Most technology startups seem to be funded by product people or business people. Specifically what is often not in the DNA of founders are sales skills. Nor do they exist in the investors of early-stage companies.

The result is a lack of knowledge of the process and of sales people themselves.

My first startup was no different. I had never had any sales training so everything we did for the first couple of years was instinctual. While we did fine learning on the fly, it turned out that a lot of what we did was wrong. I’ve started writing up some of those sales & marketing lessons and I plan to continue to build that section out over time.

As we grew into several millions of dollars of sales per year it was no longer acceptable to “wing it.”

So I did want any rational person who wants to improve does — I hired a coach. We focused together on improving our sales methodology, our training and our comp plans. These days there are even startups like SalesCrunch to make this easier for all of us. Back then it was a larger than life ex country manager from PTC named Kai Krickel. He taught me much — most of it unconventional. Most of it worked and his philosophies have proved enduring to me.

He called his business TEDIC. The Excuse Departement is Closed. That mindset always stayed with me and even rung true at the time. Excuses. Whenever I heard why we didn’t feel a sales process at an important customer was going well (or if we lost) I would get involved myself. Invariably the reasons I was hearing why we weren’t well positioned versus my own perception were different.

I boil it down to this: sales people are sales people. They are the lifeblood of many companies yet they are different than the traditional technology startup DNA so the ways that you hire, motivate, compensate and assess performance of these individuals will be different. Obviously to understand a “class” of people you have to make broad generalizations. Here are mine.

Sales people:

• Are motivated by cash. None of this namby pamby options stuff or “do it for the team — we’re all in this together” crap. Cash, cash, cash.
• Are more mercenaries than missionaries. That doesn’t make them bad — it just means that they know that they are “hired guns” and they act accordingly
• Many great ones don’t thrive in the early phase of a company where the sales is more consultative or evangelical. They like a solid product, well defined pricing, good references to sell against, a clear quota and well defined competitors. This is why I tell startups that most seasoned sales execs aren’t right for startups
• They are as good at selling you as they are at selling your product to customers. That means if you don’t understand the way they work you’re susceptible to being blind sided.

Before reading my tongue-in-cheek post, please know that I love sales people. I’ve talked many times on my blog about how they’re the lifeblood of most businesses — even those that pretend like they’re above it all. Treat them well and they’ll love working with you. Treat them like the rest of the company and you’ll struggle to hold on to them.

Here’s what I learned. It’s my guide to understanding when you’re being gamed.

1. Sales people often blame the product
Startups are the art of the possible. By definition an MVP (minimum viable product) means there’s room for improvement. Your competitors will always highlight a feature here or a feature there that is better. Features don’t win or lose sales — especially in nascent markets. People are buying YOU. They’re buying trust that you’re going to do what you’re saying you’re going to do.

Customer also buy social proof because others are acting as strong references. (there is a nascent industry to try and help you with this, too. The best thinker I met on the topic is Mark Organ who founded Influitive to solve this. They’re in beta). Customers buy solutions to solve their problems. They give orders to people they like, which is why despite your best well reasoned non-sales ethos — you need to understand that sales people do need money to schmooze.

But what customers don’t do is buy features. Don’t get my wrong — a great looking product can really help support a sale.

But customers use features as a rationalization for why they made the decision that they concluded for a complex set of other reasons that they probably don’t even understand. How can I be so sure? Ask yourself how they came to decide what features should they be making the decision upon. Who set in their mind what the “right” feature set was? If it wasn’t you, I guarantee you they were influenced by your competitor — either through their sales efforts or through marketing.

So know up front that many times sales people will blame the product when they lose or when they’re losing. It’s never them, their lack of effort or relationships.

And as you build out your team and grow you realize that it’s always the other guys fault. It’s why leaders need to be respected, not loved or you’ll constantly be gamed. In a startup you soon learn that not only does the sales guys blame the product, but the product guys blame the marketing guys for giving them too many requirements. The marketing guys blame the sales guys who can’t close their leads. The sales guys in turn say that they didn’t get the Glengarry leads from marketing.

And they all secretly blame you. “It doesn’t look that tough to be a CEO. I’m doing all the hard work anyways.”

Stop the madness. You need to teach your sales team Objection Handling and make it clear that you don’t lose on features. They can give you product input, customer requests and wish lists — sure. But the excuse department is closed.

2. Sales people will often blame your pricing
They lost the deal because your competitors dropped price. Customers seldom buy on price. They buy on perceived value. Sure, you need to be competitive on price. But a sales person needs to be able to demonstrate the business case of why using your product will deliver more total ROI than your competitors. Otherwise you need not keep building out great features — just always drop your price! Of course that’s not true.

If your team (and you) see a competitor massively undercut you on price you sure better be able to sell to your customer that the temporary offset in a cheaper price will be eroded by the much great benefit of working with you.

“Sure, they can sell at 50% of our price. Their customer support is much smaller and therefore won’t be able to respond to your needs as quickly. We have 12 developers and they have 3. That matters because over the next 12 months our product will continue to pull further away from them. That’s why we raised $5 million from top-tier VCs.

Please call our references. We worked with customer X who saved 38% of their costs in the first year and increased sales by 14%. The pay-back period on our product was 16 months. We have lots of cases of demonstrable business success.

If we just dropped prices to match our less funded competitors we wouldn’t be able to keep innovating and adding value for our clients. If short-term price is your primary drive then our competitor might actually might be a better fit for you. We’re definitely a premium product, which is why we don’t just drop prices to match their moves to “buy” business.

Or whatever. You need to justify value. And this has to be led by your sales teams and driven home through training.

Also, don’t give your sales teams too much authority on price negotiations. Given them small authority to discount, give the sales leader a slightly larger level and anything above that comes to your desk for negotiation. Too big of discount authority will lead to price drops because it’s easier for sales reps to drop price than to sell on value and do the hard business-case work. The excuse department is closed.

3. Sales people will often sell future development work
If your sales teams think that they can throw in some extra features that you’ll build to win the big contract they will. I’ve seen it a thousand times. They feel like they need to show a customer that they’re flexible, listening to their needs and building features the customer perceives as important.

They’ll always lobby you to approve it. “They can’t win the deal without it!” They’ll throw in extra storage, extra modules, extra freebies. Hold the line on any additional dev work. There will be times where you do need to commit. But find a way where the bonus program is adjusted for any work that has a higher COGS due to dev work and they’ll sell around it — I promise. Don’t let them sell futures. The excuse department is closed.

4. Sales people will often exaggerate the strength of competitors
Sales people will always tell you how far ahead the competition is. It’s the easiest way to justify losing deals, put pressure on your to build the features they want and they always believe a competitors PR more than the reality they see inside your business. Always make your own assessment of your competitors. Talk personally to customers. Encourage the sales teams to give you feedback but make it clear that it’s no excuse for losing. The excuse department is closed.

5. Sales people will always ask for more sales support
Sales people are bag carriers. That’s the most important thing in your business to get revenues up. They somehow always want junior bag carriers. The more, the better.

They want lots of post-sales support. They want junior staff to work on proposals for them. “It’s not efficient for me to do my own proposals.” They want technical sales to help with customer objections. You’re a startup. That stuff is for Oracle or IBM. They need to be scrappy, rollup their sleeves, learn multiple functions. When you hit scale you need to add staff. And division of labor really will drive up productivity. For now? The excuse department is closed.

6. Sales people will always tell you their quotas are too high
And my favorite. The quota. It’s always too high. It’s always unachievable. They were always above quota at every other company they’ve ever worked for. It’s all your fault. And when you get their forecasts they’re always sandbagged. And they know that you play games back. Management always sets sales budgets that roll up to a number beyond the actual board budget.

Sales people are smart — they know this. That’s where the sandbagging comes. They know you’re going to play games and ask for more so they need to leave room for you to do so. It’s the game everybody plays, everybody says they wish nobody played and yet it’s human nature. Just accept it and play the game.

Seriously, you DO need to be careful about not setting unattainable quotas. But as a general rule — the excuse department is closed.

And finally

OK, so if any sales people reading this took it in good enough humor for the broad generalizations that I made — I would say two things to management:

1. Treat your sales people well. Train them, arm them with a great product and sales collateral. Get out there with them — no hiding in the ivory tower. Customers want to see you. It’s the hardest job in the company. They sink or swim on their results. And as a result they’re the best paid people in the company. If they start sucking — they’re out. They know this.

2. Don’t do silly things like cap bonus payments. Make their pay-for-performance unlimited, but well structured. They are supposed to be the best paid people in the company. That’s why they endure the jobs that they have and the constant pressure to deliver results. Don’t hire sales people if you expect to be over-the-top cheap on T&E. They need some money for schmoozing. You can book them at budget hotels — but don’t go too far. Treat them with utmost respect or their next interview is right around the corner.

Improving Sales: The Excuse Department is Closed was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

So that we’re speaking the same language I would define “exclusive” as a period in which your company is prohibited from doing business with certain customers or business partners, which is why many incorrectly assume this is necessarily bad. I need to give credit for the topic to PR Malloy who Tweeted me this question. I must admit I discuss this very frequently with portfolio companies but hadn’t thought to write about it.

@msuster looking for an inspired post on when an exclusivity deal (w/ major industry player) works (cons as well) for an early stage tech co

— PR Malloy (@diddly_do_indy) June 13, 2015

The Mother of All Exclusivity Agreements — the iPhone Wouldn’t Exist
Before weighing in on the subject I would point out one thing that should be obvious to many of you — the iPhone was originally launched in 2007 in an exclusive partnership with AT&T and this was vital to both Apple and AT&T and was a hard negotiation throughout 2005 and 2006.

Between the mid nineties until 2007 wireless carriers around the world religiously protected the software that went on to phones and they guarded the end consumer relationship by controlling this software. If a company wanted to distribute software on a mobile device it need to sell via a “portal” (US term) or a “deck” (UK term) of a mobile carrier. As the desk-based Internet emerged it was initially sold through telecom carriers (after players like AOL and EarthLink innovated the market). Although the carriers made a lot of money initially by selling dial-up Internet services, customers never took their software because, well, it sucked. So the value on the Internet went “up the stack” to portals such as Yahoo!, Excite, MSN and eventually Google.

Wireless carriers were sure not to make the same mistake and lose out on the value. So they offered the same kind of crappy software that they tried to impose in the wired Internet era and because you had to get your phone subsidized and purchased through one of their stores and because you had to use a wireless network they had leverage to force customers to use their software.

Apple broke this hegemony (and then later became the toll-keeper themselves when they launched the app store but that’s a different story) and this was no small feat. No carrier in their right mind wanted to cede control of the software but Apple was willing to offer its products exclusive through one carrier in exchange for not having any carrier software on the device. It was a big bet for AT&T but since they weren’t quite Verizon and knew that Apple had recently had a lot of success with the iPods they were willing to bet on letting Apple control the customer experience because they know that everybody who wanted an iPhone would have to sign a 2-year agreement to use AT&T and not Verizon.

THAT is the power of exclusivity. A large, wireless carrier (AT&T) was willing to break its traditional rules in order to get access to innovation that it believed (correctly) would help it to sell more contracts and win more market share against its primary competitor (Verizon).

The original agreement was rumored to be a 5-year agreement but had enough “out clauses” that after a couple of years Apple started selling through other carriers. The initial Apple/AT&T deal was of course limited to the geography in which AT&T operated and thus after its initial success Apple had a template for exclusivity agreements in other countries.

Why Exclusivity Matters to Your Customers or Business Development Partners
So now that you’ve accepted (I hope) that exclusivity can be a massive opportunity if crafted correctly, let me delve into the topic. If you’re a start up who’s looking to sign small deals with teams that are several levels down in an organization, the concept of exclusivity will seldom come up because your buyer is looking to solve his or her immediate business unit problem with your software or solution and probably isn’t deeply concerned with besting the competition. However, the higher you get within an organization in the sale (and the larger the deal) executives are often looking to “win in the market,” which means growing revenue faster, offering products or services at a lower cost or offering features that their competitors can’t.

So often exclusivity on mega-deals is of huge importance to your potential customers or business development partners. If you use this buyer value correctly it can give you a lot more leverage in a negotiation. Of course you’re not going to give them unlimited exclusivity in time or in scope but I’ll come to that in the section on how to craft exclusivity agreements.

Why Exclusivity Gives You Extra Leverage in a Negotiation
Sales is all about knowing the key values of your buyer: What are they trying to achieve in working with you, why do they care about your solution and how will it help them economically? If you know that at senior levels the buyers often have an enemy in mind in each of their big moves in the market you can use that to your great advantage. If you’re negotiating with Samsung you can imagine they have Apple on their minds and if you’re negotiating with Twitter you can imagine they have eyes on Facebook, Google and even Snapchat.

The beauty of these types of buying motives is that exclusivity comes at a cost to the buyer and they often don’t mind paying up to get it. As a startup this is often the one true source of strong leverage in a negotiation to: Get a better price, get a longer-term commitment, get PR commitments and so forth.

But make sure that you understand whether exclusivity is to your buyer and of course you can’t sign hundreds of deals like this so make sure you use it sparingly and for super important deals for you.

How to Craft Exclusivity Agreements

1. Time Bound — The most obvious source of negotiation is time. If somebody was willing to sign a large contract with you, would you be willing to grant them a 6-month exclusive on some basis? Obviously it depends on the deal but it’s worth asking yourself in each negotiation whether or not you’re going to sell enough outside of the exclusive to overcome the “give” you have to agree to in order to win that deal. It’s usually a negotiation in the range of 6 months to 2 years. Your goal is to figure out the relative economic value of the customer win relative to the costs to you of less operating room in the market and how many months that’s worth to you.

But I want to draw extra emphasis on this point: Time-bound exclusivity agreements are often a very easy give for you in order to win important contracts.

2. Named Competitors — Often buyer exclusivity agreements start very broad and your job is to narrow them. I usually try to win the “named competitor” argument because in actuality most buyers usually only really care about a handful of competitors that they’re trying to one-up. If you win this argument then you preserver a whole lot of wiggle room to still sell in your customers general industry. So if you’re selling a service to Virgin America you might start by carving out just Southwest Airlines and JetBlue in your negotiation but be willing to add names as required while avoiding “cannot sell to any US airline.”

3. Industry Bound — Sometimes you can’t win the named competitor argument and the buyer really wants a wider exclusivity agreement. If you can’t get named competitors then I recommend you try to define a really narrow industry grouping, which when coupled with time-based exclusivity, gives you enough comfort. So you might agree exclusivity for the “oil refinery” industry rather than the entirety of the oil & gas sectors . The more specific you can get in your definition the better.

4. Geography Bound — Finally, another natural limiter for you will be geography. You could sign exclusivity for coffee companies in the United States and still give yourself the ability to sell internationally if you choose to. Even if you’re not yet international it’s worth trying to win the point to limit restrictions.

What you want in exchange:

1. Larger contracts — It is very common that in exchange for exclusivity you can argue for much larger contracts, which is one of the reasons I like exclusivity as a seller. If working with your company is very important to your customer or partner and if having a one-up on competitors is equally important then increases in price are seldom an issue.

2. Longer-term contracts — If the price of your product is very firmly fixed or a customer has enough resistance to higher prices then I would always push for a longer-term contract. I would trade a 6-month exclusivity for a large, 3-year guaranteed revenue deal in many instances provided I’m an early-stage company looking for my first big contract win. And often these contracts don’t prohibit you from marketing to competitors so you can often start to build your future pipeline while not immediately selling to the competition.

3. More commitments to success — If there is no way around exclusivity (sometimes customers or partners simply won’t sign up unless they have some degree of exclusivity) you can push for soft benefits in addtion to points 1 & 2 above. You can push for guarantees that the client or partner will appoint a minimum number of staff to rolling out your product, you can ask them to spend hard dollars on co-marketing, you can ask for commitments to case studies or reference calls or PR releases. At the end of they day, if you have to have restrictions on your business operations you need to make sure you’re getting compensated for it.

4. Paid Engineering — One final thing I would often ask for that I see very few others doing is “paid engineering.” Here’s what I mean. Let’s say you have a “customer advocacy” group that consists of your largest customers and they are pushing for you to build a set of features faster than you otherwise would normally commit. I have often asked for funding for this accelerated development. If you could get an extra $250,000 or more in a contract to build 2 quarters faster things you know you eventually need to build then often this is a good trade to make. I’ve often granted 3-month exclusives on the new feature sets to sweeten the deal. The reason I don’t mind is that often it would take 3 months to roll our the marketing and training programs to sign up new customers and giving a small win in exchange for cash is often a trade I’d be willing to make.

Summary

In summary, many advisors, board members or executives will steer you away from exclusivity agreements. I understand the logic of this because by definition exclusivity restricts your business operations; however, I have seen exclusivity agreements be used to massive success in the marketplace by increasing contract sizes, getting longer-term commitments and getting many soft commitments to help in your success.

I would encourage you at least to have them in your tool kit for any negotiation and you simply need to be creative in how you structure them and weigh up the pros & cons of each trade.

When Should You Allow Exclusivity in Deals? was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

So that we’re speaking the same language I would define “exclusive” as a period in which your company is prohibited from doing business with certain customers or business partners, which is why many incorrectly assume this is necessarily bad. I need to give credit for the topic to PR Malloy who Tweeted me this question. I must admit I discuss this very frequently with portfolio companies but hadn’t thought to write about it.

@msuster looking for an inspired post on when an exclusivity deal (w/ major industry player) works (cons as well) for an early stage tech co

— PR Malloy (@diddly_do_indy) June 13, 2015

The Mother of All Exclusivity Agreements — the iPhone Wouldn’t Exist
Before weighing in on the subject I would point out one thing that should be obvious to many of you — the iPhone was originally launched in 2007 in an exclusive partnership with AT&T and this was vital to both Apple and AT&T and was a hard negotiation throughout 2005 and 2006.

Between the mid nineties until 2007 wireless carriers around the world religiously protected the software that went on to phones and they guarded the end consumer relationship by controlling this software. If a company wanted to distribute software on a mobile device it need to sell via a “portal” (US term) or a “deck” (UK term) of a mobile carrier. As the desk-based Internet emerged it was initially sold through telecom carriers (after players like AOL and EarthLink innovated the market). Although the carriers made a lot of money initially by selling dial-up Internet services, customers never took their software because, well, it sucked. So the value on the Internet went “up the stack” to portals such as Yahoo!, Excite, MSN and eventually Google.

Wireless carriers were sure not to make the same mistake and lose out on the value. So they offered the same kind of crappy software that they tried to impose in the wired Internet era and because you had to get your phone subsidized and purchased through one of their stores and because you had to use a wireless network they had leverage to force customers to use their software.

Apple broke this hegemony (and then later became the toll-keeper themselves when they launched the app store but that’s a different story) and this was no small feat. No carrier in their right mind wanted to cede control of the software but Apple was willing to offer its products exclusive through one carrier in exchange for not having any carrier software on the device. It was a big bet for AT&T but since they weren’t quite Verizon and knew that Apple had recently had a lot of success with the iPods they were willing to bet on letting Apple control the customer experience because they know that everybody who wanted an iPhone would have to sign a 2-year agreement to use AT&T and not Verizon.

THAT is the power of exclusivity. A large, wireless carrier (AT&T) was willing to break its traditional rules in order to get access to innovation that it believed (correctly) would help it to sell more contracts and win more market share against its primary competitor (Verizon).

The original agreement was rumored to be a 5-year agreement but had enough “out clauses” that after a couple of years Apple started selling through other carriers. The initial Apple/AT&T deal was of course limited to the geography in which AT&T operated and thus after its initial success Apple had a template for exclusivity agreements in other countries.

Why Exclusivity Matters to Your Customers or Business Development Partners
So now that you’ve accepted (I hope) that exclusivity can be a massive opportunity if crafted correctly, let me delve into the topic. If you’re a start up who’s looking to sign small deals with teams that are several levels down in an organization, the concept of exclusivity will seldom come up because your buyer is looking to solve his or her immediate business unit problem with your software or solution and probably isn’t deeply concerned with besting the competition. However, the higher you get within an organization in the sale (and the larger the deal) executives are often looking to “win in the market,” which means growing revenue faster, offering products or services at a lower cost or offering features that their competitors can’t.

So often exclusivity on mega-deals is of huge importance to your potential customers or business development partners. If you use this buyer value correctly it can give you a lot more leverage in a negotiation. Of course you’re not going to give them unlimited exclusivity in time or in scope but I’ll come to that in the section on how to craft exclusivity agreements.

Why Exclusivity Gives You Extra Leverage in a Negotiation
Sales is all about knowing the key values of your buyer: What are they trying to achieve in working with you, why do they care about your solution and how will it help them economically? If you know that at senior levels the buyers often have an enemy in mind in each of their big moves in the market you can use that to your great advantage. If you’re negotiating with Samsung you can imagine they have Apple on their minds and if you’re negotiating with Twitter you can imagine they have eyes on Facebook, Google and even Snapchat.

The beauty of these types of buying motives is that exclusivity comes at a cost to the buyer and they often don’t mind paying up to get it. As a startup this is often the one true source of strong leverage in a negotiation to: Get a better price, get a longer-term commitment, get PR commitments and so forth.

But make sure that you understand whether exclusivity is to your buyer and of course you can’t sign hundreds of deals like this so make sure you use it sparingly and for super important deals for you.

How to Craft Exclusivity Agreements

1. Time Bound — The most obvious source of negotiation is time. If somebody was willing to sign a large contract with you, would you be willing to grant them a 6-month exclusive on some basis? Obviously it depends on the deal but it’s worth asking yourself in each negotiation whether or not you’re going to sell enough outside of the exclusive to overcome the “give” you have to agree to in order to win that deal. It’s usually a negotiation in the range of 6 months to 2 years. Your goal is to figure out the relative economic value of the customer win relative to the costs to you of less operating room in the market and how many months that’s worth to you.

But I want to draw extra emphasis on this point: Time-bound exclusivity agreements are often a very easy give for you in order to win important contracts.

2. Named Competitors — Often buyer exclusivity agreements start very broad and your job is to narrow them. I usually try to win the “named competitor” argument because in actuality most buyers usually only really care about a handful of competitors that they’re trying to one-up. If you win this argument then you preserver a whole lot of wiggle room to still sell in your customers general industry. So if you’re selling a service to Virgin America you might start by carving out just Southwest Airlines and JetBlue in your negotiation but be willing to add names as required while avoiding “cannot sell to any US airline.”

3. Industry Bound — Sometimes you can’t win the named competitor argument and the buyer really wants a wider exclusivity agreement. If you can’t get named competitors then I recommend you try to define a really narrow industry grouping, which when coupled with time-based exclusivity, gives you enough comfort. So you might agree exclusivity for the “oil refinery” industry rather than the entirety of the oil & gas sectors . The more specific you can get in your definition the better.

4. Geography Bound — Finally, another natural limiter for you will be geography. You could sign exclusivity for coffee companies in the United States and still give yourself the ability to sell internationally if you choose to. Even if you’re not yet international it’s worth trying to win the point to limit restrictions.

What you want in exchange:

1. Larger contracts — It is very common that in exchange for exclusivity you can argue for much larger contracts, which is one of the reasons I like exclusivity as a seller. If working with your company is very important to your customer or partner and if having a one-up on competitors is equally important then increases in price are seldom an issue.

2. Longer-term contracts — If the price of your product is very firmly fixed or a customer has enough resistance to higher prices then I would always push for a longer-term contract. I would trade a 6-month exclusivity for a large, 3-year guaranteed revenue deal in many instances provided I’m an early-stage company looking for my first big contract win. And often these contracts don’t prohibit you from marketing to competitors so you can often start to build your future pipeline while not immediately selling to the competition.

3. More commitments to success — If there is no way around exclusivity (sometimes customers or partners simply won’t sign up unless they have some degree of exclusivity) you can push for soft benefits in addtion to points 1 & 2 above. You can push for guarantees that the client or partner will appoint a minimum number of staff to rolling out your product, you can ask them to spend hard dollars on co-marketing, you can ask for commitments to case studies or reference calls or PR releases. At the end of they day, if you have to have restrictions on your business operations you need to make sure you’re getting compensated for it.

4. Paid Engineering — One final thing I would often ask for that I see very few others doing is “paid engineering.” Here’s what I mean. Let’s say you have a “customer advocacy” group that consists of your largest customers and they are pushing for you to build a set of features faster than you otherwise would normally commit. I have often asked for funding for this accelerated development. If you could get an extra $250,000 or more in a contract to build 2 quarters faster things you know you eventually need to build then often this is a good trade to make. I’ve often granted 3-month exclusives on the new feature sets to sweeten the deal. The reason I don’t mind is that often it would take 3 months to roll our the marketing and training programs to sign up new customers and giving a small win in exchange for cash is often a trade I’d be willing to make.

Summary

In summary, many advisors, board members or executives will steer you away from exclusivity agreements. I understand the logic of this because by definition exclusivity restricts your business operations; however, I have seen exclusivity agreements be used to massive success in the marketplace by increasing contract sizes, getting longer-term commitments and getting many soft commitments to help in your success.

I would encourage you at least to have them in your tool kit for any negotiation and you simply need to be creative in how you structure them and weigh up the pros & cons of each trade.

It has been a good run.

But it won’t last forever. It could last 6 more months or 6 more years for all I know. But the economy grows in cycles and always has: Expansion & contraction. For what ever reason we’re wired to have amnesia during the run up and prescient memories of how we ‘knew it all along’ as soon as the slide begins. I do believe that we are in structural change where technology will increasingly play a bigger role in all facets of life so the long run up for tech is promising through all of these cycles. Once you understand both sides of the cycle you start to recognize signs of behavior during each phase.

I’d like to do a few posts on what life looks like on the way up and perhaps how to keep your head on straight and avoid drinking your own Kool Aid because as I often advise entrepreneurs on irrational exuberance, “In a strong wind even turkeys can fly.” It helps to have seen the way down twice before to know many of the signs. And as I always assert,

“Great companies are built in downturns. It’s where the truly innovative separate themselves from the pack. It’s when the game slows. It’s when the noise stops and you can actually get customer attention, press articles and VC meetings. It’s when you separate the wheat from the chaff. And it’s when mediocre companies get pulverized.”

The Lessons of Shelfware

In the software industry we’ve always had a term that’s a bit of an anachronism called “shelfware.” We used the term to describe software that was purchased with great enthusiasm only to be stored on the shelf and seldom used. Of course back then it literally was sold in a package and stored on a shelf!

You’d imagine that companies selling tons of shelfware would quickly meet their deserved fate in the market, yet the spin around a category of software can fool buyers into thinking they “must have this product to compete.” Case studies get done with ebullient CEO’s espousing the benefits of said software even though their organization was barely using the product. ROI studies were published. People attending marquee conferences with rock bands, prominent speakers, Gartner Group prognosticators and lots of other happy customers. Surely there must be some benefit here??

I remember, for example, when business intelligence swept through companies globally. Every consultant was pitching a process for reinventing your organization through BI. And while it’s true that BI implemented properly can truly give executives insights — in and of itself the software was just software. Poorly implemented this category was the definition of shelfware.

Growth markets have a way of fooling us all. When markets start to turn shelfware companies are the quickest to die. There isn’t anything mission critical to bind the organization to keep using the product, there aren’t strong internal champions and projects quickly get shut down. The problem with shelfware is that if you have great sales people, you have raised tons of VC money from prominent investors, you have some marquee clients and you thus likely have some great press about you it can be hard to tell true success from that which is ephemeral.

One thing I thought was super cheesy about Salesforce.com when I was there was their tagline “Success, Not Software” but on reflection I have to admit that it does have nice way of focusing one on the right priorities

I have had a version of this conversation with nearly every startup with whom I’m involved. When I start to see revenue figures I always want to know the details behind the revenue:

• Who championed the project?
• For what purpose are they using your software?
• Who is the executive sponsor?
• Are they integrating it with other solutions?
• Have they done a business case on the expected benefits?
• Did they do a major training program?
• Do we know how many users are logging in? How frequently they’re using the product? What their initial feedback has been?

I’m always paranoid about shelfware. I’m paranoid about the evaporation of revenue. The pattern has appeared many times in my career: PR success, customer pilots, unclear benefits, the selling company scales up sales & market org quickly to meet demand, revenue takes off through brute force and reaches cruising altitude for a couple of years then the market slows, revenue goes into an absolute nosedive and sales & marketing cuts come way too slowly as the organization thinks it can execute its way out of the freefall.

And what’s worse is that when you have shelfware you often gear your organization around selling the same shit at scale and your innovation pipeline slows down leaving you doubly vulnerable.

What to do to Avoid Shelfware?

1. Have an in-house professional services team that implements your software. It will bring down your overall margins but will produce profitable revenue. Most importantly in ensures long-term success. I wrote about The Importance of Professional Services here. I know, I know. Your favorite investor told you this was a bad idea. Trust me — you’ll thank me a few years from now if you control your own destiny and improve quality through services. If your investor worked inside of a SaaS company for years and disagrees with me then listen to them. If they’re a spreadsheet jockey then on this particular issue I promise you they are FOS. Spreadsheet quant does not equal success, properly implemented software does.

2. Work with customers on business cases (for internal use) and ask for case studies (for you to publish in marketing)

3. Create company measures for success that go beyond financial metrics. You manage what you measure so be careful about having too narrowly defined of performance metrics

4. Have sales bonus plans based on more than just sales targets. Perhaps having renewal rates with a good bonus spiff, have a component of MBO tied to usage performance metrics or spiff certain milestones like business plans. These can’t be the main event — sales are sales after all — but can help shape good behavior.

5. Make sure your board challenges you enough about long-term vision & innovation. Not continuing to challenge yourself on product strategy will lead you down long-term ratholes. And I can tell you from 20 years of experience that if your revenue figures are strong very few boards will challenge you beyond your short-term financial successes and 12-month plan. Run board meetings that force strategic discussions rather than cheering sessions focused on financial metrics.

6. Most importantly — YOU need to care. You need to be focused beyond your immediate two quarters. Let’s face it — that trajectory is already set. But no truly great business has ever been built by focusing the overwhelming majority of senior executive time on the here and now. That’s management by fire. You own making sure your company has good behavior. Your VP sales can’t and won’t save you — s/he’s too busy ringing the cash register. Your board likely won’t unless you have visionaries who are also egg breakers. Marketing won’t likely challenge you enough on this issue as they’re feeding the beast with more pipeline. You need to listen to your product team, watch your competition and work hard on determining whether you’re truly providing value to your customers.

It has been a good run.

But it won’t last forever. It could last 6 more months or 6 more years for all I know. But the economy grows in cycles and always has: Expansion & contraction. For what ever reason we’re wired to have amnesia during the run up and prescient memories of how we ‘knew it all along’ as soon as the slide begins. I do believe that we are in structural change where technology will increasingly play a bigger role in all facets of life so the long run up for tech is promising through all of these cycles. Once you understand both sides of the cycle you start to recognize signs of behavior during each phase.

I’d like to do a few posts on what life looks like on the way up and perhaps how to keep your head on straight and avoid drinking your own Kool Aid because as I often advise entrepreneurs on irrational exuberance, “In a strong wind even turkeys can fly.” It helps to have seen the way down twice before to know many of the signs. And as I always assert,

“Great companies are built in downturns. It’s where the truly innovative separate themselves from the pack. It’s when the game slows. It’s when the noise stops and you can actually get customer attention, press articles and VC meetings. It’s when you separate the wheat from the chaff. And it’s when mediocre companies get pulverized.”

The Lessons of Shelfware

In the software industry we’ve always had a term that’s a bit of an anachronism called “shelfware.” We used the term to describe software that was purchased with great enthusiasm only to be stored on the shelf and seldom used. Of course back then it literally was sold in a package and stored on a shelf!

You’d imagine that companies selling tons of shelfware would quickly meet their deserved fate in the market, yet the spin around a category of software can fool buyers into thinking they “must have this product to compete.” Case studies get done with ebullient CEO’s espousing the benefits of said software even though their organization was barely using the product. ROI studies were published. People attending marquee conferences with rock bands, prominent speakers, Gartner Group prognosticators and lots of other happy customers. Surely there must be some benefit here??

I remember, for example, when business intelligence swept through companies globally. Every consultant was pitching a process for reinventing your organization through BI. And while it’s true that BI implemented properly can truly give executives insights — in and of itself the software was just software. Poorly implemented this category was the definition of shelfware.

Growth markets have a way of fooling us all. When markets start to turn shelfware companies are the quickest to die. There isn’t anything mission critical to bind the organization to keep using the product, there aren’t strong internal champions and projects quickly get shut down. The problem with shelfware is that if you have great sales people, you have raised tons of VC money from prominent investors, you have some marquee clients and you thus likely have some great press about you it can be hard to tell true success from that which is ephemeral.

One thing I thought was super cheesy about Salesforce.com when I was there was their tagline “Success, Not Software” but on reflection I have to admit that it does have nice way of focusing one on the right priorities

I have had a version of this conversation with nearly every startup with whom I’m involved. When I start to see revenue figures I always want to know the details behind the revenue:

• Who championed the project?
• For what purpose are they using your software?
• Who is the executive sponsor?
• Are they integrating it with other solutions?
• Have they done a business case on the expected benefits?
• Did they do a major training program?
• Do we know how many users are logging in? How frequently they’re using the product? What their initial feedback has been?

I’m always paranoid about shelfware. I’m paranoid about the evaporation of revenue. The pattern has appeared many times in my career: PR success, customer pilots, unclear benefits, the selling company scales up sales & market org quickly to meet demand, revenue takes off through brute force and reaches cruising altitude for a couple of years then the market slows, revenue goes into an absolute nosedive and sales & marketing cuts come way too slowly as the organization thinks it can execute its way out of the freefall.

And what’s worse is that when you have shelfware you often gear your organization around selling the same shit at scale and your innovation pipeline slows down leaving you doubly vulnerable.

What to do to Avoid Shelfware?

1. Have an in-house professional services team that implements your software. It will bring down your overall margins but will produce profitable revenue. Most importantly in ensures long-term success. I wrote about The Importance of Professional Services here. I know, I know. Your favorite investor told you this was a bad idea. Trust me — you’ll thank me a few years from now if you control your own destiny and improve quality through services. If your investor worked inside of a SaaS company for years and disagrees with me then listen to them. If they’re a spreadsheet jockey then on this particular issue I promise you they are FOS. Spreadsheet quant does not equal success, properly implemented software does.

2. Work with customers on business cases (for internal use) and ask for case studies (for you to publish in marketing)

3. Create company measures for success that go beyond financial metrics. You manage what you measure so be careful about having too narrowly defined of performance metrics

4. Have sales bonus plans based on more than just sales targets. Perhaps having renewal rates with a good bonus spiff, have a component of MBO tied to usage performance metrics or spiff certain milestones like business plans. These can’t be the main event — sales are sales after all — but can help shape good behavior.

5. Make sure your board challenges you enough about long-term vision & innovation. Not continuing to challenge yourself on product strategy will lead you down long-term ratholes. And I can tell you from 20 years of experience that if your revenue figures are strong very few boards will challenge you beyond your short-term financial successes and 12-month plan. Run board meetings that force strategic discussions rather than cheering sessions focused on financial metrics.

6. Most importantly — YOU need to care. You need to be focused beyond your immediate two quarters. Let’s face it — that trajectory is already set. But no truly great business has ever been built by focusing the overwhelming majority of senior executive time on the here and now. That’s management by fire. You own making sure your company has good behavior. Your VP sales can’t and won’t save you — s/he’s too busy ringing the cash register. Your board likely won’t unless you have visionaries who are also egg breakers. Marketing won’t likely challenge you enough on this issue as they’re feeding the beast with more pipeline. You need to listen to your product team, watch your competition and work hard on determining whether you’re truly providing value to your customers.

Here’s Why a Booming Tech Market May Fool You into Thinking You’re Successful was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

The result is a lack of knowledge of the process and of sales people themselves.

My first startup was no different. I had never had any sales training so everything we did for the first couple of years was instinctual. While we did fine learning on the fly, it turned out that a lot of what we did was wrong.

As we grew into several millions of dollars of sales per year it was no longer acceptable to “wing it.”

So I did want any rational person who wants to improve does — I hired a coach. We focused together on improving our sales methodology, our training and our comp plans through a larger than life ex country manager from PTC named Kai Krickel. He taught me much — most of it unconventional. Most of it worked and his philosophies have proved enduring to me.

His business was called TEDIC — The Excuse Department is Closed. That mindset always stayed with me and even rung true at the time. Excuses. Whenever I heard why we didn’t feel a sales process at an important customer was going well (or if we lost) I would get involved myself. Invariably the reasons I was hearing why we weren’t well positioned versus my own perception were different.

I boil it down to this: sales people are sales people. They are the lifeblood of many companies yet they are different than the traditional technology startup DNA so the ways that you hire, motivate, compensate and assess performance of these individuals will be different. Obviously to understand a “class” of people you have to make broad generalizations. Here are mine.

Sales people:

• Are motivated by cash. Founders think in options. Don’t confuse the two. Sales people want the stuff they can spend today.
• Are more mercenaries than missionaries. That doesn’t make them bad — it just means that they know that they are “hired guns” and they act accordingly
• Many great ones don’t thrive in the early phase of a company where the sales is more consultative or evangelical. They like a solid product, well defined pricing, good references to sell against, a clear quota and well defined competitors. This is why I tell startups that most seasoned sales execs aren’t right for startups
• They are as good at selling you as they are at selling your product to customers. That means if you don’t understand the way they work you’re susceptible to being blind sided.

Here’s what I learned in running my first startup.

1. Sales people often blame the product
Startups are the art of the possible. By definition an MVP (minimum viable product) means there’s room for improvement. Your competitors will always highlight a feature here or a feature there that is better. Features don’t win or lose sales — especially in nascent markets. People are buying YOU. They’re buying trust that you’re going to do what you’re saying you’re going to do.

Customer also buy social proof because others are acting as strong references. (there is a nascent industry to try and help you with this, too. Customers buy solutions to solve their problems. They give orders to people they like, which is why despite your best well reasoned non-sales ethos — you need to understand that sales people do need money to schmooze.

But what customers don’t do is buy features. Don’t get my wrong — a great looking product can really help support a sale.

But customers use features as a rationalization for why they made the decision that they concluded for a complex set of other reasons that they probably don’t even understand. How can I be so sure? Ask yourself how they came to decide what features should they be making the decision upon. Who set in their mind what the “right” feature set was? If it wasn’t you, I guarantee you they were influenced by your competitor — either through their sales efforts or through marketing.

So know up front that many times sales people will blame the product when they lose or when they’re losing. It’s never them, their lack of effort or relationships.

And as you build out your team and grow you realize that it’s always the other guys fault. It’s why leaders need to be respected, not loved or you’ll constantly be gamed. In a startup you soon learn that not only does the sales guys blame the product, but the product guys blame the marketing guys for giving them too many requirements. The marketing guys blame the sales guys who can’t close their leads. The sales guys in turn say that they didn’t get the Glengarry leads from marketing.

And they all secretly blame you. “It doesn’t look that tough to be a CEO. I’m doing all the hard work anyways.” Most senior execs in startups feel this way until they become CEO and then they feel more humble. Hard. Fucking. Thankless. Job.

You need to teach your sales team Objection Handling and make it clear that you don’t lose on features. They can give you product input, customer requests and wish lists — sure. But the excuse department is closed.

2. Sales people will often blame your pricing
They lost the deal because your competitors dropped price. Customers seldom buy on price. They buy on perceived value. Sure, you need to be competitive on price. But a sales person needs to be able to demonstrate the business case of why using your product will deliver more total ROI than your competitors. Otherwise you need not keep building out great features — just always drop your price! Of course that’s not true.

If your team (and you) see a competitor massively undercut you on price you sure better be able to sell to your customer that the temporary offset in a cheaper price will be eroded by the much great benefit of working with you.

“Sure, they can sell at 50% of our price. Their customer support is much smaller and therefore won’t be able to respond to your needs as quickly. We have 12 developers and they have 3. That matters because over the next 12 months our product will continue to pull further away from them. That’s why we raised $5 million from top-tier VCs.

Please call our references. We worked with customer X who saved 38% of their costs in the first year and increased sales by 14%. The pay-back period on our product was 16 months. We have lots of cases of demonstrable business success.

If we just dropped prices to match our less funded competitors we wouldn’t be able to keep innovating and adding value for our clients. If short-term price is your primary drive then our competitor might actually might be a better fit for you. We’re definitely a premium product, which is why we don’t just drop prices to match their moves to “buy” business.

Or whatever. You need to justify value. And this has to be led by your sales teams and driven home through training.

Also, don’t give your sales teams too much authority on price negotiations. Given them small authority to discount, give the sales leader a slightly larger level and anything above that comes to your desk for negotiation. Too big of discount authority will lead to price drops because it’s easier for sales reps to drop price than to sell on value and do the hard business-case work.

3. Sales people will often sell future development work
If your sales teams think that they can throw in some extra features that you’ll build to win the big contract they will. I’ve seen it a thousand times. They feel like they need to show a customer that they’re flexible, listening to their needs and building features the customer perceives as important.

They’ll always lobby you to approve it. “They can’t win the deal without it!” They’ll throw in extra storage, extra modules, extra freebies. Hold the line on any additional dev work. There will be times where you do need to commit. But find a way where the bonus program is adjusted for any work that has a higher COGS due to dev work and they’ll sell around it — I promise. Don’t let them sell futures.

4. Sales people will often exaggerate the strength of competitors
Sales people will always tell you how far ahead the competition is. It’s the easiest way to justify losing deals, put pressure on your to build the features they want and they always believe a competitors PR more than the reality they see inside your business. Always make your own assessment of your competitors. Talk personally to customers. Encourage the sales teams to give you feedback but make it clear that it’s no excuse for losing.

5. Sales people will always ask for more sales support
Sales people are bag carriers. That’s the most important thing in your business to get revenues up. They somehow always want junior bag carriers. The more, the better.

They want lots of post-sales support. They want junior staff to work on proposals for them. “It’s not efficient for me to do my own proposals.” They want technical sales to help with customer objections. You’re a startup. That stuff is for Oracle or IBM. They need to be scrappy, rollup their sleeves, learn multiple functions. When you hit scale you need to add staff. And division of labor really will drive up productivity.

6. Sales people will always tell you their quotas are too high
The quota. It’s always too high. It’s always unachievable. They were always above quota at every other company they’ve ever worked for. It’s all your fault. And when you get their forecasts they’re always sandbagged. And they know that you play games back. Management always sets sales budgets that roll up to a number beyond the actual board budget.

Sales people are smart — they know this. That’s where the sandbagging comes. They know you’re going to play games and ask for more so they need to leave room for you to do so. It’s the game everybody plays, everybody says they wish nobody played and yet it’s human nature. Just accept it and play the game.

Seriously, you DO need to be careful about not setting unattainable quotas.

And finally

OK, so if any sales people reading this took it in good enough humor for the broad generalizations that I made — I would say two things to management:

1. Treat your sales people well. Train them, arm them with a great product and sales collateral. Get out there with them — no hiding in the ivory tower. Customers want to see you. It’s the hardest job in the company. They sink or swim on their results. And as a result they’re the best paid people in the company. If they start sucking — they’re out. They know this. Sales people are the lifeblood of your organization.

2. Don’t do silly things like cap bonus payments. Make their pay-for-performance unlimited, but well structured. They are supposed to be the best paid people in the company. That’s why they endure the jobs that they have and the constant pressure to deliver results. Don’t hire sales people if you expect to be over-the-top cheap on T&E. They need some money for schmoozing. You can book them at budget hotels — but don’t go too far. Treat them with utmost respect or their next interview is right around the corner.

Helping Startups Understand Salespeople & the Sales Culture was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

I’ve written a lot about recruiting and hiring at startups including my controversial post on whom not to hire and my rapid response to the flame war. I’ve also written extensively on sales and on which sales execs to hire and how to think about the different kinds of sales leaders.

One of the questions I used to ask in any recruiting meeting for a senior hire or even a junior sales rep is as follows:

“When you run sales campaigns do you prefer to

A. Call high, and get passed down or;
B. Call low, get a pilot project with data running internally, and then present the findings to a senior executive”

Of course there’s no “right” answer but I’d like to persuade you that “calling high” will help you greatly shorten sales cycles and help you avoid wasting a lot of time on sales efforts that are not likely to close in the first place.

If you don’t have a good sales methodology already in place in your organization you might try reading that last link.

Call High

Calling high means reaching the highest level appropriate person in an organization that you can reach to hear your pitch. In a small to mid-sized organization this is likely the CEO or perhaps a COO or SVP. Clearly in an enterprise customer this is unlikely.

The senior person you meet is unlikely to be the person actually making the decision. They are likely somebody who would hear about the purchase but may or may not weigh in on the decision.

The most likely outcome if you manage to interest the senior exec (for the sake of this post let me call her the CEO) is that she will refer you down the organization to somebody who would be involved in the decision.

The benefits of this are clear:

1. High priority / more attention: A person passed down from the CEO tells the person making the decision that they ought to prioritize this.

2. No gate keeper: One of the most destructive forces in a sales campaign is when mid-level manager blocks you from meeting her boss. When you’re passed down the organization this isn’t an issue. You have already established a direct connection to the CEO and have earned the right to contact her on an as-needed basis

3. You avoid time wasters: Occasionally when you meet senior executives they will give you negative feedback on your prospects.

“We don’t have budget for that this year”

“I don’t believe in social media advertising.”

“I’m already in a pilot with one of your competitors.”

“There’s no way we’re going to partner in this area. It’s too strategic. We will have to build (or buy) technology in this area.”

Whatever this issue is. The thing is … what I see many sales execs do is burn up countless hours on mid-level campaigns that get torpedoed when the go up the organization due to lack of budget, a desire to own that core IP or other more pressing organization priorities. You need to align your selling cycle with a buyers purchasing cycle otherwise you’re wasting your time and theirs. If they’re not buying you need to be marketing to them not selling to them.

So as much as it sucks to hear, “We don’t have budget (or interest) in your product” it’s far better to hear it early and move on to your next qualified lead.

4. Learn the internal politics: You’d be surprised what the CEO would tell you about her organization. She might gladly tell you who gets decisions made, who is a pain in the arse, who is super technical, etc. Once you’ve reached a level in a company where you’re less worried about daily politics above you people are much more relaxed about sharing information. Not always, of course. But more than junior people.

5. Sales & post-sales support: One of the most important roles the CEO can play is to help you in the sales cycle and even in post sales. After you have found a business buyer often you need to get through procurement, legal and technical reviews (aka “sales prevention”). Having senior executive air cover is invaluable to help streamline these leg-breakers. Following the sale having a CEO relationship can help you greatly to make sure you product gets the training, implementation and rollout support it needs to be successful. Not to mention it would be nice to have the CEO on your marketing reference list!

The Case for Calling Low

When you hear the case for “call high” it intuitively feels obvious. I have met several sales execs who argue the exact opposite strategy. Their view is that without “proof points” the senior leadership teams are likely to be cynical about the benefits of your product.

In the “call low” camp they advocate

1. Find a business unit leader who would be positively impacted by success of your product

2. Run a short, quantifiable pilot

3. Have that business unit leader champion you to a senior exec with data and proof in hand

4. Land bigger deals with more assuredness.

The mantra of this school is, “keep your head below the parapet and avoid getting shot. You can rise up once you have your armaments.”

While I understand the logic, I personally believe you need to provide enough evidence through case studies to talk with the CEO and if she can’t convince herself that it’s worth exploring being a buyer then you could recommend you do a pilot internally to prove yourself.

Summary

While the logic of calling high is clear I can tell you that most people — leaders and sales execs — opt for the more comfortable territory of the next layer down in the organization.

I have seen countless organizations waste time peddling to companies that have no intention to buy or to prospects who have no authority to purchase.

Whether you’re selling your product or selling your company — there is nothing more valuable than having

• A champion who will help you take ownership for your success
• The air cover of a senior executive
• A buyer who has IA — influence & authority (Avoid NINAs)

I’d love to hear your experiences in the comments section.

Photo credit on 500px to Roof Topper. Check out his other photos. He’s insane. And brilliant.

How to Shorten Your Sales Cycle and Avoid Wasting Time was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

Nobody seems to want to make money any more. I remember just a decade ago in 2003 when we all laughed at how dumb people in the 90’s were talking about the race to “capture as many eyeballs as possible” before your competition. You would figure out how to monetize later.

I say ring the freaking cash register. I have said so for years.

Not everybody agrees and in some cases they’re right so you have to decide for yourself.

If you are a super young, well-connected, Stanford CS or EE, worked at Facebook early, have a bit o’ dosh and have VCs chasing you … you are exempt. Or anybody who remotely resembles you.

Why? Because at least while the VC spigot is open and flowing for high-potential individuals that fit a pattern that some VCs seem to favor they can access cheap capital that isn’t terribly dilutive and can use the to fund development and swing for the fences with limited focus on monetization.

Ok. That leaves 99.99% of you.

Ring the freaking cash register.

These days you’re told not to. I understand the logic.

It goes like this, “If your next round investor can see how fast you’re scaling then you can raise money based on your user traction and your valuation can hit the sky. The minute you try to monetize now they have metrics with which to beat you up and say you’re business has limitations.”

Case in point: Facebook, Twitter, Tumblr, SnapChat.

This is certainly one path you can take if you have the right background.

But that’s not what happens to most of you. What mostly happens is you get some growth. Enough to convince you to work the next 49 weekends in a row to get to your next round of funding. When you arrive at your funding milestone you have enough growth to raise money. But not enough to get 5 offers or to delay your raise.

And you’re not independently wealthy. Nobody is offering to put you on their scout program and pay you to be an angel investor.

You’re out of money.

So you take the offer you get. And the dilution that goes with it.

I see this weekly. The company with no revenue and a $150k burn rate that raised $2.5 million and has 4 months cash left. I often wonder why they didn’t find a way to bring in some revenue to cover costs.

Isn’t that what mere mortal businesses are supposed to do?

Newsflash — if you had $75k revenue / month you’d have 8 months cash left instead of 4. And maybe by the time you got near month 8 you’d be at $110k / month and only burning $40k.

It’s much, much easier to get an internal round done when your ask is only $400k to fund 10 more months and you might even make profitability on that.

As an investor that’s a no brainer. Hmm. Let’s see. Should I write off my $2.5 million or put in 16% more ($400k) to see if we can get to break even and maybe find more money and/or find our magic growth curve?

That is exactly how most investors think.

But you’re not necessarily going to put $2.5 million to save $2.5 million if you’re not seeing growth because you know that you might be back in 12 months without growth and needing another $2.5 million. After all, if nobody external was willing to fund you now without the accelerated scaling why would they do so in a year?

Or better yet, what if you actually did get to break even?

I know it’s not as sexy as a faster growth rate and a larger round of capital. I have argued this often to journalists and industry pundits that simply don’t understand the trade-off between profits & growth. I wish every entrepreneur would forward that article to their favorite journalist so we could stop having this conversation of “yeah, but company so-and-so isn’t profitable!”

But some businesses take time to find their magic. And I only know one reason companies go out of business — they run out of money.

Delaying going out of business gives you way more chances at product / market fit than any other strategy I know of. And if your ultimate strategy is a small sale of the business that recovers investment and puts some cash in your pocket — having more time to make this work makes a lot of sense.

Plus think of it this way — it’s order-of-magnitude easier to convince a company to buy you when they know that they are buying something that isn’t draining cash than if you have to say, “pay $10 million for my company and …. oh, yeah … we’re going to lose another $5 million over the next 2 years.”

Ring the freaking cash register.

Wait, a second, Suster. You’re full of shit!

My VC told me that if we monetize too early we will scare away our nascent marketplace and not grow as fast. We all know it’s “winner take most” and if that’s not me — what am I doing this for?

Fair point. If your goal is to be the next Instagram or bust that’s a great strategy. And revisit my point about whether you are the archetypal founder who will get tons of money thrust upon you. If that’s you, you can ignore my advice. Your VC is right. Sincerely.

For all others please know that your VC has a vested interest in your trying to go big or go home. They need outsized returns in the shortest period of time possible. They do OK when you take big risks, make huge progress but run out of financial options. They acquire more ownership that way.

They are not rooting for you to fail — please don’t misunderstand me on that. They would prefer you always move up-and-to-the-right. I’m just saying that great progress with no revenue and you needing more money isn’t always at odds with a VC’s interest. Sorry to give away the game.

I have this conversation all the time. I tell the founders I work with,

“Listen, our incentives aren’t always 100% aligned. I want you to do what’s right for the business and for you.

In this situation I think we should be increasing burn rate and not immediately focusing on revenue [I do sometimes believe this]

But know that unless we do gain the traction we hope for it may make it harder to price the next round as a big up round.

There is always the safer strategy of going slower and charging. If we do that and you lower your burn rate then you’ll have more time to prove things out before we fund raise.

The choice is yours.

In your market conditions knowing what I know I would tend to go for it. But I’ll support you either way.”

Many times I say the opposite

“It has been a while that we’ve been trying to get the viral coefficient up but we haven’t seen progress. Our engagement figures look good but they’re not as strong as some companies, which might make it hard to raise money.

If you started to bring in some ad revenue or some data revenue we could lower our burn and have longer to search for options.

If I have to call our co-investors to ask for $4 million more it will be a tough conversation. If that narrows to $1.5 million between 3 of us it’s a no brainer.

If I were you … I’d ring the freaking cash register.”

I’ve said this so many times I’m sure many founders are smiling thinking I’m talking about them when I’m really talking about you. You. The market.

Ring.

What about M&A?

Yeah, I know. I know. Same thing.

If a buyer sees meteoric user numbers rising with no monetization you can apply a “theoretical” ARPU (average revenue per user) without having to prove it. Once you roll out your ad product, your subscription service, your paid version — whatever — and it delivers a real number you’re done with theoretical valuations.

Again, all true. Especially in the world of hyped-up, over-valued, I’m-buying-you-in-a-bullish-market M&A.

We’ve been here before. Sometimes it produces Sharks.

Many times hyped companies don’t reach the finish line unscathed — especially when there is climate change.

I’m not saying don’t try to pull an Instagram. Ok, I am. Don’t try to pull an Instagram.

Ring the freaking cash register.

Why You Need to Ring the Freaking Cash Register was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.

We developed this at our first company and called it PUCCKA — the overall methodology is described here.

Pain. Unique Selling Proposition. Compelling Event. Champion. Key Players such as enemies, sages and blockers.

This post talks about the last part of the PUCCKA methodology — an Aligned Purchasing Process.

What does it mean for the purchasing process to be aligned?

Well think of it this way — you have your sales process. You know exactly when you want to sell to this customer and presumably it’s this quarter!

And with scarce resources it’s your job to decide which door this lead must go through — sales or marketing.

The buying company many not be able to buy in your time frames. And when I say this I’m assuming that you’re already identified the customer pain and talked about how you’re uniquely qualified to solve their business problems.

You’ve therefore “identified the need” and “gotten the need agreed.”

You might even have a “compelling event” that forces a buyer to believe they really need your solution now, now, now.

But the sales don’t always come in that way.

Why?

Like it or not enterprise customers have procurement processes, budgeting cycles, decision-making authority, competing interests for time & resources and key meetings that must take place in order for your sale to be approved.

It’s why many modern technology companies prefer to sell individual products to end-buyers who can buy on their credit cards with limited need for approval from others.

That is nice for one-off sales and / or to get your foot in the door of accounts. In order to get rolled out more widely, more pervasively and much more defensively (as in not being kicked out) you often need higher approval, official sanctioning, training budgets, champions, sponsors and internal marketing.

These all involve becoming part of a sales process. And I think of it as a failure of Silicon Valley startups (and occasionally SV VCs who lack an understanding of enterprise purchasing) to assume you don’t need a sales process and sales reps.

If you’re at a startup and new to sales & sales people you might want to read my basic primers:

• Why hiring seasoned reps at a startup might not work
• Understanding sales people — Journeymen, Mavericks & Superstars
• Beware of crocodile salesmen
• Which customers to target: Elephants, Deer or Rabbits?

But how do you know whether or not your prospect is ready to buy this quarter, what her approval levels are, who else needs to be involved in the decision, what key meetings have to take place in order to approval to happen, what the role of procurement and legal will eventually be?

If you read the post on “champions” you’d know that without an insider telling you all of this it’s nearly impossible to navigate corporate purchasing and you you’re potentially wasting valuable resources pursuing a campaign that might not close this quarter — or ever.

So the simplest rule in sales is … ask! I know it sounds trite but believe me when I tell you most people are afraid to ask direct questions like, “who holds the budget to invest in a solution like ours?” or “what is your financial approval authority?” or “are you able to approve a solution like this on your own? And if not, who else would we need to convince in order to secure a sale?”

They understand you’re there to sell your solution. So even if you don’t have a sales background you need to get over your stigma that you’re selling to somebody even though you thought you’d never be doing this.

They do not think you’re there just to be a nice guy. They know you want the business. It is not unspeakable.

Ask!

If they don’t want to share that information with you then they’re not your champion and you must continue in search of one in order to be worth investing resources in this account.

When asking you will quickly learn if this project is likely to slate for this quarter or in the future. If it is a current quarter opportunity you need to allocate the appropriate level of resources to getting your order finalized.

More often than not the account will be in an “interested but not yet ready to buy” state. So I like to tell sales reps: “your selling process is not aligned with their purchasing process.”

Hand this deal over to marketing to nurture for you. It doesn’t mean zero effort on your part but it means you need to allocate your own personal scarce resources to deals that are more near term or you’ll never close anything.

As a very early-stage startup person you’re used to rigorous prioritization on almost all other parts of your business because you likely work closely with product where these choice are natural. Or thinking about how much capital you have and therefore how many people you can hire — you rigorously prioritize.

Untrained people in sales are less good about prioritization — they like taking meetings with important people who are nice to them.

But you have no choice since in the first few years everything you do is about showing results to justify financing to continue your operations.

And failure to show customer adoption is the death of startup companies.

As the CEO I would work through my sales deals pipelines by doing “pipeline reviews” with individual sales reps and with regional managers.

In order for a deal to be forecast in the current quarter you had to have a champion, identified a budget holder with money to spend, presented the customer with an ROI (return on investment) calculation of the benefit of using our product and the customer had to be in an active review of choosing a supplier of document & collaboration services (the product we offered).

You could often tell when a sales person couldn’t defend having the deal be listed as an A deal (and thus have a high forecast percentage) by having them walk you through each deal. When I got busy and only had time to review spreadsheets or output from Salesforce.com it was impossible to know which deals were “real.”

We’d have deals that seemed “stuck” (were in the “closing within 3 months” pipeline for 9 months) or we’d have sales reps who constantly kept adding new deals and taking out the old “sure deals” that didn’t close.

Only pipeline reviews with tough questions and rigorous PUCCKA checklist helped us figure out how to prioritize our deals.

Lead quality matters because the scarcest resource of a sales rep is actually time. The reality is that no matter how much you want to sell your products, you can’t push them on a customer who isn’t ready to buy.

“A deals” (closing in next 3 months) should get much of the sales person’s time (say 66–75% of time), “B deals” (3–12 months) should get the balance as each sales rep needs to build their pipeline and bigger deals take time.

And the key to scaling is that “C deals” (1 year or more out) should get almost no time from sales. They should be owned by marketing.

The role of marketing in managing pipelines is to do two things 1) fill the top end of the funnel with new “qualified” leads (e.g. converted from “suspects” to “prospects”) and 2) managing “C deals.” Today’s C deals are obviously tomorrow’s A’s & B’s.

Managing C deals is called “nurturing.”

So the best run companies have marketing running activities to nurture their C deals. Examples activities:

• Newsletters — one of the goals of newsletters is to keep your company & its products on the consciousness of your “suspects” or future buyers. C deals go in the newsletter bucket and should be identified as C newsletter companies. The things you send them should be different than the newsletters you send to existing customers, for example
• Customer Events — It is far easier to get potential customers interested in your products when they hear actual customers talking about your products and how they are using them. Suspects & prospects are often in search of success stories from their peers to hear how they’re improving internal operations. So one of the smartest things we did at Salesforce.com was run “city tours” which were basically our existing customers standing up and talking about how they were using our products plus our product management teams talking about future innovation / development. Customer events are a great way to market to your C deals so that you keep them informed and try to raise their interest levels
• PR — Some companies are excellent at PR and others don’t put much effort into it at all. I think PR is an incredibly important activity for technology companies and most companies aren’t very good at it. I wrote a bit about how to better manage journalist relations in this post. The reason many companies don’t put enough effort into PR is that PR doesn’t have an immediate translation into sales because it’s most a “C deal” activity.
• Analyst Relations — In many technology fields analysts are hugely influential in determining enterprise budgets. Many analysts are great and help customers frame the decisions they need to reach. Spending time with analysts getting into their “innovator quadrants” will help you manage your C deals and pull them forward to B’s & A’s.

So there you have it: PUCCKA.

A = make sure to “ask” you customers what their purchasing process is to make sure you’re “aligned” and therefore can continue to spend sales resources in stead of marketing resources.

PUCCKA is by no means the only sales methodology and it borrowed heavily for sales books and training programs we had all been on.

To have NO process or methodology and give no thought to suspects, prospects, leads and current customer accounts is madness. A surefire way to build a product that isn’t consumed as much as it could be.

We developed this at our first company and called it PUCCKA — the overall methodology is described here.

Pain. Unique Selling Proposition. Compelling Event. Champion. Key Players such as enemies, sages and blockers.

This post talks about the last part of the PUCCKA methodology — an Aligned Purchasing Process.

What does it mean for the purchasing process to be aligned?

Well think of it this way — you have your sales process. You know exactly when you want to sell to this customer and presumably it’s this quarter!

And with scarce resources it’s your job to decide which door this lead must go through — sales or marketing.

The buying company many not be able to buy in your time frames. And when I say this I’m assuming that you’re already identified the customer pain and talked about how you’re uniquely qualified to solve their business problems.

You’ve therefore “identified the need” and “gotten the need agreed.”

You might even have a “compelling event” that forces a buyer to believe they really need your solution now, now, now.

But the sales don’t always come in that way.

Why?

Like it or not enterprise customers have procurement processes, budgeting cycles, decision-making authority, competing interests for time & resources and key meetings that must take place in order for your sale to be approved.

It’s why many modern technology companies prefer to sell individual products to end-buyers who can buy on their credit cards with limited need for approval from others.

That is nice for one-off sales and / or to get your foot in the door of accounts. In order to get rolled out more widely, more pervasively and much more defensively (as in not being kicked out) you often need higher approval, official sanctioning, training budgets, champions, sponsors and internal marketing.

These all involve becoming part of a sales process. And I think of it as a failure of Silicon Valley startups (and occasionally SV VCs who lack an understanding of enterprise purchasing) to assume you don’t need a sales process and sales reps.

If you’re at a startup and new to sales & sales people you might want to read my basic primers:

• Why hiring seasoned reps at a startup might not work
• Understanding sales people — Journeymen, Mavericks & Superstars
• Beware of crocodile salesmen
• Which customers to target: Elephants, Deer or Rabbits?

But how do you know whether or not your prospect is ready to buy this quarter, what her approval levels are, who else needs to be involved in the decision, what key meetings have to take place in order to approval to happen, what the role of procurement and legal will eventually be?

If you read the post on “champions” you’d know that without an insider telling you all of this it’s nearly impossible to navigate corporate purchasing and you you’re potentially wasting valuable resources pursuing a campaign that might not close this quarter — or ever.

So the simplest rule in sales is … ask! I know it sounds trite but believe me when I tell you most people are afraid to ask direct questions like, “who holds the budget to invest in a solution like ours?” or “what is your financial approval authority?” or “are you able to approve a solution like this on your own? And if not, who else would we need to convince in order to secure a sale?”

They understand you’re there to sell your solution. So even if you don’t have a sales background you need to get over your stigma that you’re selling to somebody even though you thought you’d never be doing this.

They do not think you’re there just to be a nice guy. They know you want the business. It is not unspeakable.

Ask!

If they don’t want to share that information with you then they’re not your champion and you must continue in search of one in order to be worth investing resources in this account.

When asking you will quickly learn if this project is likely to slate for this quarter or in the future. If it is a current quarter opportunity you need to allocate the appropriate level of resources to getting your order finalized.

More often than not the account will be in an “interested but not yet ready to buy” state. So I like to tell sales reps: “your selling process is not aligned with their purchasing process.”

Hand this deal over to marketing to nurture for you. It doesn’t mean zero effort on your part but it means you need to allocate your own personal scarce resources to deals that are more near term or you’ll never close anything.

As a very early-stage startup person you’re used to rigorous prioritization on almost all other parts of your business because you likely work closely with product where these choice are natural. Or thinking about how much capital you have and therefore how many people you can hire — you rigorously prioritize.

Untrained people in sales are less good about prioritization — they like taking meetings with important people who are nice to them.

But you have no choice since in the first few years everything you do is about showing results to justify financing to continue your operations.

And failure to show customer adoption is the death of startup companies.

As the CEO I would work through my sales deals pipelines by doing “pipeline reviews” with individual sales reps and with regional managers.

In order for a deal to be forecast in the current quarter you had to have a champion, identified a budget holder with money to spend, presented the customer with an ROI (return on investment) calculation of the benefit of using our product and the customer had to be in an active review of choosing a supplier of document & collaboration services (the product we offered).

You could often tell when a sales person couldn’t defend having the deal be listed as an A deal (and thus have a high forecast percentage) by having them walk you through each deal. When I got busy and only had time to review spreadsheets or output from Salesforce.com it was impossible to know which deals were “real.”

We’d have deals that seemed “stuck” (were in the “closing within 3 months” pipeline for 9 months) or we’d have sales reps who constantly kept adding new deals and taking out the old “sure deals” that didn’t close.

Only pipeline reviews with tough questions and rigorous PUCCKA checklist helped us figure out how to prioritize our deals.

Lead quality matters because the scarcest resource of a sales rep is actually time. The reality is that no matter how much you want to sell your products, you can’t push them on a customer who isn’t ready to buy.

“A deals” (closing in next 3 months) should get much of the sales person’s time (say 66–75% of time), “B deals” (3–12 months) should get the balance as each sales rep needs to build their pipeline and bigger deals take time.

And the key to scaling is that “C deals” (1 year or more out) should get almost no time from sales. They should be owned by marketing.

The role of marketing in managing pipelines is to do two things 1) fill the top end of the funnel with new “qualified” leads (e.g. converted from “suspects” to “prospects”) and 2) managing “C deals.” Today’s C deals are obviously tomorrow’s A’s & B’s.

Managing C deals is called “nurturing.”

So the best run companies have marketing running activities to nurture their C deals. Examples activities:

• Newsletters — one of the goals of newsletters is to keep your company & its products on the consciousness of your “suspects” or future buyers. C deals go in the newsletter bucket and should be identified as C newsletter companies. The things you send them should be different than the newsletters you send to existing customers, for example
• Customer Events — It is far easier to get potential customers interested in your products when they hear actual customers talking about your products and how they are using them. Suspects & prospects are often in search of success stories from their peers to hear how they’re improving internal operations. So one of the smartest things we did at Salesforce.com was run “city tours” which were basically our existing customers standing up and talking about how they were using our products plus our product management teams talking about future innovation / development. Customer events are a great way to market to your C deals so that you keep them informed and try to raise their interest levels
• PR — Some companies are excellent at PR and others don’t put much effort into it at all. I think PR is an incredibly important activity for technology companies and most companies aren’t very good at it. I wrote a bit about how to better manage journalist relations in this post. The reason many companies don’t put enough effort into PR is that PR doesn’t have an immediate translation into sales because it’s most a “C deal” activity.
• Analyst Relations — In many technology fields analysts are hugely influential in determining enterprise budgets. Many analysts are great and help customers frame the decisions they need to reach. Spending time with analysts getting into their “innovator quadrants” will help you manage your C deals and pull them forward to B’s & A’s.

So there you have it: PUCCKA.

A = make sure to “ask” you customers what their purchasing process is to make sure you’re “aligned” and therefore can continue to spend sales resources in stead of marketing resources.

PUCCKA is by no means the only sales methodology and it borrowed heavily for sales books and training programs we had all been on.

To have NO process or methodology and give no thought to suspects, prospects, leads and current customer accounts is madness. A surefire way to build a product that isn’t consumed as much as it could be.

How to Know When to Sell vs. When to Market to Customers was originally published in Both Sides of the Table on Medium, where people are continuing the conversation by highlighting and responding to this story.