Enterprise Sales FAQ May 5, 2014Posted by bernardlunn in Enterprise Sales.
This is the final # 12 in a serialized book called Enterprise Sales for the Digital Age, delivered here as 12 blog posts. You can get value from each in isolation, but if you really need to understand enterprise sales, reading the whole series is worthwhile. You can buy an improved version, neatly printed and bound, for $6 from Amazon.
Enterprise Sales FAQ
Q: When should I go to my contact’s boss without his/her permission?
Background. You have spent a long time building a relationship with somebody at a prospect who always says the right thing, but the months roll by and nothing substantive happens. You know the boss’s name but you want your contact to make the introduction, to “take you up the chain”. Again, your contact makes lots of placatory noises, but it is not happening.
A#1: don’t get in this mess in the first place, call high from the start. The worst that can happen is that you learn quickly that there is no budget or that an incumbent has a lock-in. This is far better than taking a long time to learn the same thing.
A#2: if you are in that mess, the old proverb “if you are in a hole, stop digging” applies. Do it and do it now. Don’t warn your contact, he/she will only make it harder. Maybe use somebody in your management team or Board to make the call to the senior guy, but before you use your precious relationship capital, think about whether it is worth it for this account. There are only two outcomes a) you were wasting your time, the deal is not qualified b) they are seriously interested and you have a bridge to repair with your contact (if your contact is political player, he/she will be careful and respectful now that you have a relationship with the boss).
Q: When should I hire a VP Sales vs hiring an individual sales contributer?
A. This is a tough one. A VP Sales should have at least 5 sales people to manage, otherwise it is a wasted cost. In a well-run sales operation, the span of control should be 10 or more. It works for 5 in a startup where the VP Sales takes a hands-on lead from the front role.
This is where raising Venture Capital can help get over this hump. You then have the cash to hire a VP Sales and 5 sales people. You – and the VC obviously – have to be very confident that you have product fit to market and that the only thing needed to scale is a sales team.
Without that luxury, hire experienced individual sales contributers who do not need a lot of supervision. Sometimes one of them is willing to mentor/coach a more junior sales person and may want to become the VP Sales when that position opens up. However one mistake to avoid is being unclear on roles. Don’t hire somebody who really wants to be VP Sales and give them VP Sales type tasks when what you really need is direct sales. That person will tend to focus on the management tasks of the job they aspire to and not do enough to directly win customers.
Q. When do you force something to a Yes or No binary decision?
A. Earlier than you intuitively feel comfortable with. The motto is; “yes is ideal, no is manageable, maybe is the one thing that is impossible to manage”. Whether it is investors or customers, a “maybe” closes off other options. This is where the old-fashioned sales motto “always be closing” comes from. Whether it is a time for a meeting or a signature on a contract, you are always looking for certainty. If it is no, move on. That is what a funnel is all about. If you have lots of “maybes” you might not fill the top of the funnel properly because you hope that your maybes are for real. This is also where a conditional close works. If the maybe is based on a real issue you ask “if we could fix issue x, would you be willing to go ahead?”
Q. What is the right CAC target?
A. You define this as a % of the License Fee. In a SaaS venture you do it as a % of Life Time Value (LTV). This is usually shown as the CAC/LTV %.
A. It depends on the stage of the venture/product in the market. In a mature business, the CAC % should be around 25% ie all your sales and marketing costs should not exceed 25%. In a simple model, you allocate 25% to Sales & Marketing, 25% to R&D and 10% to G&A, leaving a 40% operating margin. That is at maturity. Very early on, CAC is over 100%, that is why you raise capital. How soon you move from over 100% to 25% is a future growth vs current profitability debate that you must have with investors; in a massive market it may pay to keep investing and delay profitability (but you obvously have to be properly capitalized to do that).
Bootstrapped ventures have to keep CAC below 100%. Assuming an even split between R&D and S&M, around 40% each and 10% for G&A leaves you with 10% operating margin. That its hard to achieve and that is why in big, high growth markets, VC (or early exit) becomes essential.
Q. Should we put up a “give us your contact details” gate before delivering valuable content such as White Papers?
A. For startups, the answer is almost always no. Users will click away because you are not yet a trusted brand. You have to earn their attention and trust. Your sales people will have to use the proactive lead gen methodology outlined in an earlier post in this series.
Q. When should I fire a non-performing sales person?
A. In general, earlier than most entrepreneurs do. Get a round table of entrepreneurs together and ask them to relate mistakes they wished they had avoided and “delaying firing when I knew in my gut it was the right thing to do” comes up a lot. It is painful. Most people want to “give them another chance”. This is a natural human instinct, but delaying is bad for everybody in the rest of the company and it might be bad for the individual as well. Everybody can be successful somewhere. Maybe they are not “cut out for sales” or maybe they can be successful in sales in another more mature company (where, for example, there is more structure, support and training).
Have a Performance Improvement Plan. See what can be done to get the person back on track. But track this rigorously and keep it short.
You cannot build an A Team if many slots are filled with B and C team players.
If most or all of the sales team are underperforming – look in the mirror. Maybe it is the product, maybe it is you, maybe your targets are wrong? But if most sales guys are hitting target, the decision is simple.
Q. Should I use domain or technical experts as sales people?
A. This is another tough one. The ideal candidate sits at the venn intersection of a) great sales skills b) great domain and tech knowledge. Good luck, those candidates are rarer than hen’s teeth. Occasionally you get somebody who moves out of a tech or domain role into sales and succeeds, but this is surprisingly rare. In the very early days of a venture, tech and domain skills matter more than sales skills; this is during the 3 projects to a product phase and the person is usually a co-founder. However, when it comes time to scale, it is much better to have a pair of individuals who work closely together – sales and sales support. The tech and domain skills reside in the sales support guy who manages the middle game of proving fit to enterprise need through proposal, demo, POC etc. Great enterprise software ventures are often defined by a superb working relationship of mutual respect between sales and sales support.
Q. Should I use Freemium or Free Trial?
A. The classic enterprise method was a Free Trial that you have to get via a sales person. The positive is that it puts the sales person in control. The negative is that it loses all those innovators in your customer’s (which may include the “innovator with clout” who holds the key to the enterprise-wide 8 figure annual relationship) who just wants some quiet time to experiment (to self educate in your product) before speaking to anybody. Which you choose fundamentally depends on how confident you are about the product. If you think it is the best, Freemium is the way to let it shine. If you think that there are “better, cheaper, faster” alternatives out there but you have the big enterprise brand and the market clout today, use Free Trials to control the process until your R&D/Product team can catch up with the innovators.
Q. Should I use a Proof Of Concept (POC) or go straight to Paid Trial ?
A. The POC has now become too widely accepted; “the POC is the new demo”. This means that too many vendors either a) spend far to much on POCs, killing their CAC metrics or b) skimp on the POCs so that they are not effective. Both are start-up killers. Weak sales people offer POCs far too early. It is free to the customer and looks good in the CRM metrics (“three prospects at POC stage”). Start-ups cannot win with skimpy POCs, you need the time to build something that proves to stakeholders that you have the secret sauce that their recipe demands. A Paid Pilot can also be called the first sale. It is a real sale with real benefits to the customer to real revenue to the vendor. By calling it a Paid Pilot, you signal a) your mission to be an enterprise-wide approved vendor (the Paid Pilot is a step in that direction) and b) you create a real dialogue/relationship with the stakeholder who is paying for the Paid Pilot by focusing on their ROI.
If you have any questions not covered here, please let me know in comments and I will do my best to answer them