But Wait, There's More!

Last week, I introduced the idea of the buying cycle. Specifically, I spoke about the idea that entrepreneurs should spend a considerable amount of time in the “Recognition of Needs” phase. If you have not read the article, click here.

Once you have convinced your customers that they have a problem, you show them your wares. You move into the “Evaluation of Options” phase.

Few people call it the evaluation of options. We more commonly refer to it as a presentation. Let me ask you this, have you ever been to Costco and seen a presentation for the Vitamix blender? This is the essence of the “pitchman.”

Blenders are an interesting case study in the world of entrepreneurship. I do not claim to know much about blenders. But, apparently, the innovations contained within the Vitamin are strength and durability. Fair enough.

As I am sure you know, there is not much of a “Recognition of Needs” phase when it comes to blenders. In as much as the blender was invented in 1922, people are rather well-informed. There exists few, if any, souls who do not know the problem a blender solves.

For this reason, everybody enters the buying cycle (pictured above) in the “Evaluation of Options” phase. Again, this is the presentation stage. Which is why it makes a lot of sense to give demonstrations at Costco

I have never timed how long the Vitamix presentation is. But, it can be rather thorough. This only makes sense in light of the fact that the machines usually range around $400-600.

Contained within this group-presentation, you will also find the “Resolution of Concerns” phase of the buying cycle. How would you resolve the concerns people might have regarding the purpose of an expensive blender?

Well, you would have people give their testimonials about how well the machine has worked for them (though they do not do this at Costco.) You would also offer special payment arrangements, warranties, money-back guarantees, etc.

I only offer the Vitamix example in hopes that you can visual the lesson of these two phases of the buying cycle. How you facilitate an evaluation of your option, and how you resolve your prospective customers' concerns, will be dependent upon many variables.

Regardless of how you do it, the point is, you need to cover these three pieces of the buying puzzle. For the most part, they go roughly in order. But, do not allow yourself to think the process must be linear.

Sometimes things happen. A question can come up, an unexpected event can occur, or any of a host of things can cause the process to go in less than a straight line.

The important thing to embrace is the fact that selling is an integral part of entrepreneurship. And, in order to effectively sell your creations, it in is your best interest to understand how purchasing decisions are made.

I hope this helps.

Selling Innovation

As promised, let us talk a little bit about selling innovation. Last week I asked the question, “How do you sell?” because selling is one of the two entrepreneurial functions.

The thing is this, not all sales processes are created equal. Unfortunately, a lot of advice about selling has been built on the premise that selling is selling. It is just not true. (Remember that old commercial saying, "Motor oil is motor oil"?)

To put it in the simplest of terms, people do not buy things until they have a problem. Some problems people are able to identify on their own. If you are out of Captain Crunch, you know you gotta problem.

For this reason, the way you sell cereal is different from the way you would sell houses. Although not as different as you might think. In both cases, your customer makes their decision without you.

Meaning, people decide to buy cereal, or sell their house, without the help of a salesperson. It is a similar situation with car sales. In all three of these cases, people understand the problems and the solutions.

The sales environment becomes different when we are talking about true entrepreneurship. One way to think of the job of an entrepreneur is that s/he sells innovation.

Innovation can take many forms but, one thing all innovations have in common, is they bring new value to the marketplace. Stated differently, innovation is about solving problems that have not been solved before.

Usually the problem is seemingly minor. Uber has quickly become an enormously successful company. And, when you think about it, the problem Uber solves is pretty simple. Uber is more convenient than a taxicab, thereby saving us time.

Waiting for a cab is not a huge problem. It is not cancer. But, that is how the economy progresses. Lots of little improvements add up to big changes.

Ok, so, as I have said, people do not change their situation, people do not buy things, until they have a perceived problem. As an entrepreneur, this becomes a real challenge, because people do not generally spend time thinking about problems that have no solutions.

As entrepreneurs, we are bringing new solutions to the market. This means, in order to sell innovation, we need to make people aware of their problems. Stated differently, if you sell innovation you need to “break” the person's current situation.

Below you will see a picture depicting the buying cycle which people go through. The image was created by the legend himself, Neil Rackham.

You only need to study the image for a minute to realize that entrepreneurs should spend most of their time working on the “Recognition of Needs” phase. As an entrepreneur, you sell a new solution. So, you need to make people realize they have a problem. A need.

How do we help people realize they have a problem? Well, there are lots of ways but the most effective method is the use of questions. Questions are the levers of change.

Think about it, how do you become aware of the existence of a problem? If you really think about it, I believe you would agree that you become aware of a problem by asking yourself questions.

As an example, how do you know if you are gaining too much weight? With questions, of course. You might ask yourself, “Are I getting too fat?” Or, “Am I becoming unhealthy?” Or, “I wonder how my heart is doing?” Or, “Should I buy some bigger clothes?”

You get the point. We identify problems through the use of questions. Everybody does it privately and, as an entrepreneur, we need to do it publicly as well.

To help people appreciate the solution you provide you are well-advised to ask questions to help them realize the problems that exist. I will give you one last example so you can tune-in to your own inner monologue.

Lately, I have been thinking about this thing called Bitcoin. If you do not know what Bitcoin is, you just asked yourself, “What is Bitcoin?” And, there we have question number one.

I will not, for one second, act like I am an expert on Bitcoin. In fact, I know very little about the service. What I do know is, “Bitcoin is a digital asset and a payment system,” according to Wikipedia.

Here is what I am trying to determine. Do I need to use Bitcoin? As of yet, my answer is, I do not know. I am trying to understand the problems that Bitcoin solves. And, I encourage you to do the same.

As you think through what Bitcoin can do for you, pay close attention to your thoughts. What you will find is that you ask yourself a lot of questions. And, that is the point of this post.

If you want to sell innovation, you need to help people understand your solution by helping them realize the problem. And, in order to do that I recommend we all master the use if questions.

Let me know how it goes.

How Do You Sell?

Two weeks ago, I asked the question, “What do you sell?” If you have not yet read it, click here. In a kind of weird way, in that post, I encouraged you to not answer my question.

As turns out, most people can answer the question, “What do you sell?” Unfortunately, it is the wrong question. As I mentioned, in that previous post, the better question to ask is, “Why do your customers buy?”

This is a really important point. And so, last week, I talked about Drucker's marketing view. Drucker once wrote the following about marketing, “It encompasses the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer's point of view.”

Again, the key is the customer's point of view. Are you still with me? To answer the question, “How do you sell?” you really need to consider how people buy.

The first thing to consider is the complexity of your customer's decision. How complex is the decision? How much help, and education, does the customer need to make the right decision?

Let us mention some simple decisions. How much help do you need in selecting a breakfast cereal? My guess is, not very much. For this reason, the manufacturer puts the cereal on the shelf, at the grocery store, and you pick it up when you need it.

How much help do you need buying a car? Probably not much. Most people have already selected the car they want (or have whittled the list down to just a few) by the time they walk onto the car lot.

With all due respect to people who sell cars, they do not provide much in the way of value. The finance department helps the customer acquire the necessary funds. But, the car salesperson basically grabs the keys and goes on a test drive.

How about a Realtor? How much helped do people need with the decision of whether or not to sell their house? The answer is, again, not much. The point is, it is important to know people's decision process in order to properly sell to them.

If I were a Realtor I would simply contact people and ask if they were considering selling their house. Of course, this would include FSBO's and Expired Listings. For the most part, the best sales process, for a real estate agent, is to be top of mind when it comes time to sell. For this reason, notepads or calendars with your picture make a lot of sense.

As a matter of fact, it is the same with car salespeople. If I sold cars I would contact as many people as possible and simply ask them if they are in the market for a new car.

Whether you are selling breakfast cereal, cars, or houses, the customer does not need much help making a decision. In the case of cars they may need help with financing and, in the case of a home, they may need help finding a buyer. But, let us not get things confused. What we are talking about is the decision to become a customer.

Hopefully, you are still with me. Why am I saying all this? The reason is because all of this changes when we are talking about entrepreneurship. If you are a true entrepreneur, what you are selling is innovation. And, when you sell innovation, the customer needs more help.

Drucker called innovation, “The act that endows resources with a new capacity to create wealth.” The key part of that phrase being, “New capacity.” When it comes to innovation, people often do not understand what you are offering them.

The fact that people have a problem understanding your innovation is what led Steve Jobs to famously say, “A lot of times people don't know what they want until you show it to them.” That single sentence is the starting point for selling innovation.

Next week I will discuss the innovation sales process.

The Two Entrepreneurial Functions

I have said it once. I will say it a thousand times. There are two, and only two, entrepreneurial functions. They are innovation and marketing. For more information, click here and read an earlier post.

Of course, I was not the person to first identify the two entrepreneurial functions. That credit belongs to Peter Drucker. However, I do have one bone to pick with Mr. Drucker.

Actually, it is not a bone to pick. It is a matter of clarification. It is a matter of semantics. I prefer to use the word “selling” instead of “marketing.”

The problem arises from the definition of selling versus marketing. What Drucker called “selling” I would label “peddling.” In either case, what Drucker and I are talking about is convincing people to buy the products you have produced. The alternative would be to produce things people want and freely chose to buy.

Drucker would say that selling focuses on the needs of the seller, while marketing focuses on the needs of the buyer. I understand what he means. But, what about consultative selling?

The fact is, it is completely possible for a salesperson to focus on the needs of the customer. In fact, lots of salespeople already do it. Whether you call it “consultative selling” or “solution selling,” what we are talking about is needs-based selling. And, needs-based selling fits Drucker's definition of “marketing.”

Last week I asked the question, “What do you sell?” Now, we should turn our attention to how we sell. But, before we do that, I would like to draw your attention to the power of professional selling. This is important because, again, selling is one of the two main functions in business/entrepreneurship.

As we all know, the economy collapsed a few years ago. One question that pops up is can we start, or expand, our companies in a weak economy? The answer is yes. But, we need to do it right. We need to listen to Drucker and focus on the needs of the customer.

Focusing on the needs of the customer is what consultative sellers do. One of my favorite consultative sellers is a gentleman by the name of Mark Roberge.

Roberge is the Chief Revenue Officer at a company called HubSpot. The innovation, which HubSpot brought to the market, is inbound marketing. And, due to their excellent salesforce, the company was able to grow, even during the recession. And, I do not mean grow a little...

Weak economies are, actually, a good time to expand because everybody else has chosen to contract. Back in February, Roberge published an article in the Harvard Business Review. The article was titled, “A Recession Doesn't Mean Your Startup Can't Grow.”

I think Mark's story is great. As was the article. And, since I want to highlight the importance of a good sales process, I have decided to pass it along to you. Here are the contents of Mark's HBR article:

So far this year, the stock market has been anything but stable. The correction for tech companies appears to be well underway. Instability overseas continues, causing rising concerns about the effect on the global economy. In the U.S., the Federal Reserve finds it difficult to commit to a plan for 2016.

If the economy continues to head south, what does it mean for entrepreneurs ready to scale their business? Should they hold off on growing sales? Should they take a more conservative approach?

My answer is no.

In my view, a down economy is the best time to build a sales team. In fact, I lived through the journey to tell the tale. I joined HubSpot, an inbound marketing software company, as the fourth employee and first salesperson in 2007. My role was to scale the sales team. Within a year, we had scaled from 100 customers to 700 customers. We had dozens of employees and a dozen or so salespeople. With $17 million in venture capital, we were ready to accelerate sales hiring even further. Life was good.

Then came October of 2008, the worst financial meltdown in decades. As an executive team, we were rattled. Would budget freezes slow down sales? Would future funding options dry up? Would we need to lay people off? Would our dreams of building “the next big thing” be foiled by circumstances outside of our control?

To my surprise, things did not slow down. We were able to secure our next round of funding. We accelerated our pace of sales hiring. Seven years after that infamous day in 2008, we are a post-IPO company with a market cap of over $1 billion dollars.

Looking back, the 2008 economic downturn may have helped us more than it hurt us. Here are five reasons why:

High availability of talent. The “war on talent” has been a hot topic over the past few years. Attracting top caliber people into an early stage venture is arguably one of the most important tasks for the founding team. These early hires will figure out the business model, establish the culture, and ultimately recruit the next wave of employees to drive the business forward.

From the perspective of talent availability, the HubSpot sales team benefited immensely from the 2008 financial crisis. Within months of the market crash, layoffs at other companies yielded a sudden spike in available sales talent. The salespeople that lost their jobs were not necessarily the bottom of the barrel, either. In many cases, they were simply in the wrong division working on the wrong product at the wrong time.

As we continued to expand the sales team post crisis, the increased talent pool enabled us to raised the bar on the quality of salespeople we hired. These new hires went on to play crucial roles in developing our sales playbook and hiring and developing our next wave of salespeople. Eight years later, many of these early hires are still with HubSpot serving in senior sales leadership roles.

“Must-have” versus “nice-to-have” value propositions. In a strong economy, “nice-to-have” value propositions can survive. Budgets are plump. Spending barriers are relaxed. As a salesperson, it is not overly challenging to “arm-twist” a friend or call in a favor to make a sale.

In a weak economy, “nice-to-have” value propositions are left to the wayside. Unless the product or service solves a mission critical issue at the buyer organization, no sale is made. A weak economy forces an organization to discover their “must-have” value proposition. For HubSpot, “more quality sales leads”— the value proposition offered by our software — spurred even the most risk averse organizations to open their purse strings. The 2008 financial crisis pushed us to discover this “must-have” value proposition early in our development, providing a strong foundation from which to build.

Unit economics versus unnatural growth. Over the past few years, market valuations, both public and private, have rewarded growth over unit economics. Historically, economic downturns have reversed the situation.

Market conditions in late 2008 forced us to re-focus HubSpot’s attention to unit economics. Customer success, revenue churn, and customer lifetime value often trumped conversations around revenue growth at board and executive meetings. The sales team was at the heart of this re-focusing effort. We began measuring salespeople based on the LTV of their customers, not their revenue generation. We even aligned sales commissions with unit economic metrics. Had we waited until we were two, thee, or even four times the size, this transition would have been exponentially harder – if not impossible. Our early focus on unit economics laid a healthier foundation from which to scale sales.

A better work ethic. “Motivating the salesforce” has crept up to be the top concern amongst sales leaders in recent market studies. It can be harder to motivate salespeople in a strong economy. They are constantly distracted with calls from outside recruiters, emails from friends about new high-paying jobs, and stories about products that are “selling themselves.”

In a down economy, self-motivation comes much easier. Suddenly, the recruiter calls offering lush salaries are replaced with horror stories from friends witnessing massive layoffs and the inability to find work. Employees and founders collectively realize an increased urgency to succeed as they are the final mile in ensuring the early stage venture survives financially.

Less competition. In a strong economy, venture and angel capital are flowing. Many people argue the supply of early stage capital in strong economies exceeds the volume of good ideas and good startup teams. This outcome is bad for everyone. Investors lose money on bad deals. Customers lose money purchasing bad services. Entrepreneurs attempting to create real value face distractions from bad competition.

As the market turned in 2008, we saw many of HubSpot’s early competition fade away, due to lack of execution, a weak value proposition, or both. The timing of this dynamic meant one less obstacle for us as we navigated our growth phase. By the time the capital markets bounced back, HubSpot had already established barriers that made it difficult for new entrants to gain traction.

The fate of the markets for the remainder of 2016 and beyond is yet to be seen. However, as an entrepreneur entering the growth phase of your business, reconsider whether a market turn is necessarily bad for your business. It could be a blessing in disguise.

What Do You Sell?

The Scottish writer, Robert Louis Stevenson, is quoted as saying, “Everyone lives by selling something.” What do you think? Do you agree? I do.

Too bad those words did not make it to the ears of Vincent van Gogh. Although accounts vary, ever so slightly, it is agreed that van Gogh did not sell very many of his paintings.

Most people agree van Gogh sold one of his paintings during his lifetime. Some, like art historian Marc Edo Tralbaut, contend Vincent sold two pieces. Either way, let's not split hairs.

The fact of the matter is, van Gogh relied heavily, on his brother Theo, for his livelihood. And, as you probably know, van Gogh suffered from mental illness, which ultimately led to his committing suicide. But, that is not the subject at hand.

My point is this, as we all know Vincent van Gogh is one of the most famous artists of all time. One of his paintings sold, in 1990, for $82.5 million.

Even still, during his life, Van Gogh could not even afford to feed himself. What a profound reality. This speaks to the powerful importance of being able to sell things.

I do happen to believe that severe mental illness will prevent a person from being able to sell things. Fortunately, these days we have a lot of great resources available to help the mentality ill.

So, again, what do you sell? Actually, a better question would be, what it is that people buy from you? If you have a job, your employer buys your time and expertise. Your employer buys your effort, at wholesale, and sells it at retail.

Regardless of what you do, I think it is important to be able to answer the question, what do you sell? And, as I have stated, it is even better to identify why people buy whatever it is that you sell. As it turns out, that exercise is a fair bit harder than it sounds.

By the way, the one painting van Gogh did sell is called, “The Red Vineyard.” Here it is: