Engineers Hiring Sales Reps

The hiring of salespeople is often one of the most frustrating aspects of staffing a high tech enterprise.

Particularly in the startup phase, senior management has often come from a technical (or at least not sales) background. They know that they need a sales force (usually!). But they’ve certainly never hired them before. Or if they have, it’s not been successful. And truth be told, technical founders often don’t have a high opinion of the sales profession. They may think sales looks like an easy job that anyone can do.

Necessary Evil

Salespeople are often stereotyped as having several of the following, rather undesirable traits:

- Lazy
- Opportunistic
- Over-paid
- Not particularly smart (certainly not smart enough to be an engineer!)
- Un-ethical
- Pushy or High Pressure personalities
- A backslapper and BSer
- Only interested in money

You probably could add a number of others to this list, but you get the picture. Sales people are often seen, at best, as a necessary evil.

The Two types of “bad” hires

This is really very unfortunate and is based upon many years of stereotyping and misunderstanding by people from the technical end of the business. The fact of the matter is, salespeople and technical people are very different. What makes a great salesperson is quite different from what makes a great engineer. The problem results when an engineer evaluates a sales candidate using his “engineer” filter, or worse—using the salesman “stereotype” as his hiring model.

So when things go poorly, who gets hired? There are two common scenarios that often take place. Let’s take a brief look at them:

The first one is the technically adept but “virgin” sales rep. It might be another engineer who is tired of designing or writing code. Because they can relate well to the hiring manager, a good rapport develops leading to their hiring as a new rep. This candidate obviously has the technical skills to have a great grasp of the product technology. The hiring manager is quite happy, really likes the guy or gal he’s hired, and is quite optimistic that sales will be increasing in short order. Unfortunately, it doesn’t happen. Why?

The new rep has little to no experience or formal training in sales. There is no strong sales mentor at the company, and he’s left to his own devices to “figure it out”. He calls a number of potential customers, with very little positive feedback. He gets very discouraged; this isn’t as easy (or as fun) as he’s expected. In fact, it’s hard work and pretty deflating. He quits within weeks or months and looks to return to a technical position.

The second scenario occurs when the technical CEO decides he needs to hire a “real sales rep” (this often occurs immediately after the technically-oriented “virgin” sales rep has left!). The CEO or founder sets out to find someone with experience in sales, and preferably someone with existing contacts in their market segment. This looks like a great step at first blush. Sadly, this time our founder falls back on his “stereotype” of a sales rep.

He hires a bubbly, talkative guy or lady who never shuts up. He’s always “selling”- customers don’t’ have a chance to get a word in edgewise. He really doesn’t understand the product very well, but he has high energy and makes lots of contacts. He’s buddies with everyone and never offends. Initially, this looks like it might be the ticket for the company, as the “sales pipeline” seems to be filling up. But in the end, sales don’t increase significantly, and our second new hire either quits or is fired for non-performance. The founders are despondent. This sales thing seems so simple, but they feel they’ve just been unlucky with the people they’ve hired.

The “right” way to hire

I’ve seen these two “mistake” hires repeated over and over in my career by my clients and colleagues. Technically driven companies, especially the startup variety, grossly underestimate the importance of sales and exceptional sales reps. In reality, the sales rep who is exceptional at his job is every bit as important to a company’s success as the star engineer in product development. But what are the key attributes which make the great high tech sales rep?

I list below the critical attributes of a great rep in no particular order:

A listener, not a talker: High tech sales is about listening to customer needs and connecting product benefits to those needs. The aim of the sales call is to get the customer talking about his needs, using the least amount of prompting by the rep.
Need to be smart: it’s a different kind of smart from the product developer, but there’s no substitute for intelligence
A very strong work ethic: Sales is a very hard job that has no substitute for making lots of calls.
Exceptional honesty and integrity: Customers have their antennae up for dishonesty in every sales situation. If they get even a whiff of it, your company has no chance.
A strong self-concept with a lot of self-confidence: Rejection is much more common than success in sales. If you can’t handle it, you won’t last.
Ability to understand and enjoy technology: After all, it is still high tech. And just because you can sell soap, doesn’t mean you can sell enterprise software or electronic components.
A competitive, risk-taker by nature: Sales is a pressure-packed, performance-oriented field. With typical rep comp plans that are heavily commission-based, if you don’t perform—your family doesn’t eat.

So that’s my map of a great sales rep. You won’t often find someone who is the strongest in every category. But simply using these categories in the interview process will enable you to rank candidates properly, thereby optimizing your sales hiring.

In future posts I’ll be discussing other topics relating to the high tech sales force such as compensating, managing and motivating reps. As always, I’d love to get your feedback.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com

The High Tech House

So, looking around for a really big opportunity that isn’t yet being served? Look no further than the High Tech house.

Yes, I know, all the big computer and consumer electronics companies are investing billions in the market for pumping entertainment content via fat pipes into and throughout the home. And no doubt, this is becoming a very large market that will ultimately be huge. But that’s not what I’m talking about. I believe that there is an even larger, but more mundane opportunity for software, semiconductor and electronics companies that has been largely ignored.

This new concept has been alluded to and talked about in theoretical, general terms by futurist speakers at trade shows and TV sound bites for many years. So in that sense it’s not really new. But little has been done in terms of actual investment in companies and product development to attack this potentially enormous market. So what exactly am I talking about? Do you remember several years back all of the snickering about the Internet Toaster?

Let’s call this the Internet Refrigerator market.

What’s so compelling about this potential new market segment vs. the home entertainment opportunity that nearly every monster high tech company is already chasing? Well, of course, the first attractive thing is that not everyone is chasing it yet! As far as I can tell, very few are. The second thing that pops up when considering this potential market is that there should be an attractive payback available to the customer. That’s something the entertainment space will never be able to say—it’s sexy, fun and high profile—but it’s looking to take a share of the already stretched consumer wallet for discretionary purchases. Thirdly, all of the technology necessary is already inexistence. In the most recent study on broadband penetration this year, Nielson/Netratings found that 56% of US homes connected to the Internet are now using a broadband connection. Worldwide, almost two thirds of all Internet connects are broadband. The broadband world has arrived, and it’s time to start utilizing it for something other than simply surfing the World Wide Web. And finally, this concept should yield substantial benefit the US and world economies by driving costs out of some of the most labor intensive, inefficient tasks in modern western society. Yes, I said substantial economic benefits. Curious yet? Read on!

I’m proposing that all of the major systems and appliances in our high tech homes be Internet-enabled and connected to our home network. Let’s look at the benefits of this concept using an example of our Internet Refrigerator.

The Problem

This example is an amalgamation of similar experiences I’ve had many times since reaching adulthood. You’re employed full time at a job that you drive to 15-45 minutes away from your house. If you’re married, your spouse also is likely similarly employed these days. A major appliance such as your refrigerator breaks down—and of course it’s outside of the warranty period (they plan it that way!). You either call the store you originally purchased the appliance from, or if you’re the thrifty type, shop around for a lower cost independent service provider. What happens next? Mostly frustration, if my experience is typical.

First off, no one can make it out on a service call for three days (there’s a reason for this—these are highly inefficient businesses). You still don’t even know what’s wrong with your Fridge, and by the way—the food is starting to rot. In addition to having to wait three days, no one will give you an actual specific “appointment” these days. Most often they give you the dreaded “4 hour window” appointment. Oh, and by the way, there is a minimum charge of $65 just to come to your house. No guarantees, no refunds even if they can’t fix it. But what can you do? You swallow hard, eat out for the next 3 days (at added expense to your budget and waistline) and wait for your appointment.

The day of the appointment finally comes and you head home for your 4-hour window, much to your boss’s consternation. Four hours come and go, and of course no one shows up. You call the service company, and as usual, “they’re running late”. (This happens because these inefficient service companies are in such demand that don’t need to have a customer orientation, and utilize very little technology to optimize their business). So you wait an additional hour for them to get there, and then another hour to diagnose the problem. Pretty much a whole day of work productivity shot—I hope that you weren’t getting paid by the hour! But it gets even better. Upon diagnosing the problem, the repairman says “It’s $200 for the part and $150 for the labor. Unfortunately I don’t have the part available in the truck—I’ll have to order it.” Great! Now you’re scheduling another appointment with a 4-hour window—you get the drill at this point. It’s pretty ugly. In this modern world, there’s got to be a way. And I believe that there is.

The Solution

What if that refrigerator was instrumented and outfitted with a cheap microcontroller, embedded web server software and Ethernet or WI-FI Port? Well, especially with all of the broadband households now online, you could make major changes to this productivity-sapping service fire drill.

The first thing you would do under this new scenario is to call up your preferred service provider and explain the problem. After granting them access to the Refrigerator’s IP address using the “Home Network Console” software on your PC, the service provider would run a diagnostic software program on your Fridge. With luck they could diagnose the problem right then and there. Maybe all that’s required is a minor tweaking of the appliance setting that can be done remotely or by you, and only a small service charge is due. Even if it’s a failed part, the service provider could check their parts inventory immediately and order the part if it’s out of stock. Only when the part is available would a service truck be dispatched for a quick installation.

Think of how much service technician time would be saved. Or how much gas saved, fewer trucks on the road, not to mention the productivity regained by the hapless customer waiting at home. The service providers would become much more efficient, allowing them to provide better service, at lower prices, using less techs. Customers would be thrilled and have added productivity in their own jobs. And I believe that the first Appliance manufacturers offering this capability would have a huge advantage and an opportunity to quickly gain market share while enhancing their brand as “cutting edge”. This opportunity applies to just about every capital purchase in the home: Refrigerators, Washers & Dryers, Home Entertainment, Furnaces, Air Conditioners, Stoves, Dishwashers, etc.

Some of you may think this sounds great but it’s too futuristic and not realistic. Yet as I mentioned above, all of the necessary technology exists today. When you think about it, this idea is really just an extension of the software being installed in most modern computers which allows control and problem diagnosis remotely by an IT professional. And the campaign for acceptance of this concept could piggyback the huge investment by companies pushing entertainment and communications products/services over broadband pipes, which is already in process.

Who and When?

So why hasn’t this happened yet? Why is this being ignored, while everyone dukes it out over home entertainment? It’s hard to say because it could really be the proverbial “Next Big Thing.”. But again, it’s not very sexy. And the Appliance manufacturers are not technology-driven companies, and as a result don’t’ innovate or adopt new technology very quickly. But this is going to happen, it’s just too big. It is only a question of when. So what’s it going to take? Maybe it will be a smaller appliance manufacturer who needs an edge to compete, and is nimble and more willing to innovate and take risks. Or it might possibly occur when a network/systems management software company looking for a way to grow, decides to extend their core competency from B2B to B2C by approaching appliance manufacturers with market-ready software. Or an embedded software or silicon company that sees the opportunity to extend their microcontroller or embedded web server from the industrial world to the enormous consumer market.

When will it happen? I don’t know. I expected it to be well underway by now. But sometimes, big ideas are slow to catch on. With this one, I’m convinced it’s just a matter of time. Will your company be the one to capitalize?

Phil Morettini
PJM Consulting
www.pjmconsult.com

Software as a Service

How should Software be delivered to users? Via traditional licenses? As “free” services supported by advertising? Or using a rental model referred to under several different labels such as Hosted, ASP, On Demand or SaaS. This has been very much in debate over the last few years. Back in the dot-com boom, the selling of software licenses was proclaimed to be dead. Everything was to be a service on the Internet, and much of it was going to be advertising-supported instead of paid for by the user. We all know how that turned out!

Of course, while that model failed at that time, that doesn’t mean that it eventually won’t happen. Hype has a way of getting in the way of reality. Hype can lead to retardation of the market for great ideas, when the inevitable disappointment in the early stage of a technology sets in. But there have been some very notable major successes that came out of the dot- com era. Search Engines are the most notable, and have actually succeeded while staying true to the advertising-supported model. Search engines are nothing more than hosted software, delivered “free” for use by end-users—and supported primarily by advertising revenue from services like AdWords and Overture (recently renamed Yahoo Search Marketing). The search engine companies are arguably the hottest segment of the software industry at this point. But while they broke through in a major way, thousands of companies (and billions in Venture Capital) went down the drain attempting to follow essentially the same model.

On the ASP side, there have also been successes as well. The most notable today is salesforce.com, which has gone along way toward transforming the way CRM is delivered to companies. Salesforce.com and its direct competitors have delivered great benefits in this space, and have gone a long way toward legitimatizing the ASP model for business customers. Marc Benioff, Salesforce’s CEO, is very visible and colorful. He has made a big splash by proclaiming traditional software licensing to be dead, that the era of On Demand software is upon us. Is this true—or bluster?

Like anything else, I think it’s a bit of both—but mostly bluster at this point. My take on this issue is one of market segmentation: there are customers who will embrace the ASP model for concrete business reasons as well as their psychographic profile, and on the other end of the spectrum there are conservative clients who will profess to never embrace it. Let’s look at some of the pros and cons of the ASP model vs. Traditional licensing:

Traditional Licensing

Pros
- Customer owns a perpetual license to the software--positive for many reasons
- Data resides within the company—don’t rely on outside vendor for mission-critical data
- Somewhat protected if SW vendor goes out of business
- Greater ability to integrate with other third party and in-house applications

Cons
- Must support the software internally
- Keeping up to date on releases and rolling them out can be a complex headache
- IT is constantly overworked and unavailable for support, costing users productivity
- Increased hardware budget and systems complexity
- Cost of software must be capitalized

ASP Model

Pros
- Back office support is offloaded to ASP
- Less hardware to buy and maintain
- Cost of software can be expensed
- Software updates are transparent and automatic
- Great for independent operations and branch offices
- Familiar Browser interface reduces training costs
- Appeals to users who don’t have huge capital budgets or are more comfortable with smaller bets

Cons
- If something goes wrong, less ability to fix it quickly internally—you’re at the whim of an outside vendor
- Mission-Critical data is in the hands of a supplier, which scares a lot of people
- More susceptible to price increases by the vendor
- Less integration potential and control by the customer, particularly with in-house apps.

One of the most important factors, cost, really can’t be put in the favor of either model. There is no inherent cost advantage to either model—the lowest cost solution will be determined by the relative efficiencies of the customer’s IT department vs. the ASP, and the pricing aggressiveness of the ASP and traditional software vendor.

So what will happen in the software market? Will everything quickly be converted to an ASP model, or is this a fad that is going to quickly pass once again? I believe that for a very long time both models will be important, with a slow shift toward the ASP model. The early shifts will take place in the apps where it is most compelling. CRM fits into this category because the desirability to have it available to people in the field anywhere via a browser far exceeds any negatives. Accounting Software? Engineering Software? I don’t believe that the case is very compelling at the moment in these categories. After an initial shift toward the ASP model, it’s my forecast that for a long time these two delivery schemes will co-exist, as different market segments based upon unique business needs and psychographic preference within the software user community.

So what to do if you’re the VP-Marketing or CEO of a software company looking at this issue? Don’t just look at it on the surface and embrace the ASP model as the wave of the future or simply reject it as a fad. Analyze your particular market to see if this new model makes sense for your product family. In many cases it will make sense to offer both an ASP delivery option and traditional licensing. If it is practical to offer both, you will most likely maximize the financial return on the IP of your company using this strategy. That’s my view—I’d like to hear yours.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Pricing High Tech Products

Pricing is always an interesting topic, but even more so in the High Tech and Software worlds. In the consumer products business, if there is a package of frozen peas from Green Giant that’s priced at $3.99, you’re not likely to see someone else’s same-size package of peas priced at $14.99. But in High Tech, things are different.

The pace of innovation in the High Tech world leads to pricing that’s all over the map. It’s not unusual for a brand new competitor to come out at a higher price than the current established market leader—if their product is based on market-changing advances in product functionality due to a new technology. This is unheard of in most markets. Then you have the PC business, where rapid technological advancement over a long period of time has led to continuously lower prices—with great benefit to consumers but squeezing margin (and indeed many competitors) out of the market. Things move fast in High Tech. Sometimes it’s a high initial price to harvest profits while you have a feature advantage, other times aggressive discounting based upon your lower cost structure due to less expensive technology. Whatever the case, you can often count on pricing moves to be dramatic, and to have a profound effect on High Tech market segment in the long-term.

So what’s the best way to price High Tech products? Is it best to add up your fixed costs and, allocate them to a forecasted number of units to ensure you are recovering your investment? Or is it better to take your variable product costs and use a standard multiplier derived from history? Maybe you just set your pricing based on the prices of your competitors. Or let your customers tell you what they’re willing to pay. While all of these approaches have merit and a place in pricing policy, none of them should be the over-riding factor in your pricing strategy.

So what is the most important factor to consider in Pricing? The most important thing to focus on in setting prices is VALUE. What is the value of your product to your customer as an economic, functional or emotional return? And how does the customer value the benefits of your product relative to your competitors?

So let’s talk about the nature of Value. Value is the underlying need or want that drives a customer to purchase a High Tech product. If the benefit that the product provides closely fulfills that want or need at an acceptable price, you have a sale! The most important consideration in value-based pricing is to SEGMENT your market properly prior to the pricing decision. Segmentation, by definition, is the process of separating the total addressable market into “buckets” or segments of potential customers who have similar values, and therefore will react similarly to a specific offer. What this means is that once you have divided your marketplace into appropriate market segments, you will be able to charge individual segments different prices that are based upon the perceived value the product provides them. Let's look at an example of this segmentation approach, marketing a security software product to Corporate IT departments. Through your market research you have concluded that the potential customers with the highest pain threshold for the particular security problem you are solving are banks. By adding only a few banking-specific features to build a “fence” around this market segment, you may be able to charge a price for a banking-specific version of your product that far exceeds what other segments might pay. If you extend this model to multiple segments and do it properly, this approach will lead to far higher total revenue than if you set just one price for the entire market. The process of establishing value for each market segment, pricing to full value and communicating that value to the marketplace is the essence of Value-based pricing.


Finally it’s important also to remember that pricing actions should not be done in a vacuum. Pricing is one of the 4Ps of marketing, and all four are inter-related. You cannot properly price a product without at the same time considering the features and benefits of the product, as well as how it will be promoted and distributed. The price for an Internet-distributed software product will almost certainly need to be in a lower range than one distributed via a sophisticated direct sales force or VAR channel. And if you aren’t going to have much of a promotional budget, you most likely will need to be a price leader to have any chance of being successful. If your product is at a perceived value deficit, your price relative to the market leader will probably need to be aggressive. I’m sure you get the picture.

Pricing is a complex topic that many books have been written about. This post is meant to be an introduction to pricing in the High Tech world, and to get you thinking. I hope it’s been helpful. So when your next new product comes out, you’ll look a little harder before just pulling a price out of the air.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com