One famous Silicon Valley axiom is that nothing is a better teacher than being cash strapped. And many venture-backed firms who have closed huge rounds have gone on to make massively costly mistakes. That is why we promote strategies that achieve scale and triple digit annual growth with self-funding programs that require very little investment capital.
Sales & Marketing Should Power Themselves
Several of our startup and growth-stage firms come to us after their home-grown sales and marketing strategies have not driven projects returns. Often they plowed large budgets into activities that were for “long-term” goals or with long payback cycles. Simply put, don’t do these. Make it clear that sales and marketing are there to feed the organization, not the other way around.
Don’t Spend Money if The Results Cannot Be Proven
A professor once told me that “strategic” is a management uses when they want to do something that they know will lose money. Internet marketing and direct selling have the advantage of offering lots of data-driven activities. Insist on understanding the marketing pipeline and what the metrics are so you can trace every dollar from initial lead generation activity to receipt of bookings.
Short ROIs are the only ROIs
Digital marketing spend should be able to result in profitable dollars in within 90 days or don’t do those activities. Prioritize scalable, low-cost selling over high cost selling at all turns. Also prioritize scalable solutions wherever possible. Don’t do expensive, outside enterprise selling until you have concluded there really is no other way to grow. one of our clients achieved their first ever profits by cutting outside selling investments and focusing on new digital marketing and inside selling tactics that drove higher volumes of easier to collect subscription sales. They built all this while becoming profitable with relatively little up front incremental investment.
Stay Home First
Human nature means doing what you like and what has succeeded for you in the past. This often leads leaders to emphasize higher cost, slower sales models than they need to. If you can make money by direct, automated selling through digital marketing then optimize around that and scale as large as you can before looking at other selling models. Look next to inside sales models before looking to outside models. Outside selling is a critical practice for many firms but is typically the slowest to grow with the longest sales cycles and the hardest to scale so do not assume it is your only option.
There is a time and place where outsourcing can help with scale but never when you are early stage or unprofitable. You must be able to generate leads and close them yourself before you can outsource that to another company. Similarly, indirect selling such as though partners or channels has its place but should be a last resort. Nobody will ever care about your sales growth as much as you do.
Slice data, then slice again
Everyone wants to be data driven, but doing it successfully means slicing data and looking at cohorts while eschewing averages. Averages hide treasure. Encourage large amounts of short, inexpensive tests. It could be that one lead traffic source with one landing page with one call to action with one inside sales strategy and script is massively more profitable than the others. It is not true that you can treat marketing and sales as distinct activities. Leads generated from different lead sources rarely will respond the same to your sales strategy. Assume they will not. Even small changes in copy or call to action can convert different leads or set different expectations that cascade to very different sales experiences. Drill into that and plow your money into that cohort to scale it. This has allowed us to make many, many clients massively profitable on strategies they thought were disproven.
The rise of online “mega-platforms”, a small number of sites controlling huge amounts of the internet, is obsoleting traditional Sales and Digital Marketing leadership roles to make way for a new Chief Growth Officer. CGOs drive huge sales growth by combining sales, marketing, operational, entrepreneurial and data expertise and they see traditional marketing and sales tactics not as integrated programs but parts of a whole they construct from the ground up in what we are calling Sales Architecture.
Growth In A World of Giants
Today, any scalable, successful sales and marketing program must start with your strategy for working with the mega platforms that control the internet. The main effect of this is that traditional B2B sales and marketing programs must give way for a single, enterprise Sales Architecture that aligns the entire experience from your target audience’s phone and laptop screen to the successful booking at the bottom of your sales pipeline.
Traffic is power and the power has shifted to the huge and mighty. Every gatekeeper, influencer, recommender and decision maker that you need to reach is on some combination of Twitter, Facebook, Amazon, Google, Yahoo, LinkedIn, eBay, Instagram or a handful of other sites but social marketing won’t let you reach or influence them.
The number of internet users continues to grow but that growth is dwarfed by the surge in the number of websites. In 1993 there were 108 thousand people on the internet for every website. Ten years later it was 19 people per site and today less than 4. So, your website is lost in an endless digital jungle.
The monsters are getting an ever-growing share of all that traffic too. In 2012, ChaCha built the largest PPC social traffic platform in the world on Twitter. We harnessed a deluge of data to align topics and keywords of large influencer tweets to keywords in articles to optimize advertising revenue per session. As a result, ChaCha.com shot up to become the 35th busiest website in the world in just a few months. Today, if a site had that same traffic today it would nearly make the top 10 because the mega platforms are consuming more and more of the traffic.
At Brand.com we built a platform to connect over 100 major news sources to marketers and could (for a while) use content marketing and SEO to strongly influence search traffic. But Google decimated traditional SEO tactics so the ‘above the fold page 1’ spots are increasingly dominated by mega-platforms and sites with authority you cannot practically build. As planned, this helps shift traffic to Google’s paid search offerings meaning you pay for what used to be free. Increasingly, sites like Google are integrating information into their search results effectively hoarding traffic from sites in their own search results. Today content marketing is a powerful tool but without paid traffic sources you will rarely get volumes for large scale marketing programs.
This consolidation means the giants are squeezing everyone else. Publishers are getting killed by the downward trend in advertising rates while marketers are having to pay more and more for access to eyeballs. This means that traditional online marketing, especially so called ‘brand building’ is getting killed with out of control costs per leads (CPL) and campaigns that drive clicks for the behemoths but few sales for you.
Sales Architecture: One Internet – One Pipeline – A Billion Cohorts
Clicks don’t equal sales. Clicks equal cost. Because the mega platforms were built themselves around network effect, at their core they are B2C engines. Every step in the process needs to be built around how these mega platforms can be tamed to profitably increases B2B sales at the end. This means the correct message must reach each person in the sales process at the right stage. This means that online marketing and your inside and outside sales have to work together as a single unit. Small errors in one tactic can be harder to find but cost you dearly in missed growth. Guerilla marketing and the company website or blog and niche sites such as those around verticals have their place but are decreasing elements of the sales architecture. For starters, no activity can be done without clear cohort analysis that connects every marketing and sales decision with the outcome and few organizations have true end-to-end management of their spend.
Extinction Level Event: The Demise of Sales & Marketing
At great firms the traditional border between sales and marketing campaigns has collapsed. These companies are seeing massively scalable success by moving to a Chief Growth Officer who owns the company’s Sales Architecture and views every marketing and sales activity as part of a continuum. I always house sales and marketing together and measured and reward every step from beginning to end. Getting complete cohort analysis and testing of every critical decision and visibility and KPIs at every step is a massively difficult process that many traditional sales and marketing experts cannot tackle.
Traditional sales and marketing roles historically attracted very different types of people and they approach the internet from their silo. Most have failed to keep up with the lighting-fast pace of change. Surprisingly few have any deep knowledge about the internet. Many talk a good game but probe and ask your sales manager the CPL for their leads. Ask them how to social proof during the proposal phase in a world where every company is Googled. Ask them to show you the cohort of close rates for outside sales on leads from content marketing vs. advertising. Or ask them how they connect the dots between the positioning value prop in social marketing with the final pitch. Too often you will find a disconnected process. Many sales people view online marketing purely in terms of market awareness and lead generation. As leads reach the bottom of their sales funnel the tactics and messaging increasingly looks like the same approach as 5 or 10 years ago. Chief Growth Officers, on the other hand, ensure that every step of the process supports the sales team converting the booking by ensuring cohesive prospect experience throughout.
Marketers are even worse off. Many corporate marketers feel totally disconnected from the sales process. So, they strongly naturally resist any integrated pipeline metrics. Few are taught direct response marketing and fewer still know how those responses support the later stages of the sales process. Too often, traditional marketing leaders want the same tall wall between their online efforts and close rate and want to be judged on engagement metrics that make direct marketers roll their eyes.
The Chief Growth Officer owns the Sales Architecture and is comfortable at the entire continuum of the marketing and sales process. They align the sales and marketing resources in new ways that allow them to leverage the mega platforms to drive massive growth. Armed with essential operational and technical skills, this new breed of growth leaders build organizations that use data like never before.
About The Author
Mike Zammuto, CEO Cloud Commerce Consulting
Mike is an Saas and internet executive and expert in organizational transformation and building highly scalable sales & marketing organizations. Mike
Transformation Executive Who Repeatedly Accelerates Growth to >100%
Deep Expertise Selling and Marketing High Growth SaaS CRM, PoS, ERP & Revenue Lifecycle from $1k to $5M Price Points
Top Digital Marketing Expert Who Built The 35 Busiest Website, The World’s Largest Social PPC Network, Content Marketing Network of 100 News Organizations, Massive Global Email Marketing, Hugely Profitable Webinar Programs and Keyword Hyper-Optimized Display Advertising Programs
Operator – Entrepreneur Hybrid Who Builds Optimized, Data-Addicted Sales Operations That Win
Case Studies at Stanford Business School & Microsoft Dynamics CRM
Startups around the world have been building their 2017 strategic plans and presenting them to boards, investors and senior teams. Behind the graph-stuffed PowerPoints and Excel lies a crucial question. Will you be profitable in 2017? I argue that most firms don’t need to choose growth over profits and can (and should) pursue exponential growth and profits simultaneously. This is a what-to-do guide not a how-to guide but there are specific programs and steps behind everything here so reach out for more details.
Our world values growth and big exits over all else, which makes profitability a contentious topic. VCs and startup founders get into the game to make some history. VC’s are hedging their bets and founders are highly aspirational so the last conversation they want to have is about focusing on profits instead of the glide path to an IPO (or strategic acquisition). Invested money is sunk cost. Depending on the stage and check size of a VC’s investment strategy you need returns in your portfolio of 10x to 50x (or better) for the failed deals to back out to a >20% annual return on the fund.
Conventional wisdom suggests that profitability is an alternative to fast growth and is therefore an acknowledgement that you cannot find high-growth initiatives to fund. Some companies only really take profitable growth seriously when they have no other choice. Usually this happens after they have made the mental switch in their exit strategy from working towards a strategic exit based on non-financial measures to a more financially-driven exit. In other cases, their startup investors are getting fatigued and leadership simply acknowledges that they are not going to raise more money without demonstrating they can generate profits.
Stop Calling Yourself A Startup
Apply A Microscope Then Scale Like Crazy
Shift Focus From Cash Burn to Operating Cash Flow
Think about time differently
Rapid, profitable growth is possible. Accept this and your world opens. It may require a complete reassessment of your business model and it usually requires a reset of your firm’s operating model but the solution is there if the fundamentals of your concept is solid and your team can execute. Profits not only signal to investors and other stakeholders that your startup can be a real business but it can calm nerves, open a lot of options and shifts the ownership of the future of the firm away from things the leadership cannot control (strategic M&A, the markets, VCs) to things they can (their own execution).
Once the startup leader is behind shifting to profits then you need to get the team you need on board. Not everyone will come along so you need to get people on board, or out of the way, as quickly as possible. You should enlist investors and board members who are on board to help get and keep the others there too. The same with the team. Accept that not all of them will. Leadership is about doing the right thing, not managing through unanimity. There are right ways and wrong ways to get there so plan this out carefully. To get everyone focused and motivated you need new KPIs to align behind. Figure out the connections between people and activity in your organizations that lead to generating margin and make sure there is ownership, incentives and transparency about each one. Accept that this is going to require you manage and communicate differently. Connect the dots for people. Vision is critical but people are most happy when they understand shorter-term, more measurable goals and how their daily actions contribute to the company success so, if done right, this should be very positive for your best people.
One critical place to start is to determine the effect growth has on cash. Growth, even profitable growth can eat a lot of cash and you cannot run out. Cash flow and profits are not synonymous and you need to plan and work towards both. Many startups focus on cash burn instead of cash utilization. The premise is that more time equals more opportunity. Cash should generate more cash and then profits and how you do that will dictate your maximum growth rate. Dell, during its heyday, was a near-perfect example of how this was done right. Dell’s customers paid for computers that Dell had not yet built, made with suppliers’ inventory they were not carrying. Consumers loved the customization but it was the just-in-time manufacturing supply model that fueled the business. Operating cash flow was profitable and this meant that sale drove more cash which fed more growth.
By the time, you start generating revenue you probably tried and failed at a bunch of things and may simultaneously be supporting little mini-businesses, different processes, different customer relationships and often different revenue sources. Now put those things under the microscope, find the super profitable slice of your business, cull everything else around it, drill and optimize, optimize, optimize and now scale like crazy. The narrower you slice your view of the organization the more profitable you will find that activity gets as you look for that part of your business that is ready for scale. This means tons of difficult decisions and often means restructuring deals and it will cost your business some relationships and clients. That’s ok. Growing businesses often hold on to early users and customers thinking they are the foundation of the company’s success. But be clinical about it. If they are not contributing to cash and profits, then you are subsidizing your oldest clients at the expense of future clients. Be especially wary of you or others making decisions to keep a part of your business because they are ‘strategic.’ If you cannot measure the impact of effort or dollars spent, then it usually isn’t worth doing.
You may conclude that some revenue-generating part of your business, like professional services, marketing, sales, etc. will suddenly get a lot more attention. These are people so don’t assume they will welcome this shift or be the best people to get you there. Listen to them but hear what they are really saying. Don’t let people sway you from what the numbers say.
If you are concerned that focusing on operating cash and shifting priorities to scaling what works now will impact long term goals, then there are solutions. Long-term, capital intensive initiatives need to be reevaluated and you should be able to generate cash and then fund them from operations.
Like cash, treat time differently. Managing through cash burn means staying focused on runway. The goal is usually to demonstrate enough progress before you are forced to go get more cash and to give your ideas and project time to mature and bear fruit. This mindset must change completely. Time is now a crucial commodity. Incentivizing and managing people using new KPIs is essential here.
This was intended as a ‘what’ document not a ‘how’ document. But, there are proven, specific plans and programs behind each of these things. They have been tested and developed in three very different startups who all doubled revenues and made their first profits within a year. If you are a senior leader of a startup or board member and want to learn more I would love to hear from you.
Mike has been the CEO/COO/founder of more than 10 startups with several successful exits. Mike also served as a senior manager at Microsoft’s product development headquarters in Redmond, Washington. You may reach Mike via our Contact page or through his LinkedIn profile.
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