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Negotiation Ninja says “don’t throw away the cards that have no value to you”. November 6, 2013

Posted by Bernard Lunn in Deal-making, Enterprise Sales, start-ups.
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As a sales rookie I was reviewing the key issues before a major contract negotiation with my boss. We made a list of a) showstopper issues and b) “not a big issue for us” clauses.

During the meeting one of the “not a big issue for us” items came up. My boss said;

“Hmm, that is difficult. Do you mind if my colleague and I step out of the meeting to discuss this?”.

I walked out thinking WTF; why make so much fuss about a clause that did not matter to us? When we were alone my boss said:

“So what do you think will happen in the cricket today?”

We spent 10 minutes talking about cricket. The idea was simply to make them sweat about a point we were willing to concede so that we could trade it for something we wanted.

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Why Enterprise Software Sales is like Chess (with elements of Poker) November 4, 2013

Posted by Bernard Lunn in Enterprise Sales, SAAS.
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Many cerebral developers have an image of sales as a game for smooth talking silver tongued devils who are not over-endowed with grey matter.

Coding is very hard intellectual work. So is enterprise selling. Enterprise sales is like a game of chess with opening moves, middle game and end-game:

Opening moves in chess are fairly well-defined. You cannot win through brilliant opening moves, but you can lose quite quickly through some dumb moves. The same is true in enterprise sales. People over estimate the value of an introduction. It is not much more than Pawn to Queen four. You need to get through the door to sell, but its what you do when you are through the door that matters. Its not just the credibility of your introduction (first move) but also how you position your value proposition on first email, call and meeting that will determine how well you do when you get to the negotiation phase.

Middle game is when the sales support guys make all the difference. The process of proving product fit to the specific enterprise requirements is long and complex with a track running from demos to gap analysis to proof of concept. Then the process of aligning stakeholders towards a specific proposal can take place. You cannot plan more than two moves ahead, the best players mix analysis with intuition (“sight of the board”) as well as some time-proven maxims (such as “control the center of the board”).

End game is when the closers score. Some sales guys are no good in the opening moves (they expect the company to set them up with lots of qualified leads) and they are hands-off during the complex hard work of the middle game. This may annoy the hard-working folks in marketing and sales support, but they can get away with it because they are great closers. Watch out for these guys at your Gorilla competitors. A naive start up can align people around a perfect demo, gap analysis and proof of concept only to find the deal snatched away by salesman sammy at Bigco who trashed you with a well timed comment to the decision-maker over golf or cocktails.

The reason that winning at enterprise sales is so much fun is that it is cerebral but it is not only cerebral. You need good EQ as well as good IQ. Or, to put it another way it is a mix of chess and poker and as Bond says in Casino Royale “in poker you don’t just play the cards, you play the person sitting across from you”.

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.

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.

Ankle biters, moats and alligators in the enterprise software game. January 2, 2013

Posted by Bernard Lunn in Corporate Strategy, SAAS.
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Yes, “software is eating the world” as Marc Andreessen puts it. But the software game is changing at a fundamental level. The opportunities are massive, but it is harder than it used to be to create sustainable value.

The big change is the revenue model for software; that is as fundamental as you can get. The revenue model used to be perpetual licensing. Then it moved to subscriptions aka SaaS. The next iteration is to transactions.  The software enables a transaction to happen and the software owner takes a cut of the transaction as revenue. This fully aligns the interest of the software owner and the software user (as opposed to the licensing model where all the risk/reward passes to the user/licensee). This transaction  revenue is variable but predictable; the metrics are similar to consumer web ventures.

Software licensing was a wonderfully simple game. Once you had built the software and sold it, all you needed to do was send a disk to the customer. The first time I saw this for real – I had sold the deal, signed the contract and asked “what do we have to do now?” and was told “just send them the disk”. This was a contract worth high six figures and the cost of the disk was a couple of bucks. During contract negotiations my boss told me that “the only thing we can warrant is that the software will have bugs”. My eyes were opened to the wonders of 100% gross margins. Customers eventually woke up and revolted against having all the risk passed to them; into this gap charged the SaaS pioneers.

During the SaaS wave of innovation, which started with Salesforce.com over a decade ago, the game got a bit more complicated. But only a bit. You now had to manage a data center or an outsourced infrastructure provider. Lots of vendors rushed in to make that pretty simple. Gross Margins went from 100% to around 85% to pay for the hosting infrastructure – still incredibly high compared to most businesses.

But SaaS is still a licensing game and that still passes most of the risk and all the upside to the customer. The SaaS vendor takes away the hardware capex cost and the technical implementation risk. But these are not costs and risks that keep the CXO folks awake at night.

To really build value in the enterprise software you need to build a moat to keep out the “ankle biters”. Then you need to put alligators in the moat. That may sound a tad cryptic, so let me explain.

“Ankle biters” is a term coined by Fred Wilson in this engaging talk to describe the startups that will invade any good niche with dramatically lower prices. The upstarts use open source and cloud infrastructure to copy the functionality of market leaders for a fraction of the cost and then use that lower cost to offer an alternative to the market leader at a dramatically lower price. A classic upstart game is to offer free license and charge only for maintenance. Say the market leader is charging $500k for a Perpetual License with 20% Annual Maintenance (ie $100k per year). The upstart simply charges $100k per year; whether they call this an Annual Subscription or Maintenance with a Free License is mostly optics.

It is very hard for the market leader to defend against this. Their cost structure and sales team incentives make it impossible to compete on price. The usual response is to greet the upstart with FUD and scorn, pointing out the functional gaps. This does not stop the upstarts; their customers happily trade a 10% loss of functionality for a 90% drop in price.

The only sustainable defense is to build a moat. Historically this has been through Patents but this is increasingly a weak defense (the reasons are too complex to cover in this post). The best moat is network effects, where each new user brings in more users or brings in data (or both). For example, you can easily recreate the functionality of Facebook, Twitter or LinkedIn but that does not give you a shot at beating those network effects champions.

Network effects is the best moat. In Consumer markets that is all you need. There is now plenty of advice, most of it free in blogs, telling you how to generate network effects. Despite all that advice, this is a totally Darwinian game, thousands of ventures attempt this and only a handful succeed.

Nobody has yet mastered the game of network effects in B2B. This game is just starting. Fortunes await those who succeed, as B2B has a direct revenue model; combining that direct revenue model with network effects is the magic quadrant of ventures.

What about the “alligators in the moat”? This is using service as a game changer. This matters in B2B where there is lots of functional complexity. To get people to commit to transactions you need to offer really high quality 24/7/365 support. That is of course not easy or cheap but once you build it you have a real competitive barrier.

Is Workday The Breakout Enterprise Software Company Of The Decade? October 8, 2012

Posted by Bernard Lunn in capital markets, Enterprise Sales, Enterprise Web 2.0, SAAS.
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It has been a boring decade in enterprise software.

Where is the big enterprise software winner of the last decade? Where is the Oracle or SAP of the last decade? Or less ambitiously, where is the TIBCO, Cognos or Hyperion of the last decade? So far the only one to make it into the big leagues is Salesforce.com and it is unclear if they will actually make the breakout from their CRM niche to something bigger.

Workday has the ambition, funding, founder experience, breadth of offering to be this winner. This one will be interesting to watch, the SaaS Index is getting a new bellwether stock to join $CRM very soon.

Enterprise Software Sales – The Art and Science Of Accurate Forecasting September 30, 2012

Posted by Bernard Lunn in Deal-making, Enterprise Sales, SAAS.
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Forecasting new business sales revenue is hard. As any sales manager will tell you, that is the ultimate “no, duh” statement. Yes forecasting is very hard.

The reason is obvious – the future is uncertain.

Sales revenue forecasting is also enormously important. Ask any CEO who got hammered by their Board for missing their numbers. Forecasting drives so many critical decisions. Without good forecasts you cannot have a good relationship with investors and you cannot plan your business.

If the company is big and old you have lots of data to guide your forecasts and errors become rounding errors. However if you run a company that gets revenue from say 5 sales executives, you cannot rely on the usual statistical models.  In startups the forecasting is also a lot tougher because there is a step ladder of forecasting difficulty:

– Very Easy: add-on sales to existing accounts. As a start-up you don’t have that much of this.

– Fairly Easy: new accounts within a geography and a niche where you have been selling for years. It is unlikely you will have many of these.

– Hard: sales of a well established product into a new geography or a new horizontal or vertical market.

– Really Hard: sales of a new product into a market that is not even well-defined yet. These are the blue ocean markets that allow startups to get traction and scale, but this is a very tough forecasting challenge.

Forecasting recurring revenue contracts such as maintenance can be automated quite easily. You can apply standard assumptions about decay (how many will cancel) and the growth will be based on new contracts.

The problems all come from forecasting new contracts. These are outside your direct control. You are extremely dependent on the judgment of your sales team. SaaS subscription models make new contracts less critical, but investors are still mostly looking for the new contracts (and churn) as the signals of success or failure. Whichever way you cut it, your VP Sales (Sales Director, Chief Revenue Officer, Chief Hustling Officer, whatever you want to call her) has a tough job where everything is on the line every day.

You obviously want more sales. Perhaps even more, you want to know what is likely to happen. You want accuracy.

Attempts to automate new contract revenue forecasting usually do more harm than good. The standard approach is to apply closure rates to the sales funnel. The idea is to make assumptions about how many calls it takes to get meetings and how many meetings it takes to prepare a proposal and how many proposals it takes to get a contract. Then you can say we have 10 deals at 40% probability, 5 deals at 60%, 3 deals at 80% and one deal at 90% based on where your deals are in the funnel.

This approach appeals to engineers and accountants. It appears to be scientific. The problem is that it generates a false sense of confidence and is very susceptible to gaming as in “lets bump up the number of meetings until we get the desired result”. It is a classic “garbage in, garbage out” problem.

It is better to build a system around what good sales managers do in the real world. What they want to know from a sales guy is “will this deal close this quarter?” In the real world it is always binary – it either closes or does not close. 90% closure does not hit the revenue numbers.

Sure this leads to “sandbagging”. The sales guy may have 2 deals that can close in the quarter. He will tell his manager that one will definitely close and keep the other one in reserve. If his “committed close” blows out he hustles to close his back-up deal. If his main deal closes, he can either get his back-up deal in this quarter and be the star of the quarter and pick up some nice accelerator commissions, or push it into the next quarter and get ahead of the game.

Everybody sandbags right up the CEO providing “earnings guidance” to investors. Is this a problem? As one Board Director put it, “I love getting sandbagged, it means surprises are much more likely to be positive rather than negative”.

Whatever system you put in place it will be gamed. The trick is not to try and avoid gaming as that runs against human nature. The trick is to get game theory working on your side.

Key recommendations for a sales revenue forecasting include:

  • Align the input from sales guys with what the CEO has to report to investors. This sounds obvious, but there is a major disconnect in many companies.
  • Measure input accuracy. The old saw, you cannot manage what you don’t measure, applies here. How accurate was salesman x in the past? Note that this is not the same as “did salesman X make target? The question is “at end Q2, salesman X forecast $1m for Q3 and $1.2m for Q4. Now at end Q3 what was the actual result?
  • Reward accuracy. Revenue is always rewarded, but with accuracy being so critical to the company why don’t we explicitly reward accuracy? One reason is that we are too focused on budgets and targets. These are only plans. What we really want to know is what will happen this quarter? Accountants and spreadsheets can measure the difference between actual, forecast, budget and target and the gaps can be used to kick ass. But don’t confuse that with the main objective of getting accuracy.

If you get good input, the rest of the job is fairly routine and can be automated relatively easily.

Cloud Is OK, But Consumerization Is The Real Disruptive Play In Enterprise Software August 13, 2012

Posted by Bernard Lunn in Enterprise Sales, Enterprise Web 2.0, SAAS.
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Today’s hype is all about the Cloud, which is a triumph of marketing. Marc Benioff, Founder/CEO of Salesforce.com, is the trailblazing pioneer who executed brilliantly on a marketing blitz with the No Software tag line and image. It was brilliant, but something grated on me. Salesforce.com was still all about software, just software delivered in a different way. “Software is eating the world” as Marc Andreesen puts it. This is the golden age of software. The tag line should be More Software.

What Benioff really meant was:

“you don’t need to install our software on your hardware”.

That does not exactly trip off the tongue. It sounds like branding conceived by an engineer – totally precise and accurate….and quite useless.

Or he could have said:

– No CAPEX.

That is the Pay As You Use Licensing model. Again, this is precise, but useless as marketing. Working out the trade off between monthly payments vs perpetual licensing is Finance 101. Plenty of traditional enterprise software companies offer a monthly payment option and this can help to get a deal “below the radar” of a corporate CAPEX authorisation process; but that is hardly a game-changing revolutionary approach. Many companies, savvy to this move by vendors, require authorization for the full length of the contract (e.g. they multiply the monthly fee by 24 if it is a 2 year term).

Or Benioff could have said:

– No Hardware

Or:

– No Data Center

That would have been more accurate. No Hardware is the simple core of the cloud computing value proposition. Salesforce has been adamant that they will never license their software for use within a customer’s data center. That gives them lifetime value and great revenue visibility. They can maintain that position with customers as they get their initial traction with end users who have zero interest in the hassle of installing software on hardware in data centers. By the time the Salesforce sales guys get to the CIO level, they are already entrenched at the end user level, so they have enough negotiating clout to hold this line. As Salesforce.com has the scale and technology to buy hardware at least as efficiently as their biggest clients this works. This is tougher for startups without any buying clout.

So now we have:

– No CAPEX

+

– No Hardware

Now, lets add Consumerization. Now we can say:

– No Committment

+

– No Documentation

This is more radical. Many enterprise software vendors fail at this step.

No Commitment means users pay monthly and quit any time they want without penalty. When I was editing the SAAS Insights Report, there was one quarter when Salesforce.com was panned by Wall Street analysts because the company had moved from a policy of insisting on at least 12 months commitment, to asking for no commitment. This meant that analyst’s models that forecast future revenues based on contractual committments saw a weaker forecast. If they had bothered to ask their colleagues analysing consumer centric subscription businesses, they would have looked at churn models and cost of customer acquisition and concluded that Salesforce was making the right move. This showed me that conventional Wall Street analysis is often deeply flawed; but that is another story.

No commitment naturally leads into Freemium. The conventional enterprise response to the need to try before you buy is the free trial. This is quite different from freemium, which is free forever with limited functionality. This is a game that large companies can play more easily. For example, I am confident that Google will survive and won’t feel under financial pressure to adversely change the terms of their free Gmail service. A free service still requires me to invest my time; if the vendor goes smash or changes the rules, I lose that investment.

The key to No Commitment is Low Churn. If you get high churn, if users pay for a couple of months and then terminate, your customer acquisition cost will be too high.

Low Churn means that users actually find it useful. Which leads onto to next one:

– No Documentation.

Would you use Gmail if you needed a Manual to get started? Consumerization means really, really user friendly software. You know what to do the moment you see the screen and you can get real value immediately. If you want to become a power user, you can do so gradually. If you want to use related modules, they are loosely coupled but integration is automatic.

Consumerization is the real revolution in enterprise software. Cloud Computing and Pay As You Use Licensing are usefull iterations of the current model. Consumerization is the seismic shift that will:

  1. Dramatically lower the cost of customer acquisition and on-boarding for vendors (and therefore enable lower prices for customers).
  2. Bring the customers and partners directly into the systems and processes on a peer level with internal employees.

The last point is critical. Enterprises have already cut a lot of costs. They won’t stop, cutting costs is like weeding the garden, a job you always have to do. But senior management priority has shifted decisivelty towards revenue generation. Enterprises today are very cash rich and profit margins are at an all time high, but management teams are all struggling to grow the top line.

Online networking is changing how business is done in fundamental ways. The consumerization of software is not only about letting Facebook addicted Gen Y and Z feel more at home at work. Nor is it just about incremental productivity improvements from easier to use software. Consumerized software is about enabling front line employees to connect in real time and in context with customers and partners. Business is evolving from managing hierarchies to managing ecosystems. That requires a radically different type of enterprise software. The revolution in enterprise software that commenced with cloud and SaaS is just getting started. It is this aspect of consumerized enterprise software to add the final one:

– No Walls (between employees and customers).

Today’s enterprise software is a 5 point mantra:

No CAPEX
No Hardware
No Commitment
No Documentation
No Walls

Vendors can choose which of these 5 mantras to focus on. There are trade-offs and some vendors will do well be focussing only on one or two of these mantras.