tick” and some theory of where the pain might lie that you can fix. Even open ended questions need a focus. But remember, “no theory survives first contact with a customer”, keep an open mind and stay light on your skis. Opportunity often lurks in the parentheses, the seemingly unimportant throwaway comment that shows you the real hot buttons.

You need more than a 10x proposition based on a technological breakthrough. You need that to be able to deliver the solution, but that alone only works if your 10x proposition is purely a cost-cutting proposition. That tends to be a tough sell in most enterprises because it involves rip and replace and that is too big a risk to take on a start-up. You can sell a 10x rip and replace cost-cutting proposition if your technology is down the bottom layers of the tech stack and you sell to data centers. For example if you have a way to 10x cut the electricity consumption by servers, Amazon, Google and Facebook will all listen intently even if you are a bunch of techies in a garage and sell one of them and you are off to the races….

However if your proposition is further up the stack, for example at the middleware layer or the application layer, well as they say in Brooklyn….fuggedaboutit. That’s when you have to find a business problem to solve that fits these three criteria:

1. A “big, bad problem” something that really, really matters, that gets the attention of the CXO level guys, that keeps them awake at night. Don’t worry, the Global 200 are going through wrenching changes thanks to the triple tsunami of globalization, digitization and the debt crisis, so there is no shortage of big, bad problems.

2. A problem that is ideally suited to your unique technology, that none of the incumbents can easily solve. There is no point in discovering a big, bad problem that can be easily solved by Oracle, IBM, SAP, etc. All that will happen is you spend a lot of time getting the proposal up the chain of command until a salesman from an incumbent spots it and closes the deal.

3. An internal “sponsor”. We used to call them angels, but has a different meaning now. This is your inside person, who keeps the message going after you have left the room. I think of him/her as an innovator with clout. They have to be innovators because you are an upstart with new technology, so they have to think outside the box and be ready to challenge orthodoxy and incumbency. You will easily find many like this and have lots of conversations where they bemoan how stupid their company is, how politics gets in the way of innovation, blah, blah. These conversations go nowhere. You need an innovator with clout, somebody who is trusted and respected by those with the power to close a deal.

So you have to cast your net really wide to find the few that sit at the intersection of this three-way venn diagram. Cast a wide net and then qualify like hell. Lots and lots of conversations, lots of active listening, lots of “see ya later” when you don’t hear the screams of pain that indicate these guys really, really need you. This has to be more like a guy who has had a
heart attack needing a surgeon than somebody with a headache needing an aspirin.

Once you have found the problem, the hard work starts. This is what I think of as the middle of the chess game. You have opened well, now it gets complex with lots of options and moving parts. Now you have to assemble a solution. It is an assembly job, great for Lego fans. You need these pieces:

1. Your technology at the heart. You will need easy interfaces to all the other bits as you are the newcomer and therefore the one who is most motivated.

2. The other components that deliver a total solution. This could be as simple as the hardware and networking if you are running behind the firewall (yes, that is technically simple but the incumbency innovation antibodies lurk here) or include software components up and down the stack. Remember, you are solving a problem, not selling technology. If you don’t do this hard work, the incumbency innovation antibodies will attack you; an existing vendor will show a “just good enough alternative”.

3. A team that can pull it all together, the system integrator. Your view has to be pragmatic; use your own people, or one of their approved integration vendors or an internal team. This is a key area where your Sponsor needs to guide you.

If you get through this part you are positioned for the end game, you are in the closing zone. That is the subject for other posts.

Global Expansion for Enterprise Software: don’t wait too long or ignore the subtle signals. October 11, 2013

Posted by Bernard Lunn in Uncategorized.
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Enterprise software knows no boundaries. The customers are obviously global, so vendors have to go global to match that. This article describes the “why, when, how” of going global.

Lets start with why and when.

Many enterprise software vendors originate from markets that are relatively small – think
of SAP from Germany, Autonomy from the UK, Business Objects from France, NICE Systems from
Israel.

(I am using the word “relatively” in relation to America, the biggest market, from where
most enterprise software firms originate).

Companies from these relatively small home markets have to go global early in their life.
In some cases the first customer may even be outside their domestic market.

Even US ventures, which used to wait till late in the cycle, are going global earlier as
they recognize the realities of the global economic rebalancing. McKinsey Research
estimates that “the emerging economies’ share of Fortune Global 500 companies will probably
jump to more than 45 percent by 2025, up from just 5 percent in 2000.” This means that
“going global” no longer just means a quick trip to London, some serious air miles to
“exotic” locations are needed.

So, the answer to when to go global is “earlier than we used to”.

Getting to the how to go global, computers help but humans are still needed.

Yes, the world is getting flatter. We can connect across borders using all kinds of social
media, we are all available on our mobile phones and on Skype. However, while we can
maintain relationships using these tools, the initial job of building relationships
requires air miles and “breaking bread together”. Yes, the Anglo Saxon business culture
rules, but unless you know the local culture, you miss the subtle signals that tells you
whether a deal is on track or heading for a train wreck.

This is the constant push and pull that global brands face between standardization and localization. The American way of scaling through standardization is epitomized by McDonalds, yet even McDonalds have changed menus
in India and sell in Switzerland on buying local beef and potatoes. All good
software now has tools for localization, but there are subtler cultural, human and branding
issues that determine whether the locals see you as trustworthy. You need standardization
to scale, but you win one country at a time and one customer at a time; insensitive, brute
force standardization is no longer a winning formula as it was in the post war years when
American multinationals grew up.

The consumerization of enterprise software changes the rules and enables globalization with
less friction and less cost. The “foot in the door” is now usually a Freemium product
rather than a salesman dialing for dollars. This is a game-changer, the consumerization of
software does change everything. Well, not quite everything! The vision of a world where
all business development is done by software algorithms makes as much sense as all
stockmarket trading being done by High Frequency Trading (HFT).

Machines are very fast. High Frequency Trading (HFT) machines beat human day traders on
speed. Freemium conversions feeding automatically into Marketing Automation (MA) systems
beats lots of sales folks punching feedback into CRM systems. Yet machines can also be very
stupid, as HFT driven flash crashes teach us regularly. The same is true in sales driven
by Freemium and MA algorithms; a data point that is a reliable signal of customer intent in
America or even England, might totally miss what a customer is thinking in India, China,
Turkey, Germany, Switzerland, etc. Humans need to understand these cultures in order to
fine tune the Freemium and MA algorithms. Even in a consumerized enterprise software world,
there are three other inflection points where a human is needed:

1. Early, when even consumer startups “do things that don’t scale”. (The classic story
tells of AirBnB founders going door to door in New York to recruit the first apartment
owners). Network effects need to be seeded; build it and they will come is usually a mirage
that tech founders fall prey to (sometimes build it and they will come does work. there are
exceptions to prove this rule).

2. When your Freemium traction gets you a meeting with the CIO. Dell was the first company
to understand that you “schmooze in person and deliver online”. Get to that CIO too early
and you waste your time. Get to that CIO too late and you risk your early traction being
replaced by a competitor who knows how to balance digital marketing with human selling. You
need just-in-time CIO selling.

3. When you need to understand the whole product in order to move into adjacent spaces and
cross the chasm. That requires the old selling discipline of “two ears, one mouth”, lots of
active listening and open questions that unearth the real drivers of value in your
customers.

If Siri still has trouble with something as simple as voice recognition, imagine computers
parsing body language, the twinkle in the eye or the quality of a handshake. Phew, humans
do still have a role to play!

The question then is what type of human? The old way went through three iterations –
distributors to expats to local teams.

1. Distributors used to be the inexpensive way to get initial traction. This is less relevant in the SaaS/consumerization world; there is nothing to “distribute” and the foot in the door is done by Freemium. However something is lost here. There is nobody local saying “try this, yes it is foreign, but it works here, let me explain”.

2. Expats. In 1994 Misys moved me from running the  American region to running Asia. One mission was to replace distributors who had got the early sales in countries like Indonesia, Malaysia and Thailand with wholly owned branches. There were enough sales to make it worth paying an expat package to capture the additional margin.

3. Local teams eventually replace expats as they are cheaper and more likely to stay for a long term mission to dominate a local market.

The new SaaS/Freemium way goes something like this:

1. Ignore the local markets. If it catches on, great, if not ignore the market as there is too much to do in the priority market(s). This lets local vendors win.

2. Buy the local vendors. That works but the acquisitions can be expensive and hard to integrate. Customers, only a click away from an alternative, may migrate to competitors when you attempt to switch your “acquired” customers over to your globally standardized solution. The beauty of Freemium, low friction on entry, works in reverse as well, low friction on exit.

Understanding this, many founding teams are spending a lot more time circling the globe than they had planned. This comes at a cost of founding team management bandwidth.

What ventures going global need is a bridge between the globally standardised ideal and the localized reality. This bridge is built from people who can move easily between these two worlds, who know that a globally standardized solution is the end game but who can bring on the early customers and local teams that are needed to win on a country by country basis. They may also spot the local competitors early and “head them off at the pass” or buy them when they are still young and cheap.

Why The Angel List Syndicates aka Twitter Follower Model Could Change the VC Industry October 1, 2013

Posted by Bernard Lunn in Uncategorized.
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Angel List Syndicates allow angels who want to be VCs to establish a track record and that is a big deal.

A long time ago I had a friend who had a gopher job at Lloyds Insurance. He was a “runner”. He described how massively complex risk could be financed in a day. Imagine insuring a space rocket launch, how on earth do you figure out the risks? This was a real world example. Lloyds had lots of specialists, one of them was a space expert. He would set the rate, basically committing his investors to underwrite the risk. My friend would then walk/run around to all the other specialists who would only look at two things – the area of expertise and the expert. If those two lined up, the other specialists underwrote massive sums in an instant, just putting in an amount and signing their names. My friend and I were staggered by how much money was deployed in such a short time around hugely complex subjects. This was an incredibly efficient system (yes, Lloyds later blew up but that is a totally different story).

The same thing happens with Warren Buffet. A whole tribe of Buffet wannabees track him and try to follow his trades.

I call these the “super experts”, the specialists who really knows their subject cold, who have done their 10,000 hours and done well financially in those 10,000 hours. They are the same folks that journalists court as sources and that you can follow on Twitter.

The point is that this is also how new ventures are financed. Like the space launch example, each venture has massive complexity and risk, but once the lead investor signs on, others follow with their checkbooks open. The Internet destroyed my friend’s runner job. Now the other experts simply Follow each other.

The VC industry – it is now an industry – has worked by herding those experts into a few funds. The funds were the gates to those experts and they charged a hefty toll to all – LP investors and entrepreneurs – for the privilege of getting access to those experts.

The folks running those funds were smart enough to know that they were not the 10,000 hours experts in all those specialist areas, so they did two things:

1. They invited those 10,000 hours super experts to co-invest in deals in their domain. This was a great win/win: – Fund got the insights and network of the super expert.
– Super expert got to invest on same terms as the Fund without any fees.

2. VC Funds pitched a more general skill as investors and venture scaling experts. Most 10,000 hours super experts don’t want to lead a round. They don’t need to work that hard and are smart enough to know that they don’t know how to do all the things that a smart VC Fund does, like setting valuation.

The Angel List Syndicates is just using technology to make easier what smart investors are already doing. I recently attended a meeting of private investors who had made money as entrepreneurs and now wanted to invest well to maintain wealth for future generations and philanthropy. As each described what they did it became obvious that the best way to invest would be to follow in their tracks. For example, somebody who made their money in real eatate in Houston and had been doing it for decades. If he were to invite you into his deals, you would do well. If you had the same track record in another market its a simple quid pro quo deal.

To use Hedge Fund terminology, the domain expertise and network of the 10,000 hours super expert is “Alpha”. However somebody still needs to do the hard work around all the other stuff – negotiating terms and leading the Board. That is where Syndicates become an alternative to VCs.

The VC business is the most Darwinian power law. Both LPs and entrepreneurs know that the returns are massively skewed to a few elite firms. Taking a risk on a startup fund is too big for most LPs. This implies a “permanent aristocracy” of a few firms.

Angel List Syndicates allow angels who want to be VCs to establish a track record; that is why it is a big deal. It enables upstart investors to get their foot in the door.

Eliminating the 2% fee is a crack in the wall of fees. I expect competition on the 20% carry as well from investors wanting to establish their reputation.

Three cheers for the Angel List guys for the biggest change to the entrepreneurial ecosystem in ages.