Ask Questions that Force People to Think About Their Breakfast

Whenever you are looking for feedback from customers try and avoid asking questions that are easy to answer. Rephrase the question in a way that forces the customer to think before they answer.

It doesn’t matter what stage your company is at: customer discovery, product/market fit, market entry, scaling or exiting. Customers will typically answer questions the way you want them answered or in a way that gets rid of you the quickest. This is not what you are looking for – you are looking for insights and understanding.  These are revealed when your customer is forced to think about the problem and in the process not only answers the question you want answered but also provides a lot more context and detail.

Don’t ask

“Did you have breakfast?”

Ask

“What did you have for breakfast?

Don’t ask

“Is breakfast the most important meal of the day?”

Ask

“If you could only eat one meal tomorrow, which one would it be and why?”

Don’t ask

“Do you like eggs for breakfast?”

Ask

“Can you tell me what you ate for breakfast every day this week?”

Don’t ask

“Do you often have Starbucks for breakfast?”

Ask

“In the last month how many time did you buy breakfast at a coffee shop – how often was this at starbucks?”

Don’t ask

“Do you like maple syrup on your waffles”

Ask

“When was the last time you ate waffles? What did you put on the waffles? Would you have preferred to put anything different on them? Why didn’t you?

Think about the questions you are answering and the insights that you are trying to get. If you don’t spend time thinking about how to phrase the question don’t expect your customer to think about the response.

Stop Using Funding as Market Validation

It drives me mad when I hear startups use the fact that one of their competitors received €X Million in funding as market validation. Customers are a measure of success, so is revenue, so is profit. Funding is not.

Investors put money in high growth companies because they expect a high return but they also accept a high degree of risk. A typical Series A VC is hoping that 10% of their investment will be a huge success and a further 20-30% will return their money. The remainder are going to fail. So on an investment basis they expect that only 1 in 10 companies will achieve their ambitions.  

If you use funding as a measure of success you will be wrong 90% of the time. Being wrong 90% of the time isn’t good.

No one should set up their company for the purposes of attracting funding. You take on funding as a means to achieve a much larger ambition. Funding is a vanity metric. It is a metric that people use to make themselves feel important, to boast about and to intimidate others. But funding is nothing to be proud of, it is what you do with the funding that matters.

If you are going to sell then commit 100% – don’t waste your time “cleaning your apartment”

Adding the job of sales to the CEO or founder’s role is common for startups that are exiting the gates of customer discovery. Now they’ll sell the product for 50% of their time and continue with their other responsibilities for the remainder of the time.  

This almost never works. If you are going sell, then sell with 100% of your time and effort and find someone else to deal with your other responsibilities. Anything less than this requires a mythical level of willpower and dooms most people to failure.

It’s like that time you were meant to be studying for exams and you found yourself cleaning your bedroom, then doing the dishes. Studying was hard and uncomfortable and you’d search for any reason to avoid starting. You’d search for any activity that you could define as ‘productive’.  You wouldn’t play video games, or go to the pub. You’d clean your bedroom because you could fool yourself into thinking you were still being productive and therefore feel like less of a waster.

It’s the same thing with sales. Sales is uncomfortable and full of rejection. If the “salesperson” can do anything else and still feel like they are being productive then they will do that instead of selling. This is particularly the case with non commissioned salespeople such as founders.

Almost no one wants to pick up the phone and start to navigate a large organization, dealing with rejection every step of the way.  Good sales people do it because there is no other way to achieve their goals. As soon as you give them multiple goals then you’ve given them a way out.

Remove all other activities and responsibilities from your salesperson – even if that’s you.  Give them exactly one way in which they can feel good about themselves. Selling, not cleaning their bedroom.

Sales – it’s about Getting to No

Trying to sell something?

Well the answer’s no. Get used to it.

Stop looking for ‘yes’. It’s never yes. It’s always no.  If it  was yes then they’d already be your customer.

Your goal should be discover why it is no. Once you know why, you can work to overcome the objection. Maybe it’s price (it’s never price), credibility, risk, timing, authority, budget. You are dead in the water if you don’t know why.

If you go in looking for yes, then the best case is you find out that it’s not a ‘yes’. The worst case is you don’t even get that and the prospect stays in your pipeline like a ship becalmed. Your job is to force the issue, to question, to probe and to discover why they won’t do business with you NOW

Why I Hate A/B Tests

I hate A/B tests that are recommended to startups when they don’t have the volume to run them. I hate when they are used to avoid being courageous. I hate the false lessons they teach. I hate the illusion of certainty they give. In short I hate nearly everything anyone says about them and nearly every application of them.  So yes, I hate A/B tests.

They Provide No Insights and Generate False Narratives

A well executed A/B test will tell you which side performed better but it won’t tell you why. At the end of the day you may know that “Sign Up” works better than “Create Account”. Is it because the word “Account” has a very specific meaning for your target audience? Did “Sign Up” simply fit the button better? There are any number of possible explanations and you have no idea what the real answer is.  

The worst thing is that humans need narratives and when presented with a fact that is unsupported by a narrative we invent one. That invented narrative will spread further and be remembered longer than the original ‘fact’. But you have no idea if that narrative is actually true – someone just made it up. Try it yourself, go along to Optimizely and try not to create a narrative in your own mind.

They require a LOT of traffic

Split tests require a lot more traffic than most people who are running them have. If you have a page converting at 5% then on average you need about 30,000 visitors to that page to run an A/B test with 95% confidence. With the random walk inherent in your results you might sometimes need triple that. How long is that test going to take to run?  Are you happy standing still during that time?

Even then, the test is going to be wrong 5% of the time – statistically significant does not equal true.

The moment anything changes it invalidates your result

An A/B test requires both sides of the test to be identical except for the item being tested.  So what happens when something changes after the test? A soon as anything changes then the test needs to be rerun because the change invalidates the test. NO-ONE does this.

  • If you change a word on the page, a colour, a button, then the test is invalid
  • If your audience changes then your test is invalid
  • If the damn time of the year changes then your test is invalid
  • Even if significant time passes, your test is invalid as consumers tastes and views evolve over time

Most things aren’t worth split testing

Most of the time the cost of testing is going to far outweigh the potential benefit of the change. Your page probably has thousands of variables. The vast majority aren’t going to be worth the cost of testing.  Don’t expect minor changes to have major results.

On what basis are you choosing your test and what is your rationale?  Fear of being wrong, fear of being caught out, fear of being seen as rash or just because you think you should? Stop covering your ass and have the courage to plough forward and trust your own judgement.

P.S. A/B tests have their place and that place is where you are making fundamental changes that could radically impact performance and where you have large scale.

Feedback Easily Given is Nearly Worthless

Ever received a cold call? Ever said the first thing that came into your mind to get rid of the person? Now imagine that salesperson meticulously compiling that feedback into a report. 42% of people are too busy, 30% already have a solution, 15% are driving and about to go into a tunnel and 13% of people are rude. Further imagine a company actually making business decisions on this data, confident in the knowledge that they are doing so on the basis of real market knowledge.

Ridiculous isn’t it? Yet we all do this.

No one likes to give difficult feedback. That’s why employee reviews are hard. It’s the same for customers. They don’t want to tell you that your baby is ugly – so they make something up – just so you go away.

You should always view feedback through the lens of how difficult it was to give.  If the feedback was easy to give you should regard it warily and probe for more. Conversely if the feedback was difficult you should really value it. Someone just went through an emotionally difficult time to give it to you. It has real value – do something with it.

When a prospect decides not to proceed with you, they will typically respond to your request for feedback. However, for the most part they just want to get rid of you and will tell you whatever is easy and end the conversation, not the real reason.

Be suspicious of:

  • You were too expensive
  • We decided not proceed with any vendor
  • Our budget got pulled
  • Corporate rules only allow us to do business with companies in business for over 5 years

Your job is to delve deeper and force feedback that’s difficult to give – that’s where the value is.  

Feedback Gold

  • We don’t think you can do the job
  • Your product sucks
  • Your lack of sales process worried us
  • We think you are going to go bust
  • Our engineering team hates your engineering team

Increase your Pricing to Increase Your Sales Volume

Spoiler: Because you can spend dramatically more on Sales and Marketing

As I explored in the previous post – very frequently your price is only a very small aspect of the total cost to your customer. For many IT solution is can be as little as 10%. Therefore a increase in your price may not make a noticeable effect on your customer’s cost and therefore the Law of Demand may have a negligible effect in reducing demand for your product, however it can have a dramatic positive impact on your business.

Worked Example

Startup AAA is selling a product for €10,000 and makes 5 sales a month. Startup AAA has a sales and marketing budget of €3,000 for each sale – so they can spend €15,000 a month on acquiring new customers. Startup AAA’s price is 20% of the total cost of ownership for the customer.

If Startup AAA increase their price by a modest 20% to €12,000. This only increases the total cost to the customer by 4% (since price is only 20% of the cost). While unlikely, this small increase in cost may impact on minorly on demand, however the impact of this extra funds has on sales and marketing can be dramatic. In this example the amount spent on sales and marketing can be as much doubled to €6,000 per sale. With the additional resources that this spend allows, sales and marketing should easily be able to increase the total volume of sales.

So price increases disproportionately positively affect your sales and marketing budget (or alternatively profit) while disproportionately minimally impacts on the total cost for your customer.

It should go without saying that price increases like this only apply if your competitive advantage is not price, but then again if you are a startup competing on price then you’ve got bigger problems.

Your Price Does not Equal Your Cost

Its economics 101 that when you increase the price of something the demand goes down (The Law of Demand). Unfortunately, like most 101 courses, this is a partial truth that needs either further study or practical experience to be useful and as the old adage goes – ‘a little bit of knowledge is a dangerous thing’.

No doubt you’ve all seen the law of demand used to justify low prices. It is particularly dangerous to a startup as it can be used as logical proof to an emotional decision to have rock bottom prices. We all fear rejection and we emotionally want to do everything we can to minimise our chances of it. So we tend to lower our price to a level where it can no longer be an issue.  

However for startups your price, no matter what you set it at, is almost never the issue. The problem is your total cost to the customer and price is just one small element of this.  Your total cost is a long list but for most startups the largest cost to the customer is the personal risk to their career of doing business with an startup as opposed a known quantity.

“Nobody ever got fired for buying IBM’. While obnoxious, this 1980’s slogan this hit upon a core business truth – not only are we, as sellers, ruled by emotion (fear of rejection) so is the buyer (fear that their purchasing decision will be perceived as a failure). If the project fails because they chose a startup rather than an established player, even if vastly more expensive, their choice will look unjustified and unnecessarily risky to their boss (and everyone has a boss).

There are many other costs that go into the total cost born by the customer and I won’t go into them at length, but they include evaluation, training, support, change control, hardware etc.. For IT solutions these costs can frequently outweigh the actual price 10 to 1.  A 50% reduction in your price may only represent a 5% reduction in the total cost of ownership. Similarly a 50% increase in your price may only represent a 5% increase in the customer’s total cost.

Remember, as a startup, if you are going to be rejected, it is almost a certainty that it’s not your price that’s the problem – it’s your cost. Even if you are told by the lost customer that its your price, it still probably isn’t. Most people shy away from hard conversations and a potential customer telling you that you are rejected is a hard conversation. In these circumstances people tend to use the easiest way to end the conversation quickly – saying your price is too high is nearly always the easiest.

A final thought: unless you are a commodity, you either have a lot of value or no value. Unless you have a lot of value, your solution will never overcome the other costs that have to be borne by the customer, and you effectively have no value. It’s not a linear scale, its binary.

Next Blog Post I’ll explore how high pricing can increase demand rather than reducing it.

Rule of Thumb for the Direct Sales Channels that are Viable for Different Revenue Levels

So these are very general rules of thumb: there are loads of exceptions and as always context is king. That said, I find these rules a useful shortcut when analysing possible direct sales models for companies. The rules are based on the annual average net revenue that your typical customer is responsible for:

  • Below €500 annually you can’t afford to call a customer and you must have a 100% automated sales channel
  • Below €5,000 annually you can’t physically meet a customer and you must either have an automated or inside sales channel
  • Below €50,000 you can’t get on a short haul flight to meet a customer
  • Below €500,000 and you can’t get on a long haul flight to meet a customer

Each of the different direct sales channels has radically different costs, and companies need to structure their sales operation so that they can expect to recover the cost of making a sale in well under a year.  

A typical inside sales rep will have an OTE between €40K and €70K and a fully loaded cost of roughly 150% of that. If they close 10 deals a month then the cost of making the sale is going to be somewhere between €550 and €950. Clearly if the resulting customers are only going to bring in €500 in net revenue it’s going to take a long time to cover the cost of making the sale.

A typical field sales rep will have an OTE of €60K to €100K with a fully loaded cost of double that due to the cost of travel. They should be closing about 7 deals a month, but they typically require a full time inside sales rep to source the leads and set up the appointments, taking the total cost of making the sale to somewhere between €2,300 and €3,500. So while it’s possible to run a field sales channel at under €5k net revenue, it’s difficult.

Once you have to get on a plane the whole dynamic and cost base changes dramatically. Now we are realistically starting to look at enterprise based selling. OTEs range from €70K to €150K (and up) with a fully loaded cost of about 250%. You can expect a maximum of a deal a month. Typically one meeting a week is reasonable – more can be done if you have particularly high customer density, but in that case you should probably be considering a local field sales force. So your total cost of making a sales ranges between €15K and €34K although it likely to be higher as a deal a month is on the high estimate.

Inter-continental travel makes everything even slower and even though OTEs aren’t much different, the number of meetings possible in a month shrinks to about 1 a month and resulting sales to maybe three a year. This results in an cost of sale ranging between €60K and €130K.

I find this a useful ready reckoner to quickly evaluate the available direct sales channels when analysing a company. It’s a shortcut, and I know that if something is anywhere close to the boundary it merits further in depth analysis as the peculiarities of a particular business or context may make a sales channel that initially seems implausible possible.  

A Great ROI is Not Enough

It’s easy to think that all you have to do is provide a big enough ROI to your customer. However this is not enough on its own – you also have to move the needle for the customer’s business. Your ROI might be fabulous but if you don’t move the needle for your customer then it’s going to worth your customer’s effort dealing with with you.

For example let’s say you are selling sales leads for second hand cars. You are selling the leads for €25 euros each and you expect 10% to convert to sales, so it costs about €250 for each car sold. The dealership makes about €750 per car, so the ROI of 300% is great. You’d naturally think that you could sell these leads to anyone, after all you are effectively selling €750 for €250.  But there is another dimension – volume.

Let’s say you only have 20 leads a month to sell. A small regional dealership that only sells 20 cars a month will happily do business with you because you are likely to boost their sales by 10%. However for a large chain dealership that sells 1,000 cars a month you are only going to grow sales by 2%. You don’t move the needle for them, and it’ll be hard to get them to do business with you because the potential upside isn’t interesting enough.

So how much do you need to move the needle by? I’m sure this varies a lot from industry to industry but in my experience it needs to be about 5%. That’s not necessarily 5% of the whole businesses revenue or cost – it’s the individual’s personal target. So if you are selling into a sales manager then it’s 5% of their new business, if it’s the facilities manager it’s 5% of the cost that they are trying to reduce, etc.

Below 5% you simply don’t move the needle enough to warrant their attention. However, your importance increases the more you move the needle.  I have found that at 20% you can even insist on fundamental changes to the customer business, such as changing their procedures or even business model. Simply put, at 20% you are so important that they can’t afford to lose you.