INNOVATING SOFTWARE SALES

Andy Singleton, president of open source solutions provider Assembla, asks in the IT Manager’s Journal, “Is the Enterprise Software Licensing Business Dying?,” arguing “buyers have had enough” of “software that is very complicated and expensive to acquire and implement.” He points to British Petroleum: With a FY05 IT budget of $2 billion, “only $30 million is allocated for new software licenses.” Singleton allows that enterprises “still buy a lot of software … but [they] don’t buy it as licenses.”

OK, so maybe enterprise software isn’t actually dying, but the sector certainly is going through a painful transformation.

Minimize Pain / Maximize Return
To minimize pain, independent software vendors (ISVs) serious about their future are entering the software-as-a-service (SaaS) arena (see “The Holy Grail of Software”). These companies do not need to abandon licensed sales (there always will be a market for customer-installed applications – just as there always will be a market for buggy whips); truly innovative ISVs will incorporate SaaS into what they are already doing.

To maximize this enhancement’s return, ISVs will also innovate their sales efforts. Successful SaaS companies understand the fundamental differences between the standard features-and-benefits / ROI process used to sell licenses and the consultative / solution process required for a service-focused offering.

Solution Selling Made Easy
Talk to technology sales managers, and most tell you they advocate solution selling. Probe further, and find few who describe their value proposition beyond discussing the ROI achieved via product features and benefits. Attend a few seminars on solution or strategic or consultative selling, and quickly understand why (a) most salespeople disregard these processes because (b) most sales trainers make them too complicated.

Solution selling is actually quite simple, and – particularly in the B2B technology arena – it is the most effective for profitable growth.

Key is the qualifying step (sometimes called "discovery"), and it is the one most commonly circumvented. During qualification, the seller learns about the customer’s business, processes, customers, competitors, and problems. Thorough qualification eliminates false starts and minimizes the number of opportunities that result in “no decision” by the customer. Good qualifiers avoid discussing their solution during this step, and the best continue qualifying and re-qualifying throughout the process. Rules to great qualifying: [1] Ask open-ended questions. [2] Listen to the answers (i.e., the salesperson’s two ears and one mouth are used proportionally).

Complete qualifying reveals the enterprise’s contracting process and identifies the actual decision-maker. Licensed-based ISVs often find themselves selling applications to three buyers at every customer: [1] the end user (features and benefits), [2] the CIO (installation and support) and [3] the CFO (ROI). SaaS providers concentrate their energies on the one executive whose department will benefit most from the application and rely on this person to coach them through any other approvals that are required. This shortens the sales cycle significantly.

Proposals are designed to solve the identified problems in the context of the customer’s culture and ecosystem. For traditional ISVs, this looks like the “features and benefits” step, but they need to be careful. Discussing rates and charges too soon refocuses the process on ROI, which is a losing proposition. Successful solution sellers understand this and fully demonstrate their inherent value before negotiating price.

In “The Coming Service Revolution,” Ray Lane (of Kleiner Perkins and former COO and President at Oracle) notes that a “service delivery model … gets software vendors out of the ‘hockey stick’ sales dynamic” and “gets customers out of having to buy something before they can use it.” By its nature, the solution sales process demonstrates the application’s current utility and avoids the ROI pitch, which only commoditizes intellectual property.

Effective Sales Management
Under a clearly defined solution sales process, management of the organization’s efforts is uncomplicated and efficient. The typical manager-to-salesperson hallway exchange – “So, how’s the deal going with ToeJam Industries?” followed by “Great! I’m taking their IT Manager to lunch on Friday.” – is replaced by one where real information is exchanged: “Where are we in the process with ToeJam?” and “I am giving them a revised proposal on Friday based on their feedback from last week.”

With the inherently shorter sales cycle, management can more readily track deals through the pipeline and follow up on these conversations in a topic-appropriate manner. The process’ collaborative nature reveals customer objections earlier and more clearly, which often can be overcome without crashing the price. Sales management focuses on key metrics – such as quote-to-close ratios; the number of “losses” due to customer “no decision;” days proposals outstanding – to improve sales force performance.

Consistent growth is driven by compensation plans that draw bright lines between hunters and farmers. By maximizing commissions paid on new contracts and “logos” and by minimizing (or eliminating) commissions on pull-through revenue from existing customers, the SaaS ISV will ensure both revenue and market share growth. Prospecting and on-going customer service can be handled by non-commissioned personnel, freeing the salespeople to do nothing but close new business.

A New Addiction
Talking with the CEO of a software company, I asked why more ISVs are not pivoting toward SaaS. He said something like, “It’s those big, fat revenue hits. Software companies are addicted to them.”

(After I laughed, I asked “Can I quote you on that?” He grinned and said, “Yes,” but neither he nor I understood my question to mean “Can I quote you on my blog?” so I’m not naming him here.)

Being “addicted to big, fat revenue hits” is an interesting concept. In today’s demand-driven market, it is akin to being addicted to heroin, which is not overly hyperbolic. Withdrawal from heroin probably won’t kill you, but it sure is painful.

Assembla’s Singleton believes that “traditional software companies still can deliver a lot of value, [but they] need to figure out new packaging and revenue models.” SaaS’s monthly recurring revenue (MRR) is one of the options available, and if “big, fat revenue hits” are like being addicted to heroin, then MRR is like being addicted to breathing.