Riccardo (Ric) Vicari

Context and key figures / data

Startup VCs, CEOs, COOs and Chief Revenue Officers, Regional MDs of Software-as-a-Service (SaaS) vendors, as well as enterprise clients/buyers of SaaS solutions, may be interested to read this paper aimed to analyse the role of the sales function within enterprise SaaS vendors.

The aim is to trigger a discussion around the following topics:

· How will profitability concerns impact the sales function within SaaS vendors?

· How will sales roles be staffed as a result of the rise of the Customer Success function?

· What is the ideal mix of sales and customer success professionals to deliver maximum value to B2B customers?

· Are there any specific skills that make the sales function not replaceable by other customer-facing functions?

This analysis is becoming increasingly relevant due to the acceleration of SaaS market size growth worldwide. Most industry experts notice that SaaS is at a tipping point, where, unlike in the past 10-15 years, corporate buyers of software-based solutions deem a SaaS option as less risky than an On Premise option, both for their business and for their own careers.

In 2017 SaaS revenues are expected to reach $46bn worldwide, that is 13% of the Enterprise Software Market size ($351bn), and 3% of Total IT spend ($1.5tr) worldwide. (Sources: 1 , 2 , 3 ).

In 2020 SaaS revenues are expected to go up to $75bn, that is 17% of the ESM size ($432bn) and 4.4% of Total IT spend ($1.7tr). (Sources: 1 , 2 , 3 ).

Global mass adoption of the SaaS model carries two implications:

a. The SaaS model brings a greater focus on cutting costs to become profitable . True, SaaS vendors expect to be profitable not initially but in the long term, thanks to multi-annual contractual relationships with their clients. Hence the huge focus on and strategic importance of extending contracts and expanding their scope through maximising adoption of both core product features and the entire product portfolio. However, pressure to accelerate the achievement of profitability is becoming a priority.

b. The 90/10 revenue split . Based on established players’ experience, in the medium/long-term SaaS vendors expect 90% of revenues to be generated from expansion in existing clients. Only 10% growth is expected from the acquisition of new clients. Combine these figures with the widely accepted notion that to retain existing clients is 8 times cheaper than to acquire new clients, and (wrong) conclusions could be easily drawn.

Sales vs. Customer Success.

A recurring question within SaaS vendors is: which team is responsible for negotiating renewal and expansion contracts? The sales team or the Customer Success team?

Another question which is often asked is: does a customer find it easier to channel a new business or technical requirement via the Customer Success team or the Sales team?

There are clear reasons why these questions are now popping up.

SaaS companies have determined the rise of the Customer Success function. This definition did not exist in traditional On-Premise software vendors. In those software companies one would find a delivery team, a technical support team and, sometimes, a separate project management team. Often systems integrators would be fully responsible for installing, configuring and maintaining those software solutions. Enterprise sales teams would be responsible for selling the initial software licence, normally paid entirely upfront, as well as the initial maintenance charge. Dedicated Account Managers would then negotiate renewals of those maintenance contracts.

Both Software vendors and System integrators interacted primarily with the IT function of a corporate client. Business Users were involved at the beginning and at the end of a multi-month deployment process.

With a SaaS model, Business Users within the client organisation tend to interact a lot more directly and frequently with the SaaS vendor. Due to the long-term contractual relationship, SaaS vendors are truly engaged and committed with their clients’ business. “Our clients’ success is our success” has never been a truer statement.

Hence the rise of the Customer Success function, which encompasses support, delivery, project managers but also technical account managers, or engagement managers, who are responsible for ensuring that the solution is delivering the expected business outcomes on an ongoing basis. Often it also feeds back product requirements to the product team in order to influence roadmap decisions.

The so-called “innovation cycle” is much shorter due to the direct feedback loop between vendor and end users.

With lots of information available to prospective clients on web portals, clients are very knowledgeable about a SaaS vendor solution before their first interaction with that SaaS vendor's sales team. Often prospective clients want to dive in directly into real-life use cases, business impact, outcomes, anecdotes based on implementation experience, product roadmap evolution, flexibility, focus. They have questions about their own use cases and how the solution can support them. They use vertical-specific and company-specific jargon that they have no time to explain in every meeting. Most of this information is definitely in the hands of Customer Success teams.

Taking one step back, lead generation is also an activity where a strong overlap exists between Inside Sales Development teams and Direct Sales teams. This overlap is stronger in presence of a generic offering to a large prospect list (i.e. a cross-vertical eCommerce solution for SMBs), it is less strong in presence of a small prospect list of very large enterprises in a given vertical (for example Customer Engagement Management system for Retail Utilities).

The case for investing in (junior) Inside Sales Development teams making cold calls to prospects is even more compelling as most SaaS vendors, especially in the Data Analytics and AI/Deep Machine Learning space, offer an often free-of-charge “trial” or “Proof-of-Concept” phase to allow prospects to appreciate the benefits of the solution before they start spending money on it. This reduces the need for expert sales people who specialise in helping clients justify large upfront investments. Given the low initial barrier or financial commitment required, prospects’ decision to adopt the solution is normally influenced by similar references as well as by solution experts who can address specific risk-related concerns.

So, is there room - and value - for a dedicated (and expensive) enterprise software sales team in such a changing environment? I think so, but probably the composition of the sales team has to change too, according to the software vendor's lifecycle stage.

Traditionally sales teams have been split into two main broad categories:

- Hunters: risk-takers, willing and able to win new logos through cold calling, very strong at qualifying prospects and opportunities in order to prioritise their time allocation, able to compete against established brands and trusted incumbents.

- Farmers: patient and focused on long-term business growth vs. short-term wins, able to become part of the client ecosystem as a trusted advisor to both senior executives and operational management.

I believe it is necessary to add a new dimension, as shown in the following matrix:

And for ease of reference, let’s classify the four types as follows:

Intuitively a hunter for a new entrant startup (Type A) will have very different skills and risk-aversion levels than a colleague in an established global brand (Type B), for a number of reasons, such as:

- A startup normally exists to solve a specific problem through a point solution, whereas a large IT vendor normally has a wide portfolio to push to their clients.

- A startup, even a well-funded one, is financially small compared to a large IT vendor.

A Type A startup hunter will therefore excel at:

- Qualifying a good fit opportunity/client (and qualify out of everything else in the pipeline)

- Explaining his/her company strategy and vision to clients and partners

- Facilitating contact between the two companies (vendor and client) at the right level and correct department in order to foster the most efficient communication.

- Understanding the impact that he/she can have on the client’s own career progression and making sure to advice the client well on time about possible issues caused by product limitations and or use case misunderstandings.

- Speed at which he or she gains a deep understanding of their customers business and demonstrates the benefits accrued by adopting the startup solution

- Demonstrating the risks associated with not adopting the startup solution (and adopting others)

- Addressing objections around corporate viability with crisp, solid and credible arguments

- Handling rejection and dismissive reactions from prospects and partners during the months prior to the “tipping point”, knowing that it is only a matter of time before they will be calling him/her when the brand is well known

- Keeping sane during the 9-24/month sales cycles, especially before the first strategic client is acquired

- Reporting and forecasting internally on the true status of an opportunity. With such long sales cycles, credibility is a key asset all along.

I would argue that Type B, C and D could be played by either a Sales person or a Customer Success person, as long as they both possess people skills, business acumen, negotiation skills, adequate knowledge of both their own solution and their customer/prospect business.

I have also facilitated and witnessed the migration of excellent presales / technical sales support people into sales roles.

The potential Sales/Customer Success overlap is shown in the picture below.

I would still recommend that all commercial activities, such as selling, negotiating and closing contracts, are managed by a separate sales team, rather than by a Customer Success team.

One word of caution is around the different motivation of sales and customer success teams. To deliver value to clients brings about a certain level of complexity, difficult projects, long days and nights. Without which, most projects would not see the light. During those long projects Customer Success people make life-long friends, sometimes families. Is it fair to believe that teams in charge to deliver those benefits both on the vendor and client side may aim to de-risk their own task ? Is it fair to expect that an upgrade to innovative features often brings about unwanted risk in an ongoing project?

That is a situation where a direct communication channel between client executives and sales teams may ensure that client’s strategic requirements are communicated to the vendor organisation without risk-aversion filters. At the same time, a strong technical sales support team is required to ensure that requirements are reported correctly and comprehensively.

I also believe that Type-A ‘sales ninjas’ are an essential enabler of success for startups. These individuals are capable of articulating their company vision and the Go-To-Market strategy in a way to make themselves candidates for a company founder or CEO position. Their leadership capability both inside their organisation and within the prospective client organisation helps them eliminate cross-functional friction. Their level of market knowledge and vertical focus enhances their credibility and trusted advisor status with both clients and partners. Their ambition is demonstrated in an edgeless manner. They exude self-confidence in everything they do.

In summary, they are worth their salaries.

The challenges presented by selling the value and benefits of Data Analytics, Artificial Intelligence and Deep Machine Learning will increase even more the dependency on identifying, recruiting and retaining those Type A hunters.

Three questions then:

1. How can you distinguish a Type A from the rest ?

When you meet one you know. Typically Type A’s will be as impressive during an interview as they are in front of clients. You will perceive that “trusted advisor” aura, combined with a pride for special, hard-earned achievements. Their main anecdotes about key challenges will be business-case related rather than people-related. If you agree with this model please provide feedback on traits that differentiate Type A’s from the rest.

2. Should you employ or "rent" a Type A ?

The high employment cost of Type A’s may induce small startups to avoid having Type A’s as company employees, and to rely on retainer-type engagements. There are Type A’s for hire out there. I wouldn’t recommend going down this path though for the following reason: Type A’s main mission is to create a strong brand for the company, s/he is a brand ambassador. Just like a Formula 1 driver, football player or a rockband singer s/he has to belong to a team full time for at least an entire season to succeed. Full-time commitment allows enough time also to sharpen the tools of the trade (USPs, competitive analysis, pitch, advanced stage documentation, qualification questionnaire, objection handling strategy, priority lists). Like a great jazz musician in a jamming session, the Type A will use all these tools on a timely fashion in every interaction with prospects, clients and partners, analysts and influencers, to promote his/her company and solution without sounding obvious, tedious or boastful.

3. How should the commission/rewarding structure adapt to motivate Type A’s ?

To go through an in-depth analysis of quota setting, payment milestones and specific rewarding structures may be beyond the purpose of this paper.

However one specific point may need to be addressed, i.e. should Type A’s be solely involved with winning the first deal with a new client, or should they be motivated and compensated for subsequent renewals and extensions ?

In a typical “land and expand” strategy, the Type A ought to be focusing on bringing in new logos, with Type C’s (or the Customer Success team) focusing on the expansion phase.

However, it should be noted that both the first engagement with a new client and a renewal present similar challenges. Very often the business case structure that helped a client justify the first investment/budget allocation, is going to be different from the business case structure at renewal stage. Some of the benefits, costs and risks will move from “assumption” status in the first negotiation, to “certainty” status in the renewal negotiation.

In essence, both first deal and extension/expansions deals present a similar level of complexity for different reasons.

Hence for strategic clients, I would recommend keeping Type A’s motivated to be heavily involved in the ongoing relationship and renewal negotiations.

Conclusions and recommendations

1. Established SaaS companies with strong recognised brands may consider promoting Customer Success personnel into both Sales Farmer and Hunters positions (in this sequence). This may help decrease costs at low risk. However, a separate sales function should keep owning commercial negotiations and requirements capture.

2. Adequate sales training is necessary to ensure non-sales professionals perform well in a sales role. Enterprise selling is about following a very structured process, combined with self-discipline and psychological acumen. Whilst years of experience help to address complex situations in a more natural way, sales training can help shorten the learning curve and avoid typical mistakes.

3. SaaS Startups ought to select and employ exclusively Type A’s into Sales hunter roles. To try and make savings in this department may affect the company’s ability to succeed.

4. SaaS Startups may want to consider assigning the task to renew and expand existing contracts to a dedicated Account Management team (Type C’s) or to the Customer Success team. However, when it comes to managing strategic accounts, it is recommended to keep Type A’s strongly involved in the ongoing relationship and future renewal negotiations.

Would you agree ?

Riccardo (Ric) Vicari

Ascot, England, United Kingdom 4K followers 500+ connections

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Upstream Security

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