The Loop: We have heard many times that the best way to start a
company is to get someone to pay in advance for your product.
How do you approach potential customers to propose that they
pay to help develop your product? How are these people
different from alpha or beta customers, if at all?
Dubbé (GD): It is a wonderful occasion when a customer will
'pre-buy' a product. But, realistically, you need to have a
concept and product design prior to even discussing a customer
purchase. Usually, a 'pre-buy' will only occur when there is a
prior relationship with the customer. In reality, the customer
is buying you! The trust that you have will allow the customer
to take a leap of faith that you will deliver what you
promised. You must be really careful that the intellectual
property is protected in this instance. The customer must know
that you 'own' the product. The consulting agreement/purchase
order must read correctly, or else the customer may 'own' the
software that you developed instead of you owning the
common is the instance in which an entrepreneur puts 'sweat
equity' into a product and there is at least an alpha that a
customer can see. The project is then refining or enhancing
the alpha code. In this age, it is unrealistic to expect
customers to purchase 'vaporware.' My personal feeling is that
if you feel strongly about an idea, then get the code to a
stage where the customer is modifying or customizing the
The Loop: What else do such customers typically expect in exchange for
their time and money in helping you develop your product? Are
there standard terms and agreements that are negotiated in
such an arrangement?
GD: Early customers have the expectation that their requirements will
lead the direction of the product. Expect that they will
consider their needs the priority in development. They will
usually expect that their new ideas will migrate into the
product with no additional costs. Be clear in the Statement of
Work what is included and what is not. A Statement of Work is
essential. There will likely be a Purchase Order for the
product and then a Statement of Work for the consulting.
However, expect some 'creep' of the statement of work to
accommodate customer enhancements. The fine line of working
with a customer is to meet their requirements without totally
changing the direction of your product.
The Loop: We've also heard that these early customers can sometimes
cause problems later because they demand special treatment or
take you off track from your core market. How do you balance
initial customers with developing a product that can be sold
"out of the box" to a broad market?
GD: A hard problem. First, the further along your product is, the
better chance you have of maintaining the purity of your
direction. But, realistically, first customers demand and get
special treatment. They are your references, your benchmark
and where you make your mistakes. They will take the benefits
and the pain of the relationship. They are likely your first
bit of revenue. They deserve some special treatment. The
really difficult line to maintain is where the product is
mainstream and where the changes only benefit the first
customer. I try to stick to the 80/20 rule. As long as 80% of
the customizations take the company toward a sellable product,
the 'cost' of getting the first customer is that last 20%.
The Loop: What is a sales model and what are the attributes of a
successful sales model?
GD: A sales model is your 'best guess' at the market. A successful
sales model 'learns' from your experience. I do not mean to
imply that you need a complicated piece of software to monitor
and maintain the 'model.' You need common sense. You can
manage a startup successfully with Excel. The key is to factor
in what you know.
example, in your business plan you assume that the average
sales price is $100K, but in the first three deals it is $30K.
Re-factor the model. Whatever you choose as your time to close
a deal, add three months. If the model still makes sense with
the longer sales cycles, wonderful! If not, figure out how to
get more in the pipeline. Right now, everything is taking
longer to close. Be realistic; the model is only as good as
The Loop: Once you're ready to tackle a broad and definable market,
what goes into developing an effective sales and distribution
model? Are there typical questions to ask yourself either at
the business plan stage or later?
GD: Ask yourself questions at all stages. First, get a couple of
quality customers regardless of your distribution model. You
will need the customers to get resellers or as references for
direct sales. The first customers are your responsibility
regardless of the distribution strategy or model. The basic
question for how to distribute is the broad market
applicability of your product. There are some products which
are just to complicated to send through distribution. Realize
that you need to train the channel even better than you need
to train a direct sales force. Sound crazy? Think about it.
Your direct salesman can walk down the hall and get an answer
to a question, a channel sales force can't. If they can't get
an answer, they won't sell, so you’d better have ways for
them to get educated and respond to their questions. If you
have a complex product, think hard about how to make it easy.
If you just can't make it easy, go direct until you can figure
The Loop: In the early days, founders are doing most, if not all, of
the selling. What are the key factors to developing a
replicable sales model so the company can begin to think about
hiring additional sales professionals? When should you start
thinking about hiring the first salespeople?
GD: The key factors in developing a replicable sales model are the
ABCs: Automate, Boilerplate, Clone. Know what works and what
doesn't. and teach people that! Every question that you
answer, write it down. The next time that it is asked, you
won't need a salesman to take valuable pre-sales time by
answering it again. In addition, the capture of the data is
key to a repository for the channel and a great way to know
what problems customers are having. When you get an objection,
take note. If you hear it again, then fix the issue.
that there is a craft to sales. Some folks seem to think that
'build it and they will come' or 'anyone can sell.' Times have
proven otherwise. Your best asset is a 'hunter' that wants to
close business. For early stage companies, my recommendation
is to hire folks who are not used to working in large
infrastructures. Folks (many, but not all) who come from large
companies are used to having resources or knowing where to go
to get them. In a startup, they need to create what they need,
share with others, and know that they are the pioneers and it
will not be readily available. I have seen a fair share of
salespeople, who migrated from large companies get really
frustrated by the differences in a startup culture.
The Loop: Is there a typical process for hiring a sales organization?
For example, should you hire a VP of Sales first and let that
person build the sales team, or should you hire sales
professionals as driven by new business opportunities?
GD: It depends. If you know that you have the budget for the sales
organization, I prefer to hire the top person first and let
them build the team. However, in these days, it usually
doesn't happen like that. Usually, a company will hire one or
a small cadre of folks who are independent. Be clear that you
will be building the organization and hiring above them at
some time—and hire 'guns'. Give them the autonomy to sell.
Make everyone accountable for a number. I do not advocate
'business development.' In early stage numbers count.
The Loop: How does a company at the earliest stages of development
with limited resources attract and compensate quality sales
You must find people who believe in you, in themselves and in the
idea. Early stage companies succeed by a combination of
perseverance and perspiration. People going to an early stage
company must realize (or they are not the right hire) that
there is a trade off between salary and equity, between risk
and reward. If they don't get the tradeoffs, they are likely
not the right hire. On a practical note, the best sales people
will want to know that you are well-funded or will want more
equity to offset funding risk. You find folks like this
through your attorneys, accountants, and the network!
The Loop: As a company grows in terms of customer base, revenue, and
number of employees, what are the key factors for developing a
successful sales organization? How does the sales organization
integrate into the company as a whole?
GD: The company culture must advocate that sales is key to everyone's
success. The sales organization will be on a peer level with
engineering. There will be “discussions”—many loud and
long—about deals, and both organizations should have equal
voice. The company must realize that everyone is in sales:
there are 'closers' in sales, there are 'minders' in customer
support, there are developers in engineering, but everyone
Gartner: What do you think of the idea of a perpetual license for
those early customers that are going to fund the development
of your product?
GD: Most all software licenses are perpetual licenses. The
customer owns the version of the product that they have paid
for. They only get enhancements if they pay maintenance fees.
The other type of license is a 'time based' license.....but
this is not very common.
am interested in finding out the best way to garner new
clients. We have wonderful client retention but I want new
clients. My sales efforts have included emailing to extensive
lists, direct mail, networking events and small business
groups. At one meeting we joked about placing signs on
telephone poles at intersections. In your experience, is one
better than another?
GD: Finding new clients is always a challenge. Start with your best
resource......your existing clients. First, ask your customer
base for references to new clients. Anyone that closes, pay a
'bonus' in the form of additional product or service to the
company that refers a new client. So they benefit and you
ask individuals you have worked with for leads. If they close,
thank people with an appropriate gift. (All the disclaimers
apply here: only in applicable situations, not for the
look at your existing client base. Who do they work with? Who
are their competitors. Make a list, then begin cold calling
from there. At the center of the page is your client. Cold
call all around them and provide them as a reference.
beats perspiration. I have always believed that if you make
100 calls per week, you will generate sales. Sound hard?
Naaaaah. That is only about 20 calls per day, two or so an
hour. You can do that. The difference between successful and
unsuccessful sales people is targeting who you call, so begin
with your strength, your customers. Go from there!
Bill Schell: I am the Vice President and founder of a company that was
started in Sept of 2000. The company was in the business of
developing a Revenue Forecasting product. Unfortunately, due
to economic conditions, the company had to terminate the
majority of employees and enter "Garage Shop" mode
in late 2001. There is a now a possibility that I will find
myself as the President/CEO of the company and in that role it
would be my intent to shift the focus of the company away from
"A Revenue Forecasting product company" and more
towards: "A software product and professional services
company that has invented a new proprietary software
technology. The technology takes development out of the hands
of "techies" and puts it into the hands of Business
Analysts. Unlike any other software technology available
today, it allows a Business Analyst to define, store, recall,
and re-define information in a manner which more closely
resembles the methods used by the human mind."
this is a significant departure from the original company
direction. Will such a dramatic shift in direction appear so
radical that the company will immediately be cast in a
negative light and should we just start over as a new company,
new name, etc.? We have about an 8-12 month head start with
this technology. The time required to start over as a new
company would cut into our window so my preference is to keep
the name the same.
GD: I don't think that changing the name is material. Regardless of
the name, the history of the company and the product will
remain. Any customer references will be tied to the name. Many
companies are starting over with new focus. Good Luck!
Dan Voss: Is there an established or studied percentage of
a companies wealth that should be dedicated to marketing and
sales tools, events, and materials? Several companies I have
worked with didn't put any money into this important side of
their business. These firms have since folded or soon will.
GD: There are many metrics out there. My personal rule of thumb is
about 20% of the budget should go for sales and marketing
(including personnel) in the early years. After a company has
an established run rate and customer base, then the numbers
can migrate down to 12-15%. (They stay here because, even with
an established customer base, you must increase market share.)
Keep in mind that all the percentages are heavily dependant on
sector and market. You can find up-to-date metrics on the Net.
Ben Martin: While preparing for tomorrow's Coffee & DoughNets
discussion: "A Question Of Scale: Growing (Into) Your
Customer Base," I asked our panel of experts for
recommendations on resources that the audience might find
useful. Our friend and guest on tomorrow's panel, Cory Marsan
of ServiceBench, suggested a few resources to which she often
refers, including the following books: Spin
Selling by Neil Rackham, Solution
Selling by Michael Bosworth, and The
New Strategic Selling by Stephen Heiman. She also
recommends the Miller
Heiman website and the following magazines: Selling
Howard Freidman: Having used it in both product and service
technology sales, I'd strongly second the Bosworth book,
Solution Selling, not just for sales people but anyone who is
customer-facing. (Even better for those who can invest the
time and dollars is his BOSS training). It works.
William Jordan: I’m with MelaNet, an Internet solutions
company that does a lot of work with small businesses and
public agencies. I have always been curious why many VC firms
did not take the strategy of developing portfolios that funded
whole or near whole segments of an entire business sales
channels? For example in one portfolio company that develops
wireless technology, companies that build wireless
applications, companies that sell and integrate wireless
services, and companies that do post-sales support. Even if
all companies in the portfolio were not viewed as home run
companies, it seems startup companies, especially, would be
being asked to do too much or spend too much time headed down
wrong paths. Although by viewing companies portfolios I did
see this in some ways, but it seemed either too haphazard or
too controlling like some incubators.
you believe this type of approach will have legs when there is
a tech recovery, or is this approach not what VC funds do? Who
funds the building of such channels? I did not see my company
as VC fundable, but often thought we would have been an
important part of such food chains, although I did not see a
lot of channel funding available in dot.com/Internet related
GD: VC funds raise money much like startups. When you raise money for
a fund, you commit to an investment strategy for your
investors (Limited Partners). Most of the time, investors
(Limited Partners) prefer funds which are diversified.
are instances (largely within telecommunication and
pharmaceuticals) where funds are sector-based, but, I have not
seen a sector-focused early stage fund. I would imagine it is
largely due to investor desires and fund commitments.
I'd like to thank our friend Gina Dubbé for joining us in The
Loop, especially, given the fact that she was kind enough
to check her email and respond so quickly to our questions
while traveling to Pittsburgh. Thanks again, Gina!!!
online discussion with Gina was a “prequel” to our July
24, 2002, Coffee & DoughNets session, “A Question of
Scale: Growing (Into) Your Customer Base.” The
summary, video, and transcript of that event are available
in the Netpreneur Event
Archive. Following the meeting, our panelists answered
additional questions in The Loop about growing
your customer base, along with additional conversation by
another Netpreneur Coffee & DoughNets session held
September 20, 2001, Gina Dubbé was also part of a panel
discussing “Driving the Top Line: Selling the Vision and
Closing the Deals." The summary,
video, and transcript and of that event are also available.
And for related material, visit the summary,
transcript, and video of “When the Top Line Meets the Bottom
Line,” an exploration of channel distribution issues and
other revenue strategies with John Burton of Updata Capital.