|Musings from Jay Weintraub, Customer Acquisition Strategist. Currently, Founder of Grow.co. Previously Founder of LeadsCon.
Technology companies have by their definition been about technology. So, who better to start and build such a company than a technologist? Prior to the internet, though, most pure technology companies had, if not a business/sales founder, a business/sales executive as part of the core team. Why? Because no one would see or use the technology if they didn't. It would still be in the garage where it was first built.
The internet changed the paradigm. Take Google. It too could not exist were it not for stellar technology, but it did not have or need as part of the very early team a face to the business that evangelized and sold Google to the outside world. As the shift to mobile and social really took steam, the recipe for startup success in digital was forever changed. It was all API versus ANI (a bad telephony reference).
Sales people in classic tech companies were never seen quite on the same level as tech, but the new paradigm turned sales people into second class citizens in some firms, a different species at others. There are early Google sales executives worth eight and nine figures, but they were only laughing after going to the bank.
In this paradigm shift was lost a universal truth. Every company needs sales. It's a matter of when, not if. Many companies will fail because they assumed they wouldn't or their "when" was too late.
A handful of businesses can scale without sales. And that number is far higher than ever before. But that doesn't mean they don't need sales, and unfortunately, that some companies can get to scale without sales has caused certain people to assume they won't need sales.
If there is one thing I have learned, in more companies than some tech-minded folks will think, sales beats good technology every day. Like ideas, the best product does not always win. In fact rarely is there a product where a better version doesn't exist. The moat in these cases is based on people - either people who sold that product, or people who use that product. People make the difference.
I remember talking to a company that wanted to get into lead gen. They thought they could buy traffic better and cheaper. They also thought they could optimize how they worked, all because of technology. Six months later, we caught up. They had better tech, but they weren't winning. They couldn't understand how another company was beating them. The answer was sales. The other company made $40/lead where they made $20/lead. Optimize all you want, but even an impressive 20% improvement won't make up for a 2x difference in the starting point.
Time and again, I have seen this scenario. A company I met with recently has a rather average product. Yet, they are the market leader. It is painful how underwhelming their product is compared to what is available. Why are they ahead? Sales.
Sales is not saying one can have or should have a bad product. But, as we know, good sales can certainly sell a bad product. A bad product won't make for a sustainable business, and in the above scenarios, neither are a bad product. They are just far from the best.
If you are a tech company, go ahead and build an equally impressive sales team. You will need it. If you are selling technology or are a tech company but not a Facebook, then you already know that you need the best sales around... or you wish you had known.
(Originally published on November 6, 2014)
Google. Apple. Facebook. Yahoo. Twitter. AOL. Amazon. The list of big companies that choose to buy their way into a product or market rather than build it themselves. And these are just tech companies. What about Berkshire Hathaway? Merck? GE?
The tech industry is a fun one to ponder because here are companies with arguably some of the smartest people working for them and with at times limitless resources. So why then would they want to buy when they can certainly build for less? Not only can they build for less, but many, like Facebook or Google, have the built in network effects to instantly scale what they've built. Just look at Facebook Messenger.
Build versus buy is a question that still has me shaking my head at wonder, and while I have partially lived it, yesterday, I had the chance to talk to two entrepreneurs who used to be intrapreneurs. They shared their personal experiences of what it is like trying to build internally and why they left.
The two entrepreneurs are not from the tech industry but the events industry. It is an industry that I have grown to love, even though in our tech centric world, saying you create events causes those high on the tech juice to look at you with a mix of sympathy and bewilderment, as though they are trying not to say out loud, "Oh you poor thing. Could you not get into a tech company?"
Assuming for a moment that some of those outside of tech have valid insights on business, I thought I would share what for me are two really interesting reasons why companies buy. They are reasons that until recently I didn't have enough insight or exposure to understand, and these intra-turned-entre-preneurs represent one of each.
There Is No "I" in Bureaucracy but there is "Money"
Big company bureaucracy is a pretty obvious reason why entrepreneurs leave. But the "bureaucracy" is often not just a function of size. It's usually about money and increasing or at least protecting their valuation. We're not talking about the valuations based off non-financial metrics like users or market potential but those based off revenue and earnings… something large event companies do very well.
So, we'll use an example from the events world. New events are like any business. They require investment, and very rarely do they make money on the first go round. Compounding things, rarely will you know from the gate whether something is worth doing again. Assume then that a large events company wants to launch a new brand, and for simplicity's sake every test will cost them $100,000. If they allow ten tests (which could be five shows for two years or 10 for one year), that is $1.0 mm in costs. If they are valued at 10x earnings, that $1.0mm off their bottom line, represents $10mm off their valuation.
Yet, if they purchase even a marginally profitable company for $10mm, even though they have technically spent $10mm, their valuation doesn't just stay the same, it can increase. And, given that their business is one of real revenues, it means they most likely have access to debt at attractive rates so that they can spend this money against future earnings (from the acquired company) rather than using their own cash.
It may sound simplistic, perhaps selfish, but if someone makes a company a lot of money, at some point in their career, they will start to weigh the value they feel they have created against the value they have received in return.
This is such a slippery slope, full of ego, entitlement, and exaggeration. But, for every number of those who do add value but are clearly smoking something with respect to what they feel they deserve, there are those who are truly capable of creating shareholder value from scratch in a new entity with them being a much larger shareholder.
Shareholder value is of course revenue but equity, and if someone is special and able to create both, then a company is truly lucky. But, that existing company structure almost always is the downfall, as it is virtually impossible to manage the company's valuation and pay the person in some direct fashion (without then hurting the valuation). The same way that food at a restaurant has baked into not just the food costs but all other overhead, a company at scale has to use the value created to distribute across the whole company even if one person plays an outsized role.
If you are not first, you aren't exactly last, but you aren't ever going to get a straight percentage upside. Each incremental dollar created means less directly to you. It's slightly perverse, but it's the reward a company gets and you get, but only if it is your company.
My thanks to these two business builders for sharing.