7 sales tips you won’t learn at business school

June 4, 2010

Top MBA programs go to great lengths to prepare students to be successful entrepreneurs. But for some reason, many don’t teach sales – one of the most important skills for founders. When you build a business, you sell constantly. You sell to bring on partners, customers, investors and employees. You sell when you talk to the press, go to trade shows – even when you chat with the person next to you on a plane or at a cocktail party.

So, what do you need to learn about selling? Here are a few basic tips, brought to you via the school of hard knocks:

1. Call on the right customer. No matter how good you are at selling, you’ll probably get nowhere pitching to a customer that’s a bad a match for what you are offering. Instead, do your homework. Network your way to ex-employees, investors, suppliers or other people who can give you the inside scoop. Learn about the company’s goals, the challenges they are grappling with, and the approaches they’ve tried in the past.

2. Understand the politics. At a small company, you may simply sell to the CEO or head of purchasing. But big companies can be tricky. Find out who the real decision maker is (Hint: That’s not always just about who is the “boss”). You may need to identify a “champion”, someone willing to bet on you, and shepherd you through the selling process. Also identify any haters—people who look at you and see more work, more headaches, or worse, a threat to their job. Think about how to get them on-board, or they may become an obstacle now, or later when it’s time for the customer to implement your solution.

3. Timing is everything. Learn about the customer’s planning cycle, so you approach them at the right time. Many big brands plan far in advance, so you don’t want to pitch them last season’s merchandise. Also, understand their tolerance for risk. Some companies want to see proven track records before they buy. If you are just starting out, better to find customers with a history of buying from innovative startups.

4. Define a “win”. Going into your sales call or meeting, know what you want out of it. A test order? A second meeting with the final decision maker? Other?

5. Go second. When you show up for your pitch, ask a few key questions, and listen carefully to the answers—including the way those answers are delivered (tone of voice and body language can help you read between the lines). Questions like: What would you like to do better, why, and what would happen if you got what you wanted (e.g. saving time, money, aggravation, etc.)? Also ask follow up questions, to show you are listening, and to get to the heart of the matters. Take notes, and run your synopsis by the customer to make sure you are on the same page.

6. Pitch against their problems. Don’t just roll out your boilerplate lines. Restate the problems your customer just mentioned, and explain both how you can address them, and what they’ll stand to gain by working with you.

7. Ask for the sale. No lesson in sales would be complete without a wink to Alec Baldwin’s line in Glengarry Glen Ross:  “A-B-C… Always be closing, always be closing”. Tell the customer what you’d like do next, and listen for a response.

To learn more, read Spin Selling by Neil Rackham. Got other tips or recommended reading? Please post suggestions.

Lean startups 101

June 3, 2010

In venture capital and tech incubator circles, the concept of lean startups is all the rage. We’re fans of the idea, and think it has merit well-beyond Silicon Valley.

The basic idea behind the lean startup approach is to get a product into the hands of customers as quickly and inexpensively as possible, find out what customers think of your product, and then modify that product as needed.  The point is to find out if there’s a match between your product and what the market wants, with as little risk as possible. Here are a few lean startup tactics:

1. Design a minimum viable product.  Hold off on all the bells and whistles you’ve envisioned. Strip your design down to the bare essentials you’ll need to determine whether customers will like / use / buy your product.  By sticking with this minimum viable product, you can determine the fit between what you’ve got and what customers want faster and cheaper.

2. Develop quickly and inexpensively. Making lipsticks, t-shirts or beverages? Start with “stock “materials, like applicators or bottles, to avoid time consuming and costly production set-up. Customize later, once you’ve proven that customers want what you’ve got. Building an online community? Use a platform like Ning that’s free or at least cheap; if customers love it, you can build a custom site down the road.

3. Change on the run. It’s pretty rare for founders to dream up a winning product from the sidelines. More often, it’s necessary to make a series of modifications in reaction to the way customers react to initial offerings. That could mean changing or adding features, pricing, positioning, distribution, etc. One of the keys to doing this well is to set performance targets (we want to sell at least 1,000 units per week by the end of a three month test), measure actual results (we only reached 500 units; customer surveys showed we need to switch our pricing from subscription to a la carte) and then decide whether / how to proceed (change pricing policies).

Lean startups and bootstrapping work well together. For example, both tend to advocate getting a product to market first, and then raising capital for expansion—as opposed to raising a lot of money for design and development, which often takes longer and hampers flexibility.

5 thoughts on whether to take on a partner

May 6, 2010

Deciding whether to take on a partner is one of the toughest choices a founder can make. Having recently gone through the process, I thought I’d share some tips (Note: I’ll get to how to find the right partner in an upcoming post):

1. Two beats one. Many founders choose to go it alone, at least at first (see below). Then again, adding a partner to your startup has many benefits. Two partners have more contacts, which can lead to more investors, employees, and customers. Likewise, two partners may have more cash, or at least more credit. Two founders working for free can get more work done, faster, with less cash outlay for employees or vendors. Lastly, don’t discount the softer side of partnerships. Startups are emotional roller-coasters, and having a partner can smooth out the loopdy-loops.

2. Consider a warm-up. Startups rarely find success with their initial strategies. More often, they switch to a “plan b” along the way. That means the ideal partner today may be dead-wood tomorrow. I’ve found it helpful to go solo for a few months. That gives me a bit of time to get feedback on my idea, tweak my strategy and approach, and then zero-in on what I really need from a partner.

3. Take stock. What are the major tasks that will be required to operate the business once it’s up and running (Note: Don’t make the mistake of choosing a partner to help with work you’ll only need to get started)? Are there logical groupings of those tasks, like one person selling and another executing? While two person teams tend to be easier to manage than three, you might find that there are three logical groupings of tasks, such as with an ad-supported website (One person gets people to the site, another generates content, and a third sells access to marketers).

4. Mind the gaps. Which of the logical task groupings are you best-suited to oversee? Once you carve those out, what gaps are left?

5. Profile your co-founders. The most common partnership mistake I see is when people choose their friends or relatives as partners, just because they are available. That leads to mismatches in skills/roles, goals, motivations, etc. Instead, follow the process above, and use it to develop a profile of your ideal founder, the way you would develop a job specification. Then go out and find the right person for the role.

Got tips of your own for founders deciding whether to take on partners? Please share.

5 signs it’s time to form a legal entity

May 5, 2010

In 1992 a 79-year old woman pulled up to a drive-through window at a restaurant, bought a $0.49 cup of coffee, stuck it between her legs, and drove off. The coffee spilled and burned her, and a jury determined that the restaurant should pay her $2.86 million. The restaurant was McDonald’s, and they ultimately settled for far less, but the point remains: We live in a highly litigious society.

How should you think about that as a founder? If someone comes after you personally, right or wrong, you could stand to lose your savings, your house, or other belongings. Setting up a legal entity like a limited liability company (LLC) or corporation creates a wall that separates you from your company. Generally speaking, that forces disgruntled parties to go after your company’s assets, but protects your personal assets.

But when is the right time to go establish a legal entity? Start too soon, and you may waste time and money forming a company around an idea you’ll decide not to pursue. Wait too long, and you’ll expose yourself to personal risk. Here are a few signs you’re ready to form a legal organization (Caveat: This is advice from a founder, not a lawyer, so consult your lawyer for advice about your particular situation):

1) Partners. When you decide to take on a partner, be sure to agree to terms early on, so there are no surprises. Get everything in writing, if just to be sure you’re on the same page. Then, when the business gets close to hitting the milestones below, take the plunge and set up your legal entity, along with an operating agreement or partnership agreement.

2) Investors. If you are taking a loan from a close family member, you can often get by with an agreement in writing between the two of you, personally. But before taking investments from angels or other third parties, play it safe and form your legal entity.

3) Customers. Once you have paying customers, you’ve got exposure to risk. Customers could potentially file lawsuits against you claiming that your products caused them damages.

4) Contracts. A contract is a legal promise. Break that promise, and there may be legal consequences. Before you sign a contract, consider setting up a legal entity. That goes for service agreements, leases, trademark applications, and even bank accounts.

5) Employees. You can usually get by without a legal entity if you are hiring freelancers for fairly inexpensive short term projects – provided you’ve checked their references or worked with them before, to minimize the chances of disputes. But establish a legal entity before you hire full time employees, or hire outsiders for projects of more than a few thousand dollars.

What other triggers tell you it’s time to get your legal act together?

When it comes to testing a startup, how good is “good enough”?

May 5, 2010

The new rules of entrepreneurship favor speed, flexibility, and capital efficiency. As a founder, that means you should get a product into the hands of your customers, test their reactions, and then raise outside capital if necessary.

To get a product to market without raising a lot of money, you’ll have to bootstrap (and/or get loans or investments from friends and family). Either way, you’ll want to spend as little as possible on product development. If you try to incorporate 100% of the features you’ve envisioned on a tight timeframe and budget, you’ll probably end up with a fully-featured but craptastic site. Instead, build a stripped-down prototype, with only those features you think will be critical for your test. That’s often called a “minimum viable product”.

But how good is good enough? In other words, what does your product need to include in order to conduct a test that will let you determine whether to move forward, pivot into a new direction, or (gulp) trash your idea and go back to the drawing board?

A good rule of thumb is to start by working backwards. What results would convince you to move forward? If you need to persuade investors to get on board to do that, what results will they need to see before writing checks? How can you quantify those results so you can set specific thresholds?

Here are a few examples:

  • If you’ll be selling through retailers, such as boutiques, department stores or supermarkets, get meetings with X buyers, and see how many will sell your products on a test basis. Figure out how many total stores and / or customers you can reach through these tests, and then set sales goals. That way you can tell yourselves, or your investors, that once you have money to produce your initial inventory, you’ll be able to ship it to Y number of stores and measure sales results within some particular time-frame.
  • If you’ll be selling directly to customers online, built in the capability to measure conversion rates. For example, how many people came to your home page? How many of those people signed up for your offer, or made a purchase? You may start with relatively small numbers of visitors since you are cash-strapped, but the conversion percentages can help you measure the degree to which customers find your offerings attractive enough to make your business economically viable.
  • If you are selling directly to customers offline, look for ways to get payment in advance. If you can’t get checks, get letters of intent or other written commitments. Even just emails from a few big customers saying they’ll buy $X amount when your product is ready can go a long way.

Got advice about how to determine what’s really necessary for an effective product test? Please share…

Partner pre nups

April 1, 2010

I got burned by a partner once. He flaked out after just a few months, keeping a big chunk of equity while I did all the work.

So when I took on a partner for my latest venture (coming soon), I insisted on a partner pre nup. There are a lot of ways partnerships can go sour, and it’s tough to protect against all of them. Also, it’s a bit awkward to be talking divorce during your honeymoon. But better safe than sorry.

The core of our pre nup is a partner vesting mechanism. It works like this… Both partners start with slices of the equity pie. Let’s say we each get 50 shares out of 100 total, to keep things simple. Over the coming years, we’ll work hard to turn our respective equity stakes into something valuable. But we’ll have to earn our rights to that equity.

We’ll earn a bit more every quarter (three months), over a four year period. With four quarters per year over four years, there are a total of 16 vesting periods. So, we’ll each earn 50/16, or about three shares every quarter (we’ll make up for the rounding issue during the last period).  At the end of the first quarter, we’ll each earn three shares. At the end of the second quarter, each of us will have earned a total of six shares. And so on, until we reach 50 each.

If one of us leaves to do something else, or otherwise stops contributing in a positive way (e.g. gross negligence) we’ll only walk away with the equity we’ve earned so far.

Suppose we’ve been working on the startup for 13 months, and we’re struggling. At that point, one partner wants to stick it out, and another decides to pursue other opportunities. The partner who leaves keeps four quarters of equity, or 12 shares. The other partner gets the remaining 38 shares. So now the partner who leaves owns 12 over 100 shares, or 12%. The partner who sticks around gets the remainder, or 88%.

Flake factor be-gone.

The case for product evolution

October 12, 2009

One of my clients is looking into launching a specialized job site, in a space that seems to have been overlooked. One thing he’s wrestling with is whether to A) Start small, dominate one niche, and expand, or to B) Go after something a bit bigger right from the start.

I see a lot of entrepreneurs flame out with option B. They spend months raising capital, building fancy tech, and launching major marketing campaigns, only to find out that the dogs don’t want to eat the dog food they’re serving.

Instead, I usually vote for option A. Seth Godin does a great job of explaining why here:

“Envision the events that might happen to a brand (shelf space at Walmart, an appearance on Oprah, a bestseller, worldwide recognition, a new edition, worldwide rights, chosen by the Queen, whatever) as a series of dominos.

It turns out that if you start with all of them at once, you’ll fail. And if you start with the big one, you’ll fail.

But if you line up all the dominos one by one, in the right order, you may just have enough energy to push over the first one. That one, of course, adds momentum so that when you crash into the second one, that one goes too. All the way to the Queen.

Wait! Isn’t this obvious? Sure it is. So why is it so often ignored?

Brands get stuck constantly. And they always get stuck circling the big domino. They try to launch worldwide and beat Google. They try to get an endorsement from the Prince of Denmark. They try to break out with a feature on a major blog. They try to act like Coca Cola from the first day. And they try and they try and they try until they get so frustrated, they quit.

A few brands pick out tiny dominos instead. And topple them. And they do it again. They do it so often they create noise, momentum and most important, a sense of inevitability. That’s how you win.”