Atlassian or Box.com; Is “Sales Light” or “Sales Heavy” the right model for you?

5 Questions to Guide You

Atlassian is about to go public in what might very well be the best Enterprise Tech IPO since Workday. On top of great products and profitability, the headline of this IPO is their sales model; or better stated – there lack of a sales model. Here is the paragraph of their F1 that everyone is talking about. I have added the highlights for emphasis:

We founded our company on the premise that great products could sell themselves and we have developed a unique approach to the market that is centered on this belief. We begin with a deep investment in product development to create and refine high-quality and versatile products that users love. We make our products affordable for organizations of all sizes and we transparently share our simple pricing online. We pursue customer and user volume, targeting teams in every organization, regardless of size, industry or geography. To reach this expansive market, we distribute and sell our products online without traditional sales infrastructure where users can get started in minutes without the need for assistance. We focus on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products.

Wow! Talk about disruption They are selling $319M or Software and SaaS with no traditional sales force!

As a result, Atlassian sales and marketing expenses are only 12-21% of their revenue. Compare that to other Enterprise SaaS companies who spend between 50-100% of revenue on sales and marketing. See Redpoint Ventures Tomasz Tungus’ excellent analysis of Atlassian’s Superior SaaS metrics.

Now let’s look at Box.com who went public this spring and is doing quite well.  Revenues are growing at 38%, losses are narrowing and profitability is on the horizon.  That having been said, they are the polar opposite of Atlassian. Sales and marketing expenses are still 81% of Box revenues and at times they were spending an astounding 200% of revenues on sales and marketing.

So, can we all just copy the Atlassian flywheel model. Can we finally dispense with a golf playing, wine drinking, first class flying, face to face field sales force and let the computers do the work?

It’s easy to look at the Atlassian and Box numbers and declare Atlassian the winner on not only efficiency, but in effectiveness. It is a larger company than Box ($319M vs @280Mish in trailing 12 months revenue). And Atlassian is growing faster (46% to 38%)

But before we rush to any conclusions, it is also worth noting that the undisputed heavyweight champion of SaaS, Salesforce.com, uses a “sales heavy” model and is fact now headed by Keith Block and Tony Fernicola. These Oracle alumni are industry veterans of the “sales heavy model”. And it’s not just Salesforce and Box. Most of the leading Enterprise SaaS companies use a “Sales heavy” model. Workday, ServiceNow, Netsuite, Marketo, Eloqua, Concur and Successfactors all employ a lot of salespeople. And even companies who target the lower end like Hubspot spend a lot on sales and marketing.

As for other good examples of “Sales Light” models, we should look at Amazon Web Services. They have sales people now, but a lot of their business was built in the low cost frictionless sales model. Another example would be the Google At Work unit,that I ran for eight years. We certainly had lots of salespeople, but large sections of our business were designed to be low touch frictionless sales and mid market and enterprise units were run below industry average expense levels. The other non-public examples of sales light model would be Github who has grown to 10M users worldwide. But even they hired a VP of Sales 18 months ago and stated that their latest $250M fundraise will be used in part to expand sales.

 

So, what is right? “Sales Light”, like Atlassian or “Sales Heavy” like Box.com and Salesforce? The answer of course is: “It Depends” and “You may need more than one sales model”.

 

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But I am not going to cop out with the ubiquitous “It Depends” answer. Let me give you 5 factors to consider when making your decisions about your sales model

Factor 1: What is your target customer’s buying process?

We talk a lot about sales process in Enterprise Tech, but in a hyperconnected world where buyers possess access to almost infinite information, we need to think about how customers buy, not how we sell. You need to ask how they have traditionally bought and how they are buying in the new normal.

Small businesses have usually bought quickly and with smaller levels of consideration. Frequently there is a single decision maker and they are focused on ease of implementation, low cost and end user simplicity. They are not often interested in competitive evaluations unless it helps drive price down.

Large enterprises have traditionally bought slowly with very high levels of consideration. There are many stakeholders involved in buying technology. They often have established and cumbersome procurement rules that must be navigated. They will have very complex decision criteria and will focus more on total cost of ownership and ability to integrate with existing complex infrastructure. They will almost always require a competitive analysis as part of the buying process that involves significant dollars.

Medium sized business is traditionally a mix of the above- more than one decision maker, but not hoards of people; Some structure in the buying process, but not too much.

Buying processes also differ by industry and region in the world. Buying processes in government and regulated industries (Finance, Healthcare, Pharma) are even more stringent. European buying processes can differ from American ones and Asia Pacific buying processes are clearly different.

So, the general rule is, if you target large companies and regulated industries you will trend towards sales heavy and if you target smaller companies and less regulated industries, then you can trend towards “Sales light”.

Lastly, you should consider who your target buyer is within the company. The sales light model has worked well for Atlassian partly because they target engineers and developers. This target buyer is highly skeptical of salespeople and marketing claims. Taking them golfing is not likely going to help the sale move along. They want to see the product, look at the nuts and bolts and decide based on hands on work. Furthermore, developers can often choose tools individually or in small groups without engaging with a large team of stakeholders. And once, you convince an engineer or developer about your product, they are likely excellent sources for word of mouth referrals. If you are selling compliance software to the CIO or Chief compliance officer, you are much more likely to need spend a lot more sales time doing belly-to-belly meetings.

Factor 2: How Mission critical is your product?

Every company wants their product to be called mission critical, but be careful for what you wish for. Mission critical is often defined as “Will the business stop if this application is down” or “Will there be significant impact if this application is down“. ERP software for manufacturers is mission critical, Patient record systems are mission critical to hospitals; Websites and ecommerce systems are critical to online companies. Points of sales systems are critical to retailers.  Email and Payroll systems are usually mission critical for everyone. But there are a whole host of important software that is not mission critical.  If you are selling “succession planning software” or “recruiting software” or “e-meeting software”, then you fall into the important, but not crucial category.

The sales model implications are as follows. Mission critical software requires a more sales heavy approach and important, but not mission critical software can trend more towards sales light.

Factor 3: Is your first sale a “Bunt single” or a “Grand Slam”

Certain software sales are an “all or nothing’ sales proposition. Customers decide once. There is usually a large upfront sale for all users. If you win, then you are golden. If you lose then you are likely out of the account for a very long time. Salesforce.com is a good example of this. People make decisions about CRM, Service and Marketing automation once and then work very hard to succeed with it. They do not revisit that solution every year, nor do they allow departments or divisions to deviate from the corporate decision

Other software is bought is small chunks. It can be bought by a department or as a corporate trial. Customers make a small purchase, they watch how adoption goes and then expand use over time as they see value.  File sharing software from Box.com, Dropbox would be a good example of this. E-meeting companies like Webex and “Go to Meeting” are another example.

If you are a Grand Slam company, you will trend more towards Sales heavy and if you are “Bunt Single” company, you can trend more towards sales light.  But be aware if you are sales light, you likely need to invest more in customer success than the Grand Slam company.

Factor 3: How Viral is your Product?

Viral is an overused and poorly defined term. But I will use a simpler definition. How much effort is needed by your company to spread usage of your product? If it a lot, then you are less viral, if it is almost none, then you are very viral. Some products are not naturally viral. ERP and Patient Record systems are not viral. They take a large amount of resources to “get live” and then the company mandates them. No viral success needed. Other technologies like e-meeting software are more viral. Customer buys some limited amount of licenses, they start hosting meetings, people have to have access to software to attend meeting. Other departments or divisions see you using software and want to come on board. This is a really good model if you can make it work. Unfortunately we have many potential enterprise software categories that are viral in nature, but whose products are not user friendly enough to go viral in a big way. I mean have you ever left a Webex meeting and said “Wow, that was great, I can’t wait to do that again.” So be careful here, if you want to get the effects of viral distribution you have to have the right product and it has to “delight users”, not just meet requirements. Another way to say this is that you need “Net Promoters” at the end user level- people who rate you 8 out of 10 and above. And it has to be at the end user level, not the IT or support level. Most Enterprise companies are doing net promoter stuff now, but they are surveying the wrong people-Central IT or Project Management staff.  You need to survey the end user.

So bottom line on this factor, if you are viral, you can trend toward more sales light. Use a sales force to land the big account and let the product and customer success teams/process take it from there. But be careful, if you are not truly delighting end users, then you will need heavier investments in customer success than your CFO will like.

Factor 4: How competitive is your market?

Every market is competitive, but some are more competitive than others. If the customer has many alternatives in your space, then the sales model will need to be heavier. Customers who perceive that they have many choices, fear making the wrong decision and want to make sure they get the best price. If your product is a newer category, where customers perceive uniqueness, then you can be more sales light. To use a consumer example, If you want to buy a luxury sedan, you will feel required to look at BMW, Audi, Mercedes and then likely Infiniti and Lexus, GM, Ford and Chrysler. But if you want a luxury electric vehicle, you will stand in a (virtual) line in a get a TESLA.

Factor 5: How hard is to implement your product and What is the time to value?

Products that require lots of professional services to get started are tough to sell in sales light environment. If the customer cannot take some very quick steps to get live and start getting value, then you will need a much heavier customer engagement model. Some products are naturally heavy in implementation services because they require configuration and business process design. These products usually fall into the “Grand Slam” category because customers cannot “trial implement” them or adopt them in chunks. You will need a sales heavy model to assure customers about your solution because it will cost them money and time before they see value. There is higher risk, so they need more belly-to-belly time. On the other hand, solutions that can be quickly implemented and do not require a lot of expense to get value, can trend towards a sales light model because customers will perceive lower risk. If it doesn’t work or users don’t like it, we are not out much…so let’s just buy it”

Please note that as you move up the stack to sell to the largest companies it is not likely that you will be “full self service implementation”. You will be required to integrate into to the customer’s proprietary environment like directories, single sign on systems, mobile security systems and archiving systems, just to name a few.

Conclusion

There is no one right answer to the Atlassian vs. Box.com question. But there are clear questions that you can ask yourself to determine your sales model. Further, if you plan to tackle the whole market from small to large and across many industries and geographies, then you are likely to have more than one sales model.

I also recommend that you stretch the boundaries of the sales light model as far as you can. Sales light can be used beyond small business and there is evidence that it can work much further up the food chain, so don’t default to sales heavy too soon.

You can also deploy hybrid models. In the mid market in Google Apps , we used a sales light model for the first step of the buying journey, but deployed a team based field approach to the final step of the sales process. That change had a big impact on our close rates.

Lastly, your sales model is not a standalone business strategy. It is very closely linked to your product strategy. The simple fact of the matter is that Enterprise software has been so horrifically bad that sales light was not an option for most companies. If they saw or understood the software without a thick and expensive sales force translating it for them, then there was no chance of a sale or adoption. We simply must make better enterprise software.

Your sales model strategy is also tightly tied to your customer success strategy. In the past,we didn’t call this customer success, we called it support. We published a 1-800 number, we fixed bugs and we let third parties implement our product. We are now developing robust customer success departments that do implementation, end user adoption, project management and support.  And we are learning to do customer success functions in a high velocity, frictionless environment as well. If you are a “bunt single company” that depends on land and expand, then you will often need to invest more in customer success than your “grand slam company” and you will have to work hard on your product to ensure sales expenses are simply not replaced by customer success expense.

So there you have it. Picking your sales model is not black magic. It also should not be a religious war between the wine drinking golf playing, first class flying old guard and the “all on line” new guard. Answer these five questions and pick the right blend of sales models for your product and target markets.

Recruit and Retain Employees by Answering this One Simple Question

Why Does our Company Exist?

 

The last 5 years in the tech industry have been a very competitive labor market to say the least. When I have sat around with my management and recruiting teams over the last few years, I have referred to it as the Global War for Talent. If you are running any tech organization, you are competing with the big guys like Google, Facebook, Apple and the new big guys, the Unicorns and Decacorns. And frankly we have also been competing with people going to start their own thing in an environment flush with funding.

We have spent a lot of time debating and honing, pay levels, equity percentages, vesting schedules and refresh grants. We have spent an even greater time talking about benefits and perks including the number of web enabled beer kegs and the breadth of the selection of flavored waters available in our newly remodeled employee kitchens. And we have spent a lot of time establishing and maintaining the right culture. I am not making fun of those things. They are very important. But I think we have not spent enough time on answering the most important question that employees will eventually ask.

That question is simply. “Why does this company Exist?”. They don’t ask it that way. In fact, I have never had an employee/recruit ask it outright. But almost everyone is searching for and crying out for meaningful work. It is not just millennials. Everyone wants his or her work to matter. If they do well and the company does well, what will we have achieved? Will it have been worth it? We are all going to spend an inordinate amount of time, talent and treasure to try to achieve something. There are going to late nights and early mornings, redeye flights, brutal competition,  and demanding customers. There will be incredible highs, but also soul sucking lows. And when your recruits and employees are exhausted and down. They will ask themselves “ Why am I doing this?”, Why don’t I take a cushy job at Hewlett Packard or IBM and catch the company bus home at 4:30pm. And when they ask that question, their compensation, flavored water and autonomous culture won’t keep them going. They will have to answer in their hearts “Is this worth doing?” and when they get to that point they should know in their hearts the story of why our company exists. And why the mission we are on is meaningful and important. If what we are simply achieving is moderate improvement in the status quo or something even more esoteric like “creating shareholder value”, then why bother?  Why not just punch a clock somewhere else?

But few companies, founders and executives are really good at answering the question: Why does our company exist? And those who do, tend to distill into down into a meaningless mission statement that will be discarded by employees even if you go through the trouble to laminate it on nice paper stock.

What is needed is a compelling story to answer the question. It can be put into a few powerpoints if you like, but it is best told off the cuff and from the heart.

Over the past 15 years , I have been called on the deliver the “rally the troops” speech many times or have  been asked to help close the star recruit or save the key employee who has a bigger offer. And over that time through hundreds of speeches and even more one on one chats, I realized there was a formula for telling the story and answering the question “Why do we exist?” So here is my formula. It is not scientific, it was not developed at any prestigious business school, but it has worked for me. So let me share it and feel free to give it a try.

Step 1: Identify the Problems of the Paradigm that You are Trying to disrupt.

We are good at this in tech. We founded and run new companies to burn down what was have built before. We are never happy with the status quo. So describe the status quo in painstaking detail and get good at telling others how intolerable that status quo is. Here’s an example from Uber. If I were developing their story several years back it would have been easy to talk about how bad the taxi industry was. Dirty, poorly maintained cabs; poorly trained, unmotivated and rude drivers. An intolerable dispatch system or sidewalk hailing system that was unbearable. Poor payment systems. And a complete mismatch of supply of cabs to demand especially in peak periods, Need I go on?

You need to develop you own horror stories of the status quo. Make the list long. Punch it up with humor and concrete stories. Make everyone feel the pain of the status quo.

Step 2. Develop Concrete Impact Statements on the Consequences of the Status Quo

Simply listing the problems of the status quo is not enough. If you are not careful your long list of problems will seem trivial and unworthy of serious pursuit. They might ask “A better taxi service, really? Is that it?” Is that what I really want to write on my headstone as my major life accomplishment? So you need to take it the next level. Let me continue with the Uber analogy:

The taxi industry is so bad, that X% of the population uses their car even when they know a taxi would make more sense. And that causes: a) greater traffic congestion, b) chronic parking problems and most importantly c) increased carbon emissions of X %. Also, the unreliability of the taxi industry causes business lost productivity of Y %. And perhaps most importantly, the incompetent taxi industry causes many people, especially younger people to drive their cars after drinking. Drinking and driving kills 10,000 Americans every year. We have to stop this!

You need to develop impactful statements of your own to compel those around you to join you in your mission. It takes a little work, but if you nail this, then you have something that really works.

Step 3: Position your Company/Product as the Only way to Stop the Status Quo from Continuing to Wreak Havoc.

Here you list the features and benefits of your product or service and show how they solve the problems you outlined in Step 1. Again to use the Uber example:

You will be able to hail a ride by pressing a button on your phone without the need for a dispatcher or by mindlessly waiving at speeding cars.. The app will tell exactly where the cars are and how soon they can pick you up. It will help the driver navigate efficiently to you and then your destination. It will have an integrated payment system that will do away with the need for cash and tipping. And it will have a patented demand based pricing system that will allow for the free market to match supply and demand, especially in peak periods. And so and son on.

Can you do that with your product or service. You need to be able to concretely show that your company can/will solve the problems you outlined in Step 1.

Step 4: Show that You have a concrete plan

Saying you have an idea or an early version product will be good enough for some employees, but many others will want to here the concrete steps that must be taken to get to the end game. You don’t need all the answers, but you need to not come off as a dreamer company that is short on specifics. Also have a plan to fight when the status quo belatedly fights back or when another new emerging startup launches a similar service.

Step 5: Tell Them that it will be Hard and that You Need their Help.

Don’t forget this last step. Every executive, founder knows they can’t do it alone. But we too often come off as people who think they know all the answers or have all the plans. Be prepared for closing with a story and a plea for help. “It will be hard, there is much we do not yet know and hurdles that we know we must overcome, I need help and the right people on our team. We need your unique skill sets, and your perseverance to carry us through. We cannot let the status quo perpetuate itself and we need to ensure  a new and better way wins the day.”

It seems easy . Five simple steps. But I think we need to spend more time on building and telling the compelling story of why the companies we run should exist. And if we spend time to develop the story, then maybe, just maybe we can get by with only three flavors of water in the employee kitchen.

If you want to read about a concrete Enterprise SaaS of one of my stories click through to my blog and read an additional supplement to this post. How I creating our story in the Gmail versus Exchange cloud battle.

2007 Flashback: Gmail vs. Exchange

Why Gmail for Business should exist?

In February 2007, a group of associates and I launched a head on assault on the status quo of email. We planned to offer a cloud based alternative to Microsoft Exchange, Lotus notes and Novell’s Groupwise. At the time, 95% of all email was on premise solution and Microsoft had about 70% share. Here was our story that I developed put within the framework I wrote about in another blogpost.

Step 1: Identify the Problems of the Paradigm that you are trying to disrupt.

Existing email systems are a nightmare for end users and heinously complex and expensive for IT.

  1. Email box sizes are much, much to small for today’s information age. The average is about 500MB. That is way too small for a world where email volume is increasing by 25% annually. Most users spend an inordinate amount of time cleaning up their email box, deleting and archiving so that their email box can fit new email. If you don’t spend a lot of time managing your impossibly small inbox, then existing systems stop delivering new email to you! Its crazy, why are we forcing users to live in this environment?
  1. Existing Client server emails require you to download email to your PC. Users are spending tons of time waiting for email to download. And if you are a road warrior and have a bad connection or can’t get through the corporate VPN then there is no email for you. How crazy is this. Do we really need the email to live on our laptops? Wouldn’t it be more efficient to store it on a server? And wouldn’t it be more secure?
  1. Users spend an hour a day foldering and sorting email. This is a galactic time killer for every information worker. Do we really want to treat high volume electronic communication like it is piece of paper from the 1950s. Back then, we saved each piece of paper into a separate folder and stored it in filing cabinet. In age where we can easily search and find things on a data source called the internet, can’t we develop some email search technology that would allow us to find email without having to spend an hour a day foldering email. You know what is worse than spending an hour a day foldering email? Spending an hour a day foldering email and then still not being able to find it because you can’t remember what folder it is in!!! I mean really, its 2007, this is just such bullsh*t!
  1. Existing email systems are way too expensive and consume large amounts of scarce IT resources.

On premise systems require hardware, system software and application software to be procured provisioned and maintained. In addition to that expensive virus scanning and spam filtering software and hardware must be added to each email server. Most email systems are deemed mission critical and require high levels of redundancy to ensure data integrity and high levels of availability and performance. So take the normal email hardware and software configuration and multiply it by 2 or 3. Furthermore the nature of most workforces is increasingly distributed, so the It configuration must be deployed in a complex distributed fashion. Lastly, the Microsoft applications require frequent patching to ensure security and reliability. Every second Tuesday a large number of patches are distributed to Microsoft customers. The number of patches is so large and frequent, that the industry has come to know every second Tuesday as “Patch Tuesday”. I mean it is so cumbersome they have a name for the day that you just maintain the system!!!

Step 2. Develop Concrete Impact Statements on the Consequences of the Status Quos

The problems described in Step 1 have the following impact on organizations

  1. Legacy email systems designed for volume email environment of years gone by have a huge negative impact on information worker productivity. It is estimated that information workers spend 30 minutes per day doing unnecessary email hygiene primarily in unnecessary foldering and email/attachment deletion or archiving. Eliminating that 30 minutes would lead to a 6.25 increase in productivity! No other simple system change can have such a big impact on information working productivity.
  2. It is estimated that 20% of the data in a company is structured data and 80% of that data in unstructured data. The majority of that unstructured data is in email or in attachments and files sent though email. And yet we force employees to constantly delete, archive or use an arcane foldering system to manage the largest amount of information in your company. If you cannot easily locate our unstructured information, then your decisions, processes are underperforming through lack of complete data. In today’s competitive world you can’t operate without comprehensive data at your fingertips.
  3. The average company of spending $500 per year per user on email boxes that are 500MB. Expansion of those email boxes is prohibitively expensive. So users are in the worst possible situation: High costs for a service that is not and cannot meet their needs.

Step 3: Position your Company/Product as the only way to stop the Status Quo from continuing to Wreak Havoc

Gmail for business is uniquely capable of solving the problems of legacy email solutions:

  1. Gmail offers 25GB of storage for every users. That is 50 times larger than your average corporate email boxes. Users will never have to delete an email ever again. Not only will they not have to spend time deleting email, folders and attachments, but they will have access to all their email at all times.
  2. Gmail has integrated Google Search technology built into the product. No need to create and maintain cumbersome foldering systems. Simply type in a key word and Gmail will find what you are looking for, just like Google on the internet.
  3. Gmail is a completely cloud based service that requires no hardware, system software or application software. It comes with integrated virus and spam filtering technology, so you can get rid of your expensive in house system. Google does all the work on the system so you can redeploy IT personnel to other projects.
  4. Gmail is $50 per user per year. This is 1/10 the expense that you are paying for your tiny email boxes today!!!

Step 4: Show you have a concrete plan

Here is our plan : ( just a sample)

 

  1. Develop some still unfinished enterprise features that could slow adoption in larger accounts.
  2. Be able to quickly deploy these new systems in complex It environments.
  3. Develop a scalable way to train and handle change management
  4. Compete with MSFT who has dominate share, customer install base leverage and financial contracting advantages due to ties with other MSFT products.
  5. Convince the market that the cloud is safe, secure environment for corporate data.

Step 5: Tell them that it will be hard and that you need their help.

The closing pitch went something like this:

This is an important mission that we are on. Email systems touch every employee in a company. It is the primary way companies use to communicate in today’s era. And yet we are using systems architected for the late 1990s. Users are furious with the current state of this important application. Companies are overspending on outdated technology that is inherently insecure and heinously complex. We are the only company that has the product and resources to compete with Microsoft. They have no incentive or ability to significantly improve the status quo. Without our efforts, companies will continue to overspend on systems that drive users crazy by enforcing email storage limits and systems that are a decade old. But we need more help. We especially need help from people like you to help us make this new paradigm a reality. There are still unknown technical and integration hurdles to overcome. Microsoft will not take our entry to the market lying down. Expect them to counterattack very hard, to ridicule our new method and spread fear uncertainty and doubt that the future is a scary place. I could sure use your help over the coming years to maker our vision a reality. If we can pull it off, then I think you and I can both look back on this with significant pride because it is an accomplishment that will have big impact on an application that touches every single employee.