Where have all the singers gone...

A couple portfolio companies that I work with have SaaS based products and have recently searched for and hired sales leaders. Working with them on these searches got me thinking about the impact of SaaS on the changes in the sales process and what that means for hiring sales people if you are running a SaaS company.

When I worked at AND 1 Taiwan and China became second homes. Our brand was growing and we needed more factory space for production, we needed more suppliers for leather and more CNC shops for EVA foam and rubber molds. Managing this process taught me a lot, but the biggest change was my tolerance for whiskey and my ability to sing karaoke.

The sales culture was all about relationships. Pricing, priority and product selection/availability were all determined by your relationship with the supplier and specifically with the designated sales representative. Reciprocity of this relationship based decision making was assumed and so Because of this sales process, sales guys spent their “entertainment” budgets and then some. They took us out for fancy dinners, worked hard to make sure we all drank too much and ended the night with trust building exercises at the karaoke bars.

Enterprise software used to be sold as a product. The software as a product was sold to a director or VP, not the end user. This VP had a check list of features that needed to be included in the product spec and they had a static use case in mind as they made purchasing decisions. Often this sale was made face to face and based on a relationship between buyer and seller. “Entertainment” budgets were believed to drive ROI and probably did.

If you are building a SaaS product you know the impact of cloud based architecture on software development and business infrastructure is dramatic and has been covered to death. If you are looking to hire a head of sales for your SaaS based business, you should also know the impact of SaaS on the sales process and the money you will save in your entertainment budget.

As the cloud roles in, SaaS is eliminating the B2B sales approach. Software as a service is delivered at a monthly cost that fits even the most junior discretionary budget. Now it is possible for any employee to enter a credit card and click check-out. With SaaS, every sale is B2C and every sales person needs to understand their product as a user or be out of a job.

The old audience was VP’s and directors who wanted to choose a product that offered the right feature set so they didn’t get fired for making the wrong choices. The new audience are practitioners who want to buy a service that makes it easier for them to get their job done. The old audience was VP’s and directors who wanted to buy from someone they knew and trusted, and could blame if they made a mistake. The new audience are practitioners want to buy from someone who understands the first 5 things they do when they log in on Monday morning. The old audience wanted to be “entertained” and the new audience wants to be educated. This is a critical shift.

When the initial sale is made to an end user, the product is the primary consideration and it will be tested to see if it meets specific needs. The interaction with the customer is typically not face to face. The sale is driven by how well the sales person understands how the product addresses the user’s professional needs and day-to-day pain points.

In this environment, sales people are tasked with making the Monday morning log-in easier rather than selling via the Thursday night log-out. B2B is replaced by B2C and entertainment budgets need to be shifted to sales education budgets.

Look forward to your thoughts on SaaS sales or karaoke in the comments.

What can I getcha?

I had dinner the other night at Anchor and Hope in San Francisco. I was meeting an old friend who I had not seen since his battle with cancer and his significant other who I had never met. It was very important to get a great meal and to be able to talk through the last two years of his life.

The waitress did a fantastic job. She, made great recommendations for appetizers, entrees and desert, helped us choose a fantastic wine and brought the check. At the same time, she managed to disappear into the fabric of the evening by anticipating our needs and making it unnecessary for us to interrupt our thoughts or conversation to ask for anything.

Her ability to anticipate was the magic and it was the difference between good food and a great experience.

In the small part of the conversation that we spent on my work, I mentioned one of our portfolio companies, Swipely. I described the service and my friend said he would love to try it. That night I went into my account to invite him and remembered that I had promised an invite to someone else as well.

I sent both invites out and watched a good product become a great experience because of anticipation.

The first invite I sent resulted in a “thank you”  for inviting someone new to Swipely. The second invite returned a different message. Because in the time it took for me to follow through on my promised invite, this person had gotten an account from someone else.

The obvious endpoint of this user experience path would be a message letting me know the person is already a member. A slightly better endpoint would be a page that allows me to see their profile. Swipely has taken this a step further and anticipated that if I want to invite someone to the service, I am likely interested in following their swipes. Rather than ask, they anticipate and return a message letting me know the person I wanted to invite is already a member and that I am now following them.

With this simple change, a good product experience is made great. By anticipating my needs, Swipely showed me the magic.

If you have other examples of products/services that anticipate your needs, let me know in the comments or @message me on twitter @phineasb

This looks productive...

At First Round we have a great network of CEO’s in the portfolio and they are frequently engaged in conversation on our CEO mailing list. Recently, a meme on running great board meetings got started and a list of best practices emerged. After seeing the same question on Quora and discussing it with the CEO who started the conversation on our list, I decided to summarize it in these 10 points and post it as an answer within the Quora thread as well.

1. Send out materials 3+ days in advance (making it fair to expect everyone to have reviewed them in preparation for the meeting) and expect everyone to review them prior to the meeting.
2. No blackberries
3. 2-3 hour meetings, preferably with dinner the night before or lunch before.(Social time makes the subsequent meeting time better and most investor’s heads will explode if they are away from their blackberry for more than 3 hours anyway)
4. Simple 1 page dashboard to review the business numbers (Ideally these metrics are consistent over time and create a shared sense of past, present and future performance)
5. Move the administrative stuff to before the meeting and get it done in 1-2 minutes. (If it can’t be covered in 1-2 minutes it probably isn’t administrative stuff)
6. Move the financial discussion to the end of the meeting (this section always drives investors into the weeds and board meetings should be primarily about the forest view on the company)
7. Many fewer slides. More discussion. (Because you sent the materials out 3+ days in advance, you want to leave time for your well prepared board to share their insight)
8. Bring in the subject matter experts from your team.
9. Deep dive on one topic per board meeting is far more productive than trying to go deep on everything. (It is critical to prioritize the topics and push for guidance on areas most critical to the success of the business)
10. Your board members have to do work. Come with a list of specific “asks” to each meeting. (This could be another area where a 1 page dashboard could be helpful…nothing like a scoreboard to motivate people.)

I have seen each of these things done well across the boards I work on and while every CEO should bring their flavor to this list, as general guidance I hope it helps.

I look forward to learning about other things that you think we should add or specific objections in the comments.

“There is no fertilizer like the owner’s footprint in the fields.”

Regular inspection makes for fertile ground

My grandparents had a nice business raising cattle. The market for free-range beef drove growth in their business and they cleared more fields and shifted resources to produce the feed they needed for the larger herd over the winter.

The business soon required more work than two people could handle and they decided to hire permanent help to support the daily operations of the farm, maintain the fields and tend to the hay and corn production required for the winter.

The spring and summer went well with crops planted on time and the cattle remaining healthy under new management. Revenues were up and my grandparents thought they were getting what they expected.

They went to Florida.

Returning in March they noticed the herd seemed smaller. Inspecting the numbers, revenue was flat but revenue per head was down. When pressed, the farm manager said the cattle were not keeping weight like they had in the summer. Inspecting further, my grandparents found that the management team had only turned the hay field twice, instead of the three turns they used to achieve. Also, the professional crew had not used proper fertilizer reducing the yield in the corn crop. To make it through the winter feed was rationed and the cattle had lost weight. To meet revenue targets, the one well understood metric for the business, the number of cattle sold per month had been increased.

This was not sustainable. The need for more granular metrics was obvious.

My grandparents assumed that by inspecting revenue they could expect the other measurable aspects of the business to be managed properly. They did not think to set targets for turns of the hay fields, corn yields and total volume of feed projected based on weekly growth. They did not set targets for herd size or average weight per head and did not measure this key driver of revenue sustainability at regular times throughout the year.

In our world of technology start-ups someone once said

“You get what you inspect, not what you expect.”

As your business scales, farming your data can drive significant value. Set goals and measure success against the data that flows out of daily operations. A culture where metrics are transparent and everyone is empowered to take action based on the data is a culture that scales. When this works each team member leaves fertilizing footprints in the fields and, as a founder, you may get what you expect without being inspector and chief.

Defining the data to measure can be difficult, but there is a lot of guidance available. This piece from Josh on cohort analysis is great as is the SaaS metrics PDF published by Bessemer. No matter what your business, a data driven management approach can help you succeed. If you have specific metrics that you use to manage your business or other resources you feel are good sources of guidance I would love to discuss best practices in the comments.

This is an example of previum.

In a previum model, the customer gets the full experience for free in a limited way. In the freemium model they get a limited experience for free in an unlimited way. Both models leverage the power of free for customer acquisition. The critical difference is the previum model forces the user to cross back over the penny gap and become a customer or accept a tangibly limited experience. The freemium model is less effective because it asks the consumer to adopt a limited version of a product and then encourages them to cross back over the penny gap with the promise of a better experience.

Sony has filed for a patent in the video game space that includes a great graphic to illustrate this point. Ask yourself which is more convincing — the Freemium Model:

Freemium: Pay me and I promise to give you a bigger sword. Did I mention, it is WAY bigger!?!

or the Previum Model where you get to experience the big sword and see how much better it can be:

Previum: What's wrong, want the big powerful sword back? You can have it for the low price of...

In the previum model, the consumer gets to see everything you have to offer and to experience it in full, for free. After some period of time or number of uses, you ask them to pay for the services they are enjoying.

The hardest thing you can do in any business is close a sale. You basically have two dials you can turn to get someone to pay:

1. increasing the perceived value of the product (marketing)
2. decreasing the cost or of the product (pricing)

In the digital world we have taken this to the extreme with freemium and decreased the consumer cost of the initial offering to zero. The penny gap helps you acquire users, but when potential consumers experience your limited offering at no cost the power of free may work against you.

Consumers are educated by the tangible thing they experience as they engage with your service and it gets harder and harder to convince a consumer to cross back over the penny gap with the promise of value added services. Eventually, the free product defines your business and 90% of your consumers decide the free version is good enough without ever experiencing the full product.

In the non-digital world companies have used previum models to acquire customers for a long time. Auto-dealers will let you take a car home for the weekend and gas stations offer a free car wash with the purchase of a full tank of gas. Restaurants give away food at happy hour and at physical retail you can try an item on before purchase. In each example, the perceived value of the service you are buying is higher because you get the full experience before you buy.

I think more digital products/services should be sold with the previum model and hope to discuss it further in the comments.

I was out west this week for our E-commerce Summit and asked leaders from our portfolio how they manage strategic priorities. It was portfolio power in action and the thoughts below are the result.

When you dive down to the weeds, make sure you know how to get back up

Adjusting the focus from high-level corporate vision down to strategic initiative and on to project definition and then to tactical next action and back up as quickly as possible is something I wish I had been better at as an operator. Founders can get stuck firefighting and micro managing, for months on end because the company is an embodiment of something that has been in their heads for years. Speed and agility are critical to a start-up and the ability to switch altitudes fast can be the difference between failure and success.

We can force altitude switching with 6 questions and when done right, the quality of the decisions will skyrocket.

1. Why are we doing this?

Clarity of purpose and explicit alignment with the vision for the business are critical to these decisions. Try to imagine the initiative is a success in every way and then imagine what that means for the business as a whole. If you are happy with the impact, it is something to say “yes” to.

2. Why haven’t we done it before?

Once you decide to pursue something, asking why it hasn’t been done already is a great way to expose constraints and limitations. Breaking the initiative into components and evaluating the goals of each component will also help you see if the team is working on pieces of the problem already or, equally importantly, has decided not to pursue it. The need to re-prioritize existing efforts in order to push the new initiative forward is important to recognize and communicate.

3. How will we do it?

This is about creative thinking and generating as many ideas as you can. “Brainstorming” is a topic to itself, and everyone has different takes on the most effective ways to manage creative sessions. (IDEO has some great slides on this) In my experience the most important thing is to get away from “No, because…” The goal is to capture the details of what success will look like not evaluate barriers to achieving the success you envision. No judgment, most ideas wins.

4. What is the best way for us to get there?

Once you have a lot of good ideas, you need to organize them through a process that accounts for your current position, team strengths and areas of weakness. This is a curation process. No ego, best idea wins.

5. Have we left anything out?

Repeat the “create” and the “curate” process again (and maybe again).

6. What should we do first?

It is critical to prioritize the projects and next actions if you expect anything to get done. Decide what should be dropped if anything, and decide ownership and accountability for what remains – who is responsible for each project and next action, and who will play supporting roles (if any) on each.

Access to this advice would have helped me say “yes” to the best ideas and eliminate the rest more quickly in my former life. I hope you all find it helpful. Also, thanks to everyone in the portfolio who helped me with this and I look forward to suggestions for improvements and refinement of these six steps in the comments.

***A shout out to Eric Koger at ModCloth for pointing me to The Natural Planning Model as described by David Allen in Getting Things Done for additional reading. If you don’t want to read the whole book, there is a good summary on this MindZone wiki.***

There are so many ways to say it, but none of them are easy.

In the world of agile development and minimum viable product, teams of really smart people can build, test, learn and repeat un-constrained by technical or financial limitations with little to no funding. Powerful learning organizations are being built and the impact on the start-up community has been significant. However, once the corporate mission has been established, the success of any lean start-up depends on the CEO’s ability to say “NO” more than any other factor.

Recently I was working with a company in the First Round portfolio that has fully embraced the lean start-up process. The company has a fantastic team of experienced engineers who embrace the process and actively seek to discover both consumer problems as well as product solutions. They manage their product cycles in hours, not months. They test more hypotheses in shorter amounts of time and with less capital because of their approach, and the result has been extremely high quality product that consumers love. Their development process is a great example of The Lean Start-Up as described by Eric Ries.

Over the past week a competitor identified a new consumer problem and our team immediately saw a way to leverage our technology to create a solution. It was built and tested tested. Consumer response was mixed. After multiple iterations, the team had achieved product/market fit, and the new service showed meaningful user growth—more importantly, it was a major source of new customer acquisition.

But…it was also a major source of difficulty for the company because the CEO did not question the impact of these customers on the rest of the business. The product development team created an elegant solution to a real consumer problem that the other areas of the business depend on ignoring. It is the CEO’s job to protect the team from this type of effort by evaluating the hypotheses being tested and saying, “NO” if the possible answers do not move the business forward in alignment with the mission.

When I was managing product development teams, the challenges of an iterative problem solving process paled in comparison to the effort required to fend off the in-bound product suggestions and feature requests. As these companies grew I had an increasingly difficult role in saying no to the distractions created by new customers, new advisors and new competition. You should always listen to each of these sources, but they are data points to be interpreted. The entrepreneur is the only one who can layer in the complexity of strategic vision, corporate mission and values to the product development process. The more talented your team, the harder this is, but the most successful CEOs are able to filter the signal from the noise and say, “No” when they need to.

The resources required to build and test continue to shrink. While this allows more iterations, it also makes saying “No” harder because it gets easier to test than not to test and the cumulative effect on focus is harder to see. If you have effective strategies for filtering out the noise and maintaining focus in your product development cycles, it would be great to discuss it in the comments.

In the 200 milliseconds it takes you to draw your gun, my algorithmic gun slinger could make 39 stock trades and shoot you in the heart

I believe we are now seeing a change in data processing and decision-making that will be equally significant for investors and entrepreneurs.

Historically, data analysis and computation was done on log files and stored data pools.  In these types of businesses, the data decisioning was done “out of band” — or not in real-time.  However, we’ve now started to see a whole series of applications and businesses where data analysis and decisioning is happening “in band” on streams of data.  In these applications, milliseconds matter.  Massive data analysis and computation are being performed in real-time — and the user’s experience is affected by this analysis.

This is a fundamental change.  Humans do not operate in milliseconds. For the real time web to function, the human decisions have to occur before the clock starts. We need to focus on predictive analysis and algorithms that make rule based decisions for us informed by the data stream.

The Facebook Newsfeed (already has machine intervention) and the Twitter Stream are the most frequently noted “data streams”, but the auto-generated data created by every consumer action, ad impression and click are orders of magnitude larger.  Including the data streams generated by CDNs and ISP’s you can see the exponential nature of the decision requirements in this new streaming data world.

The first vertical to move to real-time is advertising (Spark Cpaital’s Mo Koyfman has a nice summary of the shift in on-line advertising on his blog). It is not surprising that advertising is the first industry to move in this direction. It is most similar to the financial markets and over the past ten years the percentage of equity trades on US exchanges driven by algorithms has grown to over 70%. This was the insight behind Appnexus and Invite Media and may explain why some of the first guys to envision a transparent market for display inventory and real-time bidding came out of a finance school.

In our portfolio I see the power of operating in stream. Ad insertion order compliance can now happen in real-time based on contextual data streams analyzed by Double Verify.  VigLink can identify un-affiliated links across the web and not only append the link with an affiliate code, but choose the profit maximizing link in each instance, in real-time. Knewton’s testing platform is able to provide each student with a customized and personalized test-prep experience, based on their real-time adaptive education platform.  Aggregate Knowledge automatically produces personalized and dynamic creative for advertisements by using real-time algorithms.  In milliseconds Monetate applies a specific set of merchandising rules to individual consumer data streams. The result is a unique shopping experience for each visitor to an e-commerce site.

As we move from a world of data pools to data streams and processing power is distributed to the edge, what other changes will take place now that milliseconds matter? Will infrastructure changes take place as well? Will the real-time web increase the value of a millisecond enough to force companies to co-locate their algorithms at the CDN site or even the end-point device level?

I would love to discuss it in the comments, @phineasb or phin@firstround.com