BERKONOMICS – Business insights from Dave Berkus

Big corporations are just slow to act.

by on Nov.28, 2013, under Finding your ideal niche, Growth!, Ignition! Starting up

 

By David Steakley

 This week, David Steakley returns for another bite at the corporate apple,  with just the right amount of tart comments that will keep this document legal for now.  Read on!  - DB

How do you judge a company’s prospects, if a corporate business-to-business sale has to be your game?  If your company’s market is huge corporations, how do you convince investors you can crack the market, and how do you deliver?

To answer this, you have to understand the challenges of getting paperwork signed and checks issued, in a big company.  You’ll notice I didn’t say “the challenges of selling,” because this is seldom the crucial challenge.   I am assuming that you have an awesome product or service which cleverly solves some tough problem and promises to deliver solid ROI for the buyer.

Just to be up front, as an investor, I am allergic to companies which rely on making potentially huge sales to corporate clients.  The corporate B2B sales cycle produces a harshly binary outcome:  either the company dies while waiting for a corporate client to sign the paperwork and remit the funds, or else it delivers gigantic outsized sales with relatively little effort.

[Email readers, continue here...] I routinely see prospective investments which rely by their nature upon selling to corporate customers.  I have learned through bitter experience that little can be predicted from analyzing the company’s product or service.  Of course, you’d think the company has to have a Basic_Berkonomics_front_coveruseful, valuable, or somewhat unusual product in order to be successful. But, from a standpoint of efficient analysis of the company’s prospects, this is not the place to start.

Big corporations are just slow to act.  The time needed for decision increases as a factor of the number of people involved in the decision process.  The number of people involved in the decision process varies as a factor of the amount of money involved, the number of places in the company affected by the transaction, and the duration and contractual obligations of the commitment.

I have found that the predictor of success is really extremely simple:  tell me the name, phone number, birthdate and favorite brand of scotch of the senior corporate executive who is going to be your first customer, and tell me how much he is going to pay you in the next twelve months.  Now, I am not saying you have to sell only to scotch drinkers, but you get my point:  the predictor is your intimate knowledge of people you already know who need your product, want your product, and who know and trust you to the point that they will work hard to overcome the obstacles of closing the deal.

In other words, you have to have inside agents.  You have to know, find, create, recruit, whatever, senior corporate executives who will relentlessly and stubbornly perform the unnatural acts required to close the sale.

Occasionally, I have seen success with companies getting started by using channels, i.e., other companies which are already providing or selling some product or service to your customers, who will tuck your product or service into their bag of tricks in return for a slice of the revenue.  But it is very, very difficult to get a new product started this way.  Once you’ve established the product, and the channels can be persuaded that your product provides them with relatively easy incremental revenues; channels are a fantastic way to scale your sales effort without fixed costs.

The great advantage of the B2B market is the potentially huge size of revenues from just one sale. Those revenues tend to be very durable, as quite often, you are getting your offerings wired into the DNA of the customer.

Before you tackle the corporate market, be sure you understand the challenges of this market, and think carefully about your product design and your sales approach, to reduce the barriers to closing sales as much as possible.

David Steakley, a past President of the Houston Angel Network, is a reformed management consultant.  He is an active angel investor, and he manages several angel funds in Texas.

 


1 Comment for this entry

  • Harry Keller

    This article really hits home. I’ve been on both sides of this equation. Decision making seems to take an amount of time that increases as the square of the number of people involved.

    What was left out of this discussion is the fact that a long decision cycle leaves room for management changes and contract review and even cancellation. I have had three deals with three different very large corporations go this route. We were assured that everything was done and just had to sign the contract as soon as we received it. We do not have those deals.

    We do have a deal with another large corporation, a huge university system, and a well-known education service company as well as a successful pipeline into a huge school district through a sales rep organization. These four deals alone will more than triple last year’s revenue. More of the same may put us into seven-digit revenue territory for the first time in 2014. Our Q4 revenues are at that level when annualized.

    I left out the enormous amount of time, effort, and money expended on those lost deals. There’s also a potential loss of focus as you adjust everything you do for those million-dollar deals. If you win, you have to change the direction of your company. If you lose, you’ve lost important time in moving in the direction you’d prefer to go.

    All of the above should provide ample warning. There is more than one deal out there for you to find. The first one may look good because you haven’t seen anything that big yet. Stick to your plans and seek out deals that advance your corporate goals and not merely add to the bottom line at the cost of your future. Realize that you’re dealing with people who may not control the destiny of your deal by the time it should be approved. Expect months of delays followed by the expectation that you’ll respond instantly. Don’t do that. Evaluate the final contract carefully before signing and negotiate as necessary.

    I’ve been through lots of these deals now and used to make them in the old days when I was inside of big corporations. In my recent experience, my inside agents are always disappearing or being overridden by their bosses, often their new bosses.

    Make sure that you have a good fit and a strong relationship with your primary contact. Make sure that this contact is supplying you with information about the progress of your deal. Check on the usual payment terms. Big corporations have people in accounts payable who pay no attention to payment terms in your contract. Your contact must bother them incessantly if your terms are not the usual ones. I’ve been there too. You may think that you have provided every single piece of paper necessary and find out that accounts payable has found an unchecked box somewhere. The payment cycle restarts. It can be six months before you’re paid, or you can get paid on time if you keep after the problems and keep your good relationships strong.

    No sale is final until the check is cashed.

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