The Annual Sales Meeting

Meeting objective

In companies that are regularly closing new sales, have at least one dedicated sales person and have the beginnings of a sales process, an annual sales kickoff meeting can help capture what’s been learned, build team spirit and energize the entire sales effort.

I’ve found that a successful sales meeting requires planning and careful preparation.  In this post we capture some things that have worked well for us.  We focus on the following topics:

  • Who to invite
  • What topics to cover
  • How much time to allocate
  • How to set up the room
  • How to run the meeting

Who to invite

  • All the sales people and of course the head of Sales
  • Any people whose primary job it is to help the sales people on sales calls or account management – such as sales engineers and service delivery leaders
  • Company management, including the CEO, and heads of Marketing and Product Development
  • Selected customers

What topics to cover

  •  A careful review of last year’s sales efforts, including:
    • For sales that were won – the lead source, the type of customer, what the customer initially bought (if the company has multiple initial offerings), the value of the initial and subsequent sales, how long it took in each stage, what were the obstacles, who was the main competitor, how did we beat them?
    • For sales that were lost – the lead source, the type of customer, which competitor won the sale and why
    • I find it much more useful to only capture issues in the context of individual opportunities that were won on lost – that keeps these sessions for becoming generalized venting sessions
  • Company’s plan for the year
    • Overall objectives and strategy – CEO
    • Marketing and lead-generation plans – Head of Marketing
    • Product development plans – Head of Product Development
  • What each sales person plans to do in the coming year
    • Sales from existing customers
    • Sales from new customers
    • Lead generation efforts, perhaps in collaboration with marketing
    • Assumptions they are making about the support they will receive or products that will be ready for sale
  • One or more customer’s experience with the company – ideally presented by the customer themselves
  • Some training, based on what the sales people need most at that time

How much time to allocate

  • 1 day for review and training
  • 1 day for planning the upcoming year
  • Group dinner in between for help people who may not see each other very often, build trust and rapport

How to set up the room

  • Everyone can see everyone else, plus the presenter at one end – long-U style table setup is ideal, comfortable (3.5 – 4.0’) table space per person, comfortable chairs
  • Projector and screen
  • Lots of flip charts/white boards
  • Power strips for everyone
  • Wireless internet access
  • Audio recording
  • Snacks, drinks in the room
  • Room for luggage for the travelers

How to run the meeting

  • During the meeting
    • Having one person responsible for facilitating the meeting is critical
    • Encourage interaction, dialog and debate – created and maintain the right conditions for that.  Watch for and draw out the quiet types and don’t let anyone dominate the conversation
    • Encourage people to tell the truth without fear – if this counter to the company’s culture, consider bringing in a professional facilitator
    • Resist the temptation to blame those who are not in the room
    • Make sure that commitments are recorded clearly and establish accountability for follow through – don’t let people suspect that all this is just talk
  • Before the meeting
    • Address contentious issues beforehand – don’t let people come in to this meeting itching for a fight
    • Ask people to give the affected people a heads up if they plan to bring up sensitive issues – don’t allow anyone to ambush anyone else
    • If staff changes are pending, make them and announce them before the beginning of the meeting – everyone in the room should feel they are dealing with the actual players in each position on the team for the coming year
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February 29, 2012 at 11:13 am Leave a comment

Yo market so ugly… (Evaluating markets from a b2b sales perspective)

yeah, yeah I know that sounds like the beginning of some bad joke but evaluating a market is no joking matter for startups.

Evaluating a market from the Sales perspective is the most important because it is Sales turns the hypothesis that startups call “the market” into the reality of cold, hard cash.  This discussion is about products for businesses, not for individual consumers.

What makes a market attractive from a b2b sales perspective?  Here is my list of factors:

  1. Number of customers and Deal size
  2. Problem ownership
  3. Buyer addressability
  4. Demand driver
  5. Competition

Number of customers and Deal size

The typical Billion dollar market that VCs expect you to show in your business plan can be made up of any combination of number of customers (N) and price points (P) as long as (N x P) = $1,000,000,000.  My favorite combination is 10,000 potential customers each able to spend $100,000.  Consider the alternatives – if the entire market was comprised of 100 customers each willing to spend $10 million on your solution, not only would you have a really hard time getting those sales as a startup, but you would have terrible concentration risk.  On the other hand, if you had 10 million customers each willing to spend on average only $100, you would have a difficult time breaking even on sales.  The cost of direct sales, the sales model that most b2b startups have to initially adopt,  far exceeds $100 per customer-transaction.  If you want to know why, read my post “Did you make money on this sale“.  A good deal size for b2b direct sales is $100,000 — at this price point, you can afford to hire excellent sales people, pay them well and still make a handsome margin.

Having a lot of customers means you can qualify thoughtfully and spend your precious time on those that acknowledge they have the pain you alleviate, the money to buy your “medicine” and are empowered, indeed eager to take action.  The loss or disqualification of a single prospect does not feel catastrophic to your fledgling startup, which allows you to preserve your margins, and your sanity!  It also means you have the ability to support multiple sales people as you start to scale up.

Problem ownership

When the problem a startup solves is owned by a single department at a company sales are faster and less complex.  Whether it is Manufacturing (yes, they still do that in America), Sales, Marketing, R&D, Finance, HR or Legal, if they don’t have to consult and get buy-in from other departments,  it is much easier to understand the buying process and the decisions are usually made faster.

Faster decisions and easier-to-understand buying processes lead to quicker sales and lower sales cost, both of which can make a life-or-death difference to a startup.

Buyer addressability

When a startup can say that their target buyers are CFOs at all US public companies over 500 million in sales, its music to investor ears.  Why?  It’s because they can make a list of all these companies and even better, they can get the names of the current CFOs from each company’s most-recent 10-Q filings with the Securities and Exchange Commission.  That’s what I mean by addressable buyers — tell me the market definition and I can have a list with names and addresses ready in a few hours.

Next best is having a specific and common title at a list of companies.  If we have to hunt for “who is responsible for asbestos contamination, should you have any…” we are in deep doo-doo.  Even worse is if we cannot even make a list of specific companies to call.

Demand driver

If your target companies have to take action by a particular deadline, in response to an external demand that makes the market more attractive for a startup.  In 2002 when the Sarbanes-Oxley act was passed, all US public companies had specific timetables by which they had to comply with section 302 and then 404.  This created opportunities for the audit and accounting firms and also for numerous IT startups.  New regulations create disruptions that are perfect for swift entrepreneurial responses.   When the media started talking about the devastating effect Amazon.com would have on traditional retailers, many moved with unusual speed and made large investments in unproven technology from startups in an attempt to compete.  More recently news of security and privacy breaches on transactional websites have created a window of opportunity for startups to get their first sale.

Internal demand drivers such as cost reduction or revenue enhancement are good but external drivers like regulation, disruptive competition and news of catastrophes, that companies believe could happen to them, are priceless.

Competition

Most VCs will tell you that if you don’t have competitors, you don’t have a market.  That’s probably true but from a sales perspective if you don’t have any well-known competitors its hard to explain what you do.  The ideal situation is to be able to say “We are just like General Arrogance, except better, faster, cheaper and more friendly!”.  It really helps if your buyers know but dislike a vendor (your competitor) in your market.  It also helps if a competitor is well-known but not well entrenched with the buyers, since the cost of switching to a new solution vendor, particularly if they are a startup, are considerable.

Conversely, a market with a lot of entrenched competitors who are well liked by their customers is not a good choice for a startup.

What do you look for when you are evaluating markets for startup companies?

May 19, 2011 at 7:55 pm Leave a comment

Did you make money on this sale?

On your last sale, did your price exceed what it cost you to get the sale?  Did you make a profit?

Obviously, for a company to be profitable the answer has to be yes.  But in the early sales of many startups this is not true, particularly if you are selling products to large companies.  For example the accounting of the cost of selling to a particular customer could look like this:

Income (Product price)

10,000

Founder time $50/hr 100 hours

5,000

Legal support for negotiation Terms & Conditions

2,500

Travel costs (2 founders, 2 trips, meals with customer)

1,500

Referral fee (sales assistance)

1,500

Required insurance premium

1,200

Total Expenses

11,700

Profit/(Loss) on this sale

(1,700)

Notice that this does not include any costs for the product itself.   I’m focusing on paying for the cost of selling.  For many startups I find it very useful to establish this as an early milestone.  This is in keeping with the market-centric approach of Customer Development vs. the product-centric approach into which most inventor-founders tend to fall.

So what can you change to make each sale profitable?

  1. As you learn how to sell your product to large companies you need to find ways to make the sale-specific legal and insurance costs go down substantially.  Target less than 2%.  In the above example they were 37% – not unusual for a first sale.
  2. Founder time – it is not unusual for founders to spend so much time on one of their early sales that even at minimum wage, their time costs more than the what they make on the sale.  Founders should expect to spend a lot of their time in the first few years selling but that cost should net out to less than 5% of the price.  Compare that to the 50% in the example.
  3. Travel and sales commission costs – this varies by industry. For enterprise software, for example, in mature companies this is about 10 – 15% (directly attributable to a sale) as opposed to 30% in my example.

Achieving these target costs requires the development of many skills including:

  • Defining your ideal customers
  • Developing your sales process – how you go from identified lead to a closed sale and especially when you “disqualify” an opportunity and walk away from a deal
  • Refining your sales pitch and marketing materials
  • Understanding big company procurement and risk management processes

Measuring the right costs imposes a necessary discipline on start-up companies.  If you don’t quickly learn how to sell at a profit, you don’t have a viable business!

If you put the right metrics in place early and track your costs, not only will you learn your own business faster, you will really impress potential investors.


February 26, 2011 at 3:42 pm 1 comment

What should you pay a reseller?

One tactic that startups can use to reach a number of customers quickly is to depend on “sales” help from another company – loosely called a reseller.  In this post, I define different potential aspects of such relationships and suggest, based on my experience, what you can expect to pay for each aspect.

If you are selling to businesses (b2b) and have the price point to support it, your primary go-to-market plan has to include direct sales.  You can enhance your direct sales effort in a number of ways and what you pay a company to help you depends on what they do for you.  I tend to categorize what other companies can do to help our sales efforts as follows:

  • Refer – they introduce us to their customers who express a need for our product
  • Market – they actively seek customers who need our product
  • Sell – they take primary and ideally complete responsibility for getting the order
  • Support – they provide a significant amount of technical support to the customer
  • Stock – they buy and pay for, our products before they sell them

Based on this categorization, the table below summarizes what you should require of them and what you can expect to pay.

Partner responsibilities

Fees to pay

Refer They introduce us to their customers who express a need for our product. We benefit from the fact that they already have relationships with a number of customers.  You need to check how many.  You need to determine if your product is relevant to their customers i.e. if their customers are in your target market.  You also need to determine if their customers are likely to act on their recommendation to look at your product.

This is typically a low-risk, non-exclusive relationship.  If it doesn’t work, all you lose is the time you spent on developing this relationship.

5 – 10% of sales resulting from their referrals.  Nothing paid up front.
Market They invest in generating leads for your products.  This only makes sense if they have a lead generation asset that you don’t, such as a list of subscribers or customers.  Unlike the referral relationship a Marketing partner actually develops, pays for and executes lead generation programs.  A professional association might be an example of this kind of partner.  Before entering into this relationship make sure you understand at least the first marketing program they will execute.

This is also typically a low-risk, non-exclusive relationship.

5 – 10% of sales resulting from the leads they generate.  Some of these partners will ask for an up-front investment.  Laugh and ask them if they understood that you are a startup.
Sell They have professional sales people who sell your product.  You know how much knowledge it takes to sell your product – are they willing to invest in that training? Is that even feasible for your product at an early stage of development?  How much support are they going to need from you during the sales process?

In this relationship the sales leads could come from you or they could also be a referral source and/or a marketing partner.

This is typically a high-risk relationship, especially if you grant them some sort of exclusivity.  A sales partner will typically ask for exclusivity and you need to consider that carefully and tightly define the product (remember your products will evolve), type of customer, the geography, the industry sectors and the time period for exclusivity.

15-25% of their sales.
Support They have technical support people who are trained in your product and they are capable of resolving at least half the issues before asking for your assistance.  The more they can resolve the more they can be paid for support.You will hear terms like first-line and 2nd tier support.  I find those terms less useful than a metric for the % of calls they are able to resolve to the customer’s satisfaction.

Remember to require a log of all calls and do your own customer satisfaction survey.  There is a risk to your reputation that you must control.

25 – 50% of support fees, depending on the “% of calls resolved satisfactorily” metric.
Stock If a partner sees a lot of potential revenue from your product and particularly as a condition for gaining exclusive sales rights a partner may agree to pay up-front for your product.  If you have a physical product, you ship them your products and they stock them in their warehouse.  In the case of SaaS they pre-pay for a certain number of licenses.The cash inflow that results from this type of relationship is obviously very attractive to most startups.

This is typically the most complex and high-risk (beware of return rights) relationship and makes sense only if they are selling your product.  Properly negotiated and managed these relationships can be a huge win-win for both the startup and the reseller.

5 – 10% of sales.

July 25, 2010 at 2:52 pm Leave a comment

Sales funnel management for scientific and engineering entrepreneurs

To many scientists and engineers the sales process can seem like a dark art.  The sales person tells us gripping stories of their quest for revenue.  After they leave we try to reduce what we heard to things we understand – numbers – and find it difficult if not impossible to do so.

As my companies have grown, and the number of sales people has increased, my fascination for the actual stories from the front lines of sales became a luxury that I could no longer afford.  I had to create a system that allowed me to understand systematically, quantitatively and efficiently whether our quest for revenue was getting closer to our goal for the month.  This is the system I use for tracking direct sales.

In my post, Managing your Sales Funnel by the Numbers, I introduced how I set goals for what the funnel should contain at any instant.  In this post I describe my weekly checklist for reviewing the flow through the funnel.  The basic idea is simply to account for the flow of opportunities into and out of each stage of the sales funnel.  All of the interesting flows are depicted by arrows on this diagram.
Sales funnel with arrows showing the flow of opportunities between stages an the leakage of opportunities into the lost-opportunity bucket.
While conceptually simple, establishing and sticking to the discipline of accounting for your funnel each week takes work but I have found it to be an invaluable tool in cutting through the stories and knowing where you really stand.  The surprising thing I have realized after doing this for a few years is that the sales people who resist this systematic accountability fail to deliver results.  This tool saves me a lot of cash and time by letting me identify early those who just tell good stories but cannot produce revenue.

I hope you will try this tool and let me know how it works out for you.  Here is my entire checklist for the weekly review:

  1. Leads
    1. What new leads do we have + count
    2. Where did they come from
    3. Which leads were disqualified, why + count
    4. Count total leads + change
    5. Do we have any stale leads
  2. Named opportunities
    1. What are the new named opportunities + count
    2. Which named opportunities were lost, why + count
    3. Count total named opportunities + change
    4. Are any named opportunities stuck
  3. Qualified opportunities
    1. What are the new qualified opportunities + count
    2. Which qualified opportunities were lost, why + count
    3. Count total qualified opportunities + change
    4. Sum qualified opportunity amount + change
    5. Are any qualified opportunities stuck
  4. Near-term opportunities
    1. What are the new near-term opportunities + count
    2. Which near-term opportunities moved back to qualified opportunities
    3. Which near-term opportunities were lost, why + count
    4. Count total near-term opportunities + change
    5. Sum near opportunity amount + change
  5. Order
    1. What are the new orders + count
    2. Count total orders + change
    3. Sum order amount + change

March 1, 2010 at 6:00 am 3 comments

Managing your sales funnel by the numbers

Funnel with 4 stages - named, qualified and near opportunity followed by an orderI’m sure you’re familiar with the concept of the sales funnel.  A lot of leads turn into a few sales, after a while.  It is the sales funnel that links assumptions about markets to the realities of revenue.

In several companies that sell directly to other businesses, I’ve found it very useful to quantify the funnel and the flow of opportunities through it.  That data is the key to managing sales activity.

There are three steps to scientific management of sales activity:

  1. Define the terms and use them consistently
  2. Quantify the chances of an opportunity advancing to the next stage and the time it takes
  3. Set goals for each stage based on the revenue goals

Defining Terms

The basic unit of sales activity management is an Opportunity.  Opportunities develop and get better defined as they mature. At the earliest stage, an Opportunity may represent nothing but a vague expression of interest in your product by one individual.  At the end it turns into an Order – a beautiful metamorphosis.  While there are many different schools of thought on how Opportunities develop and what to call the stages of development, I often use this simple 4-stage model.

  • Stage 1 – Named Opportunity:  At this stage we have at least the name and contact information for someone with an interest in your product
  • Stage 2 – Qualified Opportunity: Once a Named Opportunity has been qualified it advances to this stage.  One commonly applied set of criteria for qualifying an Opportunity is referred to as BANT.   BANT stands for Budget, Authority, Need and Timetable.  To be qualified you need to know that money is available (Budget) to purchase your solution, you know who is going to make the decision to purchase (Authority), what Need will compel them to purchase something, and when they need to have the solution (Timetable).
  • Stage 3 – Near-term Opportunity: Most companies set their sales goals by the month or the quarter.  If a Qualified Opportunity is likely to close in the current goal period, it is called a Near-term Opportunity.
  • Stage 4 – Order: This is pretty obvious – this happens when you have the written commitment from the customer.

Time to Advance: This is how long it takes for an opportunity to advance to the next stage.

Probability of Advance: Not all opportunities to advance to the next stage – some of them drop off.  This is the percentage of opportunities that are expected to advance to the next stage.

Average Deal Size: When an Opportunity turns into an Order, the dollar amount that the customer commits to your company on average is the Average Deal Size.

That’s it.  Those are all the terms we need. Now let’s describe the funnel numerically.

Quantifying the Funnel

After you track a sufficient number of your opportunities, you will be able to create a table similar to the following:

Stage

Average Time to Advance (weeks)

Probability of Advance

1 – Named Opportunity

4

30%

2 – Qualified Opportunity

6

60%

3 – Near-term Opportunity

3

80%

4 – Order

N/A

N/A

Average Deal Size = $34,500

Until you have some data it’s OK to set up this table based on your own best guess or based on the advice of people with experience in your industry. What’s really important is to implement a system to track the development of your opportunities so you can quantify your own sales funnel and manage your sales activity scientifically.

Setting Goals

You can see from the table above that it takes 13 weeks for a Named Opportunity to turn into an Order – this is often called the Sales Cycle. You also see that the probability that a Named Opportunity will turn into an Order is 14.4% (30% * 60% * 80%) – this is often called the Closing Ratio.  We have also noted that the Average Deal Size is $34, 500.

If you have nothing but 100 Named Opportunities in your funnel right now, you can expect revenues of about $496,800 ($34,500 ADS * 14.4 Orders) in 3 months (13 weeks).

Working backwards from a revenue goal, if you want to be able to generate $250,000 in revenues in June, you need to have 50 Named Opportunities in your funnel by the end of March (250,000/34,500 = 7.2 orders, which require 7.2 / 0.144 = 50.3 Named Opportunities).

It’s that simple and it is a tremendously powerful tool.  It allows me to cut through the fog of anecdotes and focus on the numbers that predict results.

How are you managing sales activity?  Leave a comment and share practices you have found useful at your startup.

February 16, 2010 at 2:13 am 2 comments

How many companies get venture funding?

First-time technology entrepreneurs who are just getting started, here in Michigan at least, tend to believe that they need to raise money from venture capital firms. This represents the popular belief that venture funding is the gateway to technology business formation. Let’s call this the mind-share of VCs as a source of funding. Based on anecdotal evidence I’m going to estimate it at 90%.

This led me to a search for facts and here is what I found:

According to the MoneyTree Report published by PricewaterhouseCoopers and the National Venture Capital Association, in 2008, 1,171 companies were funded for the first time by venture capital firms.

According to the money tree report for 2008 first-time deals for 2008 were 1171 for 2007 were 1299 for 2006 1201 for 2005 1019 for 2004 921 for 2003 753 for 2002 836 and 2001 was 1213.

According to the Kauffman Index of Entrepreneurial Activity (KIEA) published in April 2009, over 6 million businesses were formed in 2008.

According to the Kauffman Index of Entrepreneurial Activity approximately 530000 new businesses were created each month

First time venture deals in 2008 1,771
Number of businesses created in 2008 6,360,000

Compared to my impression that VC mind-share is 90% among first-time technology entrepreneurs, the reality is that only 0.02% of new businesses are VC funded.

The KIEA does not break out high-tech businesses but categorizes businesses as low, medium or high-income potential. The high-income potential businesses are approximately 20% of the total. Comparing VC funding of first-time deals to the total number of high-income potential new businesses in 2008 we can estimate that only 0.1% are venture funded.

Where are you spending your time?  Take this short poll:


Sources:

MoneyTree Report
https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/National_MoneyTree_full_year_Q4_2008_Final.pdf
The slide image is from a presentation found at:
http://www.docstoc.com/docs/DownloadDoc.aspx?doc_id=3764346

Kauffman Index of Entrepreneurial Activity 1996-2008
http://www.kauffman.org/uploadedFiles/kiea_042709.pdf

February 14, 2010 at 2:40 pm 1 comment

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