Modeling your sales strategies
Version 2.0
Introduction
Many startup companies are founded by technically-oriented managers. As a result, with limited budgets, these companies tend to be weak in the areas of marketing and sales experience. This position paper is an attempt lay out some of the choices that a start-up management team may want to think about in launching their product.
Eclicktick offers a fee-based service that enables startup companies to model their sales, inside sales, customer support and technical support costs. Most firms will find that analysis of these costs will alter their launch and business strategy.
Sales Objectives
The first and most important sales objective for most startups is a simple.
Objective 1: Get sales as fast as possible.
Simple as this objective is, many startups think that the only way to generate sales is to go through a cycle of setting up distribution over a 3-6 month period, education of distributors, doing joint sales calls with distributors and eventually seeing sales 12 months down the road.
Using distributors is not the only choice. Technology now gives a startup even more new choices, some that previous were not possible. You can use commissioned sales representatives, email and direct mail marketing, direct response advertising, trade show, web site promotion, public relations, etc.
For most companies entering a foreign market, sales objectives are actually slightly more complicated. In most cases, there are two additional sales objectives:
Objective 2: Get a reference site.
Objective 3: Learn as much as possible about what works in the foreign, e.g. US market. This means understanding who buys most quickly and produces the highest return on sales and marketing investment and equally as importantly, who is the most profitable to serve.
Getting a reference site is often critical in high tech firms, because there is always uncertainty about whether a high tech product actually works and brings benefit. Without a reference site, prospects will take longer to closes, pricing will be lower, and return on sales effort will be reduced. So it is worth giving special breaks or going the extra mile to make your first or reference site a success.
How much to give away to a reference site is always a function of the market situation you find yourself in.
Rule of Thumb 1: If your software is considered to be mission critical, then it is highly unlikely that a large company will buy your product. Even if an individual within the company is showing signs of interest, the chances are good that they will compare you against more established competitors and you will loose in the selection process. You will waste lots of time and effort on these large companies.
If you are launching into a market with a dominant competitor, reducing your cost to early customers only makes sense if your product or service is a one-time purchase. If your product is typically evaluated based upon issues of
Total cost of ownership
Riskiness of the supplier
Business consequences of product failure
Availability of trained staff
Time to market issues
then it is likely that cost reduction will be insufficient to get trial of your product. You need to offer more services, more guarantees of performance, or ally with larger firms. Under such circumstances, you need to think about delivering a solution, an out-tasked or outsourced service. OEM strategies may make sense, but are difficult to negotiate and sometimes not very profitable.
Distribution Issues
Selecting distributors is always difficult. The following rules of thumb may be useful.
Rule of Thumb 2: Consulting firms are rarely good distributors. They tend to lag the market and do integration with products that are already established as brand leaders. Large consulting firms are expensive to support and service. Small consulting firms rarely have the ability to do more than respond to customer requests. Active marketing of a distributed product is rare. The best distributors tend to be mid-sized, are profitable, and actually understand your product's advantages without a lot of training. They already have the clients you wish to target and are looking for an add-on sale.
Rule of Thumb 3: A good distributor already has a line of profitable products and services. As a result, your product or service will always be last in line, unless you have an active advertising program, an active joint calling program or your product has unique features/value proposition that makes it easier to sell than alternative competing or non-competing products.
Rule of Thumb 4: Startups often hope that distributors will create business for them. In fact, the opposite tends to be true. You need to create business for the distributor so that their will pay attention to you and learn how to sell your product.
Choosing Prospects
A common question from startup management teams is, “How do I choose which customers to go after first?”
There are three answers to this question:
If you are lucky enough to have customers beating on your door, then service them first.
If you have a product with potentially short sales cycles, throw the product out onto the market and see who buys first.
If you have a product with a long sales cycle, you had better to market research first.
Remember however, that early stage customers for a product may have very different buying cycles, beliefs, needs and pricing sensitivity from the mass market. You need to start researching the market as soon as possible under all three scenarios.
Remember also that you can change the buying cycle of your product by how you package and price your product.
You can wrap a service around a product.
You can rent the product or charge on a variable cost basis for usage in order to avoid having to go through a capital budgeting process.
You can use price as a weapon for reducing the sales cycle. Or if you have capacity problems, you can raise prices to discourage sales and focus your business on more profitable customers.
Managing the Prospect Flow
Developing sales programs and sales strategies can be best thought of as a sales funnel - lots of prospects at the top of the funnel; few customers coming out the bottom of the funnel.
The secret to sales success it to explicitly manage the sales funnel. There are some key rules of thumb:
Rule of Thumb 5: If you don't have lots of prospects in the top of your funnel, you won't have enough customers in the bottom of the funnel producing revenues. So you always need to approach more prospects than you think.
Rule of Thumb 6: Good sales people should not be wasting their time on prospecting (i.e. trying to identify customers). Good sales people are a rare and expensive breed. It should be the purpose of the web site, the inside sales staff, and the marketing programs you have in place, to generate qualified prospects for the sales people to close.
Rule of Thumb 7: If you are a small and under-funded startup, a good strategy is to identify other small and under-funded startups and share the cost of sales and marketing. The key here is to select a firm that is not competitive and which is targeting the same region, industry, or segment. Ideally, the joint marketing and sales organization should be able to sell the same products or services to the same prospect in an organization. Eclicktick can manage such relationships to make sure you are both getting equal time.
Rule of Thumb 8: Using commissioned sales representatives is an excellent strategy for launch in the US. However, you still have to train, support and create leads for the commissioned sales representatives.
Cost of Selling and Cost of Servicing Customers
Eclicktick Corporation works with Primary Matters, Inc. software offering a service that allows you to model the cost of selling and servicing your customers when you launch in the US.
If you would like to use this fee-based service, you will need to think about the following issues:
You may not have all the answers, but during the analysis, consultants from Eclicktick and Primary Matters will help you to develop these assumptions.