In my last post I talked about selling your SaaS product to big companies. It included some of the key challenges for boards and CEOs. And No 1 on that list is building the right team.
In my subsequent discussions with companies and other NEDs, one problem in this area has dominated. At least in Scotland, finding sales people is proving difficult. Many SaaS companies feel hamstring by a failure to identify suitable recruits.
A group of NEDs and advisors are gathering in a few weeks to share ideas. In advance, I wanted to do a bit of thinking aloud.
My basic idea is simple. Why buy an expensive sales team with long track records? And offer further rewards with hard to define commission structures. Instead try to find young people with potential and ability to learn. Let them grow into the role like everyone else.
When I talk to entrepreneurs about this subject, the discussion centres on three things. Finding a candidate with the right experience and track record. Designing an appropriate (and expensive) salary and commission package. Confusion and uncertainty about the exact needs of the business.
At one level the last point is not surprising. For a SaaS company at the start of the scale up journey many things are unclear. Seeking larger customers is fine. But which are the best fit for your product? You know that selling to the enterprise is a longer and tougher road. Yet the steps along it and the path to success are unknown. Revenue depends on both new logo accounts and upsell. What is the right balance of resources between them?
SaaS Scale up - You don't know what you don't know
The reality is that hiring a sales person is not going to resolve these issues. At this stage of growing a SaaS business you are still exploring and experimenting. You must find the answers to a whole series of fundamental questions, including:
This is a job for the CEO and the whole team. A sales person may have the right skills and experience to help. But there is not a defined and measurable role waiting to be filled. Sales, account management, customer support and product development all need to combine to get to the right answer.
Ability to learn not ability to sell
So the reason you are unsure about the exact needs of your business is that you don’t know. And the critical task is to find out the answers. Not to sell an established product to a well understood target customer base. That comes later (if you are lucky).
In this light, the two earlier questions (track record and package) need quite different answers.
Take skills and experience first. The critical qualities needed to succeed in this role are:
It may well be that you can find a sales person who fits this description. But you will need to look well beyond their pure selling skills.
Hire for potential
Reading the list above again, does it remind you of anything? These are the talents that everyone in a startup needs. Every other senior appointment tends to be someone with little or no experience in the role. The CEO and founder may be a first time entrepreneur. The CTO will be a great software engineer but have they led a development team in the past?
Each company will have its own mix. The guiding principle is the same. A typical team is a group of ambitious, talented individuals doing something new. And taking on different and stretching roles as they do it.
As a founder you understand this. You look to hire people with potential to grow and achieve great things. Why would you approach sales any differently?
Most often, the CEO is the best person to “sell” your SaaS in the early days. Of course as you grow, you don’t have time to make every sale. But you can coach others. This article by Steli Efti on coaching junior reps offers a basic framework.
Reward for growth
Yet the reality is different time and again. I look at business plans and the most expensive planned hire is the sales lead. Often paid more than the CEO. The job spec includes 10 years experience. The objective is to find the finished article. One person who can rewrite the growth curve single handed.
On top of the big salary, sales reps are also looking for commission. If your SaaS is at the start of the enterprise journey you don’t know who you will sell to. What exactly you are selling. Or how much your customers will pay for it. How do you design the right reward systems?
Commissions and other sales rewards are systems of incentives. They work well in a world where the role of sales is defined in detail. The product options and margins are established. And the target market is clear. Then you can motivate the right behaviours. And set stretch goals.
Where these things are not well understood, incentives are fraught with danger. Without any ill will on either side, it is easy to encourage the wrong things. Sell at the wrong price. Sign up the wrong customers. Push for revenues too early. And a hundred other ways to damage your business.
So is a high paid VP of Sales the answer. Is a commission structure that no-one fully understands the best way to spend money?
The Chairman's view
Experienced sales people are difficult to find. Bringing them into a startup is high risk and high cost. It may still be the right strategy. But it is worth considering an alternative approach.
Look for people who are young, ambitious and talented. The type who fit well with the nascent culture of your organisation. Maybe someone who is in a sales training scheme. Or doing a sales support job and getting frustrated perhaps.
Offer them a fair base salary and some options. You can always add a commission scheme later. Work with them. Help them learn and grow into the best sales team on the planet. And they will help you find the right market and business model to build your SaaS….or is this all crazy?
I love to talk to people about their businesses. Thinking through strategy. Tackling challenges and opportunities. Helping leaders take tough decisions. That has been my working life and there is nothing I would rather do.
Every so often, I facilitate a group of SaaS entrepreneurs based here in Scotland. This means I get to talk business with a dozen or more startups at the same time. Heaven.
The focus of the group is to share common challenges in SaaS. When we met on 4 October the discussion topic was selling to enterprise customers. This is a great sign. A number of companies in the group are now mature enough to be targeting deals with larger customers. (We also had some new joiners so the community is growing nicely.)
Our discussion picked up some great ideas that would help anyone dealing with large companies. The main things in my mind are: Team/ hiring; target markets; patience and process; land and expand.
Build the right team
Enterprise revenues are like every other aspect of your business. The biggest determinant of success if the quality of your team.
You need to find a way to sell your product to large and complex customers. A good SaaS pricing page and clever inbound marketing are not going to cut it. You will need to build a team. That means some combination of hiring and developing/ promoting your existing talent.
People are the biggest decisions you make as CEO. So think through the type of person you want. Get a second pair of eyes and ears involved in the interview process. For example, an advisor, mentor or NED might be able to help. Design the right package for the best talent.
And remember, at the end of a recruitment interview, maybe means No.
Target the right customer
Making a sale to an enterprise customer is often a long process. Growing that initial deal into substantial revenue requires even more time. And there is no guarantee of success when you start. How can a startup or scale up with limited resources handle the demands?
Focus on the right target.
It can be tempting to respond to every corporate enquiry. When a household name approaches your little SaaS it is flattering and exciting. There is nothing wrong with having an initial discussion. Use that time a bit of research to find out if this company is a genuine opportunity for your product.
Patience, Patience, Patience
Completing an enterprise sale takes a long time because the process is complex and slow moving. Large companies have whole departments just to buy stuff. Called procurement, purchasing, supply chain or whatever. These teams have systems, processes and standards that take time and effort to navigate. Often it feels like you are up against the deal prevention team.
And procurement is not the only challenge. You must convince and reconvince the business of the value in your product. You may also have to prove you are better than the competition.
No wonder one of the companies in the SaaS group had planned for 9 months to complete its first enterprise sale. And is running behind schedule!
Tactics and specifics for managing these matters is a big subject. The biggest risk is impatience. Push too hard. Appear desperate for a deal. Or just let your frustration show. And the prize will slip through your fingers.
Hunt for thrills, farm to live
Winning deals with enterprise customers is worthless. The goal is revenues. Actual cash in the bank. Sustainable and underpinned by rapid growth.
For a SaaS company that means the long and painful sales effort is only the tip of the iceberg. The value is only delivered after the contract is signed. Persuading and supporting individuals, departments and divisions to adopt and use your product. All the moving parts inside your new minted enterprise customer.
A bit of new language has grown up around this. Customer success, upsell, negative churn etc. These are all terms for an old fashioned business fundamental. Account relationship management.
You should plan for your SaaS to have account management people, systems and resources. Think about the organisation you want after you win the deal. Develop budgets to reflect a realistic view of the way enterprise customer revenues develop.
The Chairman's view
Moving from an SMB focus toward enterprises is not an easy road. From a board/ investor point of view I want to help the leaders of SaaS companies focus on the key decisions. Give entrepreneurs the best chance to realise the opportunity and manage the main risks. You should for an experienced head to help you with:
All are interdependent. Nothing happens in a neat sequence. You never have all the information you want. Welcome to leadership!
The most exciting news for me in the last couple of weeks was the announcement of a new partnership between Appointedd and ABCN. For any reader that does not know I am an investor in Appointedd and I also sit on the board. I am incredibly proud of CEO Leah Hutcheon and the whole team for pulling this deal off. They have built a great product and are growing a fantastic business. This is a huge step forward.
You can read full details about the way the deal works here. It offers a useful spotlight on a big picture trend that is important in B2B SaaS. Distribution has been seen as a choice been online signups and direct sales. A different model built on networks and partnerships is emerging. This should be good for growing B2B SaaS startups. And for their customers and investors.
The seductive illusion of online sales
The online only model is one of the great attractions of SaaS for any entrepreneur. If you have the technology skills you can build a business with little or no sales and marketing cost. Google and Facebook ads plus various forms of inbound marketing will bring in potential customers. The software will do the rest.
With gross margins in the 80-90% range this looks like a great business model. No expensive sales force. Limited customer service and support. Get the conversion metrics and the cost of acquisition under control and watch the money roll in.
The real world doesn’t quite work like this. Online only sales are fine for SMBs. But these customers offer low revenues and short(ish) customer lives. And the cost of acquisition in the big bad world of online ads is hard to control. Then the conversion rates are never quite good enough.
Moving your SaaS upmarket
Before long the numbers start to look tough. Yet there is a still a route to success. Move up the scale and look for those enterprise sales. Bigger initial revenues. Lots of opportunity for upsell. More customer loyalty reduces churn. With a bit of traction this is the route to success.
The solution is to build up a sales team. Hire proven professionals and design the right incentives to drive revenue growth. These sales are complex and the upsell is vital. So you add a customer success team. Careful organisation structure and well managed revenue and retention metrics drive everything. And provide the basis for strong management. Sales ops are the final piece of this jigsaw.
Creating this structure is expensive. Yet with a good founding team, a sound product and some traction you can raise investment. All those metrics build into a convincing business plan. Enough volume and the right performance from your extended team will get you there.
The long road to B2B SaaS success
In truth both these approaches work. Study any of the flagship success stories of the SaaS world and you will see elements of one or both. Tom Tunguz wrote an excellent pair of articles explaining the strengths and weaknesses. The Innovator’s Dilemma and The Innovator’s Solution.
But it is a long road. Another thought leader in the SaaS world Jason Lemkin explains why in It Takes at Least Seven Years in SaaS. Jason and Tom have done as much anyone to create the SaaS explosion of recent years. And both are realistic. Success is a long hard road.
There are lots of reasons for this. Two stand out for me:
A better model for B2B saaS
I am not sure what percentage of startup investment dollars not goes on sales and marketing. I would bet it is close to 80%. This is not efficient. Being honest, it is not even real investment. Money circulates without generating any asset of substance.
B2B SaaS needs a better distribution model. By which I just mean a more efficient and effective way of reaching customers. And new improved distribution channels are starting to appear.
One category is the marketplaces operated by leading SaaS players. Salesforce.com and Xero have both established networks. Through the Salesforce AppExchange or the Xero App Marketplace smaller SaaS players can reach out to the customer base of these giants.
The Appointedd/ ABCN deal represents a different type of distribution. ABCN is a successful company with a loyal B2B customer base. Like any great business they want to keep offering better value to those customers. Appointedd’s business scheduling software and unique time zone function are just right.
The advantages of better distribution work both ways:
Linking together in this way also allows both companies to focus on what they are good at. As a result, customer enjoy better software, better service and achieve greater benefits.
No shortcut to SaaS success
There is no silver bullet here. Great B2B SaaS companies will still take time to build and Jason’s 7 years may well prove to be accurate. He has far more experience than I have.
Yet I think entrepreneurs, investors and customers will benefit from a better distribution model. The market will be more efficient. Probably in two ways. Better return for investment dollars and faster exposure of failure. The best companies will be more integrated and more focused. And as a buyer, less consumer style marketing of B2B products will be welcome!
ABCN and Appointedd have a great deal that will work well for both parties. The launch is an exciting time. And the hard work starts now.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.