OK – so this post has nothing to do with sales really.  Its more that twice a year I sit and ponder the absolute lunacy around Daylight Savings Time.  The amount of money the world governments have spent deciding whether or not to move clocks twice a year, and when to do it just drives me insane.

But… you get an extra hour of sunlight.  Um… no you don’t.  You are just moving the clocks..  But, you save energy by getting up in sunlight.  Ah… so get up at a different time.

To me its as crazy as those that set their watch or alarm clock 15 minutes ahead to “fool themselves” into not being late – yet they are still late because they know that they have that extra 15 minutes so it is negated.

So… back to sales.  You’ve got an extra hour to sell this quarter.  Just remember that Q1 is one hour less tho!

I’ve gotten into two lengthy discussions recently about draw as a sales compensation component.  Specifically, since I work with start-ups, the questions were around whether or not you should offer up a draw or not as part of the compensation package.

I have some very strong opinions about draw, and I want to start by going over the basics.  Draw is compensation offered to a new salesperson coming on board.  There is a “draw period” which is the time over which the draw is paid.  (typically 3 to 6 months).  There are two types of draw:

• Recoverable draw:  This is set amount of commission that is paid to the salesperson in advance of actually being earned.  It is pre-paid commissions, that get credited against earned commissions.  If, at the end of the draw period, the salesperson has not sold enough to cover the amount of the draw, then he/she needs to pay the company back the unearned portion of the draw.
• Non-Recoverable draw: This is a set amount of commission that is paid to the salesperson in advance of it actually being earned, but at the end of the draw period, the salesperson is NOT responsible for paying back the un-earned portion.  Think of non-recoverable draw as essentially a higher salary during the draw period that drops down after the draw period is over; however any actual sales commissions made during the draw period get crediting against the draw.

Why do salespeople deserve draw?  Isn’t it all about their performance?  A salesperson should just work harder to get their commissions faster, no?

Well… some of that is true, but the fact is, as I have always said, that sales compensation plans are designed to drive behavior.  They should always be designed to drive the behavior that the company wants.  So, as a component of a compensation plan, draw can be a very important part.

The most important thing that you want your salespeople focused on is SELLING.  When a salesperson is worried about getting their first sale because without commissions that cannot pay their mortgage, and other bills, this is distracting from their focus.   So, a draw helps keep the salesperson focused on making the sales they need to make during their start-up phase.  Once the salesperson has built a pipeline and is moving - then I think its all up to their performance.

There are many situations where draw make a lot of sense.  Some examples:

• Your product has a long sales cycle.  If a realistic time frame to close a deal is 9 months, then even if you have a superstar salesperson that brings a rolodex with him/her, you know that it will be several months before any sales are made.  Its reasonable to offer a draw to help that salesperson stay focused on selling in the initial 6-9 months.
• The salesperson is walking away from large commissions.  One of the hardest things for a salesperson switching jobs is that after you have built up a large pipeline, that salesperson could be walking away from a large potential commission payout.  If you really want this person selling your product, you can offer the draw to compensate for that loss of income (essentially a signing bonus – but tied to sales in your firm).
• Your product/market/pricing is unestablished.  Of particular relevance to start-ups is asking a salesperson to come on board and trust that your product has a market, that the pricing is correct, that your product works, etc.  For all these reasons, it is reasonable to offer a draw to a salesperson while he/she flushes all of that out.  What you don’t want is for the salesperson to be thinking about moving on, stalling your momentum, because he is too focused on when he will start making commissions.
• Your comp plan is mostly commission.  If you are offering a compensation plan which is very low base salary and mostly commissions, a draw can make sense in order to mak sure the salesperson has some income dring their startup phase.

The bottom line is that you should be expecting big things from your salespeople, but EVERY salesperson has a start-up phase and it can take a while before he/she sees a commission check – not because they are a bad salesperson, but because pipeline building can take time.  When a salesperson is walking into a virgin territory, new product, etc. it is reasonable to offer them a draw to make sure that they stay motivated and focused while they get up to speed.  In fact, I think that offering a draw can help ACCELERATE sales in the short term because you keep the salesperson focused on selling.

Since draw is credited against actual sales commissions, if the salesperson does succeed in the short term, then you don’t double pay the salesperson. 

Should you offer recoverable or non-recoverable draw?  I think this is really part of your negotiation.  Of course, non-recoverable is better for the salesperson and recoverable is better for the company.  Asking for the recoverable money back at the end of the draw period certainly is a de-motivating exercise; however, it protects the company in the event the salesperson really cannot perform.  In my own experience, offering up non-recoverable vs recoverable is based on the person and also the maturity of the product.  If I’m confident in the saleability of my product (already proven it can be sold), then a recoverable draw makes sense.  If I’m working with a known entity (the sales person has succeeded in 10 other companies), then a non-recoverable draw may be more appropriate – thinking that if he/she doesn’t sell its a function of my product and not him/her.  Relatively new salespeople should probably be offered recoverable draw until they prove themselves. 

Bottom line:  There really are no hard rules around this – and should be part of negotiation with the sales rep.  Start-ups need to be realistic about the task they are asking the salesperson to go into, and while they are getting risk/reward for their sales efforts, keeping them focused during the start-up phase for an unprovien product with a virgin market and untested pricing is essential – and a draw may make the difference between you winning or losing.

In many large companies, departments get “use-it-or-lose-it” budgets.  What this means is that they get dollars for projects for that year, and if they don’t use up all of that money by the end of the year, then they don’t get to spend it.  It does not roll over until the next year.  This is where salespeople looking to finish out their own year great can capitalize.  It requires you to be flexible in your pricing technique, but you can very often push through a sale that might otherwise take a very long time to close.

A manager at BigCo has $150,000 left in his budget for the rest of the year.  He is evaluating your product for an initiative next year, and your product costs $400,000.  Currently, in his mind, your product is completely on next years budget.  But, you ask about his unused budget and find out about the remaining amount.  You determine with him the best way to bill him the $150,000 now, and the remaining $250,000 next year.  If you can convince the manager of this, not only do you secure a sale this year, you lock up your sale for next year, and leave the manager $150,000 extra on his budget for next year.

So, how do you flush out if there is an unused budget.  Often it is as simple as asking.  Managers may not even think of this as a possibility because its never been proposed to them before.  If they are not very forthcoming, and you really want to flush it out, you should continue to ask.  One sweetener I have often used to get managers cosy with the idea is to offer them $1.10 credit for every dollar they spend with me today.  So, If they handed me an invoice for $150,000, I would credit $165,000 off the cost of the project.  This essentially makes the next year cost of my project an additional $15,000 less.  Initial hesitation is often because they may not be sure that they want to use your product, or if what you suggest is OK with their company.  But, most managers, knowing that they have money that will dissapear and that this method will free up cash for next years projects, will want to at least explore the option in my experience.  And if you have a manager willing to think outside the box, you will get the sale, and an appreciative customer who will alreayd know that you are the type of sales person in for the win-win.

Of course, you DO need to make sure that you aren’t getting a manager into hot water, and I would never suggest something that circumvented corporate purchasing policies, but there are often creative ways to unbundle or unhook your product that makes it fit perfectly into this existing and disappearing budget money.  Sometimes, the reason your product is scheduled for the next year is because it is part of some capital project that has dollars assigned to it.   Once, I had a customer who had money left in his budget for professional services, but not for software.  Yet I was trying to sell him software.  Well, my software typically included installation services, training, first year support, and some data-loading services as part of the core product.  All of those services were completely valid to be billed against his unused professional services budget.  So, I unbundled these services for him, billed him in December for those items, and then billed him for the remaining software licenses in the next year.  The tactic served me and the manager well.  I got a sale in the current year, cash in the bank in the current year.  He got to use this years dollars for next years project, and freed up more money in next years budget (which I took too!).  I also guaranteed that I was going to get a sale in the next year because by doing the first invoice, there was very little chance he would not take the second part.

As I’ve written before, you should be building relationships with your customers – not just selling them.  This is actually one of those instances where what you are doing actually benefits everyone involved.

Knowing that there are about 10 weeks left in the year, and that it can take several weeks to get the contracts done and pushed through, you should be asking about this unused budget and making the deals… TODAY!

I read a short post on Startup Spark about making sure that entrepreneurs don’t forget that they need to find customers for their new ventures.

Ah – how true… and who makes that happen?  The sales team.

Sales for start-ups is not easy and its certainly not for everyone.  You are building your product and your market at the same time you are trying to build a customer base.  But, when you can convince those companies to give your start-up a chance, its one of the most rewarding feelings for a sales person.

Salespeople love to talk.  Its a common theme at QuotaCrush.  I’ve recently done two posts on it: Never Vomit on your Customers, and Two Ears, One Mouth.   Expanding on this topic…salespeople need to make sure that whenever they answer questions in a sales pitch, that they need to understand why the question was asked.

The natural tendency when someone asks you a question is to give an immediate answer to that question.  However, unless you understand the motivation behind the question, the chance is that you will answer the question with information that is not relavant or with information that will not move the deal closer to the sale.  And, you will have lost a perfect opportunity to learn more about the customer.

I am NOT proposing that you provide untruths or NOT answer their question.  You need to properly answer the question, but you need to make sure that you understand the motivation behind any question before you attempt to answer it.  This is critical in understanding how you can make the sale.  Every question that is asked of you is an opportunity for you to get the information that you need to actually make the close.

For example, if you are asked, “Does your SaaS system allow me to backup my data manually to my own servers?”  The inclination will be to instantly provide an answer with the Yes or No and then a description of how it works or how you overcome this.  For this example, it doesn’t matter whether the answer is yes or no.  The customer has given you a perfect opportunity to learn more.  What your next question should be is, “Why is that important to you?”  The reasons could be several.  And each has its own lesson on how you can get the sale:

• CIO wont allow any system in without it.     You’ve learn that you need to sell the CIO to get the close
• SaaS systems with remote back-up have to go thru IT budget instead of mine because I have to have IT sign-off.  You’ve learned how products get paid for, and how to design your proposal so that the sale can go thru easier.
• They had a major data-loss last-year.  The shareholders are very sensitive and they need extra re-assurances before they will sign onto an SaaS service.
• Company has major requirements for reporting and wants to do if off back-ups of data.    You learn of an opportunity to up-sell them reporting services or data transfer services,  In this case, a question about back-up was actually a question about data export – which you learned by not immediately answering the question and diving in.

Outside these examples, there may be hundreds of reasons why they are asking about remote backup.  Take the opportunity to understand WHY they ask the question to help build an answer to the question that will solve their problem. 

Never answer any question until you understand why it is asked.

Yesterday at breakfast, I started what turned into a lively and quite humorous discussion with my fellow attendees at the National Angel Organization annual summit in Halifax.

My observation is that humans have not progressed much since caveman days.

Oooh... shiny rocks!

Everything that we do revolves around shiny rocks.

• We base our wealth on who has the biggest pile of shiny rocks
• We store shiny rocks in vaults and print money based on how many we have
• Monetary policy is based on how to trade shiny rocks.
• Our representations of how many shiny rocks we have are also shiny slabs of metal.
• We base our marriage promise on a shiny rock – and then seal the deal with two bands made from shiny rocks
• We decorate our ears, noses, fingers, necks, toes, belly buttons and, for some, many other places with objects made from shiny rocks.

I picture cavemen sitting around grunting and oogling over the shiny rock that we found. “Oooh so pretty…”

Are we really any different?

Side Note: At the breakfast, Permjot Valia (Business Angel Blog), offered to donate $100 to my favorite charity if I could somehow tie my Shiny Rock theory into the first panel discussion of the morning – but I got called away on an exciting business prospect so I missed the panel – but thats the life of sales!

I’ve been consuming entirely too much information on the economic crisis, yet I’ve remained quite optimistic about America’s future.  Maybe that’s because my parents raised me to be an optimist, and maybe its just because I refuse to think that this amazing country can’s overcome anything we throw at it.

My favorite optimistic article on the current crisis and why America will come out of the other sied of this as an even stronger nation is one I read on Seeking Alpha today.  The article is the 10 reasons the author is glad he is doing business in America, and I agree with all 10 of the reasons.

I would add a number 11, “The never quit, bounce-back attitude”.   I’m still relatively young (at least I think so), and in that time, I’ve seen America and more importantly Americans bounce back from the 70s, cold war, several recessions, the S&L crisis, 9/11, web 1.0 crash, and many other challenges.  Americans won’t let this challenge get them down either.

As the U.S. settles into what some predict is Depression 2.0, we are at the end of Web 2.0.  Not Web 2.0 the technology – that’s still just at its beginning – but the term Web 2.0 because I think it will be forever tied to the idea of a second wave of companies with no way of making money.  Web 2.0 means much more than “free web sites” as many people out of the industry believe.  It encompasses user generated content, using the web as a platform, collaborative software, web sites communicating with each other (mashups and more), etc.   I hope that as we start to take the web to the next phase, we forget catchy names… lets just worry about the one thing that businesses have worried about since the beginning of commerce…revenue.

As someone who has sold software and services for large dollar amounts, and at the same time helped organizations realize significant benefit for their money, its certainly frustrating that for the past number of years, its all been about building companies with cool features, with great buzz, and with slick interfaces.  I think the collapse of the market will bring the focus back to where it should be… revenue.  And that is good news for salespeople.  Why?  Because companies have drifted away from being sales driven, sales focused, and revenue machines, into ones that focus on building features that generate and create buzz.  Sales and revenue are going to come front and center once again, and the customers and prospects that pay will once again drive product design and direction – not exclusively the product managers and marketing team.  What was sexy last year was how much traffic you could generate, where your product was discussed, and how futuristic your idea was.  What will be sexy in 2009 is how you’ve turned that into cash.  And who is going to make that a reality?  The sales team!

Those of us that know how to jump start sales in a start-up, and drive big dollar transactions, are the key to the small businesses that want to survive.  This is in no way a slam to the FREE model as promoted by Chris Anderson.  After all, I work for a company right now that promotes a free product.  However, we’ve had a plan since day one on how to generate revenue from our free product, and it is already starting to be realized and we are on our way to profitability – almost guaranteed to be realized in 2009.  So its not a question of where your revenue comes from – but making sure that there is revenue – and that the revenue goal is realistic to support your business.

If you are to become a truly revenue driven company, it sometimes means building features and services that your customers want that perhaps are not the most sexy or most fun to build, but they are features that can be sold.  When I founded and ran Dynamic Mobile Data, my main product was a desktop application as it was developed before web sites existed (man I’m old…).  As the web evolved, my product team kept insisting that we needed to move our entire product to the web.  I resisted.  Why?  Because when I looked at my customer base and my prospects, I realized that my software was mostly installed on machines that ONLY ran my software.  It was what they used all day long and having this computer running a browser and my software offered them nothing additional.  My customers were willing to pay for other technologies including dynamic mapping, alerts, driving directions for delivery personnel, etc.  So, my resources went there.   It was a few years before I had fully integrated the web into my product – and even then it was not as sexy as what was out there.  But guess what… all that time we made a lot of sales and a lot of revenue!

Salespeople that can close business will be the key going forward.  All companies will need to become sales driven / revenue driven.  Those that understand that the best, will have the best chance of success going forward.

In football, it goes without saying that unless the ball makes it to the endzone, in your hands, then you don’t get any points.  In sales, we have to remember that we also cannot celebrate until the sale is done.

It takes a lot of effort to prospect, pitch, and ultimately get someone to agree to buy your software.  It often takes a significant amount of more time to get through the contract negotiations.  But – none of this is a sale.  A sale is only a sale once the money is in the bank.

Too often, I am amazed by companies and sales teams that are hi-fiving based on getting to the one yard line.  A perfect example is a start-up that I was helping with sales.  We managed to get a big company in the media space very interested in the service we were offering.   We did get ink on the contract, and we did start rolling out.  But, the salesguy got too cocky about the “sale” and decided that since he closed this big contract, he didn’t need to work hard at it anymore.  The management bought into his cockiness, despite my objections, and ultimately the contract was not serviced correctly, and the company only received about 30% of the money on the face of the contract.  And, as result, the company which had the opportunity to be the big dogs in the space, became a small player.

The lesson is that if you take the time and the effort to get to the 1 yard line, then take the time to follow through into the endzone.  And you should always use the momentum to contiinue to close deals.

1985 was a great year for me.

• I started high school
• I met my wife (although we didn’t start dating until 11 years later)
• I was tapped by the Superintendent of Schools to design and build a computer system to run the schools grades, scheduling, rank, attendance, etc.
• I started my first real entrepreneurial endeavor of some random computer consulting, training, and repair for some side dollars
• Became one of the lead drummers in the school drum-core.

But… all of that considered, unlike Marty McFly, I never want to go back to 1985.  Why?  In terms of sales, 2008 is significantly better than 1985 and I had an experience recently that really smacked it in my face.

I went looking for some software on sales compensation planning, and I found a company that was offering a free year license of their software.  (The company name is not important because its not my practice of bashing companies – I just want to illustrate bad sales technique).  I decided that I was intrigued enough to ask for an account.  I entered all of my information, and in a short amount of time, I received an email giving me intructions on how to get my free account.  I was given the option to watch a series of about 18 short videos OR I could attend a webinar on how to use the software.  Since I wanted to get going right away, I opted for watching the videos.

I painfully watched all of the videos.  It was good that they broke them up into 18 separate videos because if it were not for my needing to click on the next one, I would have drifted into a complete coma.  The videos were decently produced, but without being able to click in the software, none of what they were showing me meant anything to me.  It became hard to follow.

After I was done with watching all the videos, I looked to see if I had access.  I did not.  24 hours later, I got an email from a salesperson telling me that since I hadn’t supplied a phone number, that I couldn’t get set-up.  I replied that I didn’t need to talk to anyone that I just needed access.  I then got a reply that I would see about getting me setup as soon as possible because they could see that I had viewed all the videos – even though this was not their normal policy since they had not spken to me on the phone.  Some 24 hours later, I got an email with some login information.  I had trouble logging in because it was not 100% obvious to me that they had changed from the userid and password that they asked me to supply.  Despite the fact that they had asked me for my email address and password during set-up, they set me up as user1@mydomain.com and some generated password.  As I was figuring all of this out, there were several rude exchanges between the salesman and myself where it was obvious that I was circumventing his ability to upsell me.  Once I did get logged in, I was thoroughly disappointed in how difficult the software was to use and navigate.  It was no wonder why they wanted your phone number and required viewing to the videos – because the product interface is horrendous and difficult to use.

What amazed me throughout the process was how 1985 all of the sales tactics felt.   This is 2008.  The era of web 2.0 and of FREE.  This company was using a requirement of a phone number so that they could talk to me and attempt to upsell me additional services (which is how this company makes money).  They use their webinars to rope in additional customers and sell additional services.  There is nothing wrong with the up-sell and with this model – but the sales technique needs to work the way business is done in 2008.

I will compare this experience to one that I recently had with PipelineDeals.com.  PipelineDeals is a web 2.0 pipeline tracking tool that I recently started using as a replacement for salesforce.com.  (I can supply a full review and comparison at another time).  To sign up for this, I clicked on “sign-up now” and it didn’t even require any payment info.  I got a full account and after I logged in, I saw several places where I could click on videos to explain each feature if I was confused.  They also had a very well stocked knowledge base and blog for additional information.  I was able to look and find most of the information that I needed to access.  And, when I was lost, I got feedback and email replies quickly from their staff.  I was never asked to talk to someone, and they never tried to upsell me.

I am now paying PipelineDeals every month for their software.  Why?  because the sales process was clean, genuine, and I was able to see and play with the service before I spoke to a salesperson about additional services.  The salesperson was accessible – but not in my face – and I was able to move forward at my pace.

In 1985, without the ability to provide software as a service, and without the ubiquity of the internet, much of this was not possible.  But, we have to realize that it is the 21st century now and we need to sell according to our environment.

Some examples learned here:

- Let people into your software.  There is no reason NOT to when its software as a service.  Its easy to turn them off if it doesn’t work out.  Its not 1985 where you are shipping out a disk, working through an install, etc.   Let them in and let them explore and play on their own.  By providing access to a community, videos, blog, etc. you can let your customers help each other – and get a much more rewarding and valuable experience.

- Forget the pre-upsell.  I don’t know anyone that likes to be upsold – and even more so when you haven’t even seen or used to product yet.  You will have plenty of time to do the upsell later on.  Let people become members of your community before you start attacking them for more money.  In 1985, you didn’t get as easy access to your customers to make the upsell.  In 2008, your customers come to your site everytime they use your software and you have plenty of time to to the upsell – and the upsell is much more valuable when they are already tied to your solution.

- Let the customer do some of the work.  Why did this company ask me for log in information and then just manually create new login information completely unrelated to what I filled in?  There was no reason for them not to let me provision myself and actually create a username and password that works for me.  In 1985, I may have needed to do this for someone, but in 2008, you can let your customer fill in some of this information for you.  After all, they know it better than anyone.

The ultimate lesson here is that you can’t get caught in old ways of selling.  The internet and SaaS model provide some very exciting new ways to sell and deliver software.  In fact, new and exciting ways to sell everything.  Our customers have come to expect this model of sales and its actually very aggravating when you encouter a company that doesn’t subscribe to this new model.  We are working on internet time now, and if you just compare my two experiences: one set me up in minutes and got my business.  The other took days and by the time I got into the software, I was so soured by the experience, unless the software was amazing, I wasn’t going to be hooked anyway.

So, as great as 1985 was – I don’t ever want to go back.  Sales in 2008 is way better.