Sales & Marketing: The Relationship

2010
03.25

Depending on how big your company is, you might have a sales team and you might not.  Traditionally, the view of the relationship between sales and marketing has been that marketing is responsible for generating leads and sales is responsible for converting those leads into customers.  However, with the increased demand for highly personal and high-touch experience in all aspects of business (an over-arching “customer centric” approach) marketing is reaching deeper into sales territory than it has in the past.  I can certainly see this happening at my company, partly because we don’t have an official “sales team” and sales are conducted by the CEO, CTO, and myself.  There seem to be some hidden benefits to this constraint.

Let’s explore what the funnel looks like, and how it is changing.

Building the Funnel

I am going to refer to “the funnel” a lot in the remainder of this post, so just to be clear – imagine a funnel.  At the top is a big round opening, and that is where all the people who come into your brand go.  Now imagine that your funnel has tiny holes poked all over it, and the people flow down the funnel they are dispelled out of the holes if they decide not to engage further with your company/product.  A typical funnel goes from first visit to the website, to the second, to sign up, to engagement, and hopefully if all goes well… out the bottom to getting paid (the sale).

Funnel building is the most important activity of any business, and something that should be iterative and tinkered with on a regular basis.  I’m sure you’re thinking that building the product is the most important business activity, but the reality is that your product is part of a large goal – to make money for the business.  A business can have multiple products, but the product isn’t the goal.  Everything you do is contributing to the health of the funnel, because the funnel is like the veins and arteries that deliver blood, in the form of cash, to the heart of your business. If you are doing something that doesn’t directly or indirectly impact the health of your funnel in a positive way STOP DOING IT. You don’t have the time/money/manpower to waste, especially if you are a startup racing against time until your money runs out.

Feeding the Funnel

Feeding the funnel with fresh leads in the form of unique visitors to your store (whether online or offline) has traditionally fallen into the hands of marketing.  Marketing is tasked with a simple goal: create, capture and defend your market.  This isn’t esoteric, it is very real world.  Generate new demand from people who didn’t know they wanted your solution before, inform people who already want your solution (and are probably using your competitors) that you exist and are better for them, and once you’ve won over these folks defend your turf and keep them as customers for as long as you possibly can.

One common misconception among those unfamiliar with this aspect of business is that marketing is advertising.  It shouldn’t surprise anyone that this misconception exists, since advertising has been one of the most expensive marketing tactics employed in the modern business world.  More recently, with Google, advertising has become the focus of every marketing professional looking for a way to measure the value of their spend.

Optimizing the Funnel / Lead Nurturing

This is the area where people (I hate to call them leads, they are human beings afterall) are inside the funnel, and the worlds of sales and marketing collide.  It is longest and most complex part of the process, and also the place where your decisions as a company can have the most control over the outcome.  Because of this, it should be no surprise that organizations with rigid sales and marketing teams find themselves competing for control over various parts of the customer experience while inside the funnel.

Ideally, during this part of the process sales and marketing are communicating with each other about what is working and what isn’t.  Marketing is trying to create content and messages that reinforce the person’s decision to enter the funnel, and sales is trying to generate the motivation (through leverage — we’ll get into that later) that will help to push, or preferably to pull, a lead deeper into the funnel without damaging the brand.  Together, they are working toward the goal of satisfying the customer both from an emotional (“I love this”) and physical

Lead nurturing is the least sophisticated part of the process from a technical standpoint.   Adoption of Salesforce has driven a greater focus on the importance of making a coordinated effort to collaborate when it comes to driving customers deeper into the funnel towards a sale, but even in Fortune 500 companies the technological tools provided to a sales team are generally less advanced than Facebook (unless they’ve made the move to Salesforce).  There are also tools like LoopFuse, Marketo, and others but I don’t encounter very many startups who are are using these tools well (if at all).

Closing the Deal

This is very much the traditional sales role, where the “closer” is someone skilled in making the deal come to fruition.  Whether its helping the customer redline a contract, finalize a deck for the integration team, or some other deliverable that is needed to make the sales  – this person understands the social, technical, and business dynamics and decisions that go into closing a deal.

Another thing I’ve noticed about some of the fantastic closers I worked with at Expeditors (#1 and #3 salespeople in the company) were that they had an implicit grasp of the ROI and opportunity cost on their time spent, which I imagine comes mainly from experience and a lot of pattern recognition.  The closer knows when the deal isn’t going to happen, and can make the call to back off when all the effort isn’t going to amount to anything.  Time and time again the closer senses this before anyone else, and is right.  This is highly valuable, because instead of spending a lot of time and resources to close a deal they can open up new opportunities.

Discussing Lean Marketing at New York University

2010
02.28

This time last year  I gave a guest lecture where I provided a crash course in social media tools to New York University’s PR 2.0 course.  Since then, the social media world has literally exploded as Oprah joined Twitter (among other things), and my strategy and tactics have become more tailored to the needs of new businesses.

This year, I’m returning to NYU on Monday, March 1st as a guest lecturer for “PR 2.0: Using Social Media Channels to Actively Engage Customers and Their Communities”, and this time I plan to lay out the framework for my ideas around lean marketing.  I had originally planned to have more of it written out in this blog, but instead I’m working through my first slide deck, which will be on Slideshare later this week.

Lean Marketing: Understanding Channel Constraints

2010
02.20

Being lean is about getting an efficient output in relation to your input, by managing to the constraints of your business.

What I’m interested in isn’t “how can I do a tradeshow for $1,000″, but “how can I make sure I get a really impressive ROI on $1,000″.  More specifically, how do I generate high quality leads who are likely to spend enough money on my products in the course of their lifetime as a customer to give me a 10x return (and often much better) on what I’ve spent to acquire them.

For consumer products, if I am buying traffic this means I need to make sure that is being paid for my customer acquisition down the line – converting a certain % of that funnel for a certain average lifetime value per customer.  For bigger ticket items, usually falling into the domain of B2B, I need to do the same but the up front expense is going to be larger (and the lifetime customer value will also be much bigger).

What constraints are at work here?

  • How much money to do you have to spending on customer acquisition?
  • What is the *maximum plausible lifetime value* of a customer?
  • What is the *maximum possible throughput* of your sales team?

Maximum Customer Lifetime Value

This is the maximum amount of money you can realistically expect a customer to spend.

If you are selling wheelbarrows (just bear with me here) the customer probably will only need one at a time, and if he continues to garden his entire life (highly unlikely) he will replace it every 7 to 10 years from age 30 to age 70. There is also no guarantee he will buy from you twice because there are plenty of places to buy wheelbarrows and brand loyalty is extremely low.

So let’s say the maximum number of wheelbarrows you can expect him to buy from you is 3. And they each cost $50. This means the maximum revenue you’ll see from him is $150. Let’s say the wheelbarrows cost you $20 each, so the maximum profit you’ll see from him is $90. You can spend up to $90 marketing to him and still be cash flow positive – but hopefully you’ll spend much much less.

Selecting Marketing Channels

Imagine you are considering going to a tradeshow for master gardeners, hoping to sell your wheelbarrows and build brand awareness for your business. You think you will stand out as one of the niche retailers there, and the sales people for the event have offered you what sounds like a great deal. For just $10,000 you can have a booth on the show floor for 3 days and mingle with an estimated 20,000 attendees.

You quickly realize that going to this tradeshow will be great, but you’ll need some help to interface with all those people. You’ll also need to find someone to work at your store (opportunity cost) while you’re gone. So you hire two hourly people to help you set up, present, and break down your booth. You also ask your best staffer as the shop to work overtime during the weekend. So for the 3 days you will be paying an extra $1000 a day in personnel expenses. Additionally, you’ll need to spend about $1000 on signage, shipping, and other things to make your booth professional and presentable. So your cost is up to about $14,000 now.

There are 20,000 people attending, so you feel like you’re doing great. You’re only spending $0.70 per attendee!

Maximum Sales Throughput

Maximum sales throughput is the total number of sales you can physically make within your constraints.

Constraints include:

  • How many people you have on hand to ring up customers
  • How much inventory you have in stock
  • How many conversations you can have in a given period of time

So you’re spending $14,000 to reach an audience of 20,000 people.  Of course, you can’t expect that every single person is going to buy a wheelbarrow, but you know that this is a relatively qualified group.  You decide that with 2 hourly people to help you ring up customers and answer questions you could probably sell a maximum of 1 wheelbarrow every 5 minutes or 12 wheelbarrows an hour, and the tradeshow floor is open for 10 hours each day so that is 120 wheelbarrows each day, for a total of 360 people you can possible reach – or a conversion rate of 1.8%.

Remember, we said your margin on a wheelbarrow was $30?  This means your maximum possible profit with all the current constraints is $10,800.  You’d be spending $14,000 to make $10,800… not such a great idea.

Managing to Constraints

Before you give up on the idea entirely, you consider what you could do to reduce your cost or increase your sales throughput.  You could close down the shop to avoid paying overtime, but then you’d miss out on potential sales there as well (remember that saying “don’t look for fish when you’ve already found fish”?).  You could try to reduce your staff at the booth to reduce your cost, but then you might only be able to sell 1 wheelbarrow every 10 minutes.

About this time your wife walks in, and askes you where you think people are going to store these wheelbarrows all day after they buy them.  Are they going to go put them in their cars, or wheel them around with them?  She thinks this could be a major barrier to making a buying decision.

You’re so demoralized now, and are thinking that working out the math for this tradeshow is costing you much more time than its worth.  You decide to have a glass of wine and think it over later.

Keeping the Goal in Mind

Going back to the beginning of this post what was the goal?  To efficiently sell wheelbarrows, but having our input multiply 10x or better upon a sale.

Two constraints:

  • It is too expensive to sell wheelbarrows at a rate of 1 per 7 minutes
  • Customers are unlikely to buy because they don’t have a place to store wheelbarrows

You jump up so fast you nearly spill what’s left of your wine!  You’ll use the interne!  People can walk up to self-service kiosks (a laptop and a monitor) to place their wheelbarrow orders.

You’ll keep one person on hand for helping you field questions, and you’ll send the other hourly worker to the store instead of your staffer so that you don’t have to pay overtime.  You’ll borrow the computer equipment from a friend in return for a couple wheelbarrows, and now your cost for the event is down to $12,000.  This is still more than the $10,800 you were planning to make but now that you have 2 self-service check out stands you can twice as much at a time and have effectively doubled your conversion rate.  Additionally, you aren’t constrained by inventory on hand so you decide to offer a promotional price for customers who purchase two or more wheelbarrows.

  • Make 1 sale every 3.5 minutes
  • 25% of customers take up the offer and buy 2 wheelbarrows for $90 (a $10 discount)

So you’ll now make 514 sales, and 25% (129) of those sales will be for the 2 wheelbarrow promotion.  We also said that the customer lifetime value involves three purchases, so now we have 514 new customers who could potentially yield another $25,700 over the course of the next 40 years, if the retention funnel were to convert 100% (unlikely) and the wheelbarrow company stays in business.

  • 129 sales @ $90 each for 2 ($50 margin) = $6,450
  • 385 sales @ $50 for 1 ($30 margin) = $11,550
  • Total of $18,000 earned, for a cost of $12,000 over the course of 3 days ($2,000 per day, or $200 per hour)
  • Potential lifetime customer value increased by $642.50 per year (if converted at 100%)

Should You Sell Wheelbarrows at the Tradeshow?

I’m no expert on wheelbarrows, but I’ve been to a lot of tradeshows, and I know that people aren’t there to shop.  There are still some pretty dubious assumptions in this plan, and maximum sales throughput should not be confused with product demand.  It’s kind of when you launch a new website and say, “we’ve bought 20 servers so we can handles millions of visits without going down”.  This isn’t Field of Dreams, where “if you build it he will come“.

Here’s how you want to look at it: making $2000 a day is the best case scenario.  You probably won’t capture all of that, and looking at this scenario I’d actually be shocked if he came away happy with this event based on the goal of selling wheelbarrows.

Does Your Goal Fit the Channel?

Personally, I dislike events as a marketing channel for one simple reason: measuring return on investment is nearly impossible.

Why?  Because events, such as tradeshows, are not for making direct sales, they are for building brand awareness to seed future sales.  That is the real constraint at work here, and in order to manage to this constraint you have to embrace the nature of the event.  If you’re looking to measure success in the number of wheelbarrows sold, direct marketing channels, online marketing, or even having an event at your store are probably all better options.  On the other hand, if you want to convince this community of master gardeners that your company and brand are the most aligned with their value,s, you could be laying the groundwork for more sales in the future.

So this is the premise behind lean.  Your business is constrained, and if you manage to these constraints you can set proper goals based on context and maximize how much output you can expect to receive from any input into the system you have put in place.  By checking the premises you’ve used to determine which actions to take, and embracing the reality of the constraints your business faces, you can save a lot of wasted time and money.

Just Do…. Something (Small)

2010
02.02

A lot of people spend a lot of time thinking about how to start (how many people have you seen go to the same “start your startup” meetups for years without actually starting anything?), and I’ve spent the past weekend beginning to draft blog posts and make lists of topics for this blog.  These are great tactics for getting a good blog started and seeding lots of posts, and I think this one might actually take off.  I was going to compare launching a new blog to launching a startup, but that’s crap.  But I’m excited -that is what the two have in common.  You can read about my motivation for starting this blog here.

Today it was driving me CRAZY that people (looking at you Shaherose) were saying to me “I saw on Twitter that you’re starting a new blog, and I love the topic” but then I have NOTHING to show you when you get here.  In my opinion that is WASTE, and there is nothing I hate more than WASTE (we’ll get into that in depth later on).  I created a little buzz (2 subscribers already – really?) so I might as well get started.

When in Doubt, Just Start Something (Small)

Bloggers do this, and they’re jumping the gun on mainstream media with the tactic of printing the blog post first to break the story and then updating it as the facts come in.  While some bloggers do publish erroneous information with this strategy, or are accused of rumor -mongering, you can take this approach and apply it to things like blog posts, emails, and business plans. Not sure where to begin?  Just do something small.  Not sure how to write a love letter, try just sending “I’m thinking of you”.  It’s more important that it exists, than that it’s perfect… we can work on perfect later, but you can’t iterate until the first move is made.  So get that first piece of something out there, and keep it really small.

Starting is therapeutic, this blog post is an example.

No One Cares About Your “Stealth” Stuff (Except Your Ego)

You would be LUCKY if someone actually cared enough about what your startup is doing for it to be stealth.  I’m not the first person to say this, and I won’t be the last.  Check out UntitledStartup.com for a great example of an anti-stealth startup.