Dr. Petri I. Salonen Views on Life, Entrepreneurship, and Software Business

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What makes a good salesperson according to research and what are most important characteristics?

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I run into an interesting blog entry by Steve W. Martin where he lists seven personality traits of top salespeople. Martin has also published a book about sales psychology with a good empirical study of thousands of sales professionals so we can assume that he knows something about this topic.

As an entrepreneur I have concluded that one of the most important decisions and selections that one can make are the salespeople for your organization. Engineer led organizations have the temptation to focus on engineering talent while sales-driven organizations understand that with a good product, the growth will come with an effective sales team. Let view some of the characteristics that Martin has identified. 1. Modesty – a salesperson that can adjust his/her skills with target has a higher chance to be successful. This means that the sales person needs to be both modes and humble and not let the customer/prospect to feel inferior. Just think about this. Would you like to feel stupid when buying something? I wouldn’t. 2. Conscientiousness – eighty-five percent of top sales people had high levels of conscientiousness, whereby they had some sense of duty and being responsible. The ole saying “close the deal and leave the customer in the dust” does not work well if you want to be a good salesperson and achieve results. In this case I want you to think what this means. You put your career on the line when buying something and you expect the acquisition/purchase to work so you do not put yourself in a position where you have to explain yourself.

3. Achievement Orientation – Eighty-four percent of the top performers score high in the achievement orientation. They want to achieve goals and measure their performance. These people also take political orientation into consideration when selling by understanding the dynamics in the purchasing process. These people understand that performance is rewarded.

4. Curiosity –a top performer is curious and hungry for information and knowledge. Eighty-two percent of top performers scored high in curiosity levels. This also leads to these salespeople to be very close to the sales process and ask the right questions, even the difficult ones. In technology field, salespeople need to be continuously educated to be able to help the prospects to do the right selection. Salespeople should be seen as trusted advisors and this will create a long-term relationship with the customer with ample opportunities to upsell and cross sell other solutions. 5. Lack of Gregariousness – this was a surprising finding in the study where top performers averaged 30 percent lower in gregariousness. This means that top performers do not become too close to the client or become too friendly. In the software business we have always known that if a salesperson starts living the life of the prospect and defending the claims of the prospect, the deal will not be what it should be.

6. Lack of Discouragement – Less than 10 percent of top salespeople were experiencing sadness and high levels of discouragement. According to the studies, a high percentage of the top performers had some type of active participation in high school sports and are competitive. 7. Lack of Self-Consciousness – this is a measure of how easily a salesperson is embarrassed and with top sales performers this is very low. According to Martin, the byproduct of high level of self-consciousness is bashfulness and inhibition.

If you look at the list of characteristics that Martin has identified when analyzing top performers in sales and reflect this to your organization’s best salespeople: do you agree with Martin’s findings?

If you are in the process of building a cloud business, you might also want to make sure that you hire people that fit into the high pace sales cycle that are part of a SaaS sales business.  Joel York explains well different SaaS sales models in his excellent blog Chaotic Flow.

Law #10 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –Cloudonomics requires that you plan your fuel stops very carefully

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I have so far reviewed nine laws of Bessemer Top 10 and with this last one is almost like a summary of the other nine laws. The reality of SaaS-based companies is that the biggest question they have is how to finance the growth and how to ensure that the Committed Monthly Recurring Revenue (CMRR) is going to be enough to fuel the growth and how the company should plan its capital infusion both short-and long-term.  Every ISV leader needs to understand the financial drivers of the operations and I wrote about this in my blog entry by referring to the 6C’s of Cloud Finance that Bessemer has defined on their site.  

Law #10: Cloudonomics requires that you plan your fuel stops very carefully

What makes a SaaS company so much different to a more traditional software company?  To put it bluntly, a SaaS company needs to be better funded when compared to a traditional software company. The funding is not necessarily different when viewing the overall capital need, but funding will be needed specifically during the first few years when the company is building its revenue stream. The reason is obvious when analyzing the financial model.

A SaaS company has to fund the research, development, sales and marketing well upfront without receiving the payback immediately like was possible in the “good old days”. It was  not unheard of getting 300k software deals that funded additional development and marketing for a small company but now this money will come gradually and only if the SaaS vendor is able to retain the clients.  I did this in the companies I worked with, my colleagues did this and this is why one could build a nice and sustainable software business without having huge amounts of cash. What was needed was a good idea, a couple of good programmers and a product that was sold to a hefty price tag with a traditional licensing model.

Getting a healthy inflow of CMRR transactions is that will keep the company afloat but like Bessemer puts in its blog entry, it could take more than 4+ years to get a SaaS company cash flow positive. Bessemer concludes that SaaS companies typically need multiple rounds of financing and some of the well-known are Netsuite ($126m),  Salesforce.com ($61m) and SuccessFactors $45m. These investments are obviously considerable when measured in typical startup scenarios, but the lesson that we can take from them is that regardless of what the ambitions are, the SaaS business model will require more upfront investments when compared with traditional model and that the return of positive cash flow will take more time.   

Summary of our findings in respect to Business Model Canvas

Like in my previous blog entries, the objective of this blog was to view the current Bessemer law with Business Model Canvas from Dr. Osterwalder. Like I stated prior in this blog entry, the impact of this Law is dependent on each and every Business Model Canvas building block.  However, if we need to pick one or two of these, it would be Revenue Streams (RS) as that dictates how well we run our business from revenue perspective, but also Key Activities (KA) which measures how well we understand and run our core business. It is also very important to understand that SaaS business will change the Channel (C) structure as well. ISVs can’t expect to have similar channel structure as they used to have in the past. Vendors such as Microsoft will open commercial app stores (The Dynamics Marketplace) for its development platforms such as Microsoft Dynamics CRM 2011 that has a landing page to learn more. Similar objectives exist for upcoming Windows Mobile 7 with app store like was reported by MobileCrunch.

The question that each ISV will have is how to utilize these app stores and what kind of impact do they have on the existing channels. In some cases, and typically in quite a few of them, solutions are complex and require system integrators to integrate these solutions to backend systems. In some cases the apps might be lightweight and can be deployed without any external help. Should ISVs in these cases rely purely on its own resources and marketing to end user clients, or should they still try to build a channel? I think it will be a combination of both whereby there is nothing new. Traditional software channels need to see the success of the software vendor, there is no way around it. SaaS will be just another way to deliver the solution and gives a broader exposure to ISVs as the whole world can find it through Internet.

This blog entry concludes my journey of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas. This journey of blog entries has been very educational even for me, as it has included a bunch of research of what is known of these topics and what people have written about it. I do have to admit, that there are so many variables to the SaaS world specifically from a financial perspective that I recommend every manager that is part of any ISV business to spend time around these topics. It is worth the investment and can save you from many mistakes; some of them could be disastrous to you from a financial perspective.

Law #6 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –By definition, your sales prospects are online

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I am now in the sixth law in Bessemer’s Top 10 Computing Laws with an emphasis in identifying the prospects that you are going to sell to. The old-fashioned way of selling software is changing in a fundamental way and this also reflects how you view software channels like I described in my previous blog entry and that reflects to Bessemer’s forth law (Law #4) of forgetting what you have learned of software channels. Let’s look at what this fourth law really means for SaaS companies.

Law #6: By definition, your sales prospects are online – Savvy online marketing is a core competence (sometimes the only one) of every successful Cloud business.

The reality in today’s world is that people are searching for products and services using search engines and making their buying decisions based on not only the information in the Internet, but also how other people are rating your product/service. Ten years ago when we were selling software for hundreds of thousands of dollars’ worth, CIOs and decision makers of the buying process did not necessarily go to the Internet and search for your track record of delivery and other key factors that are part of the decision making. I remember vividly that some our clients called organizations such as IDC, Gartner and Forrester to ask about the quality of our product as the digital footprint of a typical software vendor was very minimal.

This trend towards lead generation using search engine optimization (SEO), viral marketing, search engine marketing (SEM), email marketing are things that B2B marketers have been using for a while and traditional software vendors are only now trying to figure out to leverage it. Bessemer refers to organizations such as IBM, SAP, Oracle and their traditional ways of sales and how smaller challengers have a better opportunity to achieve visibility when compared to the large players. There are lots of good books about how the marketing and PR is changing like David MeerMan Scott and his book The New Rules of Marketing and PR: How to Use News Releases, Blogs, Podcasting, Viral Marketing and Online Media to Reach Buyers Directly.

What is changing is also that your web-site is no longer about your great looking graphics, but more about the content and relevancy to your audience. What really matters is what you have to say on your web-site and what type of action the site gives for the prospects that have an interest in your solution. Does your site let the prospect to take action? Based on some studies, even some SaaS companies are failing to lead the prospect to take action or even have something to act upon. This is amazing to me and one wonders if these companies just do not have the DNA of a SaaS company and therefore rather just execute on the traditional enterprise software sales methods. These companies will not survive in the long run and need to get new people onboard that have the right type of mentality.

Even email marketing is in a flux and during the last couple of years, I have seen people getting upset with email blasts that are not relevant to them and this will result in recipients becoming angry at your brand. Some people just do not get it, especially if your email addresses are not based on opt-in policy. This morning I was cleaning my email box from a person that seems to be sending crap to me every second day about topics that I do not care about. What gives him the right to do it? I have never requested him to send me anything and neither have I opted in to any of his web-sites. I hope he reads this blog entry and maybe shifts his thinking about his email marketing strategy.

Is email marketing dead? Probably not, but it is changing as we speak. Email marketing companies such as Exact Target and Constant Contact are acquiring social media solution providers to enhance their solutions with social aspects. Exact Target has acquired CoTweet and Constant Contact acquired NutshellMail. I personally believe that this is not only necessary, but it has to happen as the traditional email marketing needs to evolve to something that benefits the recipient and  gives  readers the ability to opt-in in a way that they want to such as using Twitter “follow” functionality.

Sales in the SaaS world have to do with getting your brand known in the social media space. That is where you are most likely going to be finding your new leads and that is where you need to convince your leads that your company and your solution/brand is something that they need to be paying attention to. Also, due to the change in revenue model in the software world, SaaS companies can no longer afford expensive inside sales teams like I discussed in my blog entry about sales learning curve and also about the financials in my blog entry of the top 6 financial metrics  in the SaaS world that you have to be paying attention to.

Finally, the new way of marketing and creating awareness for your company gives you a tremendous opportunity even if you are a small player. Large companies just aren’t there yet with their social media strategies and if you are small and nimble, you can really make it big. Your SaaS sales have to be high from get-go, you have to generate leads and the old marketing methods are just too slow, so you might want to adjust to the new world of using social media.

Summary of our findings in respect to Business Model Canvas

Like in my previous blog entries in the Bessemer’s Top 10 Cloud Computing Laws, my objective is to relate this current law to Dr. Osterwalder’s Business Model Canvas.

When reviewing the nine (9) building blocks in the Business Model Canvas, the most obvious impact that the new sales models in the SaaS world has to do with Key Resources (KR), Key Activities (KA), Cost Structure (CS) and Revenue Streams (RS) but also indirectly on Channels (C) and Customer Relationships (CR). Let me explain my logic behind this.

First of all, the company has to look at their own core competences and if the Key Activities (KA) and Key Resources (KR) do not reflect the new world of SaaS and DNA of SaaS (like I stated in my blog entry), the company will not be able to drive leads using the Internet as a vehicle. You can’t externalize social media to outsiders as each individual in the company have to be carrying the message in the cyberspace of the product. The old-fashioned way of “giving the authority to somebody else” is gone and these types of individuals will sooner or later realize that they are out-of-sync from the rest of the world. This might sound very radical, but it is already happening, you might want to look around that see if for yourself.

With the renewed approach to market using social media, it will have an immediate impact on Cost Structure (CS) as some of the more expensive traditional marketing methods such as having a booth at a conference, press, TV and other outbound activities are less appealing and effective for companies and inbound marketing is getting more relevant. It is not to say that SaaS marketing is free as can be seen in the financial results of companies such as Salesforce.com.

With effective sales and marketing online, the company will see an impact on Revenue Streams (RS) as expected, but the point is more about whether the company has really understood that SaaS sales has different impact on the annual financial results than in former world; a deal closed in February looks radically different from earnings perspective than a deal closed on November for the specific financial year. This is something that is hard to understand if you have only been in traditional software business.

When you are successful in driving leads, this will have an impact on your Channels (C) as well as they might expect you to be part of providing leads for them (if it supports your sales model). The Channel (C) will be different in the SaaS world and most probably you will be looking at organizations that provide domain-specific skills to the solution and these types of organizations might not have an interest in the recurring revenue that the solution generates, but more in providing consulting services.

Finally, the Customer Relationship (CR) is the key to your success and if your target segment is known not to be online users, then you have to take this into consideration as well.  However, I would argue that the new generation of users is also changing this landscape where you can’t really ignore any vertical/market from your online sales initiatives. It is just a matter of time when it will happen and you will have to be prepared to cater your Customer Relationship (CR) the way they expect you to do.

Law #3 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –Study the Sales Learning Curve and only Invest behind Success

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This is now the third blog entry of Bessemer’s Cloud Computing Laws and in this I will be focused on sales and sales learning curve as Bessemer puts it in their blog entry. I have had the opportunity to personally sell software around the world for the past 20+ years, hire sales people (and yes, sometimes fire) and also dealt with a myriad of different issues that has to do with sales. However, in this blog post, I will be focusing on SaaS sales and issues related to it.

Law #3: Study the Sales Learning Curve and Only Invest behind Success.

Software companies live and die based on the success of the sales. I learned very early in my career that technology by itself does not make the company fly, even if I as head of development at the time thought would be the case. Sales people did not have to know anything, they were just sales people. Little did I know, until I was put in the driver’s seat in sales, and it wasn’t in my native country, but here in the United States of America? 

I did not have a rolodex, but I was appointed as CEO for a US-subsidiary of an European software company. That is when I was put into huge test and my view on sales and sales people has never been the same. I love the way good sales people run their business and I admire how they close the sales. It is not easy to hire good sales people, and it is even less easy to make them go when you have lost confidence.  I got some advice from native US entrepreneurs how to look at sales people and their performance and I also learned how to build a compensation model that would make it beneficial for both the sales person as well as the company. Well, that is history now; let’s look at what we can learn from sales in the SaaS world.

We learned from my previous blog entry about Besssemer’s 6C’s Financial Laws that Committed Monthly Revenue (CMRR) is what drives the company. The question that you have to ask yourself is what type of recurring revenue can we expect from sales people in the SaaS world. In the more traditional enterprise software world, the measure that I used was that a sales person would have to sell for at least a million dollars to be called a real sales rep. Some did less, some more, but that was roughly the measurement. The sales quota has not changed since those days and the blog entry from Bessemer suggests that within the enterprise sales business model, the CMRR number should be around $80.000-$100.000 which is around $1-1.2 M in annualized revenue.

According to the Bessemer, telesales numbers can be lower, from $60,000 to $70,000 MRR ($720,000-900,000 annualized). Furthermore, Bessemer suggests that until at least 2 of 3 sales people hit these quotas, the SaaS company has hit some type of repeatable business model and are close to hitting $300,000 in CMRR. Also, the blog warns of scaling too quickly with new hires as the new ones might bog down the more senior ones and take down the sales numbers for the whole team. It is a chicken and egg and this is nothing new from the past. When you have a good sales rep, you have a temptation to give this person a promotion to be sales manager to manage the sales team. Sometimes this is the road for failure. I have seen it so many times. I have even seen sales tank completely by hiring incompetent leadership and get the sales team to quit. This is a certain path to destruction.

Bessemer also separate “hunters” from “farmers” and I will get to this topic in later blog entries, but the idea is that the company has a separate set of sales people for new sales from the account management roles with the objective to renew the contract year after year. The CMRR includes churn every year, so the net impact of your new sales will be impacted by existing clients that do not want to renew. This is why some SaaS companies have dedicated sales team that focuses solely on customer service, renewals and up-sells. Also, this of course drives the behavior of the sales people depending on what their focus and sales drivers are. The new account team should be paid on new CMRR with a standard deal structure and incentives if the customer pays with more favorable payment terms.

The final element of Bessemer’s advice is the internationalization of the solution that is a key element for making it big for the SaaS vendor. How big should the company be when entering international markets? The blog entry from Bessemer gives a US-based perspective with the framework of US business. The claim, which I believe is true, that US is much advanced as a market for SaaS solutions and the company can grow tremendously just in the US home market. Bessemer gives some idea of when to break it from the US market and it is when it hits $1M CMRR ($12M Annual Contract Value) which in European terms is a pretty sizable company already. I know much smaller companies that have been able to create international presence, but I am sure that Bessemer looks at this from an investor/venture capital perspective. If you asked entrepreneurs about this, the numbers would be very different.

Bessemer advices US-based SaaS companies to view European markets as a pre-IPO market and growth strategy and Asia as the company has IPO’d. I do disagree with this view or perspective, specifically now with software vendor having access to PaaS, IaaS platforms covering the entire world and having data centers in all major regions (EMEA, Asia, US, Latin Americas). I want to emphasize that Bessemer’s perspective and view is from a venture capital perspective and I am sure that when you want to make it big and have your investment come back sooner rather than later, their approach seems feasible.

When you are an entrepreneur, living with your own pace and agenda, the approach can be different as have been seen in many cases. You do not have to have huge CMRR to get international access and with current social media methods and viral marketing, you can build a growth story that creates users around the world. Bessemer has a good point in their blog entry about cultural and language related issues when deploying multi-language version of a SaaS solution. Large organizations are known to have issues with this, so smaller ISVs will run into same issues regardless from where you are.

So how can SaaS sales be viewed from Business Model Canvas perspective? In my previous blog entry about the financial models and the 6C’s, the CMRR impacts directly the Revenue Streams (RS), but I would be tempted to say that this Law impacts Customer Relationship (CR), Channel (C) and Key Resource (KR). The reasoning behind this is as follows:

  1. The SaaS company’s success is dependent on its ability to understand the DNA of SaaS business and the Key Resources will be the sales people that get this and are able to deliver the Value Proposition (VA) that the solution is claimed to have.
  2. The sales people are also key to the Customer Relationship (CR) at least initially until separate “Farmers” are hired to maintain the customer relationships. Regardless of this, a SaaS company will live or die with the customer relationship as there is a direct connection between CMRR, satisfaction of the use of the solution and the renewal rate (or churn).
  3. SaaS and Channels (C) is a concept that is causing the traditional VAR (value-added reseller) to wonder how they will play in the whole SaaS field. The margins for the SaaS are not what is expected in enterprise license sales and this will cause many VARs to reconsider their future.
  4. Satisfied customer impacts directly Revenue Streams (RS), unhappy customers impact both Revenue Streams (RS) and Cost Structure (CS) and CAC.

 The combination of effective sales, effective product development with leadership team that understands the SaaS DNA is a key for success. One has to remember that venture capitalists are also expected to understand the SaaS business model, and if they don’t, I would not want to be the CEO of that SaaS company.