building a sales & marketing machine
TRANSCRIPT
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
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
