Category: Entrepreneurship

I would even apply this frictionless sales model to the consumer web.  We all know that the Internet is turning every media company upside down about worries of cannabalizing their existing business.  It is clear that CBS gets it as they just announced that March Madness will be delivered free over the Internet.  CBS will monetize it with ads.  CBS is going open and understands this could potentially create new and additive revenue models, not less.  Kudos to Larry Kramer for making this happen.  Larry and I are on a board together and I look for more innovative and forward thinking ideas from Larry as he helps CBS embrace the web, not fear it.  Think about the millions of users who will go watch the March Madness online and check for scores.  Think about all of the cross promotion of new television shows on CBS, the additional ad revenue, and the general brand awareness that CBS will build from this.  On the other hand, I was on the CNN site and saw this.  Why would I pay $3 a month or $25 a year for CNN on the Internet when I can get it for free on the television?  If you are a media company, go the CBS route and figure out how the web will help your business, not kill it.  Be innovative, reduce the barrier to adoption for your customer, and figure out how to monetize your audience.  Add more features, add community so your users can interact with one another, and leverage the web and its interactive, two-way nature.  Don’t just deliver me programming on the web and charge me for it.

As you know, I am enamored by frictionless sales.  Frictionless sales means reducing the pain for customers to adopt and use a service/product and consequently reducing the cost of sales and marketing to get a customer and generate revenue.  As I mention in an earlier post, "The less friction you have in your sales and delivery model, the easier it is to scale. The easier it is to scale the faster and more efficiently you can grow." The lowest friction sale can be a user clicking on a web page and the content owner getting paid for it.  The highest friction sale is spending lots of money on marketing and trade shows and having a large, direct sales force of expensive reps pounding the pavement for months trying to close a large deal with an enterprise customer.  Follow that with a 3 month implementation process to get the customer happy.  There are various grades of friction between these two extreme points like open source business models, software as a service, and reseller/OEM-type models as other forms of packaging and delivering a product/service.  And of course, each of these models requires a different methodology and way of marketing and selling to a customer.  Ultimately what you want is sales leverage where every $1 you spend on sales and marketing equals multiples of that in terms of revenue.  Jonathan Schwartz has a great post on why Sun went open source and why free does not mean less revenue but more revenue.

Opening up the Solaris Enterprise System, and giving it away for free, lowers the barrier to finding those opportunities. Free software creates volumes that lead the demand for deployments – which generate license and support revenues just as they did before the products were free. Free software grows revenue opportunities.

Opening up Solaris and giving it away for free has led to the single largest wave of adoption Solaris has ever seen – some 3.4 million licenses since February this year (most on HP, curiously). It’s been combined with the single largest expansion in its revenue base. I believe the same will apply to the Java Enterprise System, its identity management and business integration suites specifically. Why?

Because no Fortune 2000 customer on earth is going to run the heart of their enterprise with products that don’t have someone’s home number on the other end. And no developer or developing nation, presented with an equivalent or better free and open source product, is going to opt for a proprietary alternative.

Those two points are the market’s reality. And having reviewed them today at length at a customer conference, with some of the largest telecommunications customers on earth, I only heard the strongest agreement. They all, after all, are prolific distributors of free handsets.

Betting against FOSS is like betting against gravity. And free software doesn’t mean no revenue, it means no barriers to revenue. Just ask your carrier.

To further add to his point, just because it is free does not mean it is frictionless.  It has to be easy to install and easy to use.  In addition, free can be time based or feature-based.  What free means is lowering the barrier for a customer to use and love your product.  It means more qualified leads and a shorter sales cycle.  It means a lower cost of doing business-lower sales and marketing and lower implementation cost.  It means a more capital-efficient business.  The great news is that when the more established vendors like Sun jump on this bandwagon and educate their customers, it only further legitimizes this way of doing business for many a startup.

As an early stage VC, I spend a fair amount of time helping entrepreneurs build their management teams.  I have written about what we look for (read the A-Player Domino Effect), the hiring process, and other facets of recruiting talent in previous posts.  One area which I cannot overemphasize is the need for companies to do back channel references on candidates.  We were recently doing a VP of Sales search for a portfolio company and in the intial call with the CEO and myself, we found the VP of Sales to be talented and engaging.  A subsequent face-to-face meeting with the CEO and myself separately over the next week further bolstered our interest in the executive.  After a few more meetings with various members of the mangement team, we decided to begin the standard referencing process where we collected the candidate’ s list of published references and called to get a better understanding of the individual’s strengths and weaknesses.  Of course, the references all came back glowing.  If they did not, I would be a little concerned.  This is where most companies end the due diligence process and begin negotiating a contract. 

However, I cannot overemphasize the importance of getting back channel references (references that were not given by the individual on the official list) to get a real view of the candidate.  You need to look deep into your network and your VC’s network to reach out to investors, executives, peers, and direct reports who worked with the candidate in prior companies to get a complete picture and balanced profile of the recruit.  A wrong hiring decision for an early stage company can be a killer!  All too often startup companies want to run fast and furious and hire that killer executive candidate ASAP without doing the extra work required to determine the right fit. In this particular case, through the back channel references we were able to find a number of inconsistencies about a candidate’s effectiveness at a prior startup, his reasons for leaving, and his overall management skills.  While the references were balanced and fair, they were far from glowing.  In fact, most of the back channel references were consistently mediocre which for me was a vote of no confidence.  Sure, you should always expect to get a couple bad references if you do enough of them on someone, but if you see a consistent pattern of concerns or "areas that need to be managed" emerge from those references, it is time to move to the next candidate.  In fact, let me extend this message and state that doing back channel references should be standard business practice.  Why learn in 3 months that a particular executive, VC firm, or business partner was not a right fit, if you can piece together that information beforehand?  Just a little more work in the diligence process can save you lots of frustration in the long run.

I was in a board meeting yesterday reviewing the sales pipeline for a portfolio company walking through the wins and losses.  As I wrote in an earlier post, it is extremely important (to the extent you can), to get good data on your losses. Many times you learn more from your losses than from your wins.  We like to know who we lost to and why.  We keep a running tab of these losses so we can figure out some key trends, how our competitors are selling against us, and determine what sales tactics we need to employ to reverse the losses.  Interestingly enough, over the last year a trend I have been seeing is the "do nothing" trend from enterprise customers.  We find out that the potential customer has budget, we are selected as the winner, and then they do nothing.  Obviously, the earlier you can identify a potential for spinning your wheels the better off you will be.  Mike Nevens has a great post on SandHill.com outlining this new reality and ways to determine if you are spinning your wheels early in the sales process or methods to make your project one of the 5 out of 30 projects that actually get implemented rather than just approved.

The CIO of one of the largest retail banks in the US recently told me that he has about 60 new projects under evaluation. About half of them will pass technical, functional and investment hurdles. He will then fund 4 to 6 over the next two years.

That means that 25 or so projects that meet all objective criteria will not go forward.

Software vendors and investors need to understand and deal with this reality. 

This is the new reality in selling to enterprises – doing nothing may be a bigger inhibitor to sales growth than your competition!

I admire entrepreneurs for the risk they take and the unerring confidence they have in their product and market opportunity.  However, what separates some of the great entrepreneurs from the average ones is an ability to acknowledge your weaknesses.  As we all know, being an entrepreneur is a difficult job that is 24/7.  Creating a new product or service can be draining but also quite rewarding emotionally and financially.  Obviously, the last thing you want to hear when you get your initial first customers is to hear that your product has faults.  For some entrepreneurs, it is akin to saying "your baby is ugly."  Well, I have to tell you, I have seen a number of times where companies and entrepreneurs can drink too much of their own Kool-Aid and go quickly from product innovator and market leader to second place.  In a recent example, I heard a couple customers tell a company that our field guys were a little too defensive about the product and somewhat condescending with respect to a customer’s technical knowledge.  In fact, the problem was not the customer, but our product.  We made the requisite changes at the personnel level but it is obviously a more important issue reflected in the core DNA of the company.  So as an entrepreneur, I urge you to create a culture of questioning the status quo, of constantly reviewing your weaknesses and figuring out ways to improve yourself, your product, and company.  It can be very hard to do for an entrepreneur when your blood, sweat, and tears are in the product or service but it is always better for you to figure out how to make your company obsolete and thus improve it against competition rather than your competitors.  I mean, even a big company like Microsoft is making an about face acknowledging the missed opportunity on the web for the second time.  As a result, we spend alot of time pre-investment trying to understand the entrepreneur’s motivation and goals as well as getting a feel for the culture in the company.  Sure, we can always bring in a new CEO to fix the execution problems, but I am a strong believer that culture starts with the initial founding team and once it is embedded and institutionalized early on, it is very hard to change.  As an entrepreneur, think hard about the core values you want the company to abide by as these will be the principles that take your company years into the future.

I have to admit that hiring excellent sales people is not an easy task.  Any sales person worth his weight can pitch with the best of them, articulate a strong value proposition, and demonstrate a nice track record of success.  I like to look at past experiences on a sale person’s resume and a history of overachievement.  All that being said, I have also had plenty of sales managers come in the door with all of the criteria but just flail.  Some have ridden a hot product in a hot market and others for some reason just cannot make the transition from one company to another or one market to another.  One of the fundamental criteria that any startup needs to look for is hunger.  If you are a sales rep at an early stage company with no name, no brand, and an unproven product, you better be hungry, make your calls, schedule your meetings and not take no for an answer.  What this boils down for me is the difference between "order takers" and "order makers."  In one of my portfolio companies we thought we hired the best team with significant industry experience having ramped up a startup to a successful IPO.  What happened, in my mind and the CEO’s mind, is that they got fat and happy.  At the peak of their success from the prior company the sales team had performed so well that they transitioned from order making to order taking.  Instead of going out and playing the numbers game-doing the dirty work, making the calls, and having the meetings, they expected resellers and customers to come to them.  They expected the fax machine to ring with orders.  They went elephant hunting in search of the big win which proved to be elusive or too lenghty an endeavor.  So whatever you do when you hire your next group of sales reps, make sure they have the qualifications but more importantly make sure that they have the hunger and desire to win.  Make sure that you have "order makers" and not "order takers."