Selling Innovation & The Challenger Sale

When you go to market with an innovative product the good news and bad news quickly become obvious. The good news is that, depending on how novel your product is, there’s generally little (if any) competition.

The bad news is that your buyer doesn’t need what you’re selling.

Your buyer has been running their business just fine without your product. They’re busy. They generally don’t want to think about something that isn’t already on their radar.

Trucking companies need tires. Building developers need concrete. Apartment buildings need insurance. Of course selling that stuff is never easy, but buyers have budgets, buying processes and an understood need for those products. If you do the things that good sellers do -- present well, build relationships, follow-up promptly, address concerns, be responsive -- by the end of the year you’ll sell some tires.

But when you’re selling innovation -- that is, selling something that your buyer has never bought and doesn't know they need -- you can do all of the things that good sellers do and still end up selling nothing. Literally nothing. Zero.

This is why the notion of the Challenger Sale is so important. To sell innovation the seller has to challenge the buyer.

• Challenge what business they’re in
• Challenge their buying process
• Challenge their future state
• Challenge their goals
• Challenge their understanding of their own market and where their market is heading
• Challenge how they think of themselves against the competition
• Challenge who their customer is and what that customer wants

A buyer has a point of view on their work that satisfies them, that makes them comfortable. And that point of view, up until now, doesn't include your product. To win, you have to break that point of view and shift the context so that they see a future where your product is a must have. Successful innovation selling is a function of a seller's ability to change the context and point of view of the buyer.

Amazon Drones & Offline Spend

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There’s been a lot of hype around Jeff Bezos’ announcement on 60 Minutes that Amazon is building drones (see above) that will ship packages from warehouses to consumers’ homes within 30 minutes.  While this may seem crazy, it’s really a very well calculated strategy aimed at getting access to one of Amazon’s only untapped markets: offline consumer spend.

Offline commerce remains a trillion-dollar industry that most online sellers have yet to tap. It’s still true that most consumer disposable income is spent locally -- restaurants, bars, coffee shops, gas stations, salons, malls, etc.

Amazon and other online retailers have struggled to tap into this marketplace. But lots of them are trying hard...

Consider a company like Trunk Club that sends consumers a trunk full of clothes every once in a while, allowing the consumer to keep what they like and send back what they don’t. With free shipping.

Or Dollar Shave Club that sends razors and other toiletries each month at rock-bottom prices. Check out their brilliant promotional video that went viral a while back.

Or Warby Parker that ships you three different styles of glasses at no cost so you can try them on. And you ship them back for free. For every pair that's sold they donate a pair to a person in a underdeveloped country.

Or Groupon that sells access to local salons or gym memberships or karate lessons at steep discounts.

All of these companies have built strategies that are attempts to tap into local, offline spend -- and the Amazon drone is no different. By shortening delivery times they're hoping to keep people out of stores and in their homes buying goods online. This is a fun trend to keep an eye on.

Your Product Doesn't Sell Itself

Blake Masters posted his notes from a class that Peter Thiel taught at Stanford a while back. The class was focused on distribution for startups and the notes are awesome, awesome, awesome. I've been meaning to write about them for a while. They're a must read for start-up sales & marketing professionals. The whole thing is great but the piece I want to talk about today is where he points out that the idea that a product can sell itself is a complete myth.

Given all of the focus on product lately – particularly in the consumer internet space – you might be surprised to hear this from Peter Thiel. But he’s spot-on. Here are the key paragraphs:

People say it all the time: this product is so good that it sells itself. This is almost never true. These people are lying, either to themselves, to others, or both. But why do they lie? The straightforward answer is that they are trying to convince other people that their product is, in fact, good.  They do not want to say “our product is so bad that it takes the best salespeople in the world to convince people to buy it.” So one should always evaluate such claims carefully. Is it an empirical fact that product x sells itself? Or is that a sales pitch?

The truth is that selling things—whether we’re talking about advertising, mass marketing, cookie-cutter sales, or complex sales—is not a purely rational enterprise. It is not just about perfect information sharing, where you simply provide prospective customers with all the relevant information that they then use to make dispassionate, rational decisions. There is much stranger stuff at work here.

To emphasize his point, he uses this framework:

Consider the quadrants:

Product sells itself, no sales effort. Does not exist. Product needs selling, no sales effort. You have no revenue. Product needs selling, strong sales piece. This is a sales-driven company. Product sells itself, strong sales piece. This is ideal.

If you believe that your product is so great that it can sell itself you’re either delusional or your aspirations aren't nearly high enough – and it’s great to see a hugely successful, product-driven investor make that point.

The Perfect Social Network

I don't consider myself to be all that active on social networks, though I'm registered for lots of them -- you can see the full list on my About page. I use Foursquare and Instagram fairly frequently, I use LinkedIn for work often, I occasionally Tweet and almost never post to Facebook. That said, there are two social networks where I'm really, really active -- much more than all of the above networks combined. Those social networks are two iMessage threads on my iPhone -- one between a large group of high school friends spread out around the country and another with a group of friends in NYC (mostly former co-workers). On average, I message my high school friends several times a day and my NYC friends about every other day. It's a great way to keep in touch.

That said, it goes without saying that the iMessage app provides me with an extremely sub-optimal social networking experience. It's annoying that the place where I do the majority of my online sharing has absolutely none of the features of a good social network. Many, many people have these ongoing iMessage threads with their friends so I know there's a product opportunity here.

With that in mind, I'm recommending a product that I think would be extremely useful to millions of people. Here's the feature list -- iMessage, with:

• Searchable archives (with advanced search capability by sender, keyword, date and date range)
• Photo logging -- all of the photos in the thread should be compiled, easily accessed and searchable
• Check-in -- instead of having to tell people on the thread where I am, I should be able to check-in to the location and it should message everyone (I think Foursquare has an API for this now)
• Cross platform -- it should work with Android, BlackBerry, iOS, etc.
• Group calling feature -- it should be easy to click on a few names in the thread to start a conference call
• Payment feature -- if I owe money to a friend on the thread or we're planning a trip somewhere that I need to front the money for I should be able to easily transfer the dollars (the app could sync with PayPal, Google Wallet, Bitcoin, etc.)
• Self-destruct option -- for privacy purposes, there should be an option to have a specific photo or text disappear from everyone's phone after it's been viewed for a short period of time (similar to what Snapchat does now)
• Share buttons -- it should have the option to share specific text or media on other social networks
• No download requirement -- if one of the people on the thread doesn't want to download the app, it should work with iMessage (they'll see the texts and media without the added features)
• Reporting -- this isn't critical, but it would be neat to see how many texts have been sent, by who, over a given time period

I realize that WhatsApp has much of this functionality now but it's still missing a lot of useful features.

I think traditionally there's been some hesitancy around building apps for small, closed-loop social networks such as a text message thread because it's only offered to a limited number of users and it doesn't scale well. That may be true, but what's lost in scale is made up for in engagement. I wrote a post a while back about the success of Snapchat and the demand for discreet social networking. Since I wrote that post, Snapchat has exploded -- their users now share 400 million photos per day (more than Facebook and Instagram combined).

I'd argue that if and when Apple, WhatsApp or another app builder releases an enhanced version of text messaging like the one I've described above, they'll see comparable success.

EMR Unbundling (Continued)

The post I wrote about the unbundling of the EMR a few weeks ago received quite a bit of attention. KevinMD republished it and Deanna Pogoreic from the Med City News featured it in her own article on the topic titled, What Craigslist can tell us about the future of health IT startups and the EMR market. Combined, the post was Tweeted well over 100 times. Given some of the commentary around the post, I wanted to provide two quick clarifications:

1.  I actually believe that unbundling is good for the bundler. In my post, I talked about how much value Craigslist brought to consumers when they bundled everything into one place on the web (apartment listings, job listings, personals, etc.). Now they’re finding that niche players are coming in and providing superior value and biting off pieces of their business. On the surface this seems bad for Craigslist. But I don't think it is. Allowing competitors to bite off areas of weakness will make Craigslist better. Back when online classified listings were valuable, simply aggregating them into one place was valuable. But now that's a commodity and Craigslist has spread themselves too thin. Competition will force them to pick an area where they can add real consumer value (as they did back when they started). The same will be true for EMRs. Unbundling (competition) is good for everyone.

2.  I probably wasn't clear enough about how long the process of EMR unbundling is going to take. As I mentioned in the post, there are large switching costs in B2B products that don't exist in B2C products. In addition, because of long-term enterprise contracts, strong vendor relationships, risk mitigation and other factors, it will likely take a lot more time for the EMRs to become unbundled than it will for a consumer website like Craigslist to become unbundled. Also, successful unbundling requires the EMRs to open up their platforms for integration -- which will take time. But my overall point still stands. Demand for the best product, over time, will always overcome switching costs and vendor resistance. Doctors and healthcare execs are consumers just like the rest of us. They want the best value -- it just takes them a bit longer to make the purchase.

Internet Marketplaces Should Be Seller Agnostic

When you're running an internet marketplace (Etsy, OpenTable, eBay, Uber, KickStarter, Yelp, etc.), it's very tempting to give sellers the opportunity to buy premium placement. This could be things like homepage placement, better placement in search results or enhanced profile pages. Selling this stuff is certainly a very logical way to monetize your user base.

But the problem with this approach is that every time you give priority to a seller that pays you more money, you've muddied your value proposition and taken an equal amount of value away from your user base.

A good marketplace is one that creates an easy, beautiful, seamless and open buying experience that enables rating and recommendation systems so that users can decide the best sellers and the worst sellers. Selling premium placement effectively circumvents your users' preferences putting you in a race to the bottom.

Sure, by charging for premium placement, in the short term, you'll generate some cash. And you can use that cash to do some marketing so that you can generate more users. But over time, if you want to continue to grow, you'll need more and more money and more and more marketing. That will force you to create more and more premium placement options (subsequently devaluing your marketplace).

The better approach is to prioritize the user and compete in the race to the top. Give your users the best possible marketplace experience and let them decide which sellers should win and which sellers should lose. Those great experiences will result in buyers telling their friends to use your service and that will result in more people going through the experience and more people telling their friends to use your service and on and on.

That's the way to scale. And you can't do it favoring one seller over another. Give sellers a great experience too, but don't prioritize them. Prioritize the user.

Craigslist, Facebook & EMRs

Benedict Evans has a phenomenal post up on his blog where he discusses the future of LinkedIn. Go read it, it’s excellent. In it he talks about the law of bundling and subsequent unbundling of web services. He uses Andrew Parker's brilliant image below to illustrate the point.

Craigslist came along and bundled everything into one place and, as a result, completely dominated. They destroyed multiple businesses in the process (including the rental and roommate web service I worked with just after college). They were immensely successful.

But now we're seeing the unbundling of Craigslist. Small players are coming in and biting off small pieces of their business and providing superior value. AirBnB does room rentals better than Craigslist, StubHub is a better ticket reselling service, LegalZoom is a better place to find legal services, etc.

Craigslist detractors believe that this will be death by 1,000 cuts.

Craigslist isn't alone. This is exactly what Facebook has been going through over the last several years: Twitter is attacking the status update, Foursquare is attacking the location feature, Instagram is attacking photo sharing (so much so that Facebook was forced to buy them), Vimeo is attacking video sharing, etc.

Of course, while unbundling is bad for the bundler, it’s great for the consumer. Consumers get more value, more features and easier to use web services.

When I saw the Craigslist image I couldn't help but think of the large EMR (Electronic Medical Record) companies -- Epic Systems, Cerner, Athena, Allscripts, etc. These companies have provided immense value by bundling and integrating a massive amount of clinical data with a nearly endless variety of healthcare related software services. They manage ambulatory clinical data, inpatient clinical data, practice management, patient communication, prescription filling, patient scheduling, billing, meaningful use compliance, population health, specialist referrals, patient engagement, risk management and many other things under the same platform. And just like Craigslist and Facebook, they've benefited hugely as a result.

But you can begin to see some cracks in their armor. As clinical data moves to the cloud, more and more startups are coming along and biting off small pieces of the EMR business and providing better value. This is the beginning of the unbundling of the big EMRs.

That said, what's easy to do in b2c software isn't so easy in b2b software. There are significant switching costs associated with switching health IT vendors and most hospitals and health systems are very risk averse and will take their time adopting new technologies (it's much easier for an individual to buy a ticket on StubHub than it is for a hospital to buy a new patient portal).

But with the dollars that are flowing into healthcare focused venture capital and the excitement around those investments, it’s only a matter of time before we see this unbundling accelerate and see more value flowing to providers and patients. And that's a good thing for our healthcare system.

In An Internet Marketplace, Competiton Helps

Fred Wilson had a good post yesterday talking about the Fallacy of Zero Sum Game Thinking in internet marketplaces. The Zero Sum Theory suggests that as more sellers come onto a marketplace it hurts the early adopters. I’ve worked in internet marketplaces in 3 different industries -- real estate, e-commerce and now healthcare -- and I can tell you that this theory is a myth. I posted the following comment on Fred's blog:

The zero sum game theory is really just a misunderstanding of how good marketplaces drive traffic and acquire new users.

If most of Etsy's traffic came from them buying SEM or running TV ads, then yes, there is a fixed amount of traffic that sellers are competing for. But I'd bet that the vast majority of Etsy's new buyers come to them organically. That is, a buyer has a good experience on Etsy, then tells a friend, and that friend tells a friend, and that friend tells a friend, and on and on.

More sellers >> more good buying experiences >> more buyers.

The beautiful thing about marketplaces where traffic is driven by a quality buying experience (and word of mouth) is that instead of sellers competing with one another for traffic, they actually rely on one another for traffic.

I recommend checking out the original post. There's some great stuff in there on how, despite the controversy, Spike Lee raising money on Kickstarter actually increased funding for lesser known filmmakers. Great topic.

Sticking to Your Core Competency

I've been thinking a lot recently about companies and their core competencies. The idea that a company with a few employees and only a little bit of capital that focuses on only one thing can do that thing more effectively than a billion dollar company with tens of thousands of employees is hard for many people to comprehend. Bijan Sabet wrote about this a while back when he pointed out that so many of the embedded iOS apps have been replaced by applications from tiny startups. From his post:

The default notes app has been replaced by Simplenote

The default messenger app has been replaced by Kik

The default calendar app has been replaced by Calvetica

The default music app has been replaced by exfm, soundcloud and rdio

The default mail client has been replaced by Sparrow

Granted, Apple wasn't necessarily competing aggressively in all of these areas.  But the reality remains that a small group of people that focuses on one thing will always outperform a large group that focuses on lots of things.

With some of this in mind, I came across a blog post by Paul Levy last week on the increasing trend of large health systems getting into the payer space. Due to the growing pressure on reimbursement rates and the increasing prevalence of population health, it only makes sense for health systems to be inclined to cut out a middleman (the private insurers) and become more horizontally integrated. Health systems are finding that they can organize and work directly with large pools of patients (employers, trade groups, unions, etc.) and, potentially, insure and care for them more cost effectively.

While on the surface this may seem like a great idea, Levy points out in his post that many large hospitals have enough problems improving their existing businesses in this complex and rapidly changing healthcare environment:

Here's what I think, based on unscientific site visits, surveys, and discussions with hospital leaders. The vast majority of hospitals--and especially academic medical centers--have barely begun to crack the operational problems that exist in their facilities. The quality and safety of patient care are substandard, compared to what they might be and what has been demonstrated in comparable facilities. The degree of patient-centeredness, likewise, needs major work. Finally, the engagement of front-line staff in process improvement efforts is scattered.

Despite this, 1 in 5 health systems intend to become payers by 2018. And this is where the notion of core competency comes in. Given the massive transition that healthcare is going through -- from managing sickness to managing health -- might some health systems be wise to focus on improving and creating a competitive advantage on what they already do well? As opposed to entering a complicated and risky new industry (health insurance company profit margins generally hover around a very low 4% and the industry is subject to paralyzing state and federal regulation).

Just like Apple has wisely decided to focus their best energy on building great tablets and smartphones and to allow someone else to build great mail and calendar apps (on top of their platform), it might make sense for health systems to continue to focus on improving the quality and efficiency of care and cutting the costs of their existing operations, and to let someone else be great at the underwriting and actuarial work.

Spreading Innovation

There’s a long but good Atul Gawande article in this week’s New Yorker worth reading that’s relevant to what many of us are trying to do -- spread innovation and change minds. He writes about why some new innovations spread quickly and others don’t.  Talks about the fact that doctors adopted anesthesia really quickly but it took them years and years to begin sterilizing operating rooms (arguably a more important innovation).

Talks about the critical importance of the human factor in spreading innovation – and how a simple treatment for Cholera (a mix of sugar, salt and water) never spread in Bangladesh until human beings went out on foot and sold it, door to door.  Also uses a more relevant analogy:

This is something that salespeople understand well. I once asked a pharmaceutical rep how he persuaded doctors—who are notoriously stubborn—to adopt a new medicine. Evidence is not remotely enough, he said, however strong a case you may have. You must also apply “the rule of seven touches.” Personally “touch” the doctors seven times, and they will come to know you; if they know you, they might trust you; and, if they trust you, they will change. That’s why he stocked doctors’ closets with free drug samples in person. Then he could poke his head around the corner and ask, “So how did your daughter Debbie’s soccer game go?” Eventually, this can become “Have you seen this study on our new drug? How about giving it a try?” As the rep had recognized, human interaction is the key force in overcoming resistance and speeding change.

The UP By Jawbone

The other day I bought a Jawbone UP, the popular health monitoring device that tracks steps, sleep and sleep quality. I’ve only been using it for a few days but so far so good. I mostly bought it for the sleep monitoring feature, and because I've been generally a bit anxious to test out a health monitoring device.

I’m slightly obsessed about the amount of sleep I get. Often there are nights where I get a good night’s sleep, but I don’t think I did so I worry about it. UP has begun to put my mind at ease – I’m actually getting more sleep than I had thought. The sleep part of the app monitors how long it took me to get to sleep, how long I slept and even deciphers periods of deep sleep versus light sleep.

I measure my daily workouts fairly closely and I use the MapMyRun app for my outdoor runs so the step measuring feature isn’t all that useful to me. Though I think over time it’ll be interesting to look back at the data to see how much I’m moving, and how I'm moving more or less during different periods. I also like being able to view my general activity levels in contrast to my rest.

The wristband itself is good. It looks decent on my wrist, seems durable, the controls are really responsive and it's easy to sync. The iPhone app is fabulous. It’s easy to use and has a seemingly endless number of ways to slice the data it collects.

There are a few more features I haven't used yet that I'll try out in the coming weeks. Lots of people believe that this kind of self-monitoring is the future of healthcare (particularly to help monitor various physiological statistics and behavior change for people with acute illness and/or high risk factors).

I'll write another post on my experience with the UP in a few months after I've compiled a bunch of data.

What A Startup Needs To Start Selling

Over the last few weeks I've been helping a CEO of a very early-stage startup with her go-to-market strategy. She's planning to hire a head of sales in the coming weeks and she asked me to brainstorm what that person should be responsible for. To me, there are two broad buckets: 1.) that person should be able to get deals done quickly and 2.) just as important, that person should create and publish process, systems, collateral and other documentation (that should continuously be iterated) that will allow the company to scale.

With #2 in mind, I put together the list below. A lot of the things on the list are required to start selling, but many of them are there to ensure that the product and positioning of the product are setup to constantly be iterated. Most successful products and new product pitches look very different than they did when the entrepreneur initially went to market. It's critical that there are systems in place that enable constant change.

Pipeline

• Lead Framework
• Build Lead List
• Segment Leads (A, B, C)
• Key Contacts at High Priority Leads (email/phone)
• Inbound Lead Management Process

Access Approach

• Script(s)
• One-Pager

Collateral/Documentation

• Presentation Deck
• Presentation Scripts/Talking Points
• Proposal Template
• References Document
• Order Form (business terms)
• Agreement (legal terms)

Sales Cycle Management

• CRM System Implementation (e.g. Salesforce.com, Excel, etc.)
• Stage Development
• Key Leading & Lagging Metrics To Track
• Leading & Lagging Metrics Targets and Timeline
• Key Reports (weekly, monthly, quarterly)

Other

• Difficult Questions (and answers)
• Cast of Characters Document (who do we care about and what do they care about?)
• Urgency Angles
• Competitive Matrix
• Qualitative Results: What works / What doesn’t (documented weekly)
• Insights/Learnings (documented weekly)