What Is The Essence Of Sales?

Last week I had three nearly identical conversations with three different early stage startups about pricing. Specifically, how to price, when to share pricing, and how to gain leverage in pricing negotiations. Those conversations inspired this post. This post will be most applicable for B2B SaaS companies selling novel solutions (not commodities), ideally with an ACV > $50,000.

Everything in life is a negotiation. Especially sales. Negotiations are about leverage. When you’re selling to a potential customer, the customer has all of the leverage. She has the money, and you want the money. You have no leverage. She has all of it. How do you turn the tables?

The essence of sales is about inverting who has the leverage in the negotiation. To do that, you must create value in the mind of the customer. Sales isn’t about persuasion, being the nice guy, or hustling to get the deal. Sales is purely one thing: creating value in the mind of the customer so that you can invert who has the leverage in the negotiation.

If knowledge is power, then empowering your customer by creating value in her mind should work against you. The more she knows, the more she can hold over you, right? Wrong. This sounds counter-intuitive, but educating your customer — creating value in her mind — is the best method to extract as much cash from your customer as fast as possible, while maximizing probability of project success.

How To Turn The Tables

Irrationality always beats rationality. Always. See Donald Trump vs climate change. Donald Trump wins every time.

If you sell your product for $100,000, then you need to be unlocking at least $400,000 of value to the customer. Ideally $500,000 (note, the ratio of value-creation you can capture plummets if the costs are soft costs and not hard costs) . Early in any sales conversation, every customer will ask “how much does it cost?” If you tell them $100,000, you just lost the deal.

Why?

Because the customer hasn’t yet recognized how you’ll unlock $400,000 of value. Customers will naturally come up with a number that they feel should be the “cost.” That number has virtually no bearing on reality, on your costs to deliver the solution, or most importantly, the value the customer will unlock by using your solution. It’s a meaningless number, and it will be an order of magnitude lower than the price at which you’d like to sell your solution.

So when you tell the customer the solution costs $100,000 and she’s assigned $50,000 of value to your solution, the deal is over. Paying $2 for a $1 bill is obviously non-sense. This happens all the time, even if the solution would have unlocked $1,000,000 of value for the customer! Customers almost never really quantify the value of a new solution on their own accord. They need to be guided to recognize the value that can be unlocked. But naturally, they won’t see it. And that’s why…

…Irrationality always beat rationality. Always.

So your goal in sales is to make the customer realize that your solution will unlock $500,000 of value for her business. And if you do that successfully — if the customer really, truly believes that your solution will unlock $500,000 of value, then she would be stupid not to pay you $100,000.

Who wouldn’t buy a $5 bill for $1?

When you create that value in the mind of the decision maker, and they really believe in the value of your solution, you have turned the tables. You’ve taken all of the leverage away from the customer. Now you run the show. You have all the leverage.

The customer becomes the rational one. She wants to pay you because you will generate more profits for her, which will impact her take-home pay. You can afford to be irrational, and you can probably get away with it (within reason). Because really, even if you up the price to $110,000, the customer is still saving $390,000! Who would turn that deal down?

How To Deal With “What’s The Price?” In The Real World

Now, getting to this point of value realization — the “aha” moment — can be incredibly difficult. The larger the ACV, the more work it will take to build a true ROI realization model or business impact model. In many cases it can take months of working with business analysts to build a sophisticated ROI realization model. Many customers may not be willing to put in that work up front. The best you can do in these scenarios is to try to ballpark the potential ROI to get the decision maker excited enough to allocate 50–100 hours of other people’s time to figuring out the value realization model. If the decision maker doesn’t want to explore, the deal is dead.

Many customers will want to know the price before they do the heavy lifting of understanding the value. But that is the backwards approach. It leads to failure every time. When you share the price that early, you artificially cap your revenue opportunity, or say a number so high that you offend the customer. This always leads to a dead deal.

So how do you deal with the “what’s the price?” question when it inevitably comes up early in the sales cycle? Easy. Remember, it’s not about you. It’s all about the customer.

“Bob, if we can only deliver $50,000 of value to your $20,000,000 business, is that worth your time? Probably not. As VP of [division/company] you probably don’t waste your time on $50,000 problems. So if we can only deliver $50,000 of value, then we will gladly walk away and leave you to your business. We don’t try to hide pricing, we just recognize that if the project isn’t worth your time, then who cares what the price is.”

You’ll feel uncomfortable saying it at first, but it works everytime. As long as you make it about the customer — and not about yourself — you’ll be fine. No one can hate you for saying “you may be too big/important/good for us.” No one.

Savvy customers may use your logic against you and may respond with “well we have a finite budget this year and if it’s higher than the budget, it’s a no-go regardless, and I don’t want to waste your time. What’s the price?”

For which you can respond with “If I save you $1,000,000 this year and the unallocated budget is $50,000, is it not rational to find an extra $100,000 so you can spend $150,000 to save $1,000,000?” If they insist on rigid budgets still, then the deal is dead. There was never a deal to be had. Their organization is too irrational to do business with. Irrationality always wins.

Irrationality may beat rationality, but don’t let irrationality suck you dry. Cut your losses and move on.

You Have No Leverage Until You Have All Of The Leverage

Sales is a beautiful thing. It may have a poor connotation among laypeople, but true, systematic, structured sales is the ultimate sophistication. There is nothing more rewarding than turning the tables of a negotiation. And when you do, everything changes. You generate more revenue per customer, the deployments run smoother because your project is a higher priority to the decision maker, and you’ll have more reference-able customers… to help you sell more customers!

Why Founders Should Blog

Blogging is one of the highest ROI tactics that founders can employ to accelerate growth across the company: revenue or users, employees, and investors.

It’s often times not obvious how blogging can create value until you’ve been doing it for a while though. I’ve published over 250 blog posts over the last 40 months, and I’ve probably written and discarded an additional 25–50 posts. I could have never recognized the value of what’s below until I had done it. Hopefully you’ll take up blogging more actively.

1. I first started blogging January 1, 2013. Going into 2013, I knew that I wanted to start a health IT company, though at the time I didn’t know what that company would be. I was 22 at the time, and knew that I would never be able to raise capital, recruit employees, or sell customers in the health IT space unless the world could feel comfortable I that I understood health IT. So I made a new year’s resolution for 2013 to blog 3x / week for the year. I wrote 156 blog posts in 2013. I can directly attribute my blog posts to $300K of the $1M of seed financing I raised, including the first $100K check investment from an angel. I can directly attribute my blog posts to landing what would become Pristine’s first customer, UC Irvine. And within 4 months of blogging, I landed a role at the most respected blog in the health IT ecosystem — histalk.com. That indirectly drove hundreds of thousands in additional revenue because it made both Pristine and I credible.
2. One of the key tenets of leadership is defining and communicating the company’s vision to the team. Clearer, more concise writing obviously lends itself towards communicating the company’s vision more clearly. Moreover…
3. Satya Nadella, CEO of Microsoft, ranks the ability to clearly communicate as the single most important skill he looks for in executives. Executives judge everyone they work with based on their communication skills. It’s nearly impossible to sell executives expensive solutions if you can’t write. Before an executive writes you a $100K+ check, she will likely read many of your emails and hear you speak and present. She will judge you based on all your communications. If your business model doesn’t involve selling $100K+ solutions, think again. VCs write checks that are 1–2 orders of magnitude larger. VCs are also generally 1–2 orders of magnitude more sophisticated than your customers. They will scrutinize your ability to communicate because they know that as CEO, as you scale, communication becomes the only thing you’ll do.
4. Writing will expedite the interviewing process for non-developers. Use your content as a filter in the interview process. Has the candidate read your last 3–5 blog posts? Can she discuss them? Does she have any opinions of her own? If not, you can reject the candidate in seconds or minutes. At Pristine, I was famous (infamous?) for dozens of 5-minute sales interviews. If they hadn’t Googled me, stumbled into my blog, and read a few posts, I knew they would never pursue customers with enough rigor to be any good. The top quintile of sales reps never go into job interviews without looking up who they’re going to be interviewing with. This filter can be used for all non-developer candidates.
5. When speaking off the cuff, people generally use 2–3x the number of words necessary to describe an idea. Writing forces you to be crisp and clear. As your writing improves through practice, your ability to communicate concisely will naturally translate into your real-time speech, helping you speak more succinctly. It’s hard to believe at first, but you’ll recognize the difference after 6 months.
6. Combining the two prior points, the stronger your writing ability, the more quickly and effectively you’ll be able to judge others. If simplicity is the ultimate sophistication, and if writing helps you think and communicate more clearly and simply, then communicating clearly makes you more sophisticated, and more able to judge others’ sophistication.
7. Define and control your online identity. You never know when a publication will name drop you or your company in a less-than-flattering capacity. When you’re Tony Fadell, you can handle some negative press. But when you’re not a celebrity, it’s far more challenging to recover from bad press. You can’t compete with TechCrunch on SEO, but you can clearly define your voice so that when TechCrunch writes something you don’t like, your stakeholders can judge you for who you really are, and not what a TechCrunch reporter threw together in a few hours of research. You don’t want your first blog post to be a response to a TechCrunch article. Furthermore…
8. Build your brand. Everyone likes doing business and hanging out with known entities. So make yourself a known entity. Ryan Hoover of Product Hunt and Danielle Morrill of Mattermark built themselves into recognizable brands as they launched their respective companies. As a known entity, you’ll be able to get almost any meeting you want. Furthermore, by establishing your brand, candidates and employees will learn how to interact with you, what you like, and how you think. This will reap dividends in perpetuity.

Hopefully I’ve convinced you that you should write more. This naturally begs the question “How do I improve my writing ability?” The answer is simple: practice! My early blog posts were garbage. The only way to get better is to practice. Writing three blog posts per week accelerated the process for me. You don’t need to commit to three per week, but try committing to one or two weekly.

It will be hard. You may be too embarrassed to publish your work. As Mark Suster of UpFront Ventures says, “publish or perish.” Get it out there. Iterate. The best form accountability is public accountability, even if no one reads your blog (fun fact: I had about 20 unique readers in my first 3 months). In 2–3 months, no one will remember the bad content because they’ll see how good you’ve become. If you need help with motivation and enforcement, usestickk.com. I used it successfully to enforce my three posts per week rule in 2013.

Practicing writing is hard. I didn’t do it alone. There were quite a few people who helped me along the way. You may not have someone who you trust to help with your writing. So I’ll make a promise to the world: if you commit to writing at least one blog post per week, I’ll commit to helping you refine and improve each and every post, privately. Just email me if you’re interested.

Networking Is Bullshit. And How To Network

“Networking” is one of the most useless terms in modern business vernacular. It’s about as meaningless as “innovation.”

There are so many networking events. Particularly in sales circles. But even outside of sales circles, I regularly hear people say “I’m going to [event] to network.” The ratio of networking events attended to value created is abysmally low. Why?

Lack of focus. Lack of clarity.

Going to events hoping to meet someone who will be useful to you is irrational and counter-productive due to time loss. Relationships are two-way streets. You have to be prepared to offer value before you can expect someone to reciprocate.

It’s particularly difficult to offer value to people who attend events if you don’t know who is attending. Or worse yet, when everyone attending is looking for more-or-less the same few things. Sales-focused networking events are the worst. Sales people are looking for one of two things: customers, or a new job. Customers don’t go to sales-focused meet ups because they don’t want to be sold. And sales people aren’t going to meet ups to find new sales colleagues to hire. Sales people don’t generally care that their employer needs two more sales reps to cover some territory. Structurally, sales-focused networking events do not work.

This stands in stark contrast to developer meet ups. Developers generally attend these because they are interested in learning about a novel piece of technology. These meet ups work because the agenda is clear — learn about [x]. Developers can easily assess their own desire to learn about [x], and can bond with other attendees about [x].

Everyone knows that startups are about focus. But strangely enough, the startup community revels in itself and hosts lots of superfluous, unfocused events. Pitch competitions in particular are the awful, other than those sponsored by the elite accelerators like Y Combinator, Tech Stars, and Capital Factory.

As a startup CEO, it’s natural to gravitate towards pitch days to meet investors who are presumably there looking to invest in startups! The problem with pitch days is that they explicitly commoditize the CEO-investor relationship. Investors are by definition wealthy, if not rich. Wealthy people have egos. Even the modest ones. Herding investors as if they were sheep so they can see a bunch of startups in quick succession does not feed investor ego. Moreover, pitch days never offer enough time for investors and startups to connect after pitching. Too many investors and too many startups means only a small fraction of each side of the market connects with the other. Investors attend pitch events to catch up with other investors, and to boost their own ego. This isn’t their fault.

So how do you network for your job role? You don’t. Networking is by definition a shotgun approach: “I’ll show up, meet some people who perhaps are here for some agenda, and hopefully we’ll connect, I’ll be able to offer some value, and they’ll be willing to reciprocate later.” That approach is nonsense and garbage. Use a sniper rifle instead.

If you’re a sales rep, work with your marketing team to identify target customers, and systematically reach out to them. A/B test messaging. There are plenty of tools to help you do this. Attending open-ended events is the worse way to find customers you match your ideal customer profile ICP.

If you’re a sales rep looking for a new job, identify 5–10 companies you would like to work for. Use LinkedIn to find mutual connections. If you have no mutual connections to a given target employer, find 3rd degree connections. Build relationships and work your way in. Demonstrate your expertise publicly. Target hiring managers relentlessly. You will not build the relationships necessary to land a job at a company happy hour. No one is there to help you get a job. They are there to drink and have fun. Don’t ruin their time and your chances of getting a job there by being… a sales guy.

If you’re a developer looking to meet other developers…. go to meet ups! In the examples above, that was the counter example by design. You will naturally bond with other developers who are interested in the same tools. That is the common ground that will serve as the foundation for a relationship. Developers actually provide value to offer other developers.

If you’re a CEO looking to raise money… just identify target investors using Mattermark, Crunchbase, CB Insights, LinkedIn, AngelList, etc. just as you would if you were building a target customer list. Look for mutual connections. Research each one. Make sure you can say something intelligent that’s relevant to each investor when you either ask for a mutual introduction or do cold outreach. The more personalized the content is, the exponentially more likely the investor is to respond. Why spend 20+ hours prepping for a demo day with 50 random investors when you could spend 10 hours doing personalized outreach via mutual connections to 50 targeted investors? The latter will always yield a higher hit rate. Always. And it won’t commoditize the CEO-investor relationship. And it will guarantee you get the 1-on-1 time you need with that investor.

My 3 Day Startup Experience

My friend and founder of 3 Day Startup (3DS), Cam Houser, called me a few weeks ago. He offered me an opportunity to fly out to Boston for a weekend to support 40 Brandeis University students in launching a startup over the course of 3 days. I invested that time because so many folks at Pristine helped me along the way that I couldn’t compensate. So I chose to pay it forward since I couldn’t pay it back.

If you’re an entrepreneur or VC, please help facilitate a 3DS program. It’s an incredibly satisfying experience. You know lots of people have helped you out. So please pay it forward.

3DS is not new. It’s been around for 5–6 years and they’ve done hundreds of programs at schools and companies. They provided all of the training, coaching, and content for me to jump right into the process.

The premise of 3DS is simple: help students validate all of the assumptions of their business idea as quickly and cost effectively as possible, and consolidate all of the learnings and pitch the startup in 5 minutes. It’s a way to learn the Lean Startup process by practicing the lean startup process in one weekend. Rather than just walking through students through the canvas, 3DS forces students to go out and talk to customers, test assumptions, and refine. Students have to commit the entire weekend to the process, and as a result of intense focus, they can actually recognize that assumptions are much more difficult to recognize than they originally thought.

Day 1 is about idea formation and team selection. Students come with some ideas, and then we mandate that they brainstorm individually and as groups to come up with as many ideas as possible. The class I facilitated came up with about 25 ideas. Students then vote on which ideas they prefer through a few rounds of voting until there’s 5–8 ideas left. Then students select into groups based on what they want to focus on for the weekend.

Day 2 is all about customer validation. Students are supposed to go out and talk to literally talk to customers on campus. If the target customers aren’t on campus, then they have to find customers online and message them. My class of students cold-called at least 100 people over the course of the weekend. Students have to validate that the pain they want to solve is real and attempt to quantify the cost of the pain. Then they do some research to size the market, and identify channels to systematically find and activate customers.

Day 3 is about pitch practice. The whole day is spent refining the pitch. This is the most challenging part for most of the students since most of them have never had to give a real startup pitch before. It forces them to determine what’s actually important and what’s not. It teaches them the value of clarity.

I had a blast teaching the program, Most importantly, I could tell students were actually learning. I wish I had gone through a similar program when I first started Pristine. It would have helped me in so many ways in the early days. The best part of the experience was the end, after pitches. Over a dozen students came up and gave me a hug and thanked me for pushing them through the process. I’ve never felt that feeling before.

But the best part of the program for me was this email I received one hour after pitches. To put this in context, this girl is an international student. English is her second language. I am easily 2x her size, and for those who know me, I’m a bulldozer personality. She couldn’t be more dainty. And I probably dropped 40 f-bombs in front of her during the 3–4 hours we worked together. I never expected her to extract this much value from me or the 3DS program. There’s really no feeling like it in the world.

“Hey Kyle! Don’t know if you still remember me, but it’s _____ from the ________ group at 3 day startup. After our discussion, we figured that we are not gonna let this idea sink back to the ocean again. Therefore, we will keep working on it, and we might ask for your advice in the future. So, be prepared (Haha)!

I know us, and probably a lot of people had already said thank you to you, but I still want to thank you again, not only for the knowledge that you have shared with us, but also for your support, your confidence, and your trust in us.

I was writing my journal, but then I realized that without your help, our group might still be clueless and frustrated. So thank you for showing us direction and bringing energy and motivation to our group, and thank you for being one of the best mentors ever. Before 3DS, I was confused, and didn’t even know what value I can bring to this group. So I went to career consultation, even though it didn’t really help me. But after this event, even though I mess up on the presentation, I still feel confident about our project, and I know that this confidence will start to become part of my life now.

So thank you again, for everything you have done for our group, for other groups, and for 3DS. Thank you for spending your birthday with this event. And HAPPY BIRTHDAY again! Hope you are having a great one!”

If you’re an entrepreneur or VC, please help facilitate a 3DS program. It’s an incredibly satisfying experience. You know lots of people have helped you out. So please pay it forward.

Computers Commiditize Knowledge

30 years ago, the highest paid person in the room typically made most of the operational decisions. A CMO or Creative Director would determine the final language in an ad. A VP Sales would determine the exact language sales development reps (SDRs) would use when calling prospects. HR directors would set employee policies without much employee input.

Today, things couldn’t be more different. CMOs and Creative Directors may set high-level themes for a marketing campaign, but copywriters and junior marketers generate many unique sets of copy and split-test those messages on a small scale first. The best received messages will then be reproduced on a larger scale. Similarly, a VP Sales no longer needs to claim to know any best-practices about cold calling. She can split-test every variable using a tool like SalesLoft.

30 years ago, a VP Sales would never claim to offer a useful opinion regarding visual direction and ad-copy. And a CMO would never claim to guide SDRs through cold-call scripts. The processes outlined 2 paragraphs above couldn’t be more different. But the process outlined in the paragraph immediately preceding this one are identical. In both cases outlined above, the VP doesn’t need to claim expertise in much of anything beyond managing the experiment. The VP can and should defer to what the data says.

CEOs used to rely on expert VPs to make these kinds of decisions. The VPs had decades of experience. The VPs would synthesize all of their learnings and experiences and offer an answer. This process was not unlike the split-testing process outlined above. The only difference was that humans were responsible for processing the results of the experiments rather than computers. Computers are by definition orders of magnitude better at understanding, normalizing, and comparing data than humans.

Now that we have the tools to split-test and measure almost every action we take through computers, VPs no longer need to do this. In fact, they explicitly shouldn’t because they are inferior to computers.

I’m not suggesting that the experience that many VPs bring to the table is worthless. There will always be questions that computers cannot answer: will this person jump ship if they receive an offer for $5K more elsewhere? how can we structure our pricing proposal and presentation to maximize revenue on this $500K deal?

Rather, VPs are moving up to higher levels of thinking and operation. Without the need to worry about as many tiny operational details, VPs can focus on higher level issues to accelerate firm performance.

Each functional area still requires plenty of nuance that is not easily computable. But a lot of the basic questions can be answered by computers. Thus, VPs should be increasingly valued not on their willingness to dictate what should be done, but how they structure and manage experiments to make the best decisions from data. This isn’t to say that data commoditizes all knowledge, but that many facets of what were once knowledge have indeed by commoditized by data. I suspect that in 20 years, the most efficient management teams will operate in ways that we can’t fathom today. As computers offload more of the busy work that today is in the realm of, management, managers will focus on ever higher-order issues and accelerate firm performance even more.

The real question is: when will computers move further up the chain and commoditize wisdom? Is this possible before we achieve general-purpose artificial intelligence?