This entire week was spent in Dallas with prospective clients interspersed with interviews for our first Dallas area sales rep. Our technology is pretty unconventional, but not nearly as much as our sales approach. We think both are the way of the future.
The technology solves a common problem in a very simple manner. Companies have legacy apps, some with little or no source code that cost them hundreds of millions of dollars a year to maintain. Their alternatives are to rewrite these, costing millions of dollars each or to abandon them, which they cannot, or to just patch them, sometimes in binary and muddle along.
We enable most of these apps to be re-platformed in a container based, microservice architecture, placed in the cloud and run at 25% of their maintenance cost. We have won 7 deals, and in every case the new application was delivered in less than 60 days, with 100% functionality.
We were on schedule to launch the company August 1.
The first week of March, while I was in Iceland literally on the top of a glacier, the founder called and said 3 prospects wanted to move now.
The web site was not done, the collateral was unfinished, there was not even a logo.
ContingencySales has been working with this technology, soon to be called SoftwareAppliance.com for several years.
We set three “rules.” 1. No venture capital, period. We funded everything ourselves and received advance payments from some quite luminary partners 2. Cost of sales—including all selling expenses, people, marketing, business development would never exceed 20% of revenues. 3. All selling is to the CEO, CFO, SVP or VP of Development or Infrastructure.
Thus, we can get “yes” or “no” decision fast and avoid long sales cycles which kills our cost of sales.
We were going to launch in August with 3 new contracts, a signed remarketing deal from a major telco and another with a major integrator. But the prospects moved much faster and so we had to scramble.
With a disruptive startup, one is just fine as long as revenue comes before expenses.
We have no benefits, no health plan, a web site still days away, a bit of collateral—but with revenue first, who cares? All that stuff can come later.
The VC way is to take in endless equity rounds, spend the money on sales, marketing, business dev people who can use up an A, B, C round just finding the market.
We have 100% of our equity and it is doing just fine.
This week I interviewed three sales candidates, two of whom were pretty shocked at our sales approach:
The sales person must understand we have a model where our cost of sales (all in, including marketing, business development) is 20% of revenue or less. This is less than half of the industry average and less than a third of many venture-funded firms.
The sales person is NOT a Sales Monkey, endlessly dialing for dollars, making cold calls, begging marketing for “leads.” Each sales person, and there are only going to be 5 for the entire US, needs to understand and practice our concept of Territory Management.
Territory Management means each rep runs the territory as a business. Each one must sign up selling partners who can get us into the C-level with little or no cost of sales. Each sales person does his or her field marketing—sets up events, finds the speakers, manages all the logistics.
Every territory is a P&L. The rep is not paid just on revenue. He or she is compensated on what it cost to get that revenue.
The Sales Monkey approach used in most E, F, G round, venture-back firms is to spend 40% to 70% of sales on getting the next dollar. Anyone can do that. I am stunned a VP of Sales would be paid because they spent 40%+ of revenue bringing in the next dollar. A monkey should be able to hit that.
There are zero QBR’s—quarterly business reviews as there are NO quarterly revenue measurements. These are the artifacts of the transactional seller and anyone who would use them has a QBR stamped on his or her forehead denoting “transactional loser.” The kind of reps we are hiring never heard of a QBR.
Sales measurement is pipeline development, access to the C-level at every major ($2 billion and up revenue) company in the region.
Our deals start at $400,000 for a proof of value (which is a complete, 100% operational replacement system called a REPLICA) and typically run several million per year in recurring revenue. Once a company uses the Software Appliance to replatform an app, they just line up the rest to move over. That is called recurring revenue and has an almost zero cost of sale.
The key to our model is getting C-Level access very quickly.
We have an internal goal of being able to get to ANY CEO, CIO in the Fortune 1,000, for a face to face meeting, in 3 phone calls or less. We do this with a very sophisticated, daily managed network of trusted advisors who can get us to that person fast for an answer.
A few weeks ago, our founder wanted to present to the C-level person, the President of U.S. Operations of one of the world’s largest telcos. His presentation would focus on taking out over $300 million in recurring IT cost in less than 6 months by replacing legacy, sourceless apps.
Now to test our hypothesis—can we get that meeting, in 3 calls or less?
Well, we did not.
We got it in a single phone call.
We did not do a cold call. We did not wait outside the poor guy’s house. We were working with an integrator who markets our offering and one of their board members has a 30 year, personal relationship with our subject.
We briefed the board member on what we wanted to present. He changed our thoughts a bit with some great insight. And in mid-May, we have a lunch, at the integrator office, with the President of the Fortune 10 company.
He already knows generally what we are presenting and said he has particular interest. He is bringing his Chief of Staff and three technical senior managers.
We may not win this deal, although I think we will. But what is our cost of sale? Almost zero. We are in or we are out. One call—yes or no. Why not do this as a sales model?
This is why I am not measuring my sales team by revenue. They are not Sales Monkeys selling crappy tools to low level managers. They are not investing our resources on 18-36 month sales cycles where the answer is a “maybe.” They are not people I have to manage. They know what to do and how to get it done.
If our sales person can get in front of 10 -15 C Level people every few months, we know with 100% confidence they will win an overwhelming number of deals.
And our company?
We own all the equity. Here, dilution only applies to Margaritas at dinner.
We have C-level endorsements. We have a partnership agreement with our customers where they get significant discounts if they bring us into other companies or introduce us to their peer network. They get discounts for innovating our platform.
We indirectly tie our cost of sales to the product price and share this with the C-level customer. So if they will help us by introducing us to others in their vast enterprises, do internal references, bring us into their network, it keeps their costs very low. And since our price is only about 30% of their all-in support costs for the legacy app, every app they move to us puts 70% of that cost back into their spend budget for better uses.
Unlike venture backed, quarterly revenue crappy tools vendors, we do not call it a partnership when we harass every customer every quarter to do our bidding for a quarterly revenue goal.
Our cost of sales can consistently be 20% or less—although for 2018 it will not go beyond 11%.
And we are not screwing our employees with venture F Round equity, essentially depreciating Venezuelan currency.
If you are on our team, you have a chance to achieve real wealth and our customers get value—not available anywhere else at any price.
Thinking about VC money? There is a better way and we are proving it.