TL:DR I have noticed that many entrepreneurs, investors and others struggle to prepare and understand financial information. I plan to change that. First, I want to understand whether this is a real problem and how widespread it might be. I have included a link to a short survey which explores the challenge. I am hoping you will complete this and share it with your networks. I want to get as wide a range of opinions as possible from people who like you.
This is my first post for some time. Over the last few months I have been taking time for a bit of reflection. I don’t really do ashrams or meditation or mindfulness. So for me this mainly means playing a bit of golf and having lots of coffees and lunch and chats.
I embarked on this almost by accident. Certainly without any sort of plan. The trigger I guess was the good luck my wife and I have experienced in the last year. Because of that, I find myself with the freedom and headspace to take on a bit more. I have been working with startups and early stage companies for four years now. I feel I can make a greater contribution.
Out on the links, the thought rattling around in my head has been: How can I leverage my time and experience better to make a real difference to the growth and dynamism of early stage technology businesses. This sound quite formal when I write it down but its really not. Its a theme I keep coming back to day after day, shot after shot, latte after latte.
Pursuing this idea I have had a ton of great discussions with people who want to make a difference. Many of them are already spending time, expertise and money to help. We all know its making a difference.
Yet every time I talk to anyone it feels like I am missing something. It doesn’t matter whether I am having coffee with an entrepreneur, walking the fairways with fellow investors or engaging in a discussion group with people committed to the startup ecosystem.
The conversation is full of ideas about scale, ambition, innovation and priorities. Focus on how we can help companies achieve more sales, raise more investment or become more international. Its all great but….
At some point after an especially early morning, a different way of thinking clicked into my head. Maybe people like me should stop thinking about where we are going. Leave that to the entrepreneurs. Instead of fuelling ambitions or chasing moonshots, why don’t we focus on making the day to day stuff easier for founders and teams?
Once you start thinking like this lots of sources of friction and pain present themselves. Much of this I can’t do anything about (IP — please will someone disrupt this one!).
Over a little time I have started focused on something I think I can help with. Numbers. Numbers always cause problems. Forecasts and projections, business plans, budgets, valuations and anything that looks forward. Board reports, operational v financial v accounting, cash flow or profit, KPIs and so on.
I have noticed that many of the people I talk to struggle to prepare and understand financial information. Professional expertise in this area is expensive and does not always meet startup needs. I plan to change that.
First, I want to understand whether this is a real problem and how widespread it might be. I have included a link to a short survey which explores the challenge. I am hoping you will complete this and share it with your networks. I want to get as wide a range of opinions as possible from people who like you.
If it is of interest, I will be happy to share the outcome of this survey with you. You will also be on the priority list to get early access to the next steps in my plan to make finance faster, easier and better for startups.
Here is a link to the survey https://sunstone1.typeform.com/to/w6r0ot your support is much appreciated.
A time comes when a B2B SaaS company starts to think about sales to big companies. Becoming an enterprise SaaS in other words. It soon becomes obvious that getting enterprise sales is not easy. Then its a short step to the place where you decide its time to start hiring sales people.
There is a bit of consensus in Scotland right now. A lot of companies are on the cusp if they can just get the right sales team onboard. The problem is great sales people are hard to find. And expensive.
I sit in a lot of conversations about how much to offer sales people. For most SaaS founders it feels like a big risk. The salary alone can add 20 or 30% to the monthly burn rate. Then comes the vexed question of commission. How much should you offer for on target earnings? What is a reasonable target?
At this point I like to confuse the issue by offering my thoughts. I don’t think targets and commissions are a good model for rewarding sales in general. I believe they are terrible approach for a SaaS startup.
The four killer flaws
Commissions based on the achievement of targets (or quotas if you prefer) are popular for three reasons. First they are simple, clear and easy to measure. Second the targets can be tied in to your overall revenue goals. Finally, sales people generate real value. And this is the established way of rewarding them for it.
All these arguments sound attractive. Everything is a balance though. And there are four big reasons why this traditional thinking does not stand up:
There are bunch of conflicting incentives and messages inherent in traditional per head sales quotas. I love this article by Steli Efti, a true sales guru, pointing out the downside risks of getting this stuff wrong.
Luckily there is an alternative that avoids many of these pitfalls. And it grows naturally with your business.
How team targets work
Most of my career, I worked towards team based targets. In a startup this is dead simple. You need to have one goal. Everyone in the business has to have a laser focus on achieving that single goal. So everyone shares the same target. Hiten Shah explains the importance of this.
As you grow, different teams will emerge. Targets and objectives will grow more complex. But each person will be a member of one or more teams. They share objectives with everyone in the team. This leads to a natural process. Objectives grow and diverge with your business. They are not made up to fit with “iconic,” expensive, big name hires.
In a large business, most senior people are part of more than one team. The effect is that everyone has a different set of objectives. Each individual target is shared with the team but no two people have the same combination.
For example, in my last year I was leading two major account teams and part of an industry business unit team. I had shared objectives with each of these teams. Yet no other individual had the exact same combination of teams and objectives.
Be clear team targets do not mean splitting objectives up into separate portions. Each member of the team shares 100% of the same target.
The Chairman's View
How does this affect reward? First and foremost everyone gets rewarded better because the business performs better. Teams work towards the same goals. People support each other. Incentives are unify not divide.
Performance reward in this system has to be based on total contribution. Simple numbers matter but they don’t tell the whole story. Total contribution gives you the opportunity to look at everything. Close sales, build relationships, deliver great customer service, product innovation - whatever really matters.
You can take the chance to factor in the important cultural things that get left behind in a sales culture. Respect, diversity, honesty and personal growth all matter. So recognise them.
Its true that total contribution is much harder to measure. At the same time it is fairer.
Leadership earns more respect. The right behaviours are supported and encouraged. Well worth the effort.
“The purpose of business is to create and keep a customer.”
One of the challenges with selling SaaS to the enterprise is intrinsic in the nature of big companies. We talk about an enterprise customer as a single, unified entity. Even use the ultimate abstraction by describing wins as new logos.
This is not the real world.
Companies don’t buy stuff. People do.
Enterprises are just large collections of people. You don’t have to convince all those people to buy. But it might feel like it!
The conventional sales manual recognises this challenge. You will be advised to map the people in your target customer. Classify them as influencers, buyers, decision makers, blockers, coaches and so on.
Sophisticated techniques such a Miller Heiman will be even more precise. Making distinctions such as economic buyers versus technical buyers to refine the model.
The trouble is this just doesn’t work. Each large company is like a miniature country (or even a mid sized one in some cases). It has its own culture, practices and ways of doing things. There is no standard model.
Time to go to the fairground
I think of this like the old fairground favourite, the hall of mirrors. You walk past a series of mirrors which distort your reflection in various ways. Tall or short. Fat or thin. Squashed or twisted. On and on, laughing or crying.
As you pass through you will see images which flatter you, a couple of absolute horrors and a bunch of caricatures to keep you smiling. But everything you see is you. A merry melange of ways to see the exact same thing.
Turn the kaleidoscope onto your SaaS
Your customers are the same. They experience the world differently from you. The clear, simple problem your SaaS solves is fractured and contorted through different lenses.
Yet each individual in your enterprise customer is looking at the same thing. Your product, your company and your team. Selling into this environment is about understanding these perspectives and dealing with the response.
Put yourself in your customer's shoes
Every reflection is skewed by the change that your SaaS will make for the individual looking at your product. You may be dealing with managers, C Suite, users, procurement officials or just nosey finance people. Everyone is influenced by change.
So the best way to understand how your SaaS is reflected is to stand where you customer stands. Look at the product from their point of view.
A good example of this is procurement. Sellers tend to think of procurement as a department that buys things. Yet more often than not this is wrong. Procurement’s job is to do deals. This enables others in the business to do the actual buying.
So the way to make procurement feel good is to show them a great deal. Not to make it easy for them to buy.
Meet the cast
Of course not every procurement function works like this. Like I say, there are no standards. But in every enterprise there are a few familiar characters you may recognise.
They are best identified through their own words:
Your problem is my day job. Or in other words the cost reduction will be the salaries of some people influencing the decision.
Your problem is invisible. This is a variant of the old Henry Ford comment about people looking for a faster horse. Sometimes people are so familiar with their environment they can’t imagine a different world.
My IT guy tells me your solution is a high security risk. This person probably hasn’t talked to IT. Most people don’t understand technology risk but it makes them nervous.
I love your company and your solution but there’s a fire over here and I need to put it out. Your SaaS is the most important thing in your world. It may be very small potatoes for some customers.
Its not my job but I have the best interests of this company at heart and I’m not sure about you. You may be told straight up that you are too small. Or you may have found someone completely outside the loop sniffing out a risk.
How do I know you will deliver what you promise. Anyone who buys IT will have a long legacy of disappointment and broken promises. It will take more than a couple of customer case studies to convince them.
Can you guarantee this team will be available throughout. Often people feel they are buying S for service not for software. Services are delivered by people and customers buy people they know.
We don’t like to be on the bleeding edge. There are many variations on this theme. Some people simply don’t like change. Even if they know it will be for the better.
I don’t have the time and resources to implement this. The total cost of ownership is not only money. Change needs space and its not always there.
The Chairman's View
You could adopt the Bruce Lee approach and take the fight in every direction. As in the famous closing scene from Enter the Dragon. Or you can learn from the sales gurus and treat all of these statements as objections rather than real concerns.
I prefer a less adversarial approach. Where possible work with these people. Change their view of your SaaS and you will help them realise the benefits faster. That is the basis for a sustainable customer relationship.
You should also be sensitive and listen for problems that will not go away. If the fire is in the factory, turning up at head office with a hose will not work. When your customer is not ready to buy, don’t try and sell.
The original hall of mirrors is in the palace of Versailles. It was designed to reflect the glory of the Sun King. And it closed out the real world. We all know how that ended. Don’t let the enterprise version blind you to reality.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.