Yet Another (ex-)VC Blog

Cloud computing, startups, and venture capital

Shrink Before You Grow and Sales 2.0

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This past Thursday I left the friendly confines of VMTurbo HQ and attended Highland Capital Partners‘ “Sales 2.0” conference in Cambridge, MA.    The conference was dedicated to sharing knowledge about the “low touch” sales model –  a sales model that does not depend on an army of direct sales representatives knocking on customer doors and doing face-to-face meetings.   Unlike the traditional sales model, the “low touch” model relies heavily on taking leads from the web and moving them through a drip marketing funnel, using inside sales teams to close business when the customer is ready to buy.  This model is gaining quite a bit of attention due to the success of companies like Solarwinds and LogMeIn, both of whom have had recent IPOs.

Every presentation and panel at the conference was great, although the most engaging one was from Joe Liemandt, the CEO and founder of Trilogy.  I remembered Trilogy from the late 90’s, when they were running splashy recruiting events at my alma mater.  Over time they have morphed into a holding company that buys struggling software companies for pennies on the dollar, restructures them, and then turns them profitable.  In his talk “Shrink Before You Grow,” Joe made many great observations and suggestions which came from his experience purchasing and restructuring these companies – and advice which I think is also applicable to software startups.

Here are a couple I thought were particularly interesting…

Field direct sales forces selling $100k-ish deals is a money losing proposition: The dirty little secret of enterprise software is that companies who sell with a field salesforce are typically losing money on each deal.  So, when Joe buys a company, he typically fires the entire field salesforce and moves to a low-touch model (inside sales).  He did say that they will retain one field sales team to chase big ($5MM+) deals, since those are deals that can be done profitably via a direct sales force (and would also be impossible to sell without sending someone onsite to meet senior management).

(My takeaway: use senior management as a direct sales team in the event the customer requires high touch in the sales process AND the deal is big enough to warrant that high touch)

Focus on attach rate and install base, not price: When Joe buys a struggling company, he looks at its product line and figures out which products are not seeing good attach rates with the installed base.  Then, he works hard (by listening to the base and by cutting prices) to get that attach rate up.  They also spend a good deal of resources on support, and do some unconventional but very customer friendly things.  For example, one of the companies they purchased was an accounting software company, and as part of the restructuring they hired CPAs for the support group.  When a user called support, they would not only be able to get software help, but could also get accounting help from a CPA!  Talk about a great way to cultivate a strong install base.

(My takeaway: In a low touch model, there is certainly an element of a volume game, where you are trying to fill your funnel with as many leads as possible, qualify them, and then move them through the funnel until they are ready to buy.  However, your existing base is going to be the best place to look for additional revenue opportunities, so make sure you’re not focusing only on building a massive leads database just for the sake of doing so.)

I’m spending alot of time these days analyzing and learning about the low touch sales 2.0 model, so if you have any good pointers or resources, please add them in the comments!

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Written by John Gannon

December 6, 2009 at 2:29 pm

2 Responses

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  1. Nice post, John. Sounds like a great event.

    Any insight on field sales for account management and farming?

    It seems like hybrid models are quite common, and can be executed profitably – if you nail your key metrics (e.g. CAC, CLTV).

    Like

    Mike Cichowski

    December 7, 2009 at 12:08 am

  2. Hi Mike – thanks for the comment. Re: farming, what we have heard and seen is that inside teams (“customer success” or “renewal” groups) can drive that function as well.

    Your point about key metrics like CAC and CLV are spot on as well. From what I gather, the challenges in hitting those metrics are not only about execution but also about measurement (accurately accounting for customer acquisition cost, making sure you can track leads through the entire funnel, etc).

    Like

    John Gannon

    December 8, 2009 at 5:28 pm


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