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.