Archive for the Enterprise Software Startup Sales Category

Sales and Marketing: How Much To Spend?

Posted in Enterprise Software Sales, Enterprise Software Startup Sales, Sales & Marketing Expenses on August 1, 2010 by Shankar Saikia

No matter how functionally rich and technically advanced your software is, you have to expend resources (i.e., time and money) to get customers to buy your product. Most entrepreneurs, especially founders with primarily an engineering background, do not seem to understand this aspect of starting and operating a business. I have heard of only one tech company that does not have a sales force or has very few salespeople (Atlassian).

Here is some data on the what various publicly traded software-as-a-service (SAAS) companies spend on sales and marketing as a percentage of total revenue (source: 10-K reports at www.sec.gov) :

Salesforce.com 47 % ($605 million out of 2009 revenue of $1.3 billion)
Netsuite 46% ($76 million out of 2009 revenue of $166 million)
Successfactors 52% ($80 million out of 2009 revenue of $153 million)

As you can see each of these companies spends over 45% of its annual revenue on sales and marketing. If you are an entrepreneur you should budget at least that much for sales and marketing (perhaps  more on marketing in the beginning so that you can build awareness).

Experts cite many credible reasons for the success of one tech company over another. One reason is the concept of network effects and increasing returns to scale – for example, a platform that enables others to build applications for it (e.g., Microsoft Windows, Apple’s iPhone App Store) – the greater the number of apps, the greater the value of the platform.  Yet another reason for the success of a tech company, especially an enteprise software company, is effective sales and marketing. As I said in the beginning of this writeup, you cannot win with just a great product.

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Startup Sales Advice: Choose the Right Customers

Posted in Enterprise Software Sales, Enterprise Software Startup Sales, Market Segmentation, SMB Software Sales on July 27, 2009 by Shankar Saikia

Ask any enterprise software entrepreneur what his/her biggest challenge is and you will hear some variant of the following:

… sales … revenue … customers ….

My experience at 4 early stage (less than 40 employees) startups has taught me the value of choosing the right customers, especially the right initial customers.

While a startup usually does not have the luxury of “choosing” a customer (heck – any customer will do, right??), the following guidelines will help:

1. AVOID “OUTSOURCED DEVELOPMENT ORG”:  Avoid an overly demanding customer that essentially uses your organization as it’s outsourced development arm! One of my startups licensed our software to a major telecommunications carrier. Thereafter, 65% of my company’s effort went into supporting the customer, instead of using that valuable time/effort to develop additional capabilities that would have attracted more and less-resource-intensive customers. Keep in mind that “cost of sales” and “cost of support” are as important as “sales revenue.”

2. SEGMENT THE MARKET: In seeking your intial customers it may be tempting to cast a wide net and try to win any customer regardless of industry, company revenue etc. My experience has taught me that it is better to focus on a few industries and company sizes (e.g., financial services companies with revenue = $ 50MM – $250 MM etc.). Choose segments that are early adopters and need relatively less support. One benefit is that your sales team can leverage the experience gained from selling within the same segment.

3. SUCCESSFUL CUSTOMERS ARE YOUR BEST SALESPEOPLE: One of my companies learned this the hard way. We acquired quite a few customers but were unable to help the customers get tangible value from our software. As a result we did not have an adequate number of referenceable customers. In retrospect, had we limited the number of our initial customer wins and instead focused on helping our few customers become successful with our product, we would have acquired more customers later at a lower cost of sales.

Here is a 3-step mantra: choose wisely, choose few and make everyone successful!

What do you think?

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