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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



Software CEO Summit

By Sharon Wienbar, Director, BA Venture Partners

On October 2, 2002 BA Venture Partners hosted the CEO’s of our software portfolio companies. This wasn’t your usual boondoggle; we worked at BAVP’s offices in Foster City, CA, for the afternoon then let off some steam over wine tasting and dinner at a local Italian joint. Our objective was for these guys to meet, share war stories and tips, and connect for future collaboration.

We ostensibly discussed sales execution for the first couple of hours, but the conversation ranged broadly. This is consistent with my current thinking—sure, a company needs a “balanced scorecard,” but in reality the proof that the green lights in various non-sales functions are truly green is when a customer parts with some “green” of it’s own and buys something. Then your company can say it’s shipped a quality product with the right features, articulated its value, developed working partnerships, etc.

To set the stage for the sales execution discussion BAVP showed two slides with results from “pre-bubble” and “bubble” enterprise software companies.
  • The companies founded in the early 90’s reached profitability at about $20M in revenue, were profitable before IPO, raised about $38M in private equity, and had a ratio at IPO of current year revenue divided by total capital in (private and IPO) of 6X.

  • The “bubble companies” started on similar sales and expense trajectories in the mid-nineties, but revenue took off dramatically in 2000 and 2001. Unfortunately, so did expenses. All but one (TIBCO) of the companies we looked at never reached profitability, raised $146M in private equity, and had an average revenue/capital ratio of 1.3X.
In contrast to VC exhortations of the recent past, our point wasn’t “get big quick.” In fact, we were more in the “slow and steady wins the race” camp. The not-subtle point was that for CEOs and employees to build true value their companies can’t consume too much VC cash on the way to profitability; they need to generate revenue almost one-for-one with dollars invested.

We moved on from that quick slideshow to an interactive discussion among the whole group on how best to deliver sales at a reasonable cost. I’ve summarized the major take-away’s below.

Product is destiny
Everyone hungers for the quick low cost sale, whether through telesales, direct sales, web sales, whatever. But only a few executives have internalized the extent to which product decisions affect a company’s sales options. Skip a few “wizards” or stay with a command line interface because “you sell to a technical audience” and you may be doomed to sending an SE in person to every prospect. Or worse yet, you could be stuck in Proof of Concept Land for the rest of your life. Likewise on installation scripts and configuration options and professional services—abandon at your peril. But having a simple to install product with a pretty GUI is not enough—you also need to be able to articulate its value proposition crisply, appealing not only to your prospect’s pocket with ROI, but to his/her heart with an emotional tug as well. As the old saw goes, sell an aspirin, not a vitamin.

Ready, Aim, Aim, Aim, Fire
Aka Qualify, Qualify, Qualify
Who you’re selling to is as important as what. BAVP is similar to the software world in general in that half of our portfolio companies sell into IT (about half the software sales dollars worldwide come from the CIO’s office). But the most successful of our companies have learned that selling to IT doesn’t always mean you’re pitching to the CIO exclusively. In fact, most software is bought by directors of something (operations, security, storage, you name it) with input from individual contributor systems administrators. Resist the urge to sell high and figure out who really buys your stuff, then lavish them with attention. One of our companies recently switched VP Sales. The outgoing executive had a successful history selling line of business applications at the “C” level, but hadn’t made headway with this company’s IT software. As the VP put it in the exit interview, “if I never have to talk to a systems administrator again in my life it will be too soon.” Folks, don’t let this happen to you.

Use market research to find your product’s natural buyer and to get inside the buyer’s head to understand motivations. Then craft your value propositions to what’s important to him/her, not to the company at large (though you might need something for them, such as an ROI calculator, later). Also look for compelling events and company/demographic metrics that help predict who will buy your product fast. Is an impending audit, merger, migration, or move going to tax the existing infrastructure to the point where the benefits of having your product outweigh the costs? Know who to look for and how to identify a hot prospect.


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