+A SALES AND MARKETING MACHINE FOR ACHIEVING A STARTUP BUSINESS

ANKUR VERMAABHINAV PARMAR

ARVINDERPAL

The Key Elements behind “Business Model”

Cost to Acquire the Customer (CAC)

Profit from that Customer

Startup Killer There is a common problem:

An out of balance Business Model

Monetization

Cost toAcquire aCustomer(CAC)

Entrepreneurs are over-optimistic

What we are looking for

Monetization

Cost toAcquire aCustomer(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

Sellers need to change

An intimate understanding of the Buyer

Buying behaviorLikesDislikes

… is the key to success

Buying Behavior has Changed

Outbound Marketing:

Annoying to your customersExpensiveIncreasingly less effective

What is the new process?

Google SearchWeb SiteReviewsBlogs & Social Media

InfluencersTrials or Free software / services

Requires Inbound Marketing thought processes

It’s not all bad news

The Internet has also given marketers somepowerful 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 ConversionFreemium

The Low Cost Sales Model (Inside Sales)

SolarWinds

Others: HubSpot, JBoss, LogMeIn, ConstantContact, Salesforce.com, etc.

2009 Revenues: $116 millionEBITDA: $60 million

52% operating margins

The Touchless Conversion

ZenDesk

Common Funnel Metrics:

10% of visitors do a trial20% 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 TouchSelf-Service

Light TouchInside Sales

High TouchInside Sales Field Sales Field Sales

with SE’s

A rough estimate of CAC versus Sales Complexity

Freemium No TouchSelf-Service

Light TouchInside Sales

High TouchInside 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 addingHuman Touchdramatically

increases costs

$1

$1,000

$100

$10

Freemium No Touch Inside Sales Field Sales

Sales Complexity

CAC (logarithmic)

$100,000

10x

$10,000

10x

10x

$100

$10

$1Freemium No Touch Inside Sales Channel Field Sales

Sales Complexity

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

Value / Pain / Urgency = LTV (logarithmic)$1,000,000

$100,000

$10,000

$1,000

Unprofitable:LTV < CAC

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 productFree versions, Free Trials, Open Source

Remove Complexity from closing the Sale

Remove IT (SaaS)Eliminate committee decision making

Make the first financial commitment easy $250 per month for very small business SaaS

Another trait of highly successful companies

A Sales and Marketing Machine

PR

Sales

EmailMarketing

SocialMedia

Events

Tradeshows

BUILDINGA SALES & MARKETING MACHINE

BrandAdvertising

Webinars

WHAT IS A

“SALES & MARKETINGMACHINE”

?

PREDICTABLE

INSTRUMENTEDWITH GREAT

METRICS

COST OPTIMIZED

SCALABLE

AUTOMATED

CLEARLY DEFINEDLEVERS THAT YOUPULL TO MAKE IT GOFASTER

SALES &MARKETINGMACHINE 9

BUILDINGONE OF THOSE?

HOW DO YOU GO ABOUT

STEPS9

IDENTIFY

1

IDENTIFY ALL THE PEOPLE INVOLVED IN THEPURCHASE DECISION

UNDERSTAND

2

SKETCH OUT THEIR BUYING PROCESS ANDCONCERNS AT EACH STAGE

ENTICE

3

ADD THE STEPS TO ADDRESS THEIR BUYINGPROCESS

AND:ADDRESS THEIR CONCERNSENTICE THEM

ALIGN EVERY MARKETING ACTIVITY AROUND ONE GOAL…CREATING LEADS THAT HELP SALES

CLOSE MOREDEALS

4 ALIGN

Sales CLOSEDDEAL

SEO

Blogging

Social MediaeMail

Campaigns

WebinarsSEM

PR

SalesCLOSEDDEAL

If it doesn’t create a lead, ordirectly contribute towardsclosing a sale, it doesn’t belong

RULE NUMBER 1

Sales CLOSEDDEAL

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 CLOSEDDEAL

LINK5

1.

2.

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

The overall flow from start to finish should be carefully designed

SEO FREETRIAL

EMAILCAMPAIGN

SALESTOUCH

CLOSELANDINGPAGE

CLEARLY LINK FLOWS FROMSTART TO FINISH

$

AN ORGANIZATIONALSTRUCTURE…

YOUR CUSTOMER’SPURCHASING STAGES

CONSIDERATION

CLOSEDDEAL

AWARENESS

PURCHASE

AN ORGANIZATIONALMETAPHOR FOR THE KEYFUNNEL STAGES

MIDDLE OF THE FUNNEL

CLOSEDDEAL

TOP OF THE FUNNEL

SALES

WHAT IS TOP OF THEFUNNEL?

customer is not awarethey have a problem, or

that your productcategory exists

GENERATEAWARENESS

customer has aproblem and is

looking for a solution

GET FOUND

GENERATEAWARENESS

WEBSITE

WHAT IS TOP OF THEFUNNEL?

RAW LEAD

WEBSITEGENERATEAWARENESS &GET FOUND

Inbound marketing

Outbound marketing

WHAT IS TOP OF THEFUNNEL?

RAW LEAD

WHAT IS THE MIDDLE OFTHE FUNNEL?

NURTURE QUALIFY MQL(MARKETING QUALIFIED

LEAD)

SEGMENT

PROBLEM:MARKETING SAYS THAT’SRIDICULOUS, I GAVETHEM A TON OF LEADS.THEY JUST DON’T

FOLLOW UP ON THEMPROPERLY.

SALES SAYSMARKETINGISN’T GIVING

THEMENOUGH LEADS

MARKETING

SALES

CAUSE:

SALES

SALES CALLS A FEWUNQUALIFIED LEADS,AND FINDS THEY AREWASTE OF TIME -

THEY STOP CALLINGTHE REST OF THE

LEADS

SOLUTION:

MARKETING

GET AGREEMENT ONTHE QUALIFICATIONCRITERIA NEEDED TOBE ABLE TO PASS ALEAD ACROSS TOSALES (MQL)

SALES FURTHER QUALIFIES THOSESALES LEADS TO

FINDOPPORTUNITIES

USING BANT

BUDGETAUTHORITYNEEDSTIMING

RAW LEAD

MQL(MARKETING QUALIFIED

LEAD)

OPPORTUNITY(SALES QUALIFIED

LEAD)

CLOSEDDEAL

COMMON LEAD STATES

AUTOMATE6

DEAL

TOP OF THE FUNNEL

INBOUNDMARKETING

MARKETINGAUTOMATION

SALESMIDDLE OF THE FUNNEL

CRMCLOSED

LEAD SEGMENTATION

7 MEASURE"IF YOU CAN NOT MEASURE IT,YOU CAN NOT IMPROVE IT."

- LORD KELVIN

VISITORSOVERALL

CONVERSION %CONVERSION

%

TRIALS(BY LEAD SOURCE)

CONVERSION%

CLOSED DEALS

THE KEY METRICSCAMPAIGNSTO DRIVETRAFFIC

ANALYZE8

SuspectsSuspects

SuspectsSuspects

SuspectsSuspectsSuspects Suspects Suspects

Suspects Suspects

BUT EVEN IF YOU ARE MICROSOFT,CISCO, ORACLE, OR GOOGLEYOUR FUNNEL WILL HAVE

BLOCKAGEPOINTS

IDENTIFYYOUR BLOCKAGE POINTS

HOW?

WHAT IS STOPPING MEFROM INCREASING SALES BY 5X ?

IMPROVE9

IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,I HAVE FOUND THAT THERE IS A

CLEARPATTERN…

NOT MOTIVATED TO DOTHAT THEY ARE

CUSTOMERS WILL DOSOMETHING

YOU ARE HOPING YOUR

IN OTHER WORDS…

YOU DESIGNED YOUR FUNNELTHE WAY YOU HOPED IT WOULDWORK…

BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT

THE CUSTOMER’S POINT OFVIEW

JBOSS EXAMPLE

CUT THE DOWNLOAD RATEBY MORE THAN 10X

PUT A REGISTRATION FORMON THEIR WEB SITE BEFOREA FREE DOWNLOAD

IMPACT

CONCERNS- Hate being sold to

- Don’t want to get spamsales emails

GET INSIDE YOURCUSTOMER’S HEAD

-

-

-

-

-

-

Want to solve my problem

Recommended by a friend

Education

Data/ information reports

Entertainment

Free stuff

UNDERSTAND WHATMOTIVATES THEM

CONCERNS

MOTIVATIONS

-

-

Customer testimonials addressvendor risk

Free trials address productviability and fit concerns

CREATE A SOLUTION THATENTICES THEM AND ADDRESS THEIR CONCERNS

CONCERNS

ENTICE &ADDRESS CONCERNS

SUMMARY

1.IDENTIFY Identifypeopleinpurchasedecision

2.UNDERSTAND Addresstheirbuyingprocessandconcerns

3.ENTICE Designactionstopullthemthroughbuyingprocess&addressconcerns

4.ALIGN Ensurefunnelactionsleaddirectlytosales

5.LINK Linkeveryfunnelactiontothenextstep

6.AUTOMATE Usesoftwaretoautomate

7.MEASURE Measurekeyfunnelmetrics

8.ANALYZE Identifyblockagepoints

9.IMPROVE Brainstormbetterenticementsandwaystoaddressconcerns

THE NINE STEPS

CUSTOMER-CENTRICFUNNEL DESIGN

SALES-DRIVENFUNNEL DESIGN

TO A

CASE STUDYJBOSS

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:

SOLUTION:

RESULT:

a carrot to incent them to providean email address

give away the documentationfor free

10,000 leads per month

JBoss - Sales & Marketing Machine

PhoneCall

LeadNurturing

InsideSales

WebLeads

WebScoring

EnterpriseRolloutsSuspects Closed Deals

Metrics: The End Goal

Webactivityscoring

Tele-marketing

Tele-sales

RawLeads

ClosedDeals

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)

Webactivityscoring

Tele-marketing

Inside-sales

RawLeads

ClosedDeals

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– 2005

$11m$26m

– 2006 on plan to do $65m 0

20

10

50

40

30

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