Key learning points from NetSuite Q4 2012 Results – Earnings Call

Few key points with respect to the Software as a Service dynamics extracted from the transcript of  NetSuite Q4 2012 Results – Earnings Call

 

• The higher end of the market seems ready for more complex, scalable, global OnDemand software solutions.
• The software industry is leading the adoption of SaaS solutions and eCommerce to follow
• Suite of products offering increase ASP(Average Selling Price) – increasing willingness to pay because a more complete solution reduces cost and increase productivity
• Suite of products offering enables going up the market, replacing disparate system (in one case as much as 14)
• Should SAP be worried?! Probably others should too.
• Going up the market increases the length of the sale cycle (is that a concern?). This is interesting point.  The price(paid monthly) should theoretically reduce the risk, however it is not the only factor in the buying decision(more people are involved in the buying process on the high-end of the market).
• Going up the market increases demand for professional service
• The quality and size of the NetSuite partners (MSP, VAR) is growing. This enable both going up the market and sales leverage.
• There is strong demand for sales rep also in a SaaS model, whether selling to the channel or directly to the customer.

There were more gems in this transcript.

10 core startup mentality principles

Startup mentality

It does not matter if you work in a company of 5 people or on a team of 10 in a 400k employees corporate, start-up mentality could be created anywhere, and this culture is what differentiate one team from another. In addition to the hard skills I wrote about in How to become an all-round software developer, adopting the right culture is crucial for getting valuable results(or any results).

Here are the 10 core principles of a startup culture wherever exists.

1. A Sense of Urgency – the team needs to create value and to deliver it to the market quickly enough in order to stay ahead of the competition
2. Risk Aversion– doing something that has never been done before. Something big and meaningful! Not playing it safe. Willingness to try new things.
3. Teamwork – dropping everything else and getting up to help a teammate asking for help – including over the weekend.
4. Willing to take Extreme measures – Over night delivery – we call it white night:)
5. Learning – this is the fun part. In other words, assembling the parachute on the way diving!
6. Optimism – it may look and smell like a sausage, but will make it work!
7. Volunteering – pull vs. push system.
8. Dictatorship of the Mind – The best idea wins regardless who came up with it. The team will rally around the best idea!
9. Commitment to the product, the team, the company- Time estimates are always wrong and underestimate the effort. The last reaction to slipping is to move the date and the first one is to stick to one’s commitment.
10. Generosity and Serving – reusability, building frameworks, information, tools, and tricks.
11. Yea, right- overachieving!!

These principles should be reminded every time a new person join the teams. If there is a mismatch between the team and the new teammate, there is a risk of the entire team loosing the startup mentality. This is the time to bring these principles back to the team’s awareness. This is when the expectation that any team member must have only positive influence on the rest of team should be communicated and set as a goal.

Did I forget a principle?

How to map your SaaS sales process

A sales process does not have a single path. It is not a simple, one time, sequence of events. A sales process from lead to close may go zig zag, back and forth, and in circles. Also, the customer/partner may interact with multiple touch points like, pre sale, tech support, and billing. It is not enough to just develop a single dimension sales funnel with steps going one after another from the wide top opening of the sales funnel to the narrow bottom end. In order to identified who is doing what, and when, where leads may fall between the cracks, and where there are opportunities to up-sale, I recommend mapping the sales process in the following way.

Step 1: Leads generation – the list of marketing activities that will generate leads/contact

Step 2: Referrals –  identify where are they coming from

Step 3: Adding to the leads bank – some filtering/de-duping can happen here. The number of active leads is the denominator for the conversion and close rate calculation. This is where Sales and Marketing needs to work together and agree about what counts as a lead. The information needs to be time sliced – usually on a quarterly basis. Some leads that did not progress to the next step in the last quarter, despite multiple follow-ups, can go back to this pool for the next quarter. Others may be stored for a longer term follow-up.

Step 4: The volume of leads to follow-up depends on the amount of leads available and the inside sales capacity. So, here too, some leads need to slip to the next time slice. It is a good practice to keep an eye on the % follow-up = # of leads contacted # of leads available, to see that sale reps keep prospecting.  The next step after following up with a lead, is getting the prospect to perform certain activity(e.g. registering to the web-site, downloading a white paper). This step split the process in two: 1. The lead is now qualified, showed interest and maybe other resources from the company to follow-up with her. 2. The lead did not react to the offer and it should be parked in the “to follow’ up pool of leads.

Step 5: Close – the prospect is on-board and productive. Here it is good to calculate the close rate (could be done from the total # of leads or just from the leads that the sales reps contacted).  Here again, the prospect can go to the “to follow’ up pool of leads if the deal was not closed. Also, another base practice, and this is crucial for SaaS company, is calculating the renewal rate to monitor retention. Resigning customers should be added to the “to follow’ up pool set with high priority, and should be called as soon as possible. On-boarding is a crucial step so monitor the retention rate relative to new customer in addition to the overall customers base renewal rate.

Step 6: Closing up-sale opportunities. This is where other customer touch points possibly contribute to higher close rate.  Calculating the close rate here could be tricky. It is not simply calculated based on the # of leads from step 3, but also taking in consideration the entire customer base. One of the key question that SaaS companies struggle with is how to identify opportunities for up-sale. This is where segmentation becomes crucial, and foresight thinking about what data to collect about the customers is the key.

One more thing to consider, referrals to generic leads are like jet fuel to the gas you fuel your car with. There is no question whether to invest in referral program, but it is hard to know how much. Here too, the data you collect about your referrals can help you to come up with the right answer.

In summary, the sales process looks more like a ping ball machine than a sequence of inputs and exits criteria. If your sales process is even more complicated than my example above then it is even more critical for you to spend the time mapping it.

Mapping the sales process can help with:

• Identifying where leads should be followed-up, and by whom in the organization
• Where leads should go back to the short term or longer term pools
• Where and what data should be collected along the way
• To identify opportunities for up-selling

This exercise can go a long way increasing your you revenue as a result of an increase in your close rate.

Working with Sales Funnel in B2B SaaS company – Part I

Some says that Sales is more art than science, I don’t disagree, but I will argue that sales management is mostly science. In SaaS company revenue projection could be modeled with numbers that will be fine tuned over time. For software sold as a service on a monthly basis, sales goals could be highly predictable and well monitored. With a simple model On Demand software companies can clearly connect Marketing and Sales efforts with respect to lead generation, referrals, conversion,  revenue and profit.

Using the Sales Funnel to forecast revenue

Input:

• Value of closed sale – closed lead (annually)
• # of leads enter the top of the funnel
• Close rate

Output:

• Revenue per sales rep
• You now have a model that can simulate alternative revenue projections based on different close rates, lead values, MSP(Management Service Provider) sizes, and the number of productive sales reps.
• You can make it more complicated by factoring the close rate for each sales rep and the retention rate.

Using the Sales Funnel to plan and monitor the Sales process.

How many leads do we need to generate $X revenue?

Are we on track?

Input

• Revenue forecast
• Sales funnel

Output

• The number of leads that we need to make the revenue target
• This model help to answer if the pipeline will deliver on the revue target
• It goes back to marketing (inbound and outbound) volume of activities for lead generations(webinars, conference sponsorship, SEM) as well as referrals rate

Next: Using the sales funnel to calculate sales quota, compensation and for forecasting profit

Aligning your SaaS Product Design, Marketing and Sales Strategies

When you think about your Software as a Service company sales, and marketing strategy you’ll need to consider the product complexity, who is your target customer segment, and what other players will be involved in the sale process(not full 4Ps analysis here). In each of the cases below different levels of effort and cost to market and sale your product(s) is needed. Partner recruiting is selling, which means, leads generation, sales cycle, value proposition, and some form of an inside sales team. Working with the channels requires investments, competing on VAR attention is selling, and the competition is growing with every new SaaS solution developed. Growing SaaS companies like HubSpot, Marketo, ConstantContact and more as well as giants such as Oracle have been already investing in capturing these channels. The alternative of going directly to the customers is not financially viable in the case of a small start-up company selling to the small and medium business(SMB). The complexity of the product will determine how long is the sale cycle, the onboarding process, and the need for Management Service Provider(MSP) participation. Considering whether the product should become a platform requires considering the implications on your go to market strategy like setting and governing the quality of the add-ons(certification) and pricing.

Here are some combinations to look at.

Vendor Type	Billable Customer	IT Reasonability	Likely Exit Strategy	Product Strategy	Sales & Marketing Strategy
Startup	SMB	SMB owner	Building a cash cow – why sell?	Simple, limited functionality, self served	Online, inbound marketing
	Large Enterprises	Corporate IT Department	M&A (sell to one of the big players: SAP, Oracle, IBM, Microsoft)	Perfecting one use case, or developing strong protected IP – proprietary algorithm	Direct sales. POC/paid pilot, partnering with other solutions. B2B marketing: thought leadership, trade show.
Young growing company	SMB(<;2000 employees)	MSP/VAR	Going up the market, or M&A through Vertical integration	Building Platform as Service (PaaS), OEM(embed other products) Requires customization and integration with add-on	Partner recruitment. Referral program. Working with partner on developing strong value proposition and go to market strategies. Sponsored conferences, Webinars.
	MB	MSP/VAR	IPO, M&A	Become mission critical	Ad above and recruit strategic partners
Large Enterprise developing SaaS	SMB	MSP/VAR	N/A	Medium complexity. Open API, web services, enabling value added services	Partner programs. Account executive to harvest strategic partners
	Large Enterprises	Corporate IT Department	N/A	Hybrid between on premise and hosted	Direct sales, rebranding

;

I’m sure that there are other combinations of vendor and customer types, product, sales and marketing strategies. However, some combinations could lead to successful outcome while other be disastrous!

The process for forming a strategy

The Steps

• Encountering a Challenge
• Exploring Options: existing validated solutions as well as unthinkable, and unimaginable ones
• Knowing one’s core competencies or coming up with new approaches to solve a problem – with quality or by lowering the cost by an order of magnitude
• Mapping between those core competencies and the solution to the challenge we started with
• Validate – does it actually addresses the challenge effectively and differently? Is it a sustainable competitive advantage?
• Constructing every activity to be aligned with the core competencies in order to support the chosen solution

That is strategy!

Michael Porter in his What is Strategy? article wrote that “..the essence of strategy is in the activities – choosing to perform activities differently or to perform different activities than rival”.
I’m not about to challenge prof Porter here. His insightful article helps to evaluate formed strategies and to identified competitive advantages, but I claim that it is not enough to start the process of forming a strategy.
The second step in the process above is the most crucial step in forming a strategy. Becoming aware of options is the first condition to making strategic choices, so spending the time learning about options is where most people failed.

Examples:
The unthinkable – Hannibal crossing the alps with elephants. Lawrence of Arabia attacking Aqaba from the desert side.
Optimizing one level up and empowerment – Walmart relationship with its vendors an no regional control. Dell and virtual vertical integration.
A brand is more than its product – a story – Ducati, Coke, MasterCard and many more.

To summarize, when you think about your strategy the key steps are to first list all the immediate options and then to spend time exploring other dimensions of the problem to come up with more opportunities to solve it differently.

Why you should use FourSquare

I’m a check-in addict. I also like those fancy badges that I occasionally earn on FourSquare. I think that I’m also a mayor of a place or two. However, since I’m not using American Express credit card I did not gain any tangible value using the product. That changed yesterday when for the first time I got this check-in special that saved me $9, cool! FourSquare, you did it!

Two ways to focus your 2013

If you are looking to learn from the best how to focus your effort in 2013, just google “three words for 2013“.

My three words for 2013 are: connect, story, and service.
Connect: I would like to learn ways to connect better with my family, co-workers, classmate, friends, and prospects.
Story: This goes both ways, to listen openly to other’s stories as well as to invest in developing my storytelling skills. Both can help to support the goals wrapped in the first word(connect).
Service: To be of a service delivering value to the people I connect with.

For me the “soft skills” are the hardest!

On the physical side consider cleansing your body from all the processed food consumed in 2012 – I plan to try this method.

My top three books for 2013

Happy new year!

I like the wallpapers generated by Wallstagram new mobile app

Wallstagram is a new iPhone app from Webstagram that selects randomly pictures from your instagram feed (there is also an option to let it pick from the popular feeds) and stitches those together into a wallpaper(one picture). If you don’t like the result just ask it to start over.
One thing that I would like to see is an option to replace only one of the selected pictures.