A Sales Pipeline & Process for Startups

The other day an entrepreneur was asking me how to best setup and monitor a sales pipeline and process.  I thought I'd post my answer here.  Three simple steps: Step One: Setup Stages.  I like to use these six:

1. Qualified: you've identified the right individual to speak to
2. Meeting Set (with right individual)
3. Meeting Held (with right individual)
4. Proposal (your proposal has been received by the prospect)
5. Verbal (prospect has agreed to the terms of your proposal)
6. Closed Won (signed contract received)

Step Two: Identify your "conversion angles" for each stage of the process.  That is, what are the secrets to getting the sale from one stage to the next?  For example, to qualify a lead it might mean identifying the person's job title and name by using LinkedIn or Hoovers.  To get an opportunity from verbal to close it might be putting a product launch date on the IT team's calendar or a price break in return for a quicker close.  Putting conversion angles for each stage down in writing is critical -- start with at least two angles for each stage.

Step Three: Identify the bottlenecks.  Look at last quarter or even the current week (if you have enough opportunities) and place them in the appropriate stage.  Identify which conversions are working and which are not.  See the sample analysis below:

Based on this analysis, here's what's working and not:

Working: Qualifying Leads, Holding Meetings that get set

Not working: Setting meetings, Sending proposals out of meetings

With this information the team can dive into the details of these conversions to find out what's slowing the process down.  Is it effort?  Is it resources?  The angles?  Are some team members converting this well and others not?  When this converts quickly, what are people doing?  Are there specific segments of clients that are converting better than others?  Why?  Dive into the problems with these conversions.  To add a layer of complexity, you can add a column showing the number of days that opportunities are in each stage.

This kind of analysis is valuable as a one off, but it will be even more valuable as time goes on.  Managers can look at how these conversions are changing week over week or month over month.  Relative data is always more valuable than a snapshot in time.

Even with a good sales process, there can still be holes that need to be patched.  Different reps may interpret the stages differently or you may need to add steps to the process to have more transparency.  To deal with the potential holes in the process, in parallel, I like to monitor what I call "tipping points".  Tipping points are pieces of information, insights and actions taken by the prospect that increase my confidence that the deal is legitimate and moving at the right pace.  Tipping points are crucial to keeping a sales team and a sales process on track.

This post is already getting a bit long.  I'll write a post on tipping points in the next few weeks.

Employee Promotions & The Peter Principle

Recently I made the following comment on a blog post:

I recall watching an interview with Bill Gates.  The interviewer asked him what was the biggest mistake he made when he was building Microsoft. Because I admire Bill Gates enormously, I was on the edge of my seat to hear his answer...

His answer: the biggest mistake he made was assuming that their best engineers would also make good managers.

Of course it's intuitive to promote the best tactical performers but given how often this fails I'm amazed at how companies -- big and small -- continue to use this approach.

A few days later, I came across a theory known as the "Peter Principle":

The "Peter Principle" states that in a hierarchy every employee tends to rise to his or her level of incompetence, meaning that employees tend to be promoted until they reach a position at which they cannot work competently.

It's easy to see how management allows this to happen in their organizations.  If someone performs well it's only logical that they go onto the next step in their career path.  But of course it's extremely dangerous for companies to operate with a bunch of employees that can't do their job well, much less competently.

The solution to this, I believe, it to shake up the old fashioned "career path culture" and build a culture that values the "do'er" and not the manager.  To promote this type of culture, companies should setup formal incentive systems that reward the employee without promoting them into management.  Incentives can include:

• Salary, bonus, equity increases
• Allow them to work on the coolest projects or largest accounts
• Allow them to work on exploratory or strategic projects
• Let them work side by side with senior management and/or the CEO
• Give them the best mentorship and training

Most cultures, especially in large companies, value the managers -- employees want to be "in management".  It's critical to setup values and formal systems that disrupt this type of culture to avoid mediocrity and the dangers of the Peter Principle.

Favorite Music from 2011

It's that time of year when everybody posts top ten lists.  In that spirit, here's my top ten most listened to artists from 2011, according to my Last.fm profile. I was able to see 3 of the 10 live in 2011 (2 of them twice).  With some help from Songkick, I'm hoping to increase that ratio in 2012.

A Viral Marketing Framework

Uzi Shmilovici had a good post on Techcrunch yesterday on the 8 different ways one can do viral marketing.  I’ve written in the past how I don’t believe you can “do” viral marketing. But I do believe you can do a few things:

1. Build a product or service with ‘network effects’ so people are intrinsically inclined to tell their friends: (e.g. the telephone has a network effect because it’s a worthless product if your friends don’t use it -- it's naturally viral)
2. Build a product or service that’s so awesome that people are inclined to spread the word
3. Make it really easy for people to spread the word about your product or service
4. Use gimmicks to get people to tell their friends.  I don't mean 'gimmick' in a bad way but there are tactics you can use that give you a temporary bump in new customers.  Though they're not truly viral marketing activities as the increase in customers doesn't continue to spread past a few degrees as a real virus would

That said, Uzi's 8 ways of doing viral marketing are interesting.  I'd encourage you to read his post before reading on.

To help me think through his approach, I've applied his 8 methods to my framework above and included an example of each:

1. Network Effects

(1) Inherent Virality – your friends must use the product for it to work (example: the telephone)

(2) Collaboration Virality – the product is more valuable if your friends use it (example: Amazon’s ratings & recommendations system)

2. Make an Awesome Product or Service

(8) Pure Word of Mouth Virality – people tell other people because the product is awesome (example: most of Apple’s products)

3. Make it Easy to Tell People

(3) Communication Virality – include your tagline with the product (example: tagline in Hotmail’s email message stating, “sign up for a free Hotmail account”)

(5) Embeddable Virality – include a link back to your product in your content (example: link to Youtube in embeddable Youtube videos)

(6) Signature Virality – include a “powered by” link even in white labeled products (example: Intel logo on laptops)

(7) Social Virality – allow users to broadcast that they’re using your product through social networks (example: Turntable.fm forcing users to attach their account to their Facebook account)

4. Gimmicks

(4) Incentivized Virality: give users a benefit for telling people about your product (example: Living Social’s me+3 = free promotion)

As I've said before, viral marketing should be a mostly passive activity -- it's an output of building an amazing product or service.  So while all of the above are worthy activities, most of your energy should be spent building that amazing product or service that people can't wait to tell their friends about (see #8 above).

Managing Email

I posted my approach to managing email in the comments of A VC the other day, thought I'd post it here as well.  I'd love to make the switch over to Gmail at some point, but right now it doesn't jibe well with my approach to emailing.

• using Outlook
• setup as many junk mail filters as possible so most email doesn't make it to my inbox in the first place
• go through my inbox every night and either delete, respond and delete or file it in a folder or leave it in the inbox to do later (often I don't get to every night but I do it at least a few times a week)
• this leaves me with an inbox full of important emails that I need to address at some point
• many of my colleagues keep thousands of emails in their inbox (important and unimportant), I don't know how people can manage it this way
• my strategy centers around good spam management and the "delete" button, I spend a lot of time deleting
• Gmail doesn't make sorting or deleting emails easy, you either have to check a small box with your mouse or use an awkward keyboard shortcut that is slow and unreliable
• in Outlook it's easy to sort emails by sender or subject line and it's easy select multiple emails to delete, and you can just hit your keyboard's "delete" button and they're gone 

Emailing is a pain but it's the best system we have, for now.  I've read that several companies have committed to phasing it out over the next few years.  That should drive some much needed innovation in the way we communicate at work.

Touchpoint Frequency Graphed

A couple weeks ago I wrote about Touchpoint Frequency & the Attention Asset.  In short, if you touch a client or prospect too often with communications that are of poor quality, you will deteriorate the value of the attention you've built with them. I built the graph below to illustrate this concept.  The idea is to walk that fine line of communicating extremely high quality messages with the right frequency.  I believe that you can communicate every day, as long as the message is of high enough quality.  The challenge is staying on the blue line...

Touchpoint graph

So True

Saw this comment under Chris Dixon's post, The enterprise: buyers versus users.  His comment was in response to a commenter's theory that SAP is a mess internally. So true.

A Couple More Thoughts on Enterprise Tech Versus Consumer Tech

Two other quick thoughts on this topic... Why is enterprise tech behind consumer tech?

1. Slower development cycles: B2C companies can innovate and release much faster than B2B (often B2B product changes need multiple approvals), "MVP" as a development strategy doesn't go over well with big companies

2. Many large companies (especially banks) are still on old operating systems and web browsers -- many top banks still use IE6.  This requires enterprise providers to dumb down their products and allows for less innovation.  I don't think Facebook or Youtube are even operational in IE6

4 Years of Blogging

I started this blog in December of 2007 -- 4 years ago this month.  Since then I've published 160 posts totaling around 50,000 words -- technically enough words to be classified as a novel. The chart below shows posts per month over the last four years.

I'm happy that after four years I'm not only still writing on this blog but I'm writing more consistently than I ever have.  And this month I'm on track to post more frequently that I have ever have.

I've tried to go on runs where I write a post every day but I find that inevitably I get busy with work or other things and the quality of the posts begins to suffer.  That said, I definitely plan to post much more frequently in 2012.  I'll post this graph again next December to see if that holds true.

Microsoft Office: Winning at B2B and B2C

I've been thinking more and more about how and why consumer technology is so far ahead of enterprise technology.  There are a variety of reasons why, though as I've said, I believe that the primary reason is simply that it can be; i.e. the "B2B" structure simply allows businesses that are focused on the enterprise to get away with less than cutting edge technology and products (i.e. a good Biz Dev team just needs to sell a few people on the product and those people force their employees to use it). That said, there are certainly exceptions.  Take Microsoft Office for example.  An almost ubiquitous enterprise product that is used in the office and at home.   Employees use the product in the office and they like it so much that they buy it for their home computer.  By creating an awesome product, Office has been able to dominate both the B2B and B2C markets.  This is an amazing accomplishment when you think about it.  To do this they have to have the unique combination of an elite Biz Dev team and an elite product/engineering team.

Of course, Google Docs and other web-based applications are legitimate competitors to Office and are taking market share.  As more and more users begin using Google Docs at home you could see them demanding that their IT departments switch over to the enterprise version.  To obviate this, Microsoft has created a "Home Use Program" where they offer their enterprise users Microsoft Office Professional for use at home for only $9.95 (the same product goes for ~$382 on Amazon).

A very smart and probably necessary pricing strategy to help Microsoft keep their unique stronghold on both the B2B and B2C markets.

Beware of the Low Hanging Fruit

One of the most significant challenges that comes with the launch of a new initiative is knowing whether or not it truly has long term potential.  

To make this assessment even harder, when most initiatives launch there's always some low hanging fruit that can give you the perception that the initiative is working.  Smart engineers or good business people can usually prioritize the quick wins and grit their way to some success in the first few days or weeks of a launch.  But what's hard to evaluate is what will happen once all of that low hanging fruit has fallen off the tree.  A couple ways to help address this:

1. Ask each team member to create one perfect case study of success out of the initiative as fast as they can.  Rather than going out and getting 30 wins, ask them to get one win and dive into the detail.  Why did that win work?  What were the challenges in getting it there?  What might make this win different than others?  What might make it similar?   By diving into intense detail and building a case study on a winning opportunity, managers will be able to understand the strengths and challenges that they didn't know about at the beginning or can't see just by looking at results.  So often the true path to success lies in the detail.
2. Keep a simple to read and easy to update log of initiatives; include learnings (what worked/didn't) and results against your goal.  Use this log to set a benchmark for future initiatives.  Over time, this log will help you get a good feel for when the initiative has turned the corner on the low hanging fruit and is picking up steam or fizzling out.

Low hanging fruit is a good thing.  It can help build momentum and excitement around a new initiative and is often a great way to pick up insights that help a team move faster or prioritize more effectively.  But it can be a trap that leads to over-investment.  The simple steps above have helped me avoid that trap in the past.

Charge More than your Competitors

Jim Keenan had a good post a while back titled, The "Lowest Price" is a Business Model not a "Sales Tactic". The key line in the post was:

Pricing is a business model, it's not a sales tactic.  Yes,  you can wiggle a little on price.  It's to be expected, but competing on price has no place in sales -- unless it's your business model.

It's a great post, I recommend checking it out when you get a chance.

That said, I'd like to extend the idea a bit.  In my mind, a good salesperson shouldn't want to compete on price; in fact, on the contrary, they should want to be the highest priced player in the market.  Not only does the highest price lead to higher commissions but it also implies that you're not afraid to compete on product (to justify the price, you must have good quality).  And it raises the bar on the quality of your sales talent and sales approach (you have to be better than the rest).

A while back, I was on a sales call and the prospect said, "you know, I've done some research and it seems that your product is more expensive than your competitors."

Our answer was this: "well, you can stop doing research on that, because our prices are higher than anyone else in the market, much higher."

While bold, most people would be amazed at how productive this can make the sales process.  It also goes right to the heart of the matter (gets the elephant out of the room) and levels the playing field in the process; i.e., "do you want to work with the best?"

Apple is a perfect example of this approach -- their prices are far higher than Dell, HP, Lenovo, etc. but they can justify it because they're perceived to have higher quality products.  Apple never competes on price strategically, and I'm sure their salespeople on the ground don't even try.

Of course, this sales tactic has to be supported by product quality and company strategy, but regardless, I want the salesperson that wants to sell a product that's of the highest quality and proudly quotes a price that is consistent with that value.