Monday, February 5, 2007

What's your blood commit?

There is a great article in the always informative Infectious Greed blog by Paul Kedrosky. The article talks about putting together a board package, but it provides great insights into the challenges of forecasting/planning at software startups. What metrics are appropriate to track? How can you create the right incentives for the field sales reps? How do you get visibility into the sales pipeline - what is real vs. what is wishful thinking. The underlying issue, apart from accurate forecasting, is about ironing out revenue lumpiness. Lumpy revenue is valued significantly less than smooth revenue and any planned exit needs a plan to decrease lumpiness.

The question of metrics is an interesting one and one that needs careful thought through in a start-up environment. I''ll save that issue for a future post, though, and just focus on the sales process. Here are some rules of thumb that I've seen work well at start-ups.

  • Hire sales reps familiar with how your product is bought, not how it works. What I mean by that is the specific domain knowledge of the sales rep is much less important that their familiarity with the selling process that your company requires. For example, lets say that you're selling a specific type of data security product, one that is useful for CFO's and the financial department. You have two possible sales reps in the hiring queue: one has sold a financial app to CFO's in his past job, and one has sold security software to the CIO in her past role. Who should you hire? You're much better off hiring the person who is familiar with your buyer - the guy who sold the financial app, not the woman who sold security software. Domain knowledge can be learned pretty easily during the course of a sales-kick-off meeting or two, but understanding the modus operandi of your buyer, their concerns, their quirks and sensibilities - that's invaluable and it can't be taught.
  • Fear is not a substitute for metrics. Often, sales leadership will compensate for a lack of metrics by ratcheting up the pressure on sales reps. The title of this post, "What's your blood commit?" is an actual question I've heard asked. I love the term: its very evocative of the near-desperation at the exec level when management doesn't have a good handle on forecast. While the intent is good (to understand what sort of discount factor to apply to over-optimistic forecasts), the approach is almost always counter-productive. Sales reps will respond to pressure by telling you what you want to hear. Use whatever management tool works for you, but it cannot be a substitute for hard numbers.
  • Be the ant, not the grasshopper. The old fable, about the importance of hard work and preparation, is very relevant in sales territory development. A common scenario with a new sales rep is that they come on board and start working their Rolodex. It may work for a couple of quarters, but once its done, like the ant, they find they have no pipeline to work with. Reps should be plugged into the marketing, lead generation and follow up process as soon as possible. This is the only sustainable way for them to develop their pipeline. This means that sales reps should allocate some time for cold-calling every week, develop local relationships such as those with industry trade groups and participate in trade shows and other events. These activities need to be built into their compensation plans.
What are some other sales lessons you've learned from your own start-up experiences?