I was talking with my old friend, Mark Tice, the other day and he referred to a startup mistake as, “on his top ten list.” Ever the blogger, I replied, “what are the other nine?”
Mark’s been a startup CEO twice, selling two companies in strategic acquisitions, and he’s run worldwide sales and channels a few times. I first met Mark at BusinessObjects, where he ran our alliances, we worked together for a while at MarkLogic, and we’ve stayed in touch ever since. Mark’s a seasoned startup executive, he’s go-to-market oriented, and he has some large-company chops that he developed earlier in his career.
Here’s an edited version of Mark’s top ten enterprise software startup mistakes list, along with a few comments prefaced by DK.
1. Thinking that your first VP of Sales will take you from $0 to $100M. Startups should hire the right person for the next 18-24 months; anything beyond that is a bonus. (DK: Boards will often push you to hire someone “bigger” and that’s often a mistake.)
2. Expecting the sales leader to figure out positioning and pricing. They should have input, but startups should hire a VP of Marketing with strong product marketing skills at the same time as the first VP of Sales. (DK: I think the highest-risk job in Silicon Valley is first VP of Sales at a startup and this is one reason why.)
3. Hiring the wrong VP Sales due to incomplete vetting and then giving them too much runway to perform. Candidates should give a presentation to your team and run through their pipeline with little to no preparation (and you should see if they pay attention to stage, last step, next step, keys to winning). You should leverage backdoor references. Finally, you should hire fast and fire faster — i.e., you’ll know after 3 months; don’t wait for more proof or think that time is going to make things better. (DK: a lot of CEOs and boards wait too long in denial on a bad VP of Sales hire. Yes, starting over is difficult to ponder, but the only thing worse is the damage the wrong person does in the meantime.)
4. Marketing and selling a platform as a vertical application. Having a platform is good to the extent it means there is a potentially large TAM, but marketing and selling it as an application is bad because the product is not complete enough to deliver on the value proposition of an application. Align the product, its positioning, and its sales team — because the rep who can sell an analytic platform is very different from the rep who can sell a solution to streamline clinical trials. (DK: I think this happens when a company is founded around the idea of a platform, but it doesn’t get traction so they then fall back into a vertical strategy without deeply embracing the vertical. That embrace needs to be deeper than just go-to-market; it has to include product in some way.)
5. Ignoring churn greater than 15%. If your churn is greater than 15%, you have a problem with product, market, or most likely both. Don’t ignore it — fix it ASAP at all costs. It’s easy to say it will get better with the next release, but it will probably just get a bit less bad. It will be harder to fix than you think. (DK: if your SaaS bucket is too leaky, you can’t build value. Finding the root cause problem here is key and you’ll need a lot of intellectual honesty to do so.)
6. Waiting too long to create Customer Success and give it renewals. After you have five customers, you need to implement Customer Success for renewals and upsells so Sales can focus on new logos. Make it work. (DK: Truer words have never been spoken; so many startups avoid doing this. While the upsell model can be a little tricky, one thing is crystal clear: Customer Success needs to focus on renewals so sales can focus on new ARR.)
7. Pricing that doesn’t match the sales channel. Subscriptions under $50K should only be sold direct if it’s a pilot leading to a much larger deployment. Customers should become profitable during year two of their subscription. Having a bunch of customers paying $10K/year (or less) might make you feel good, but you’ll get crushed if you have a direct sales team acquiring them. (DK: Yes, you need to match price point to distribution channel. That means your actual street price, not the price you’re hoping one day to get.)
8. Believing that share ownership automatically aligns interests. You and your investors both own material stakes in your company. But that doesn’t automatically align your interests. All other things being equal, your investors want your company to succeed, but they also have other interests, like their own careers and driving a return for their investors. Moreover, wanting you to succeed and being able to offer truly helpful advice are two different things. Most dangerous are the investors who are very smart, very opinionated, and very convincing, but who lack operating experience. Thinking that all of their advice is good is a bit like believing that a person who reads a lot will be a good author — they’ll be able to tell you if your go-to-market plan is good, but they won’t write it for you. (DK: See my posts on interest mis-alignments in Silicon Valley startups and taking advice from successful people.)
9. Making decisions to please your investors/board rather than doing what’s best for your company. This is like believing that lying to your spouse is good for your marriage. It leads to a bad outcome in most cases. (DK: There is a temptation to do this, especially over the long term, for fear of some mental tally that you need to keep in balance. While you need to manage this, and the people on your board, you must always do what you think is right for company. Perversely at times, it’s what they (should, at least) want you to do, too.)
10. Not hiring a sales/go-to-market advisor because they’re too expensive. A go-to-market mistake will cost you $500K+ and a year of time. Hire an advisor for $50K to make sure you don’t make obvious mistakes. It’s money well spent. (DK: And now for a word from our sponsor.)
Thanks Mark. It’s a great list.
GREAT list of advice. One I think is missing is that the executive team doesn’t actually talk to customers. I can’t tell you how many CEOs and VPs of marketing and development I’ve queried about the last time they actually spoke with a customer and the answer was “never”.
re: #2 about expecting the sales VP to figure out pricing and positioning, I’ve seen the opposite occur too. I’ve seen product guys (often founders) who’ve never talked to a prospect or current client dictating pricing.
re: #3 about hiring. When hiring a sales VP I expect them to get up in front of the team and give their perspective on positioning, value proposition, Ideal Customer Profile etc. Many times an outside view adds a lot of value. When asked how the candidate came up with that stuff, the best candidate will say “simple, I just found a few of your customers and asked them.
Thanks Bob. Great stuff.