Scaling a sales operation in an early-stage (start-up) technology business

n my first article, I looked at the differences between selling complex ‘new-to-market’ B2B propositions from the standpoint

of an early-stage technology company, and how the approach needs to differ from tried and tested methods used for selling solutions provided by mature market brands. The emphasis was on entering new high-potential accounts; how your offering to the market is guided (and ideally funded) by early engagements; and establishing referenceability. The aim: to move from the start-up stage into a growth stage.

Here, I will cover the key elements associated with growing the sales operation and how this fits against the backdrop of the bigger picture.

STRATEGIC GOAL ALIGNMENTAs sales leaders we should all be familiar with the ‘4 Ps’ of the marketing mix. However, I’m going to look at a lesser known formula, once imparted to me by a very successful senior tech financier. He used ‘5 Ps’ to assess a company’s attractiveness for acquisition or investment and determine its valuation: People, Process, Product, Profile and Profit. The objective of the board at this stage of a company’s evolution is to increase valuation with a view to selling the business or attracting fresh external investment (or at least it should be). With this in mind, it makes sense to look at how these areas translate specifically to a sales context.

PEOPLE Where does the sales function fi t? First of all it’s important to understand where and how the sales function fits in your organisation. I have seen some sales teams in

early-stage tech-companies become confused, wandering generalists, ie. a combination of customer service, marketing, account management and new business, and it becomes very hard for the individual to focus and make measurable progress. In the early days, people will have to wear several hats, as this is a fact of life in start-ups. However, as you grow, the number of hats worn by each individual should decrease while their focus in specialist areas will increase.

One way of managing this, and to ensure you are driven by strategy rather than circumstance, is to have clear delineation of

the necessary functions, even if it means an individual sits across say two of those functions (eg. marketing and selling or selling and delivery). You need to clearly weight each team member’s required involvement in each area (eg. 80% sales with a 20% overlap into the delivery process). Empower them to make conscious decisions

about where they spend their time while adhering to this split, and review it with them weekly. When the minor area starts to impinge on the major area, you need to examine the business case for a dedicated person for that role. General team structure Headcount and size of customer base allowing, I advocate having dedicated account managers, new business salespeople and a prospecting function. These roles are all very different and call for different skills and personality types. Selling vs prospecting In my experience, people who are good at managing a complex, high-value solution sales cycle are not usually great at prospecting. And those really good at getting to decision-makers and making

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In the second feature in his two-part series, MIKE SMEE looks at growing the sales operation in new technology businesses

I

CRACKING START-UPS

FEATURE EARLY-STAGE SELLING

PART 2

‘As you grow, the number of hats worn by each individual should

decrease while their focus in specialist areas

will increase’

24-27 Smee V2.indd 124-27 Smee V2.indd 1 18/3/14 13:21:1618/3/14 13:21:16

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payer in the market, or offer the full employee benefits package of a mature market brand. People need to look beyond the initial hardships and see themselves sharing your long-term vision. Therefore, you should consider equity and share options. These have been proven to motivate employees even more than cash bonuses at the early stage. Employees still find them appealing, even if they’re unsure about what their final value will be.

If everyone owns a part of the company, they start to relate positively to factors that affect company valuation and their actions become driven by a genuine desire to maximise it. You should seek professional advice on this and look to an HMRC-approved scheme that attracts significant tax benefits for employee and employer alike.

PROCESSI covered off the process of making individual sales in part one in the last edition, so here I’m focusing on process aligned to upscaling the operation and making strategic decisions on the type of customers you want. CRM and pipeline management Any acquiring body will want to know that the operation is scalable and/or able to be integrated into a larger organisation. If the latter is the case then the processes of the larger outfit will usually prevail and you will need to fit in, so obvious barriers should be avoided.

Very early stage sales operations tend to have Excel spreadsheets at the core of their pipeline management, forecasting and reporting. When moving beyond very

early stage selling I have seen some businesses massively distracted by ‘big-box’ system selection and implementation. Just one simple piece of advice here: when you get past one person selling, just subscribe to Salesforce.com for a small fee per user per month, use the video tutorial and you’re away. This should address immediate needs and any future scalability or compatibility concerns as far as IT

within sales is concerned. You can buy in additional services or consultancy (and obviously software licences) as you grow. I’m not endorsing it as being the best, but it is widely used in sales environments, and can minimise integration barriers and training costs. Customer segments As a young software company you need to think about the customer segments you serve. One way of segmenting customers is by size.

Generally, small clients, though plentiful and relatively easy to acquire, don’t have that much business to give you. Often the overhead of winning and servicing them is disproportionately large unless you have engineered a self-service model. The businesses I’ve been involved with generally have a significant custom development element to their client engagements (and associated professional services costs) that often naturally qualifies out smaller businesses as prospects.

Where I have consistently seen the fastest growth rates is where my teams have managed to sell tactical solutions into large organisations and then incrementally increase footprint, eventually being asked to provide or bid for strategic-level solutions. The rule to live by here

FEATURE EARLY-STAGE SELLING

appointments are usually not right or not ready to do the converse. Prospecting and selling are discrete disciplines with prospecting sitting more in the marketing camp and forming part of a system of multiple lead generation systems including website, social media, email and traditional marketing forms.

Prior to bringing large scale prospecting in-house it is worth exploring the use of a professional B2B telemarketing company. If you select carefully and invest the time in orienting them properly, this can yield some excellent results. I saw a great return on my investment in a series of outsourced campaigns a couple of years ago. It is also a resource that can be scaled up and down easily as your needs dictate.New business vs account management There are many texts available on what skills and personality traits make good ‘hunters’ and ‘farmers’. But organisationally you should look to split these functions as soon as it is viable from a headcount perspective, as there is also a potential conflict of interest here. I have seen many split-role scenarios where organisations have failed to maximise their footprint in very high-potential accounts due to salespeople being off trying to make new client acquisitions instead of giving the customer the engagement, focus and strategic joint planning they need. I have also seen many a new client opportunity lost due to an inadequate bid document or a late tender submission as the salesperson has been busy dealing with urgent key client issues. People perform best when they have focus and your clients will thank you; and in the end this will filter through to your bottom line. Evangelical salespeople Don’t make the mistake of recruiting seasoned enterprise sales professionals from big-brand vendors or hiring people too senior, too early. As mentioned previously, the skill-sets to succeed at, say, Microsoft or Oracle are very different. Early-stage selling is far more evangelical than process driven and the traits I would look for are intelligence, creativity, the ability to draw clarity from vaguely defined problems, and ability to assemble a clear ROI business case — in addition to the classic traits of being able to listen, summarise and follow through.

I would also try and find someone who is looking to punch above their weight, ie. take the next step in their career and who is very enthusiastic about being given the opportunity. If you select carefully, what they lack in experience they will more than make up in drive and a willingness to stretch themselves continually. Incentives Obviously, as in all sales environments, there should be commission and bonus schemes in place. As there are plenty of texts available on the subject, I’m not going to go into detail here, other than to spell out the key differences for early and growth-stage companies. Nothing happens in business until someone makes a sale, so attracting and keeping target-smashing salespeople is essential. The reality is that they will not have an easy life at this stage. Many sales will be hard fought and you are unlikely to be able to be the best

‘Make sure resources you expend on sales and

delivery are proportionate to account value and

account potential’


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is ‘land and expand’. This is all based on relationship. Create deep roots and you will be pulled into other areas that you don’t expect or didn’t plan for, some of which can be highly lucrative. But be careful. I learned early on that some larger clients want to feel like they have influence over your organisation. Some seem to seek an asymmetrical (win-lose) relationship in which they can be important enough to get what they want in a way that they can’t get if they worked with, say, an Oracle or an SAP, but with the same expectations of governance and engagement levels and at a fraction of the cost.

Medium-sized clients are often able to give you good levels of business and are typically right-sized to serve as a customer base since they might need you as much as you need them. In short, they’re not overwhelming.

You need to be strategic about the type of clients you seek and clear on how many of each type you can support. Make sure resources you expend on sales and delivery are proportionate to account value and account potential — and don’t put too many eggs in one basket, but spread your risk.

PRODUCTIn larger companies, product, marketing and sales (while related) are often clearly delineated organisationally, but as an agile young company the chances are these functions are more joined-up. This is usually down to the small size of the team and possibly even the same person heading up all three functions. I see product strategy being absolutely crucial at this point in a company’s evolution and, despite your limited resources, your agility will be a clear benefit.

At one of my previous companies, one very successful way we found of ensuring product relevance while simultaneously increasing margins was to sell our product roadmap. We let our ‘Gold’ customers have access to our planned roadmap and vote on what was most important to them. We tried hard to meet as many customer requirements as possible while making sure that it didn’t take over our entire development effort. If your biggest customers dictate your entire roadmap then you’ll never do anything strategic — you are effectively their R&D department. This is a risk as it means your product becomes too client-specific with inherent scalability limitations.

When we shared our roadmap we’d often get complaints about the time to market for various features so we came up with a way of meeting both the customer’s requirements and our own — we would allow them to accelerate some initiatives (time to market) by, say, six months on the basis that they funded the work. This was a win-win: we got accelerated development of high-priority projects with high-margin revenue; our clients got access, influence and an accelerated timetable on features that they wanted in order to help their business, but which we would have been unable to develop without the additional cashflow.

PROFILEThere is a saying in business: ‘get big or get niche’ (sometimes this is followed by ‘or get out’) and it builds on the principles I outlined in my last article about niche or vertical market focus. To put it bluntly, it is much, much easier to make a big noise in a small room.

Contributor Mike Smee is group sales director at Eysys, a fast-growing technology company using machine learning and big data to help clients sell more, spend less and reach more customers online. A Fellow of the ISMM, he has over 20 years’ business development experience in the software, e-commerce and technology services sectors, with over a decade in senior management, primarily in early-stage technology vendors. Visit www.eysys.com

One of the companies I was involved with for a number of years (latterly as head of sales) operated in the leisure travel-trade sector, providing technology solutions to UK-based outbound tour operators and travel agents. At one point 60% of all holiday booking in the UK (at the time a £9bn industry) made use of our technology in some way and we were the undisputed market leader — and all achieved with a headcount of well under 100 people. There were many reasons for our success, but the fact that we chose to focus on a specific market in a specific geography meant it was easier to raise our profile within the industry, concentrating on events and community in a very focused space with only minimal marketing spend. Needless to say, the company was the subject of a venture capital-backed acquisition.

Key people in big companies move on, a CIO from one company will resurface as a CIO in another and, assuming you did a good job, pave the way for a warm entry in their new role. I’m finding that middle managers whom I dealt with five or six years ago are now re-emerging as CMOs, CTOs and MDs elsewhere in related industries and are keen to give me airtime.

PROFITGross profit margins are typically high (usually around 90%) in software businesses. But net profit margins are much lower, with a healthy company coming in at around 20-30%. The difference between the two is generally down to the higher staffing costs associated with technology businesses, but with little cost of external products or materials. From a sales perspective, I would always look to charge an initial licence fee, followed by additional charges for implementation and development, and then an annual recurring fee for maintenance, support and version updates. You should always look to retain the intellectual property rights on client-funded development work and incorporate it as either core product at some stage or as optional licence components. In the first case it adds functionality and client value, helping to reduce client attrition and increasing attractiveness to potential new customers. In the second it gives the opportunity of additional revenue at zero cost from the rest of your client base.

In thinking about profit you should always look to ensure there are clear documented links between your solution and the expected client ROI. In the world of e-commerce this is straightforward, as almost every site metric is measured. Any claims made about conversion improvements, increases in sales or reductions in costs are subjected to cold, hard analysis. This level of transparency keeps you on your toes, always revisiting the product/price/performance equation. Work closely with your customers, apply the gleaned ratios to profit justification spreadsheets and present them with each proposal. After all, it’s important to remember that the client needs to make a profit too, as this is what makes your existence and growth possible.


Scaling a sales operation in an early-stage (start-up) technology business

Sales

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