building a sales & marketing machine

The Key Elements behind “Business Model”

Cost to Acquire the Customer (CAC)

Profit from that Customer (LTV)

Startup Killer There is a common problem:

An out of balance Business Model

Monetization

(LTV)

Cost to

Acquire a

Customer

(CAC)

Entrepreneurs are over-optimistic

What we are looking for

Monetization

(LTV)

Cost to

Acquire a

Customer

(CAC)

A well balanced business model

The Big Power Shift

The Internet caused the disruption

Buyers are now in charge

Able to find all the information they need on-line

Comparison shopping

Detailed reviews

Consumer reviews, complaints and comments

Buying Behavior has Changed

“Please understand that I get dozens of these types of messages a week. I

simply do not have time to read them, dig into them, follow-up on them, or reply to them. The most effective solution to this problem is for me to ignore the messages, which is what I usually do. …

… Finally, a small comment. As a customer, I find this type of approach to sales to be largely annoying to me and unproductive for you. We learn far more about what we want to purchase by searching the web, looking for customer references in blogs and forums, word of mouth, and by finding white papers on your site that concretely describe solutions to problems we are having.”

CIO of Large Pharma Co.

Sellers need to change

An intimate understanding of the Buyer

Buying behavior

Likes

Dislikes

… is the key to success

Buying Behavior has Changed

Outbound Marketing: Annoying to your customers

Expensive

Increasingly less effective

What is the new process? Google Search

Web Site

Reviews

Blogs & Social Media

Influencers

Trials or Free software / services

Requires Inbound Marketing thought processes

It’s not all bad news

The Internet has also given marketers some powerful new tools

Web sites, videos, trials, etc. to convey rich information

Search Marketing (SEO/SEM)

The Social Graph

Viral acquisition

Behavioral tracking

Location information

A/B Testing

Etc.

Business Model Disruption in B2B

New Low Cost Customer Acquisition Models:

The Low Cost Sales Model

(Inside Sales instead of Field Sales)

The Touch-less Conversion

Freemium

The Low Cost Sales Model (Inside Sales)

SolarWinds

2009 Revenues: $116 million

EBITDA: $60 million

Others: HubSpot, JBoss, LogMeIn, Constant Contact, Salesforce.com, etc.

52% operating margins

The Touchless Conversion

ZenDesk

Common Funnel Metrics:

10% of visitors do a trial

20% of trials convert to paid

Extraordinarily scalable

Extremely low cost

Free Trials require different Product Thinking

The product is your salesperson

Extreme focus on:

Ease of installation

Ease of use

Clear instructions on how to test (short videos, etc.)

Fast proof that it works

Sales Complexity

Freemium No Touch

Self-Service Light Touch Inside Sales

High Touch Inside Sales

Field Sales Field Sales with SE’s

How I assumed the two would relate

A rough estimate of CAC versus Sales Complexity

Freemium No Touch

Self-Service Light Touch Inside Sales

High Touch Inside Sales

Field Sales Field Sales with SE’s

$0- $10

$50 – $200

$1,000 - $2,000

$3,000 - $8,000

$25,000 – $75,000

$75,000 – $200,000

Rough Estimates of Cost of Customer Acquisition (CAC)

The relationship is roughly exponential

Clearly adding

Human Touch

dramatically

increases costs

$1

$10

$100

$1,000

$10,000

$100,000

Freemium No Touch Inside Sales Field Sales

Sales Complexity

CAC (logarithmic)

10x

10x

10x

$1

$10

$100

$1,000

$10,000

$100,000

$1,000,000

Freemium No Touch Inside Sales Channel Field Sales

Sales Complexity

Value / Pain / Urgency = LTV (logarithmic)

High CAC, requires high scores for: Value, Pain, Urgency

Unprofitable: LTV < CAC

$1

$10

$100

$1,000

$10,000

$100,000

$1,000,000

Freemium No Touch Inside Sales Channel Field Sales

Sales Complexity

Value / Pain / Urgency = LTV (logarithmic)

How SaaS changes Sales Complexity

Levers you can use to move from Red to Green

Make it easy for customers to sell themselves

Make the first decision to work with your product easy Simple product

Free versions, Free Trials, Open Source

Remove Complexity from closing the Sale Remove IT (SaaS)

Eliminate committee decision making

Make the first financial commitment easy $10,000 or below for enterprise sales

$250 per month for very small business SaaS

$1

$10

$100

$1,000

$10,000

$100,000

$1,000,000

Freemium No Touch Inside Sales Channel Field Sales

Sales Complexity

Value/Pain/Urgency

Able to leverage the

Internet revolution

Human Costs dominate:

Old world business model

Another trait of highly successful companies

A Sales and Marketing Machine

BUILDING

PR

Tradeshows

Brand

Advertising

Email

Marketing

Sales

Social

Media

Events

A SALES & MARKETING MACHINE

Webinars

WHAT IS A

“SALES & MARKETING

MACHINE”

?

PREDICTABLE

INSTRUMENTED

WITH GREAT

METRICS

COST OPTIMIZED

SCALABLE

AUTOMATED

CLEARLY DEFINED

LEVERS THAT YOU

PULL TO MAKE IT GO

FASTER

SALES &

MARKETING

MACHINE 9

BUILDING ONE OF THOSE?

HOW DO YOU GO ABOUT

STEPS 9

BECAUSE 1, 2 AND 3 ARE NOT OBVIOUS SO WE WILL COME BACK

TO THEM AT THE END AFTER WE HAVE SEEN WHY THEY ARE

SO VALUABLE

WHY 4 FIRST?

4

ALIGN EVERY MARKETING ACTIVITY AROUND ONE GOAL…

CREATING LEADS THAT HELP SALES

CLOSE MORE

DEALS

4 ALIGN

Sales CLOSED

DEAL

Blogging

Social Media

SEO

SEM

PR

eMail Campaigns

Webinars

Sales CLOSED

DEAL

If it doesn’t create a lead, or

directly contribute towards

closing a sale, it doesn’t belong

RULE NUMBER 1

Sales CLOSED

DEAL

If the cost per lead is too high,

it doesn’t belong

RULE NUMBER 2

Exception to this rule: If you can recover cost through:

• higher conversion rate to closed deals

• higher average deal size

Sales CLOSED

DEAL

LINK 5

1. At the end of every action, there should be a clear link to the next action

2. The overall flow from start to finish should be carefully designed

CLEARLY LINK FLOWS FROM

START TO FINISH

SEO FREE

TRIAL EMAIL

CAMPAIGN

SALES

TOUCH

CLOSE LANDING

PAGE

$

AN ORGANIZATIONAL

STRUCTURE…

YOUR CUSTOMER’S

PURCHASING STAGES

CONSIDERATION

CLOSED

DEAL

AWARENESS

PURCHASE

AN ORGANIZATIONAL

METAPHOR FOR THE KEY

FUNNEL STAGES

MIDDLE OF THE FUNNEL

CLOSED

DEAL

TOP OF THE FUNNEL

SALES

WHAT IS TOP OF THE

FUNNEL?

customer is not aware

they have a problem, or

that your product

category exists

GENERATE

AWARENESS

customer has a

problem and is

looking for a solution

GET FOUND

WHAT IS TOP OF THE

FUNNEL?

GENERATE

AWARENESS

WEBSITE

RAW LEAD

WHAT IS TOP OF THE

FUNNEL?

GENERATE

AWARENESS &

GET FOUND

WEBSITE

Inbound marketing

Outbound marketing

RAW LEAD

WHAT IS THE MIDDLE OF

THE FUNNEL?

NURTURE QUALIFY

MQL (MARKETING QUALIFIED

LEAD)

SEGMENT

PROBLEM:

SALES

MARKETING SAYS THAT’S

RIDICULOUS, I GAVE

THEM A TON OF LEADS.

THEY JUST DON’T

FOLLOW UP ON THEM

PROPERLY.

MARKETING

SALES SAYS

MARKETING

ISN’T GIVING

THEM

ENOUGH LEADS

CAUSE:

SALES

SALES CALLS A FEW

UNQUALIFIED LEADS,

AND FINDS THEY ARE

WASTE OF TIME -

THEY STOP CALLING

THE REST OF THE

LEADS

SOLUTION:

MARKETING

GET AGREEMENT ON

THE QUALIFICATION

CRITERIA NEEDED TO

BE ABLE TO PASS A

LEAD ACROSS TO

SALES (MQL)

SALES FURTHER QUALIFIES THOSE

LEADS TO SALES

FIND

OPPORTUNITIES

USING BANT

BUDGET

AUTHORITY

NEEDS

TIMING

RAW LEAD

MQL (MARKETING QUALIFIED

LEAD)

OPPORTUNITY (SALES QUALIFIED

LEAD)

CLOSED

DEAL

COMMON LEAD STATES

AUTOMATE 6

CLOSED

DEAL

TOP OF THE FUNNEL

INBOUND

MARKETING

MIDDLE OF THE FUNNEL

MARKETING

AUTOMATION

SALES

CRM

LEAD SEGMENTATION

MEASURE 7 "IF YOU CAN NOT MEASURE IT,

YOU CAN NOT IMPROVE IT."

- LORD KELVIN

VISITORS

CAMPAIGNS

TO DRIVE

TRAFFIC

TRIALS

CLOSED DEALS

CONVERSION

%

CONVERSION

%

OVERALL

CONVERSION %

(BY LEAD SOURCE)

THE KEY METRICS

ANALYZE 8

BUT EVEN IF YOU ARE MICROSOFT,

CISCO, ORACLE, OR GOOGLE

YOUR FUNNEL WILL HAVE

BLOCKAGE

POINTS

Suspects Suspects

Suspects

Suspects

Suspects

Suspects

Suspects Suspects

Suspects

Suspects

Suspects

Suspects

IDENTIFY YOUR BLOCKAGE POINTS

HOW?

WHAT IS STOPPING ME FROM INCREASING SALES BY 5X ?

IMPROVE 9

IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,

I HAVE FOUND THAT THERE IS A

CLEAR

PATTERN…

NOT MOTIVATED TO DO THAT THEY ARE

CUSTOMERS WILL DO

SOMETHING

YOU ARE HOPING YOUR

IN OTHER WORDS…

YOU DESIGNED YOUR FUNNEL

THE WAY YOU HOPED IT WOULD

WORK…

BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT

THE CUSTOMER’S POINT OF

VIEW

JBOSS EXAMPLE

CUT THE DOWNLOAD RATE

BY MORE THAN 10X

PUT A REGISTRATION FORM

ON THEIR WEB SITE BEFORE

A FREE DOWNLOAD

IMPACT

CONCERNS

- Hate being sold to

- Don’t want to get spam

sales emails

GET INSIDE YOUR

CUSTOMER’S HEAD

UNDERSTAND WHAT

MOTIVATES THEM

- Want to solve my problem

- Recommended by a friend

- Education

- Data/ information reports

- Entertainment

- Free stuff

CONCERNS

MOTIVATIONS

CREATE A SOLUTION THAT

ENTICES THEM AND ADDRESS THEIR CONCERNS

- Customer testimonials address

vendor risk

- Free trials address product

viability and fit concerns

CONCERNS

ENTICE &

ADDRESS CONCERNS

EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE

GETTING FOUND

Not going to find your site unless:

- On 1st page of Google search

- Recommended by trusted

source

- Referred to in social media or

blogosphere

concerns

LESSONS FROM WEBSITE

GRADER

• Free tools drive viral spread

• Low customer work required

• High value delivered

• Score leverages competitive urge

• Builds trust through clear

demonstration of expertise

GOOD LINKAGE TO NEXT STEP

using engineering for marketing

USING DATA TO DRIVE WEB

TRAFFIC SYSOMOS: SOCIAL MEDIA MONITORING

LEVERAGED THEIR DATABASE TO

CREATE BLOG POSTS WITH DATA ON

TOPICS OF CURRENT INTEREST: • IRAN ELECTION RIOTS

• TWITTER’S GROWTH

• FACEBOOK USAGE

LED TO: SYSOMOS ARTICLES IN

ECONOMIST, NY TIMES

WEB TRAFFIC TO READ THE FULL REPORT

LEADS – IMPRESSED BY THE CAPABILITIES

OF THE SOFTWARE

GETTING CUSTOMERS TO SIGN UP FOR A TRIAL

- I don’t have the time

- I don’t want to get

spam email

- Yet another password

to remember

concerns

RE-THINK THE PROCESS

Source: Josh Porter – Designing for Social Traction

CONVENTIONAL

APPROACH SIGN UP

FOR TRIAL

CONVERT

TO

CUSTOMER

WOW!

WOW! FIRST,

REGISTER LATER WOW! SIGN UP

FOR TRIAL

CONVERT

TO

CUSTOMER

1

2

3

4

PROBLEM:

GETTING A MEETING

GETTING TO EXECUTIVE

DECISION MAKERS

TECHCRUNCH FOR

INSURANCE CLAIMS

DROPBOX: SIMPLE FILE SHARING SOFTWARE – Get you hooked for free

– Storage slowly increases to the point where you need to pay

– But by then they have established trust

– And it is hard to move your data that is shared with others

Build Trust

Sell

Sell First Contact

First Contact Build

Relationship

SELLING IS 10X EASIER…

ONCE YOU HAVE ESTABLISHED TRUST

YOUR BLOG CAN ESTABLISH TRUST…

HOW?

EDUCATION

INFORMATION

ENTERTAINMENT WITH ZERO SELLING

VALUABLE CONTENT

THE KEYS TO SUCCESS

DEEP UNDERSTANDING OF YOUR CUSTOMER

• What don’t they like?

• What do they like/need?

• What motivates them?

• What are their problems?

• What does their boss expect of them?

• etc.

Combined with

OUT-OF-THE-BOX THINKING

APOLOGIES MY EXAMPLES ARE ALL SOFTWARE COMPANIES

THIS APPLIES EQUALLY WELL IN OTHER BUSINESSES

FINALLY… LET’S GO BACK TO THE BEGINNING…

…AND INTRODUCE

THREE NEW STEPS AT

THE BEGINNING OF

THE FUNNEL DESIGN

PROCESS…

IDENTIFY

1

IDENTIFY ALL THE PEOPLE INVOLVED IN THE

PURCHASE DECISION

UNDERSTAND

2

SKETCH OUT THEIR BUYING PROCESS AND

CONCERNS AT EACH STAGE

ENTICE

3

ADD THE STEPS TO ADDRESS THEIR BUYING

PROCESS

AND:

ADDRESS THEIR CONCERNS

ENTICE THEM

SUMMARY

WE WENT FROM

THIS: 1. Align

2. Link

3. Automate

4. Measure

5. Analyze

6. Improve

TO THIS… 1. IDENTIFY

2. UNDERSTAND

3. ENTICE

4. Align

5. Link

6. Automate

7. Measure

8. Analyze

9. Improve

THE NINE STEPS

1. IDENTIFY Identify people in purchase decision

2. UNDERSTAND Address their buying process and concerns

3. ENTICE Design actions to pull them through buying process

& address concerns

4. ALIGN Ensure funnel actions lead directly to sales

5. LINK Link every funnel action to the next step

6. AUTOMATE Use software to automate

7. MEASURE Measure key funnel metrics

8. ANALYZE Identify blockage points

9. IMPROVE Brainstorm better enticements and ways to address

concerns

CUSTOMER-CENTRIC

FUNNEL DESIGN

SALES-DRIVEN

FUNNEL DESIGN

TO A

CASE STUDY JBOSS

JBOSS

- FREE open source software

- downloaded 5 MILLION times

The Highlights

• Breakthrough Business Model

– Open Source

– A great example of the power of Free

– 5 million downloads

• The first challenge: How to monetize

• The second challenge: Conversion

– While keeping CAC low

– Solution: Build a Sales & Marketing Machine

ORIGINAL BRAINSTORMING SESSION

THE FIRST BLOCKAGE POINT

• 5 million users had downloaded JBoss

– But none had given their names

• The problem:

– email registration in front of download reduces conversion rates significantly

JBOSS example

NEEDED: a carrot to incent them to provide

an email address

SOLUTION: give away the documentation

for free

RESULT: 10,000 leads per month

JBoss - Sales & Marketing Machine

Phone

Call

Lead

Nurturing

Inside

Sales Web

Leads

Web

Scoring

Enterprise Rollouts Suspects Closed Deals

Metrics: The End Goal

Web activity scoring

Tele- marketing

Tele- sales

Raw Leads

Closed Deals

4:1 (25%)

3:1 (33%)

4:1 (25%)

Using the model to work backwards

• To do $4m in the month:

– If Average Deal Size is $10k

– Need $4m divided by $10k deals to reach target = 400 deals

– Means 1,200 deals being worked in Inside sales (400x4)

• Know that each rep can work 60 deals at a time, means 20 reps

– Means 3,600 telemarketing contacts (1,200x3)

– Means 14,400 Raw Leads (3,600x4)

Web activity scoring

Tele- marketing

Inside- sales

Raw Leads

Closed Deals

4:1 3:1 4:1

THE NEXT CHALLENGE: INCREASE LTV

• Multi-pronged approach

– Add services to the subscription (beyond just support) • Key service was JBoss Operations Network

– Broaden the product line and upsell • JBoss Enteprise Middleware Suite (JEMS)

– Scalable Pricing • 4 axes to drive pricing higher

• Result

– Drove average deal size from $10k to $50k

– While maintaining the same pipeline flow and conversion rates

THE RESULTS

• Before venture financing

– 2003 $2m

• Early 2004

– venture round closes

• Bookings Growth:

– 2004 $11m

– 2005 $26m

– 2006 on plan to do $65m 0

10

20

30

40

50

60

70

2003 2004 2005 2006

JBOSS SUMMARY

• Business Model disruption – Gave the product away entirely free

– Monetized support & management

• Low CAC – Leveraged free and virality to acquire non-paying customers

• Sales & Marketing Machine – Careful study of customer motivations

– Low cost Sales model

– Excellent Metrics

• Scalable pricing model

For More information

Visit my blog at www.forEntrepreneurs.com