(Chevy Chase, MD) -- July 24, 2002) “To scale a business from zero to $30 million is one challenge,” explained  Deepak Hathiramani, President and CEO of Vistronix, “And to scale it from $30 million to $100 million is a different challenge. If you don't adjust the management team or the strategy to go from $30 million to 100 million, you just won’t get there.”

Hathiramani spoke at this morning’s Netpreneur Coffee & DoughNets, joined by a panel of sales and marketing pros to discuss, “A Question Of Scale: Growing (Into) Your Customer Base.” It was an exploration of how early-stage companies mature, and how entrepreneurs must identify and anticipate their changing customer acquisition strategies along the way. Joining Hathiramani on the panel were Rob Masri, Vice President of Corporate Development at Multicity; Cory Marsan, Executive Vice President of Sales & Marketing at ServiceBench; Patrick Arnone, President of Arnone & Associates; and moderator Eric Becker, Managing Partner of Sterling Venture Partners.

Wrapping up the session was veteran entrepreneur Mario Morino, founder of the Morino Institute, who summed it all up this way: “Sales is logistics. There's a series of mechanics that gets the product or service into the buyer's hands. The most important question is, who is the buyer, specifically?”

That’s one of the things that changes over time. Becker opened the discussion by providing an overview of the two earliest phases of a startup, characterized in terms of the kinds of customers they want at each, how they get them, and how the organization adapts. One of the key differences between what he called the “Genesis” and “First Growth Spurt” stages, is that, in the beginning, what an entrepreneur needs is “referencable” customers.

“Typically, these first customers are like your partners in the business,” said Becker. “They provide design input and other important information.  These are hard customers to get, but worth their weight in gold. You may have to discount, offer warrants, or provide other incentives to make it relatively risk free and worth their time.”

These are the customers who provide your initial revenue, but what makes them even more important is when they agree to act as references as you move into the growth stages. Their willingness to endorse your solution may be your only proof of credibility for the broader marketplace. They can be a source of recommendations, referrals, press stories, and may even help you sell to others.

That’s why Marsan suggested, “The best advice I can give you is to make sure that you're taking care of them. To get those accounts initially, you probably didn't make a lot of money on them. You probably had to give some things away.  They took a big risk to come with you.  In return for that, though, they'll give you a lot. You need to continue to cultivate that relationship.”

Still, you have to be careful not to give away too much or to focus so intently on these first few that you sacrifice the broader market. For example, Becker told of how he was compelled to sell the very first company he founded because they had given up so much direct and indirect control of their product. The customer had become so dependent on it that they wanted to own the technology, and Becker, though well compensated, had no choice but to agree.

It’s during that “First Growth” stage that companies usually begin building their sales and distribution organizations, and, according to Marsan, dealing with issues such as what channels to use, the necessary skills sets for salespeople, compensation plans, aligning the sales force, validating the ROI model, and so on.

Of course, all of this has to be tied to market strategy and business model, which will often change wildly, especially in the technology world. Masri’s company, Multicity, a maker of Web-based communications software, may be the poster child for that. He explained the company’s gyrations from its founding in the early days of the Internet boom—when banner ads seemed a legitimate revenue source—through the advertising crash, a focus on relationship sell, and, ultimately, to their current strategy of using a direct sales force to market software in particular verticals.

It ties into one of the key rules, according to Arnone—you need a compelling product or service, but it has to be compelling to your customers, not just to you and your development team.

Arnone’s long career in the IT industry included stints with Oracle and Sybase during the times when they were expanding from their first growth stages to become billion-dollar corporations. Among his other rules: know your addressable market and know it cold; employ strong marketing, including a crisp value proposition; and sell business solutions to business people, don’t try to sell them technology.

Arnone’s first and most important rule, however, is to “recruit the best team.” At Oracle and other top-notch companies he’s been associated with, “Priority one was revenue,” he said, “and priority 1A was recruiting. It was building a high performance business unit, a high performance organization, and a high performance company. We had plenty of other things to do, but there wasn't much time to get beyond revenue and recruiting.”

At Oracle, in fact, there was a corporate policy to periodically rank the employees within teams and dismiss the bottom 10% of producers in each. While the concept may have been taken to an extreme there, recruiting the right team is a priority shared by Hathiramani as well, who stressed that as the company grows, you have to have the right management team at the right time. You constantly have to ask yourself, “What inherent skills do we have in the company that are going to enable us to scale the business to the next level?”

  For Morino, having the right people in place is essential for another reason. Sales, he said, is about the whole business, not just the direct sales organization, and CEOs must create a sales culture in which, “Every developer is there to support the salesperson, and every salesperson is there to support the developers. Selling is not a point in time. If you're looking long term, it's a team that sells. If you don't service that client, then when you go back for repeat business, you've got a problem.”

Morino agrees that you should hire the best people, but that can be problematic for young, early-stage entrepreneurs. After all, do you really know what the best is at a given point in time? “You've got to talk to people who've been where you're going,” he advised. “If you're hiring in sales, get a salesperson who has been out there, not somebody who sold the same thing you just sold today. If you don’t, you're not going to grow, and you're not going to able to scale when you get to that next point. Think higher up all of the time.”

Copyright 2002, Morino Institute. All rights reserved.