How We Structure the Sales Channel

At Zend, we sell anything from a certification prep exam at ~$10, through a PHP app server subscription at ~$5,000 and all the way to a 7-digit enterprise deal.There are 5 orders of magnitude between the small recurring deals and the very large enterprise ones.

This calls out for a plurality of sales methods that warrant addressing the following:

• To sustain required margins, the cost of sale must adhere to the ASP and number of transactions;
• The skill-set and sales behavior varies widely between a honed inside-sales rep that makes 50-100 calls a day and an enterprise rep that feels triumphant when meeting a CIO;
• The sales process, marketing efforts, lead gen programs and level of technical support all differ significantly at each level.

So how do we structure the organization to address this almost absurd range?

In essence we break down our selling efforts into different channels based on deal size.

The on-line store is the ultimate stop for the smallest deal sizes ranging from a few $ to a few thousands. This channel represent the highest transaction volume for the company and any man-in-the-loop approach would fail miserably trying to match the efficiency and scale of a fully automated self-service store. Main drivers for this channel are web marketing and social media governed by a healthy doze of analytics. This is a lucrative highly-sought after channel and quite challenging to succeed in building.

The inside sales team is a high-call-volume operation handling deals that are bigger than the ones commonly addressed by the on-line store but are still transactional in nature. These would generally be in the $X,000 range and occasionally higher. The main characteristic is a simple, rapid, repeatable sales process that is pursued remotely. We further split the efforts and recruit talent to create specialization between new accounts and renewals and further split renewals into small and large deal sizes.These high-talent teams need to be constantly fed with a high volume of leads, detailed call scripts and a managed utilizing sales call-center measurement and reporting systems.

The major global enterprises represent a lucrative market segment with the largest opportunities in unit volume and potential bookings. The enterprises are accustomed to purchasing on their terms and according to their playbook and in most cases take their time in making a decision before they spend. This channel is traditionally characterized by aggressive highly-experienced and well-paid enterprise sales execs who regularly take good care of their customers, where wine & dine and golf are common treats. The reality is that most of the work on these deals can be done remotely by an inside enterprise sales team at much lower cost with only occasional face-to-face meetings. This sales channel requires focused relationship management, enterprise sales tools, professional services offerings and the like.   

The partner channel serves as an extension of our sales team into additional territories which are out of our reach and into specialized markets that require domain-expertise that would not be profitable for us to obtain in-house. The target customers often speak a variety of different languages adding more complexity to doing this internally. Supporting the partner needs warrants product training and education, sales tools and technical assistance that often over-arches beyond the tools required by the internal sales force. It is especially evident with partners that carry multiple products and have limited bandwidth.


Some Takeaways
The optimization of sales channel to ASP is a big undertaking and at the same time a sales yield improvement opportunity. Measuring the cost of leads and cost of sales per channel is instrumental to getting this right.

An on-line self-serve e-store provides a huge leverage in sales efficiency and also serves as a lead generation opportunity with customers who have already identified themselves as paying customers. Measuring the yield on this one is somewhat fuzzy when employing multiple sales channels as most on-line efforts serve as both an ingredient in e-store sales and as a funnel activity for selling by reps.

Most open-source and "freemium" companies strive to get to the large deal sizes while at the same time have a low-cost low-barrier-to-entry package thus establishing a challenging ASP range. Managing a multitude of channels implies significant effort and resource allocation, generally defocusing a small organization. More is not better in this case as each sales channel demands the tailored tools, processes and resources from multiple constituents with the company. My take is to work diligently to narrow the ASP spectrum to a small number of discrete price points to allow focus and tune the channel to optimize those.

Organization's DNA - The Driving Force

What is the DNA driving your organization?

There is the "hammer looking for nails" start-up. In this one, the founders have a great idea and march ahead to build a product. They then look for the customers who fit the hammer or the product they built. As far as I can see, this represents the vast majority of start-ups at early stages, is led by technologists and the customer's pain is often an afterthought.

There is the sales driven approach where a company is completely focused on a set of customers that they have a relationship with and will build, in essence, anything that the customer needs. This is not the most common case in the start-up world but can be found with founders who come from the sales organization or when the head of sales is extremely powerful in the organization. These companies have the risk of ending-up as a services company while corporate strategy is more often that not the afterthought.

Then comes the marketing driven organization with the well planned strategy assessing the specific pains and needs of customers in a given market segment followed by building the "best fit" product delivering the solution to the pain. This approach is very challenging to master as you must build the product as if you were completely technology-driven, serve the customer as if you were completely sales-driven and at the same time make sure you do not get really attached to either.

While this debate has literally been around forever, it is eye-opening to observe how many companies out there are building cool technology and not really understanding the path to a sustainable scalable business addressing customer pains.

Which of the following best categorizes the company you work for?

Assessing a Company by its Forums

Every so often, I get asked by one of my venture capitalists acquaintances to look at a later stage company that they find interesting and provide my perspective.
There are the obvious due diligence items including the market opportunity, positioning and go-to-market, the  strategy, the technology, the team, and others. I will not discuss those in this post... But rather, one of the first things I do these days is check the company's forums.

Why check the forums and what can you learn?
The forums generally represent where the company is with regards to customer perception and how it is going to do in the future!

The main items I look for are:

• Is there real activity by customers? What are the main types of issues and concerns and what is the tone?
• How is the company responding to the posts? Unanswered posts lingering forever is a big warning sign of neglecting the customers.
• Is there a community of customers that is responding? A community of customers that takes on itself to answer questions quite often reflects a very solid ecosystem!

How is your company doing when you look at yourself through the "forum mirror"?

Funnel Conversions - What We Care About Mostly

Every marketing organization assess the effectiveness of their execution via different metrics. At Zend, we drive a significant portion of the revenue through the marketing funnel and thus lead generation metrics are at the heart of running the business. We measure hundreds of different metrics ranging from standard website traffic and download statistics, through newsletter parameters and all the way to on-line store purchase behavior. Saying that, we are generally very focused on a small number of key performance indicators (KPIs) for our main product line:

• "Top of the Funnel" - Track-able exposure to our content mostly through web visits and open-source/free downloads
• Activity- 
• Registrations - How many folks registered with us
• Downloads - Number of downloads of non-free products
• Real Interest- This is a metric of the level of activity within the funnel that eventually drives qualified leads as part of the nurturing activities. This includes trials or license requests, event attendance, etc.
• Qualified Leads-
• Volume- Number of of qualified leads provided to the sales team. This is so important that we have a weekly(!) commitment from marketing to the sales team on how many leads (and in what geography) are provided.
• Quality- Conversion rates of the leads into opportunities and closed business (bookings $). This is an important measure that has significant impact on the sales reps' yields.

 In 2010 we overachieved our qualified leads quota. We did this by closely monitoring the funnel metrics every week and quickly adapting and changing our behavior based on the trends we saw.
It takes full transparency to drive such behavior!
Getting there is difficult as it exposes every weakness very broadly but crossing that bridge is well worth it.

Hiring a Milkshake

I was thirteen years old and in front of my physics homework. When the right solution was far from my immediate reach, I turned to the excuse that the problem was a difficult one. My father quickly took the wind out of my sails by saying that I either understand the concept and then every question is simple or I don't and everything is difficult. Obviously, it was time to really understand the underlying concept.

So what does this have to do with strategy?
Do you really understand what job your product serves (and potentially can serve) or are you focusing on the customers you know and what features they want? Are you solving for the real challenge or is that too difficult?

Having worked in a number of technology companies, it seems that most overlooked approach is figuring out what the company's target audience actually needs to get done and how it can best be done.
Customers "hiring" a product to get a job done is thus the reality. Your product is merely being hired to assist the bigger purpose of getting a specific job done and you better understand what this job is.


So where is the milkshake here?
One of the best articles I have seen on this topic is "What Customers Want from Your Products" by Harvard Business School Professor Clayton Christensen and it describes a fascinating example about selling milkshakes. You can also see him talking to it here.

Enjoy.

The Very First One - Better Late Than Never

2010 is rapidly coming to an end and 2011 brings a number of resolutions. The first of them for me is to finally find the time to blog.

Let's start with some background information and make it brief.
I am a technologist at heart but really get excited when technology gets applied to solve real problems. I have worked for small and large companies and managed most functions organizations have ranging from general management and strategy to development and marketing, through sales and business development as well as support and professional services.

Today I run products, marketing and customer support for Zend Technologies and will share my thoughts and experiences across the board with a focus on Sales 2.0.
 
Welcome 2011.