The Key Elements behind “Business Model”
Cost to Acquire the Customer (CAC)
Profit from that Customer (LTV)
There is a common problem:
Startup Killer
An out of balance Business Model Entrepreneurs are over-optimistic
Cost to Acquire a Customer (CAC)
Monetization (LTV)
What we are looking for
A well balanced business model
Monetization (LTV)
Cost to Acquire a Customer (CAC)
The Big Power Shift
The Internet caused the disruption
Buyers are now in charge
Able to find all the information they need on-line
Comparison shopping
Detailed reviews
Consumer reviews, complaints and comments
Buying Behavior has Changed “ Please understand that I get dozens of these types of messages a week.
I
simply do not have time to read them, dig into them, follow-up on them, or reply to them. The most effective solution to this problem is for me to ignore the messages, which is what I usually do. …
… Finally, a small comment. As a customer, I find this type of approach to sales to be largely annoying to me and unproductive for you. We learn far more about what we want to purchase by searching the web, looking for customer references in blogs and forums, word of mouth, and by finding white papers on your site that concretely describe solutions to problems we are having.” CIO of Large Pharma Co.
Sellers need to change
An intimate understanding of the Buyer
Buying behavior
Likes
Dislikes …
is the key to success
Buying Behavior has Changed
Outbound Marketing:
Annoying to your customers
Expensive
Increasingly less effective
What is the new process?
Google Search
Web Site
Reviews
Blogs & Social Media
Influencers
Trials or Free software / services
Requires Inbound Marketing thought processes
It’s not all bad news
The Internet has also given marketers some powerful new tools
Web sites, videos, trials, etc. to convey rich information
Search Marketing (SEO/SEM)
The Social Graph
Viral acquisition
Behavioral tracking
Location information
A/B Testing
Etc.
Business Model Disruption in B2B
New Low Cost Customer Acquisition Models:
The Low Cost Sales Model
(Inside Sales instead of Field Sales)
The Touch-less Conversion
Freemium
The Low Cost Sales Model (Inside Sales)
SolarWinds
2009 Revenues: $116 million
EBITDA: $60 million
52% operating margins
Others: HubSpot, JBoss, LogMeIn, Constant Contact, Salesforce.com, etc.
The Touchless Conversion
ZenDesk
Common Funnel Metrics:
10% of visitors do a trial
20% of trials convert to paid
Extraordinarily scalable
Extremely low cost
Free Trials require different Product Thinking
The product is your salesperson
Extreme focus on:
Ease of installation
Ease of use
Clear instructions on how to test (short videos, etc.)
Fast proof that it works
Sales Complexity
Freemium
No Touch Self-Service
Light Touch Inside Sales
High Touch Inside Sales
Field Sales
Field Sales with SE’s
How I assumed the two would relate
A rough estimate of CAC versus Sales Complexity
Freemium
No Touch Self-Service
Light Touch Inside Sales
High Touch Inside Sales
Field Sales
Field Sales
with SE’s
Rough Estimates of Cost of Customer Acquisition (CAC) $0$10
$50 – $200
$1,000 $2,000
$3,000 $8,000
$25,000 – $75,000
$75,000 – $200,000
The relationship is roughly exponential
Clearly adding Human Touch dramatically increases costs
CAC (logarithmic) $100,000
10x $10,000
10x
$1,000
$100
10x $10
$1 Freemium
No Touch
Inside Sales
Field Sales
Sales Complexity
High CAC, requires high scores for: Value,
Pain, Urgency
Value / Pain / Urgency = LTV (logarithmic) $1,000,000
$100,000
$10,000
$1,000
Unprofitable: LTV < CAC
$100
$10
$1 Freemium
No To Touch Inside Sa Sales Channel
Field Sa Sales
How SaaS changes Sales Complexity Value / Pain / Urgency = LTV (logarithmic)
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1 Freemium
No To Touch Inside Sa Sales Channel
Field Sa Sales
Levers you can use to move from Red to Green
Make it easy for customers to sell themselves
Make the first decision to work with your product easy
Simple product
Free versions, Free Trials, Open Source
Remove Complexity from closing the Sale
Remove IT (SaaS)
Eliminate committee decision making
Make the first financial commitment easy
$10,000 or below for enterprise sales
$250 per month for very small business SaaS
Able to leverage the Internet revolution
Human Costs dominate: Old world business model
Value/Pain/Urgency
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1 Freemium
No Touch Inside Sales Channel
Field Sales
Another trait of highly successful companies
A Sales and Marketing Machine
BUILDING A SALES & MARKETING MACHINE
Brand Advertising Events
Email Marketing PR Webinars Sales Social Media
Tradeshows
? WHAT IS A
“SALES & MARKETING MACHINE”
CLEARLY DEFINED LEVERS THAT YOU PULL TO MAKE IT GO FASTER
PREDICTABLE
SCALABLE
AUTOMATED
SALES & MARKETING MACHINE 9
INSTRUMENTED WITH GREAT METRICS
COST OPTIMIZED
HOW DO YOU GO ABOUT
BUILDING ONE OF THOSE?
9
STEPS
4 WHY 4 FIRST? BECAUSE 1, 2 AND 3 ARE NOT OBVIOUS SO WE WILL COME BACK TO THEM AT THE END AFTER WE HAVE SEEN WHY THEY ARE SO VALUABLE
4
ALIGN
ALIGN EVERY MARKETING ACTIVITY AROUND ONE GOAL…
CREATING LEADS THAT HELP SALES
CLOSE MORE DEALS
Sales
CLOSED DEAL
Blogging
Social Media eMail Campaigns
Sales
SEO Webinars SEM
PR
CLOSED DEAL
RULE NUMBER 1
If it doesn’t create a lead, or directly contribute towards closing a sale, it doesn’t belong
Sales
CLOSED DEAL
RULE NUMBER 2
If the cost per lead is too high, it doesn’t belong
Exception to this rule: If you can recover cost through: • higher conversion rate to closed deals • higher average deal size
Sales
CLOSED DEAL
5
LINK
CLEARLY LINK FLOWS FROM START TO FINISH
$ SEO
LANDING PAGE
FREE TRIAL
EMAIL CAMPAIGN
SALES TOUCH
1.
At the end of every action, there should be a clear link to the next action
2.
The overall flow from start to finish should be carefully designed
CLOSE
AN ORGANIZATIONAL STRUCTURE…
YOUR CUSTOMER’S PURCHASING STAGES PURCHASE CONSIDERATION
CLOSED DEAL
AWARENESS
AN ORGANIZATIONAL METAPHOR FOR THE KEY FUNNEL STAGES SALES MIDDLE OF THE FUNNEL
CLOSED DEAL
TOP OF THE FUNNEL
WHAT IS TOP OF THE FUNNEL? customer is not aware they have a problem, or that your product category exists
customer has a problem and is looking for a solution
GENERATE AWARENESS
GET FOUND
WHAT IS TOP OF THE FUNNEL?
RAW LEAD
GENERATE AWARENESS
WEBSITE
WHAT IS TOP OF THE FUNNEL? RAW LEAD
GENERATE AWARENESS & GET FOUND
Inbound marketing Outbound marketing
WEBSITE
WHAT IS THE MIDDLE OF THE FUNNEL?
NURTURE
SEGMENT
QUALIFY
MQL (MARKETING QUALIFIED LEAD)
PROBLEM: MARKETING SAYS THAT’S
SALES SAYS MARKETING ISN’T GIVING
RIDICULOUS, I GAVE THEM A TON OF LEADS. THEY JUST DON’T
FOLLOW UP ON THEM PROPERLY.
THEM ENOUGH LEADS
MARKETING SALES
CAUSE: SALES CALLS A FEW UNQUALIFIED LEADS, AND FINDS THEY ARE WASTE OF TIME THEY STOP CALLING THE REST OF THE LEADS
SALES
SOLUTION: GET AGREEMENT ON THE QUALIFICATION CRITERIA NEEDED TO BE ABLE TO PASS A LEAD ACROSS TO SALES (MQL)
MARKETING
SALES
SALES FURTHER QUALIFIES THOSE LEADS TO
FIND OPPORTUNITIES
USING BANT BUDGET AUTHORITY NEEDS TIMING
COMMON LEAD STATES
RAW LEAD
CLOSED DEAL
MQL
OPPORTUNITY
(MARKETING QUALIFIED LEAD)
(SALES QUALIFIED LEAD)
6
AUTOMATE
SALES MIDDLE OF THE FUNNEL
CRM MARKETING AUTOMATION
TOP OF THE FUNNEL
INBOUND MARKETING
CLOSED DEAL
LEAD SEGMENTATION
7
MEASURE "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
THE KEY METRICS CAMPAIGNS TO DRIVE TRAFFIC
OVERALL CONVERSION %
VISITORS CONVERSION %
TRIALS (BY LEAD SOURCE)
CONVERSION %
CLOSED DEALS
8
ANALYZE
Suspects Suspects Suspects
BUT EVEN IF YOU ARE MICROSOFT, CISCO, ORACLE, OR GOOGLE YOUR FUNNEL WILL HAVE
BLOCKAGE POINTS
Suspects
Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
IDENTIFY YOUR BLOCKAGE POINTS
HOW?
WHAT IS STOPPING ME FROM INCREASING SALES BY 5X ?
9
IMPROVE
IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS, I HAVE FOUND THAT THERE IS A
CLEAR PATTERN…
YOU ARE HOPING YOUR
CUSTOMERS WILL DO SOMETHING THAT THEY ARE
NOT MOTIVATED TO DO
IN OTHER WORDS…
YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK… BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT
THE CUSTOMER’S POINT OF VIEW
JBOSS EXAMPLE
PUT A REGISTRATION FORM ON THEIR WEB SITE BEFORE A FREE DOWNLOAD IMPACT
CUT THE DOWNLOAD RATE BY MORE THAN 10X
GET INSIDE YOUR CUSTOMER’S HEAD CONCERNS - Hate being sold to - Don’t want to get spam sales emails
UNDERSTAND WHAT MOTIVATES THEM CONCERNS
MOTIVATIONS -
Want to solve my problem
-
Recommended by a friend
-
Education
-
Data/ information reports
-
Entertainment
-
Free stuff
CREATE A SOLUTION THAT ENTICES THEM AND ADDRESS THEIR CONCERNS CONCERNS ENTICE & ADDRESS CONCERNS -
Customer testimonials address vendor risk
-
Free trials address product viability and fit concerns
EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE
GETTING FOUND Not going to find your site unless:
- On 1st page of Google search
concerns
- Recommended by trusted source - Referred to in social media or blogosphere
LESSONS FROM WEBSITE GRADER • Free tools drive viral spread • Low customer work required • High value delivered • Score leverages competitive urge • Builds trust through clear demonstration of expertise
GOOD LINKAGE TO NEXT STEP
using engineering for marketing
USING DATA TO DRIVE WEB TRAFFIC SYSOMOS: SOCIAL MEDIA MONITORING
LEVERAGED THEIR DATABASE TO CREATE BLOG POSTS WITH DATA ON TOPICS OF CURRENT INTEREST: • IRAN ELECTION RIOTS • TWITTER’S GROWTH • FACEBOOK USAGE
LED TO: SYSOMOS ARTICLES IN ECONOMIST, NY TIMES
WEB TRAFFIC TO READ THE FULL REPORT
LEADS – IMPRESSED BY THE CAPABILITIES OF THE SOFTWARE
GETTING CUSTOMERS TO SIGN UP FOR A TRIAL
- I don’t have the time - I don’t want to get spam email
concerns
- Yet another password to remember
RE-THINK THE PROCESS CONVENTIONAL APPROACH
WOW! FIRST, REGISTER LATER
Source: Josh Porter
SIGN UP FOR TRIAL
WOW!
Designing for Social Traction
WOW!
SIGN UP FOR TRIAL
CONVERT TO CUSTOMER
CONVERT TO CUSTOMER
1 2
3
4
PROBLEM: GETTING A MEETING
GETTING TO EXECUTIVE DECISION MAKERS TECHCRUNCH FOR INSURANCE CLAIMS
DROPBOX: SIMPLE FILE SHARING SOFTWARE – – –
Get you hooked for free Storage slowly increases to the point where you need to pay But by then they have established trust –
And it is hard to move your data that is shared with others
Sell
First Contact
First Contact
Build Relationship
Build Trust
Sell
SELLING IS
10X EASIER…
ONCE YOU HAVE ESTABLISHED
TRUST
YOUR BLOG CAN ESTABLISH TRUST…
HOW?
VALUABLE CONTENT
EDUCATION INFORMATION ENTERTAINMENT WITH
ZERO SELLING
THE KEYS TO SUCCESS DEEP UNDERSTANDING OF YOUR CUSTOMER
• • • • • •
What don’t they like? What do they like/need? What motivates them? What are their problems? What does their boss expect of them? etc.
Combined with
OUT-OF-THE-BOX THINKING
APOLOGIES MY EXAMPLES ARE ALL SOFTWARE COMPANIES
THIS APPLIES EQUALLY WELL IN OTHER BUSINESSES
FINALLY… LET’S GO BACK TO THE BEGINNING…
…AND INTRODUCE THREE NEW STEPS AT THE BEGINNING OF THE FUNNEL DESIGN PROCESS…
1 IDENTIFY IDENTIFY ALL THE PEOPLE INVOLVED IN THE PURCHASE DECISION
2 UNDERSTAND SKETCH OUT THEIR BUYING PROCESS AND CONCERNS AT EACH STAGE
3 ENTICE ADD THE STEPS TO ADDRESS THEIR BUYING PROCESS AND: ADDRESS THEIR CONCERNS ENTICE THEM
SUMMARY
WE WENT FROM THIS: 1. Align 2. Link 3. Automate 4. Measure 5. Analyze 6. Improve
TO THIS… 1. 2. 3. 4. 5. 6. 7. 8. 9.
IDENTIFY UNDERSTAND ENTICE Align Link Automate Measure Analyze Improve
THE NINE STEPS 1. IDENTIFY
Identify people in purchase decision
2. UNDERSTAND
Address their buying process and concerns
3. ENTICE
Design actions to pull them through buying process & address concerns
4. ALIGN
Ensure funnel actions lead directly to sales
5. LINK
Link every funnel action to the next step
6. AUTOMATE
Use software to automate
7. MEASURE
Measure key funnel metrics
8. ANALYZE
Identify blockage points
9. IMPROVE
Brainstorm better enticements and ways to address concerns
SALES-DRIVEN FUNNEL DESIGN TO A
CUSTOMER-CENTRIC FUNNEL DESIGN
CASE STUDY JBOSS
JBOSS
- FREE open source software - downloaded 5 MILLION times
The Highlights • Breakthrough Business Model – Open Source – A great example of the power of Free – 5 million downloads
• The first challenge: How to monetize • The second challenge: Conversion – While keeping CAC low – Solution: Build a Sales & Marketing Machine
ORIGINAL BRAINSTORMING SESSION
THE FIRST BLOCKAGE POINT • 5 million users had downloaded JBoss – But none had given their names
• The problem: – email registration in front of download reduces conversion rates significantly
JBOSS example
NEEDED:
a carrot to incent them to provide an email address
SOLUTION:
give away the documentation for free
RESULT:
10,000 leads per month
JBoss - Sales & Marketing Machine
Closed Deals
Suspects
Web Leads
Web Scoring
Lead Nurturing
Phone Call
Inside Sales
Enterprise Rollouts
Metrics: The End Goal 4:1 (25%) Raw Leads
Web activity scoring
3:1 (33%)
Telemarketing
4:1 (25%)
Telesales
Closed Deals
Using the model to work backwards 4:1
Raw Leads
•
Web activity scoring
3:1
Telemarketing
4:1
Insidesales
To do $4m in the month: – If Average Deal Size is $10k – Need $4m divided by $10k deals to reach target = 400 deals – Means 1,200 deals being worked in Inside sales (400x4)
• Know that each rep can work 60 deals at a time, means 20 reps – Means 3,600 telemarketing contacts (1,200x3) – Means 14,400 Raw Leads (3,600x4)
Closed Deals
THE NEXT CHALLENGE: INCREASE LTV • Multi-pronged approach – Add services to the subscription (beyond just support) • Key service was JBoss Operations Network
– Broaden the product line and upsell • JBoss Enteprise Middleware Suite (JEMS)
– Scalable Pricing • 4 axes to drive pricing higher
• Result – Drove average deal size from $10k to $50k – While maintaining the same pipeline flow and conversion rates
THE RESULTS • Before venture financing – 2003
$2m
• Early 2004 – venture round closes
• Bookings Growth:
70 60 50 40 30
$11m
20
– 2005
$26m
10
– 2006
on plan to do $65m
– 2004
0 2003 2004 2005 2006
JBOSS SUMMARY • Business Model disruption – Gave the product away entirely free – Monetized support & management
• Low CAC – Leveraged free and virality to acquire non-paying customers
• Sales & Marketing Machine – Careful study of customer motivations – Low cost Sales model – Excellent Metrics
• Scalable pricing model
