TL;DR Sales people have an incentive to go after low hanging fruit. Building a business depends on doing the hard stuff. Don't be fooled into thinking hiring sales people is an easy way through.
I have two kids who are both now at University. There are many fantastic things about having children and watching make their own way in the world. One thing that is not often mentioned is the opportunity to learn. Even when you think you taught someone everything they know, they can surprise you.
My son has just started the final year of his computer science degree at Heriot Watt University. Having lunch with him before he started back, he offered me a startup business lesson that is both simple and profound.
As close as I can remember, here is what he said:
“The thing that always strikes me about sales people is they have a big incentive to do the easy stuff. You know, sell to the easiest customer first because that gets them their commission. Call people who are easy to persuade rather than people who really need your product. That kind of thing. Surely in a startup, you need to do the hard stuff to get going?”
Note this is also framed as him asking me a question. Nice to be respected. But he is the one offering the insight here.
The Wisdom of Youth
Regular readers will know that I am uncomfortable about using the traditional sales model for a company that is trying to innovate. For the avoidance of doubt by traditional I mean people whose sole job is sales, selling in person to enterprise customers and receiving commission as a significant element of their reward.
There are lots of reasons for this but Duncan nailed the core problem in a way that I struggle to articulate. Listening to what he said, leads me to two key points:
There is another problem hidden below the surface. Finding and hiring sales people for early stage SaaS is hard. There is a reason for this. Good sales people have an instinct for what sells and what doesn’t. This makes them good at picking jobs that they can succeed in.
So if your SaaS smells like it will be hard to sell, the good guys will turn up their nose. When you do recruit, you find yourself with sales people who talk a good game but don’t deliver.
The Chairman's View
I know that you know that doing the hard stuff is a necessary foundation for success. That lesson is the subject of one of the best business books around - The Hard Thing About Hard Things.
Don’t kid yourself that sales is an easy way out. Even a 23 year old student know this.
"A user interface is like a joke. If you have to explain it, it's not that good"
Martin LeBlanc, Founder IconFinder
You build SaaS products for people not companies. You sell to people not companies. SaaS for the enterprise is only different because you have a lot of people. All with the same logo on their business card. You get one large sale for a lot of yesses. Selling to SME is one small sale for each yes.
One of the health problems my wife has faced is with her kidneys. We are very lucky that she has had excellent treatment. In the end a kidney transplant has allowed her a full recovery.
She is still under the watchful eye of the renal unit at our local hospital. This gives her access to something called PatientView. It allows her to look at results of blood tests and some other specialist medical information. An example of digital health in action.
My wife has been using the product for several years so is familiar with how it works. But on at least two occasions in the past year she has been asked for help by doctors or pharmacists. They don't understand the system or the data. Think about that. A software product designed for patients that is not even intuitive for medical professionals.
Its a common problem. A recent survey by Digital Health focused on the IT priorities for the NHS. There was a sting in the tail. On social media one tweet called out the elephant in the room “most clinical systems in clinical settings are unusable by clinicians”.
The same disease afflicts B2B SaaS and software of all kinds. Even some of the best are vulnerable. I find Xero simple to use but I am a qualified accountant. I always have a suspicion that the layman does not have things so easy.
There is not shortage of advice on good UX design. Good people are hard to find but not that hard. The root cause is much more basic. Too much software is designed for companies not people.
"You want to deliver to the world what you would buy at the other end."
Regular readers of this blog (are there any out there?) will know that some topics keep coming back. One is a fundamental point about SaaS. You are selling a service not software. The two S’s in the acronym seem to confuse a few people. You are building software but you are selling a service. As this excellent reminder from Onstartups points out.
Or to look at this a different way, your customer is buying a service.
I want to point out a couple of key things in this piece.
Enterprise ready is an entry fee not a sales pitch
I can’t improve on the list of product features your SaaS product needs to be enterprise ready. If you ever enter into an enterprise procurement process, covering these bases will save you a lot of heartache. And likely prevent your bid falling at the first hurdle.
But don’t be deceived into thinking this is anything like enough. As the title says this is just for a product manager. Selling SaaS to the enterprise has multiple dimensions. Meeting certain technical standards and the preconditions set by procurement is only the entry ticket.
Your SaaS needs to convince buyers not just procurement
Every sale needs its own unique selling point.
Most entrepreneurs will be familiar with the idea of a USP. A clear and distinctive advantage that set your SaaS apart from the competition.
The implication is that there is a clear USP which will appeal to a range of potential customers. Services are not like that. Services are personal. So each customer likes to feel that the USP is designed from them and them alone.
Back in the day, we used to refer to this as the killer slide. Every proposal had to have one page that made the buying decision for the client.
Your SaaS needs to be beyond compare and score
First, this will never appear on the procurement agenda. Procurement’s job is to get specific answers to a whole range of standard questions. This allows them to do like for like comparisons and score your SaaS against its competitors.
Winning this type of scoring is an art form in itself. But it does not touch on USP. By definition this defies comparison. To figure this out you need to talk to the real buyers. The people in the enterprise that will benefit from your SaaS.
Your USP for a specific customer needs to be couched in the benefits that key people within that enterprise will realise if they use your SaaS. (Note use it, not just buy it.)
The Chairman's View
Once you engage with customers, you have to get on the business benefits agenda.
Satisfy procurement and deliver the wow factor the business buyers. away. Or, click the Write button and compose something new.
Wednesday this week I had my first customer meeting for an early stage startup I am involved with. Since it was the first meeting on behalf of that company, it was also my first meeting with the two people involved.
The company is nowhere near ready to make any sales. So this meeting was part of the discovery process. The good news is it went well. I learned a lot and I left the room with a commitment to positive engagement and the possibility this customer will become an early adopter.
The start not the end of a customer lifetime
Since I have gained value, I must owe them more value in return. Its an obligation plain and simple.
Retention first not acquisition first
But metrics are outcomes not strategy. Churn and its relative LTV are good examples. They capture an important concept. Yet they result from measuring customer lifetime at the end not from the beginning. That can’t be right!
Nonetheless, I liked the principle when I first read the post. I was also a little bit doubtful to be honest. Retention first sounds very attractive to someone who prefers building relationships to cold sales. So was I just playing to my own preferences?
My customer meeting has put that niggling doubt to bed. Good business works on human relationships. Not just transactional benefits.
That’s why numbers and benchmarks are useful tools but no way to run a business.
B2B SaaS - relationships not pipeline
- As soon as you figure out someone is a potential customer, your job is to retain their interest.
- Real lifetime value is measured by the benefits gained and the depth of relationship. Not by the date when a customer stops paying.
- You measure the strength of your business by relationships not pipeline.
- Like everything else this is not a zero sum game. You are trying to give more value than you get. Whether money changes hands or not.
Yet as leaders we could never escape the feeling that something was missing. Every client engagement was different. A team of smart people would think through a complex business problem and use their experience and a bit of innovation to develop a specific solution.
If only, we could capture the essentials and repeat the same solution over and over. What a business model that would make!
Alchemy - Turning service gold into product margin
The SaaS struggle to dismantle every product
Contrast this with the startup world today. SaaS is the business model of choice for software.
By definition, it takes a product (software) and turns it into a service. And technology enables this mindset to spread far wider than just software. As one of the leading thinkers in the industry, Ben Thompson of Stratechery, put it recently, we are now in a world of “everything as a service.”
It looks like the leaders in services are desperate to become product businesses. While those who make a living from products are striving just as hard to turn those into services.
What is going on here? No doubt part of the answer is “grass is always greener” mentality. On a more positive angle, both attitudes show a bit of an innovation mindset which can only be a good thing for customers. But in the end, I don’t think we will see an outright exchange of business models. Services will win.
As customer we love to be treated to excellent service. Delivering services is more painful for most people. As technology overcomes that particular barrier, expect to see a service mentality take over (almost) everywhere.
If you are building a product or running a product company, remember selling and delivering services needs a different approach to success.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.