Monday, April 26, 2010

Confident Selling

Part 2 of a 3 Part Series on Consultative Selling

One of the sources of fear in selling comes from a lack of confidence in the value of the product or service* that you are providing.  The cure for this is not psyching oneself up or two shots of tequila but rather understanding the value of what you have to offer to your customers (marketing term:  product/market fit).  So how does one go about doing this?
Step 1:  Create a Target Customer Hypotheses - Who is your target customer?  What are there needs and wants?  How do they learn about your type of product?  What is there ability to pay?  What is their life like before they use your product?  How is it different afterwards?

With respect to needs and wants, you are looking for three things:  overt pain, latent pain, and wants (see example below).  Solving overt pain has the highest value and is usually an easy sell.  Latent pain requires one to elevate awareness in the customer's mind.  Don't expect to get paid much satisfying a mere want.

Step 2:  Create a Product Feature Hypotheses - How can you fulfill the customer's needs?  What are the core features required vs. the nice-to-haves?

Step 3:  Create a Value Proposition Hypotheses - What is the ranked priority of customer needs and which of my product features is the customer likely to value the most?  The least?  What other ways could the customer fulfill their needs (marketing term:  competitive substitutes) and what is their price?

Step 4:  Test the Concept - Identify some number of people ( the sample size will depend on what type of product you have) who fit the Target Customer Hypotheses and talk to them or find some other method of obtaining feedback.  Are your hypotheses about the customer's needs etc. correct or do they require adjustment?  Is the customer interested in your Product Feature Hypotheses or do they require adjustment?

Step 5:  Iterate Until Validation - What is validation?  The only legitimate form of validation is a monetary commitment either in the form of a purchase order, a contingent P.O., or a binding letter of commitment.  Free does not count.  Non-binding letters of commitment do not count.  A beta testing commitment probably does not count unless the customer is having to commit significant dollars and people to executing the beta test.  Only at validation do hypotheses convert to facts.

Those of you familiar with Steve Blank's Customer Development Methodology and the Lean Startup movement will recognize that this comes straight out of the Customer Development playbook.

While this seems simple, I can assure you that truly understanding the value of what you have in quantitative terms suitable to being able to set pricing takes time and lot of work.  In my mind, anyone who can get this down in less than three iterations is brilliant.

The end result:  you should have a gut level understanding of the value of what you have to offer and more importantly who your target customer is.  The last is key because in my experience, the worst price negotiations usually occur with people who are slightly off the target customer profile.

And now you're ready to sell, right?  Well, not quite.  The final step:  deciding what to say, will be the subject of the next post.

*  For shorthand's sake, wherever I use the term product, I mean both products and services.

Monday, April 19, 2010

Fear of Selling

1st of a 3 Part Series on Consultative Selling

On Saturday, I had the privilege of speaking at a seminar entitled "Start Your Own Business" sponsored by Peninsula Bible Church in Palo Alto, CA.  During the Q&A session, a great question came up,

"What if I want to start a business but I hate to sell?"

My answer:  Don't think of it as selling, think of it as problem solving.

In my experience, when I hear "I can't sell," or some variant, its typically because of one of three underlying reasons:
  • Fear of rejection
  • Lack of confidence in the value of the product or service being offered
  • "Telesales-at-dinner" view of sales
The last refers to that annoying telephone call we've all received, usually at dinner time by some untrained telesales person, reading (badly) off of some script, trying to push something on us in which we have no interest.  Unfortunately, this is a fundamental misunderstanding of what sales is all about.

Sales is not about pushing a product or service that you have on an unwilling victim.  It's about matching what you have with a customer's need.  If you can find a match, you have the basis for a sale.  If you can't, you don't.

What's ironic about the question from this particular audience, is that I know many of these people are great "people" people.  Many are extraordinarily good at seeking out people with needs in the congregation and finding creative ways to help.  This is pretty much how sales works;  find a need and fill it.  The big difference is that in sales, you are seeking to get paid for fulfilling the need.  This interjects an element of transactional self-interest absent from a pure helping relationship.

But what sometimes gets lost in all the press about Wall Street abuses is that good business is based on relationships, not transactions.  In fact,  I would assert that it is when a business relationship shifts towards being purely transactional, that abuses flourish.  The fact that money changes hands in a business relationship shouldn't negate the mutual benefits to be derived from that relationship.  (Of course, it's important that both parties are clear from the beginning that what is being entered into is a business relationship, not a purely personal one.)  Just think about products or services that you've purchased that you've been happy with.  Did the fact that money was involved taint the relationship?  Or did you feel like you got a good value?

This leads to the issue in the second bullet point:  lack of confidence in the value of what is being offered.  Before you sell, you need to know the value of your product or service.  If you believe the value is truly there, then this should be a source of confidence, not a cause for apology.  Good sales people will tell you that the products or services that they are most effective at selling are the ones that they know at a gut level provide intrinsic value to their customers.  (Marketing departments pay attention:  if you're encountering resistance from your sales force in selling certain lines, maybe it's because they don't believe the value is there and you need to dig deeper.)
Now understanding the value of what you have can actually be very difficult.  How you go about determining this will be the subject of Part 2 of this series.

Let's assume for now that you do understand the value of what you're offering to a prospective customer and that you've this boiled down to a fairly succinct elevator pitch (covered in Part 3 of this series).  When you do this, one of three things will happen:
  1. Nothing - In which case you need to go back and reassess the value of what you have and/or your elevator pitch.
  2. Rejection - Now most people when they do this will do so politely at first.  After all, rejecting someone can be even more uncomfortable than being rejected.  (Just ask a high school girl whose been asked to the prom by a boy she isn't really interested in.)  So the "no" will likely be a gentle one.  Accept this and then follow up and find out why?  Let the other person know that you respect this and ask them if they wouldn't mind answering a few questions to help you improve your offering or better direct you to someone they think might be a better candidate for your product or service.  Turn rejection into a learning opportunity (fancy term:  market research).
  3. An Expression of Interest - Treat this as an invitation that the other person wants to hear more.  If they don't ask specific questions, the best way to move the process along is to ask questions.  And don't forget to let the prospect ask questions back.  For some reason, people never seem to consider questions as selling (unless you're asking leading questions.)  I've always found this  puzzling because questions are at the very heart of selling.  It is only by asking questions that you can truly discover what the underlying needs are and whether you do or don't have a fit.
So what will happen?  Will you get the sale?  Maybe.  If there is no fit; then there is no fit.  Don't waste your time or the prospect's trying to force something that isn't there.

Sales is not about closing every order.  It's about creating a mutually beneficial relationship, where in exchange for money, you are delivering a product or service of value to that person.

Next week, we'll look at how to determine the value of your product or service.

Monday, April 12, 2010

Tracking Cashflow (for Non-Accountants)

One of the most important things an early-stage startup must do is track cashflow (see my previous post My Top 10 CEO Lessons).  But for a variety of reasons, many startups do this poorly, spend too much time doing it, or don't do it at all.

Because many entrepreneurs are not trained in accounting (nor do they want to be), the two most common questions I get are:
  1. Is there an easy way to track cash without having to be an accountant or spending large amounts of time learning QuickBooks (or the equivalent) short of hiring an accountant?
  2. I use accounting software, but the standard reports don't really help and looking at my bank balance doesn't help me with outstanding checks.  Is there a better way to get a forward projection of my cash?
Before I go any further, let me first clearly state that in my opinion, if you are running a serious business, you should at a minimum be tracking accounts using QuickBooks or the equivalent.  This goes triple if you've taken "friends and family" money in any way, shape, or form.  If you can't or don't want to do this yourself, then spend the few dollars a month it takes to hire a competent bookkeeper.  You have a fiduciary responsibility to your investors to do so.

In any event, to help our clients, I've developed a simple cash tracking spreadsheet in Excel that you can download for free here from my company's website.  I recommend tracking cash weekly.

Disclaimer:  This spreadsheet is meant to be simple.  There are no macros, automated routines, or fancy error-checking routines built in.  If you insert or delete cells, be sure you haven't messed up any formulas.  Use it at your own risk.

Additional tips for maintaining control over cash for an early stage startup:
  • Maintain a separate bank account for the business - Its virtually impossible to maintain control over cash when it's co-mingled with a founder's personal bank account.
  • Limit the number of company credit cards to just one (and preferably zero) - Credit cards are a recipe for runaway spending.  The more cards, the tougher it is to maintain control.  If you must have a credit card (some services require submitting a credit card for auto-billing) have just one.  It's better to have auto-payments done via online bill pay.  If its a convenience issue, reimburse personal credit card use via an expense report system.
  • Require employees to submit expense reports for company expenses that they pay for - See above.  You'd be amazed at how much more careful people are with the company's money when reimbursements are subject to approval.
  • Anti-fraud control #1:  Dual check approvals - Have the person who initiates a check, online bill pay, or wire be different from the person who approves it.  If there is only one person, then it should be the CEO/founder.
  • Anti-fraud control #2: Dual bank deposits - Have the person who receives checks be different from the person who deposits them in the bank.  If there is only one person, then it should be the CEO/founder.
Startups die when the cash runs out.  It's worth the effort to track it so you don't get surprised.  Know your cash.

Monday, April 5, 2010

Uncontroversial Company Values

"You've got to talk to the company right now!  Or we're going to lose key people today!" declared the marketing director of my newly inherited executive team.  I had just been appointed president of Luxtron and the company was in turmoil.  Several week earlier, my predecessor and the VP of Sales had left the company and anxiety was running high as to what the new president - me - would do.

It was Friday afternoon and I had just stopped in to drop a few things off at my new office and sign some paperwork.  Thirty minutes later, I found myself facing close to 100 people in the company break room.  What should I say?  Should I talk about our forward strategy?  I didn't have one.  Should I talk about how we were going to fix the company?  I wasn't even sure what the problems were!

No one gets more scrutiny than the guy at the top and what these people wanted to know were a few basic things?  Who was I?  What was I going to do?  How would I run the place?  And most pressing of all, what was going to happen to them?

So I decided to discuss values.

Given the panic in the air, why start with a soft squishy concept like values?  Because while I couldn't tell them what I was planning to do (I didn't know myself!) I could tell them how I planned to run the place and what my expectations for them would be.

So in the heat of that moment, I articulated four values (which today is up to five) by which I would run the company.  And while it seems that in today's culture wars, values are more often than not used to divide people, I've found these values to be ones that most everyone can agree to.  I 've since used these values in every subsequent company I've run.
  • Honest & Open Communication - This means telling the whole truth; not just some fragment cherry picked to support an agenda.  More importantly, this means truth delivered directly, face-to-face, in open forum, not behind closed doors.  No innuendos and shaded meanings.  And most importantly, this means open disagreement, not "yes" in the meeting and "no" afterwards.  Of course, there are those people for whom brutal honesty is not a problem which leads to...
  • Respect for People - It's funny how people who pride themselves on being brutally honest seem to revel in the "brutal" part.  Respect for people is best summed up by the golden rule of "do unto others as you would have them do unto you." This means civility;  no tyrannical browbeating, verbal bullying, and lording it over those who work for you.  This means taking seriously what others have to say, not spreading malicious gossip or tearing others down behind their backs.  This means being considerate of other people's feelings. Or as the Robert Fulghum says, all the stuff Kindergarten tried to teach you.
  • Meeting Commitments - This means keeping your promises.  In the interconnected world of a company, others are relying on you to keep your word so that they can keep theirs.  This does not mean playing it safe and only committing to what you can comfortably do.  In business, stretch goals are necessary which means sometimes we miss.  But when we miss, we should make amends where possible.
  • High Ethical Integrity- At the most basic level, this means complying with the letter of the law.  At the highest level, it means doing the right thing consistent with your values.  It means doing nothing that you wouldn't be proud to see published on the front page of the newspaper for your family to read.
So what was the impact of my little speech?  I saw a few heads nod but for the most part there was dead silence.  There were no questions.  And I lost two people that day.  But I had put my stake in the ground and over the next several months, these values served as the foundation for the company's turnaround.  How so?

Because I began to fire people who flagrantly violated them.  It's one thing to say you expect people to respect their peers.  It's another when you fire a sales manager who constantly badmouthed his co-workers.  It's one thing to say that you expect open and honest communication.  It's another to remove a manager who consistently agreed to certain actions in staff meeting then sabotaged them outside of it. It's another to say you expect high ethical integrity.  It's another to terminate a supervisor caught taking kickbacks from a vendor or to lose a sales because you won't pay the customary "commission" to a local government official.  Real values are anything but soft and squishy!

In my experience, one of the root causes behind a turnaround situation is a dysfunctional culture, and one of the root causes of a dysfunctional culture is ambiguous values.  How so?
  • Politics - When communications are hidden in secrecy and game players allowed to spread innuendos and gossip without consequence, this allows the spread of politics.
  • Apathy - When people feel that their efforts aren't appreciated, their voices not heard, and that what they do has no impact, then they cease to care.  To quote Dave McClure, "startups die because nobody cares."  He was referring to customers at the time, but it holds just as true for employees.
  • Non-performance - When people talk a good game but habitually fail to meet their commitments to co-workers, others start to ask what's the point of giving it my all?  Non-performance is infectious.
  • Loss of pride - When senior managers turn a blind eye to ethically questionable practices, or worse, perpetrate them, employees lose their pride in the organization and the best leave.  Most people want to be associated with a company they can be proud of.
As the people at Luxtron began to see that I was serious about running the company in accordance with these values, the environment began to change.  A few brave souls began to challenge the status quo and even criticize the way we were doing things.  And when they didn't get fired for it, more began to speak up.  As we implemented their ideas, company performance began to improve, which made people realize that they could impact what we were doing.  They began to care again. And as care for the company grew, the employees began to hold each other accountable for performance.  And trust me, there is no tougher supervisor in the world than one's co-workers; peer pressure is tough stuff.

Did we live up to the values perfectly?  Of course not.  Sometimes we made mistakes.  Sometimes we got lazy.  But at least everyone had a guiding star to shoot for and over time, the values just became part of the way we did things.

In the end, I found that I had to add a fifth value to the list. Why? Because it enables all of the others. What was it?