The Answer is One

The hard part of B2B SaaS sales is figuring out which one...

Here’s a question that comes up all the time: “How many leads do we need to generate each sale?” 

The answer is simple. One. The hard part is figuring out which one.

“Which leads will become customers?” Startups are all about answering that question. You need to direct your marketing and sales to the right customers. You need to build the product features that potential customers want to buy. Most of the money you raise goes on these activities. How you spend it determines both the speed and scale of your growth.

B2B Enterprise SaaS is a clear illustration of this principle. Customer leads become old friends as they make a stately progress along your sales pipeline. A process that can take nine months or more. If there is no sale, the time and energy wasted is enormous.

Outliers not averages

How do you decide at the start which leads to invest all that effort in? You can’t just fill up the top (or left hand side or whatever) of your funnel and wait for the money to flow. Conversion rates tell you what has happened. You need to make decisions about what happens next.

Brad Feld and Ian Hathaway describe this as the myth of quantity. 

“Implicit in the quantity-driven mindset is a belief - conscious or not - that value creation in a startup community follows a normal statistical distribution, whereby understanding of the average outcome provides an understanding of the overall performance of an ecosystem. But this is entirely incorrect.”

They are talking about “how many startups do I need to make a unicorn?” The exact same principle applies to sales. How do you figure out which leads in your pipeline will buy? You can only answer this by focusing on outliers not averages, quality not quantity.

Traditional business practice offers a sledgehammer approach to this. With a large enough sales organisation - sales development reps, quota carrying sales reps, account executive managers and the rest - you can simply keep beating every lead for as long as possible. Over time, those who don’t buy will get worn down and escape the funnel. Those left will be the winners.

Its the epitome of quantity over quality. Its expensive and painful. Customers have seen it a hundred times before. They will steer you along the path of highest resistance. RFIs, tenders, endless procurement processes and then a long implementation.

Note that it also can’t be accelerated. The companies in the pipeline that buy will work through the whole process.

In practice no-one can afford to work this way. Your runway analysis is telling you don’t have the time or the money.

The market is sending the same message. Businesses are much slower to take advantage of new technology than consumers. The old model of commission based sales and procurement led buying is broken. New ideas are not getting through the system.

Imagine B2B SaaS a different way

There has to be a better way right? Its taken a while but new ideas are emerging. Here are a few to think about:

• A number of B2B software companies are now using traditional B2C methods to build their business. In essence, free versions of SaaS products are used to build a base of individual customers. People who use a software product for work related tasks. Paid versions allow these users to collaborate better with colleagues. This in turn provides an entry point for the SaaS provider to land and expand. Slack and Calendly are two well known examples. It was also great to discover another through Tom Tunguz analysis of Asana’s S1 this week. 

• Not every company can adopt this model. For example health tech companies like Triscribe (one of mine!) need access to customer data held in systems subject to strict privacy controls. In this world, a project led partnership approach works. Rather than IT choosing systems, find a group of managers who have a problem to solve and persuade them to use your SaaS as a tool to find the answer. 

• Product led growth. I suspect this may be just a buzzword for the first approach. The Tech world has a bad habit of creating “cool” jargon that tries to convince people a well proven idea is somehow new and special. Either way, I have not explored much of the Product Led Growth chatter because I prefer real examples from real companies. Well worth investigating if this route appeals.

• I am a big fan of the flywheel model. On every level it is a better way of thinking about company growth than any sort of funnel. Its a much better picture to have of your process and that may lead you to develop a better approach. Bear in mind that flywheels are still outputs. You need to think forward so you still have to solve for the hard part - getting the wheel rolling in the first place. Jim Collins is as good a place to start as any if you want to know more.

• Another option is to take all that sales knowledge and apply the pressure in a different place. Target a non traditional buyer is not new. I was reminded of it watching the first season of The Bridge from 2011 ( the scene where Mette meets Sebastian). Once its a TV plot device you know its established. Nonetheless worth trying this out. The big risk is that you get fed back into the procurement/ IT meat grinder. 

• A simple but radical option is to pick one or two (no more than 2) customers and focus your whole organisation on meeting their needs. It sounds high risk but in practice it is lower risk than hiring a commission based salesperson and throwing them at a pile of marketing leads. Even if you fail, you will have learned a huge amount about customer needs. I know at least one fast growing business in Scotland that started this way.

Anyone who knows me will know I have a prejudice here. I hate the traditional enterprise sales model. The only thing worse than selling this way is buying this way. Large organisations have built a whole complex set of barriers (called procurement or supply chain) to ensure the people who run their business don’t have to be exposed.

“How many…” is a classic example of great management practice that doesn’t fit a startup or high growth model. It works well looking backward. That’s fine if you are evaluating the performance of an established sales process.

You need to look forward, act now and move forward.

Note: Traditional sales thinking is pervasive. It determines Board reporting, SaaS metrics and financial forecasts. Often it distorts team rewards and dynamics. At some point I will write a follow up that explores these questions.

Observations this week:

Understanding business is as much about the context of the wider world as it is about traditional strategy and management thinking. I gather a few links every week that have made me think. More variety and a couple of my personal obsessions this time round.

Pitching adds zero value for me. One reason - I learn nothing from your pitch. So I quite like this thread from Alex Cohen. Some good nuggets of practical advice rather than the mythical monster of best practice. This is my favourite: “Investor meetings felt like sales pitches and not conversations about the business. IMO going through a deck during a meeting is a bad way to pitch.”

There is a risk that I end up quoting Jana Kovacovska every week. Focus on revenue growth not cost cutting. 100% right. Even more relevant today when everyone is screaming at you to conserve cash. Its short so read it. Reread it every time you need to make a business plan.

I am a bit of an Amazon business model geek. Whatever you think of Jeff B, the company is an incredible story and we can all learn from it. Its not built on IP or super leading tech in the conventional sense (although its logistics division is a true wonder). Its continuous and brilliant business model innovation and investment. Byrne Hobart has a great analysis here.

Resisted COVID-19 for the most part but two things to finish with:

Every so often the Economist offers an insight and a perspective which changes the way I view the world. More often than any other media outlet. Essay about Viruses in 22/8/20 edition (paywall) is a startling example. These bugs are features. They have shaped our entire world. For the better in most cases.

Recovery will need thoughtful action as well. People will lead. Entrepreneurs will crystallise but Government can build and level the playing field. Right now they will only cut the grass if it makes the front page of the paper. Naomi Klein’s example about TB is compelling and I will leave you with another quote:

"In the panic about this ‘lost generation,’ there has been a lot of talk about how there is no work for young people. But that is a lie. There is no end of meaningful work that desperately needs doing — in our schools, hospitals, and on the land. We just need to create the jobs.”