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thing to realize is how fast things are moving, and some of the nuances of
globalization. Again, I’m not being critical. There was a leading US executive
who spoke, who I won’t name. One person from a different country got up and he
was sort of amazed. He said, “That CEO is so appallingly ignorant. All he talks
about is eLearning and distance education. Doesn't he understand that it's not
going to move the way he assumes? Do you think that we want to hear an American
like that in our country without any cultural filter whatsoever? That's not the
way it's going to be. I've been in this field for 15 years, and it's very
difficult to move things so that they are adaptable to different cultures.”
you go back to the end of the 1980s, what client/server was about
technologically, in some respects and in theory at least, and what the Web also
allows, is highly tailored, customized packaging of product to fit culture.
What you see going on today is almost the inverse theory in a lot of global
models where they're assuming that one eCommerce model like the Internet is now
instantly accepted in all countries in the same way just because it has a
dot.com protocol. I caution you, in all of your marketing, when you're going into
a different country and a different market, you must be cognizant of those
cultures and what the difference in those cultures will be in accepting it.
This was driven home when I sat next to a businessman who ran one of the
largest conglomerates in Saudi Arabia. He said that he runs into more US
businesspeople who simply do not understand how to do business in Saudi Arabia.
They stumble, they fall, they make huge mistakes and waste millions of dollars
in their efforts because they don't realize that the Saudis operate
differently. John Burton can address this as well, because he has lived this
and knows the importance of these issues quite well.
made the earlier comment about returning to basics, and there was a fascinating
conversation in which several people, among them Don Tapscott, who some of you
know from the Tapscott Group,
Michael Porter from MIT and someone I found
absolutely fascinating, Martin Varsavsky, who did Jazztel out of Spain and is a highly
successful entrepreneur. They got into a debate about value in a company, and
Porter said that you can talk about all the intellectual assets, how you put
people together in your virtual networks and such, but, at the end of the day,
if you can't convert what you think is an intellectual asset into a competitive
advantage to change your financial performance, it doesn't count. He said that
fundamentals still rule the day. You know what? He's absolutely right. They are
assets, but until they give you competitive advantage that fundamentally
translates into sales and revenue and market share, they don't count. We have
to demystify some of that, and I think Porter was dead on in his analysis.
go back to that Asia-Pacific Internet dinner. The way it operated was that in
the evening you could pick a dinner to go to, typically about 70 people with
table moderators, and you had all of these side discussions which they summarized.
There was Masayoshi Son from SoftBank,
one of the largest investors in the world; Semmoto of eAccess; Richard T.K. Li
of Pacific Century Cyberworks, an
absolutely fascinating mind; and several other individuals including Minoru
Murofushi of Itochu. The Chairman of
Hitachi kicked off the show. It was
fascinating to hear the demographics from their perspective, and one number
that blew me away was when Son said that if you look at Internet penetration
today, we're at about 300 million users with the US population representing
about 40% of that. Within five years, the approximation is that the world will
be at one billion Internet users and the US will represent 20% of that.
Asia-Pacific will represent half of that one billion. Give or take a couple of
years, and that number holds with some of the classic forecasts. It’s a
stunning demographic number.
you look at emerging markets, the one that impressed me most was Korea because
of something that may not be apparent in this kind of dialogue, the issue of
public policy and how important it is. Maybe we have been more negligent than
we should in this country. Korea has the highest concentration of broadband
connection per capita of any country in the world. I wouldn't have guessed that
in a million years. In the early 1990's, the Korean government subsidized
putting computers in all the schools; not a connection, but computers in
literally all of the schools, and they made English a primary language in the
educational system. Both moves were aimed at spurring economic development in
the country, and it gave them a platform as well. Now they have gone from
500,000 to four million households with broadband connection. Put that in the
US context where there are six million homes with broadband connectivity. Four
million in Korea versus six million in the US. There is a big difference when
you get to the top of the equation. That is an amazing penetration and bodes
significantly well for what could happen in terms of eCommerce activity in
impressive statistic was about China. In mainland China it was projected that
right now there are 100 million people on regular cable and 70 million people
already using cell phones, both of which are tailor-made for immediate transfer
movements into some level of Internet connectivity. The way it could happen
fast, ironically, is that most of it is government controlled. Almost all the
cable distributors are municipal governments that can flip on a dime. What you
can't predict are the consumption and business patterns, but when you start
looking at these demographics they become quite daunting. We had the woman who
does China Online at our table, one
of the top journalists. She made the comment that the US is so focused on the
issue of censorship in Asia-Pacific, more than they are, themselves, and
everybody at the table agreed. She said, “Let me give you an example. AOL Instant Messenger is outlawed in China, but
they estimated that there are three million viral users of Instant Messenger in
China right now.” They expect it to explode as a communication mechanism.
net result is the eye-opening elements of how the rest of the world looks at
this. There are also a lot of things I could tell you about what is going on in
Germany and some of the activity and movement in Europe. The reality is that
these markets are real and emerging. For the first time, companies can be
formed in these markets, go public and be totally sustainable on large market
caps without ever going out of their own countries. Folks, the game is changing
for America, and it represents tremendous opportunities for firms to look at
things globally. However, as we said in the “Going Global” Coffee &
DoughNets session, do not assume this to be a simple process. Do not assume
that because you've created a Web site somebody in another country can reach it
and that you're a global business. You're not even close. I go back to all the
things we discussed. If you're looking at this, take the protracted steps to
understand, overall, what it's going to require to do business in different
last thing I'll leave you with is that the reason I was at the conference, in
addition to wearing my GAP hat, was that the sub-theme of the conference was
this emerging new base of philanthropy and social entrepreneurship in which we
are very involved. Kathy Bushkin was there, who many of you may know from AOL
and who is now the President of AOL/Time Warner's foundation. It was
fascinating to see that there really is a global movement underway and how
there is new money from people of your age, from 25 to 50, who are looking at
community engagement. As some of you may know, the Morino Institute has taken
steps here in the National Capital region to create a program called Venture Philanthropy
Partners. We've kept it very low key, but we've organized about 30 founding
investors, including our speaker, John Burton, as well as other names you know,
such as Ted Leonsis, Raul Fernandez, Jeong Kim, Steve and Jean Case, Jim Kimsey
and John Sidgmore. It's a great group of people, and we've raised $31 million.
Our intent is to invest in organizations serving children in the National
Capital region where we can create social returns to help the children in the
lowest income areas. Right now we’re in phase one, and we’ll probably be coming
back to you in the months ahead at another engagement level. Not everybody can
write checks of the size and generosity of the people I mentioned, but we’ve
talked to many people in this audience who would like to get involved in a way
that is consistent with their time schedule and financial capability. This
year, we hope to come up with approaches to leverage the Netpreneur network to
partner with Venture Philanthropy Partners at various levels.
John Burton is the speaker this morning, and I would like to say a couple of
words. You're in for a treat. The subject he is covering is sales and
distribution. He is a person I have truly learned from, and that's the most
honest way I can describe it. My learning with John began at a Four Seasons
Hotel in Boston, I think it was either 1984 or 1985. John, even then, was known
as one of the best marketing strategists in the United States. You will talk to
very few who understand the issues of distribution as profoundly and as deeply
as he does. He has been an operating officer, including CEO of the firm I was
part of, Legent Corporation. We merged firms to create our relationship back in
1989, and we have worked a long time together. He has made the transition to
become one of the leading venture capitalists, not just in the region, but, I
believe, in the country. On behalf of Netpreneur and myself, I'm very glad
John's here today.
time is up. Second prize is 60 minutes next week, so see you later.
john burton: the world of sales & distribution
Good morning. I'm not sure how many of
you have had the opportunity to follow Mario, but I'll tell you, it’s daunting
for good reasons. It's also a bit difficult to segue from world-level,
socio-economic political issues into Sales 101, but we have to start somewhere.
best segue I can come up with is that you have to start small, but think big.
lot of what I see in the various things I'm involved in, working with companies
as both an M&A advisor and a venture capitalist, is that we tend to focus
on big things, and we tend to focus on little things, but, often, it should be
in reverse order. What I'd like to do this morning is to talk about some of the
issues related to sales and distribution, which are distinct and separate from
marketing, though I'd also say that you cannot do sales and distribution
other part of what you do in your organizations has to do with a service or
product or technology that needs to get consumed by some type of audience.
Whether that audience is an individual or a corporation, you have to think
about how to deliver something that, in most cases in this region, is based on
think that Mario has given me more of an introduction than I probably deserve,
so let's get into the context. What I'd like to do is give some glimpses at the
things that I, along with a lot of the venture capitalists I work with, see in
our daily travels. Then, go into how you
can develop sales and distribution concepts and ideas and execution plans that
fit a way to get success, as well as how we look for them to be described to
what VCs wants to hear
what we venture capitalists see is a great entrepreneur or an established
businessperson who comes in and says:
I have a great technology. I've got a
great team. I've got a great company. I've grown my sales. I have this many
customers and I believe I'm going to be successful. All I really need is
financing to get to that next level.”
asked what the financing is for--you've all probably gone through this and you
have a “use of funds” section in your business plan--they say:
going to hire some people. I'm going to start marketing and sales. I'm going to
finish any number of things in development. I'm going to move my offices. I'm
going to get on the map. I'm going to do a lot of different things with this
I don't hear are the things that I'd really like to hear, which are:
I have a great distribution strategy. I have
a tremendous channel into a highly lucrative market. I am differentiated when I
talk to those potential clients by several characteristics. My market is
lucrative because of the following reasons. I am distinguished from my
competition in the particular market because my salespeople are more
experienced in hearing the things that you need to hear and turning them into
solutions that those particular clients want to hear about, which they will
acquire, buy and spend money with me.
I have a great distribution channel
because when I capture a client I have a sustainable relationship with that
client. Every incremental thing that I sell has a higher gross margin and a
lower marginal cost of sale. I expect within two years to have a client base
that consists of the top 50% of a great market.
When I get that financing, I am going to
use it to gain market share by building on those distribution concepts and by
hiring more salespeople who have the same characteristics, who can do solution
selling or can deliver solutions over the Web. They understand what the person
on the receiving end of my product, service or technology is looking for. I am
going to build those channels, I am going to hire the great expertise I need to
leverage it. I'm going to build partnerships with others who service that
market, who are the kinds of partners that also build product, sell solutions
and service that client and marketplace.
are the things that I don't ever hear when people present. Sometimes we hear a
little bit about it, but I hear lots of highly articulated, well-thought-out
approaches to a technological
problem. I hear a lot about the Internet. I hear a lot about different
techniques for different levels of object coding and whether it's a
differentiating technology characteristic, but, if we could hear the other more
often, you and your companies would really stand out when you're presenting to
folks who finance companies. What’s more, you would probably be very well
served in trying to attain what it is you want to attain.
certainly not trying to be simplistic here, and I'm certainly not in any way
trying to be patronizing to those of you who have this squared away, but I
believe that this is a very important thing to think about, particularly in
light of today's market climate and in light of many of the things Mario said
about worldwide consumption habits, traits and characteristics that will
develop. The companies that have been the most successful are not those that
have made technological breakthroughs; they are the ones that have made those
breakthroughs coupled with unique marketing and distribution capabilities to
promulgate their concepts and their ideas.
point out one very simple thing that goes back many years. How many people know
who Mitch Kapor is? I'm sure lots of people, unless you're under 25. Mitch
Kapor was the developer of Lotus 1, 2, 3. How many people know who Dan Bricklin
is? Dan Bricklin developed VisiCalc. Which of them is better known and which
one was more successful? If you will, Lotus 1, 2, 3 was a large step above
VisiCalc as a spreadsheet, but it was so well marketed and so well presented
that it created an empire in Lotus and a highly notable company, even today as
a division within IBM.
reaching clarity through precision
hear regularly, “People don't understand me when I present my idea.” There is a
huge amount of frustration, perhaps understandably so, because venture
capitalists can be the dumbest people you'll ever see. I would like to think it
is intentional, but sometimes it isn't. We can't help ourselves. Venture
capitalists like to be able to compare what you are presenting to something
that they can understand quantitatively, because then they can start to think
about, “if I invest in this firm, if I put my capital to work, what can it be
similar to in terms of its return?” The more ephemeral you get with your
concepts, the harder it will be to get quantitative on the part of the person
to whom you're presenting.
do you do that? How do you present in a way that doesn't detract from what you
have to sell, while at the same time relating to a venture capitalist? It goes
far beyond a venture capitalist; it goes to how you train your salespeople when
you get to that level.
have to define your market precisely. How big is that market? What is the
precise target? Are you going at the Global 5000 or the Fortune 500? Are you
going at financial institutions? Are you going at someone who has a Small
Office/Home Office? What size? What geography? What are the purchasing characteristics?
What else did they buy? How much did they spend? How much disposable capital do
they have for this particular thing? What budget does it come out of? Does it
come out of expense budgets or capital expenditure budgets?
it to a traditional way it has been done before. “I sell with a direct sales
force similar to company X which did
it very well.” BMC Corporation, a
multi-billion dollar software company, essentially came first with a telesales
model instead of a direct sales model. It was a great breakthrough in terms of
cost of sale, and they did extremely well. They then went into a matrix mode of
selling, with a lot of other partnerships, as well.
yourself to your competition. Everybody has competition. If you think you have
no competition for your technology, and if you're right, you still have
competition for budget dollars and you have competition with other distribution
gaining momentum with early customers
extraordinarily good way to have your market explained to a venture capitalist
is by having a client explain what they use your technology for, why it is
different, what it will save them and what means they will use to acquire it
and other things like what you have to offer. That, as well as your interaction
with a potential client, will help you define how you best sell to them, as
well. I find an extraordinary lack of organizations with great technology,
great ideas, and great client or potential client research. If you identify 10
IT directors, marketing people or consumers that you would like to have as
clients, go out and talk to them. Don't try to sell them, just say, “I have
this idea. What do you think of it? How would you buy it? How could I best
service you?” Take that data, bring it to the venture capitalist and define
what your objectives are. “I want 10, 15, 20 of them installed. I want an
average sales price of the following.” Remember, venture capitalists also
relate when they can compare themselves to someone and jump in bed with
somebody who's already there.
most important indicative value is how rapid your client capture is. What does
that mean? It means that the only way you're going to get client capture is
through selling and somehow distributing your product or service to people. In
today's climate, client capture means momentum, momentum means revenue, revenue
means profit, and profit means you'll get financing. Profit means that you'll
get a return, irrespective of the IPO markets or public venture capital
money--which no longer exists.
many clients are possible? What is the universe to which you are selling? It
will help you define how many salespeople you need. It will define what kinds
of distribution channels you need to set up. What is the price tag by which you
can measure the kind of channel you'll use? We'll talk about that in a moment.
first client influences an enormous amount of others. Pick that first client
well and make them your friend. Solicit their confidence and their advice. You
also can use that first or second or third client to do a lot of other things
that you need to do to lay the field for your distribution mechanisms. You can
have that client talk to another strategic partner. Perhaps you have a product
that client uses, and they use another product for which you need an interface.
Don't call that other vendor, have your customer call them and say, “I want an
interface between these two products.” That is precisely how Mario and I met in
the early 1980s. We had a product; Mario had a product; and the client wanted
the two products to work with one another. It makes all the sense in the world.
We interfaced through the client.
best introduction to Gartner Group or
Meta Group or Forrester Research is also with that
client. Get them to talk to them and say, “This is the technology you should
look at because we're going to use it.”
is all this about? This is Selling 101. It may not be selling to get a
transaction fee or a sale or a license price or a service fee, but it is
selling to lay the groundwork for a distribution channel that you will build or
that you have built already. Nobody goes into battle unless there is some air
cover softening the turf for the infantry to land. That's what you're doing
when you're thinking about your sales channel.
the thermos corollary
is a joke that I really got a kick out when I heard it a long time ago A very
simple man was asked what he thought the greatest wonder of the world was. He
said, “The Thermos.” When asked why he said, “It keeps hot things hot and cold
things cold, but how does it know?”
you define your sales and distribution plans, you need to know precisely what
your objectives are, not just because they are milestones but because, at the
same time, they are going to define the economics by which you will make that
profit which we all know is critical.
say that you have a technology or software product. You need to define how many
clients you have potentially, how fast you're going to get them and what they
are going to spend. If it's a software product, what platforms does it run on?
Is it all the platforms? Some of the platforms? UNIX? Is it a mainframe product
(Heaven forbid!)? Is it the Internet, meaning IP? Is it mobile? Wireless?
People throw those terms around without really understanding precisely what
they mean in terms of economic return. What is the revenue per channel type?
What is the average transaction size? If you're selling through resellers, how
many inventory returns? How much selling? How much sell-through? The contract
size, in value, has a relation to how you define the type of distribution
mechanism. We'll talk about that more later.
you're a services company, how many new clients do you need to have over what
period of time? What are the average relationships with those clients in terms
of contract size and value over what period of months? What are the gross
margins you expect to have? What are the hourly billing rates? What are the
utilization rates? What other factors will help you judge whether your
distribution channel is successful?
whether the Thermos is going to be hot or whether it's going to be cold. You
can be the absolute leader in a market if you define what that market is. You
can be a leader in execution if you define what your execution plans are.
you go to a venture capitalist and begin to explain how successful you've been,
it would be wonderful if you said, “When I began, we put together a plan and
said that within three months we'd have this many salespeople, we would have
this average transaction size, we would have this many clients, we would define
this market and we would be the leader in it.” If you have those objectives
defined and then you report to that venture capitalist every three months on
how you've done against those objectives, you'll be doing both your financing
opportunities and your own internal execution a very big favor.
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