A strong sales operation is critical for companies to scale quickly. Your sales team has to be geared for growth every bit as much as your product and strategy functions. This was the subject of the latest Accel Breakfast, building on our previous events when we discussed product leadership and inbound marketing. We were lucky to be joined by Frank Swain, the CRO of Instana, one of our portfolio companies and a global leader in APM.
Frank has built highly successful, growth-minded sales teams at companies from Splunk to AppDynamics, and is now putting his experience to work at Instana. I have worked closely with the Instana team, including Frank and co-founder/CEO Mirko since we made our investment two years ago and they have taught me a lot about effective go-to-market strategies.
Over breakfast, Frank shared his experience on building a high-velocity sales operation, leveraging the land-and-expand model, and how to build and incentivise a winning sales team.
Frank’s key lessons included:
Be easy to do business with
You have to remove friction from the process wherever possible. That means making it easy for customers to get their hands on the product, to find the information they need, and to understand your pricing. Most enterprise customers want to self-serve and discover a product for themselves, so let them. This is also in your best interest because the biggest problem for early-stage companies is not being discoverable. Making the product easily available, usually through a freemium model, is also part of how you achieve visibility. You don’t have to be open source to become widely distributed and adopted: a freemium model, like we use at Instana, promotes your brand and gets you into places you wouldn’t otherwise reach. Some will then convert into paying customers, once they’ve proved the value of the product and want to unlock its full features.
Being easy to do business with also speaks to transparency. A lot of enterprise salespeople worry about putting prices up on the website because they think the information gives their competitors an advantage. The fact is, your competitors already know what you charge; and your customers want to. So publicise your pricing model, and make it easy to understand: avoid the end-of-month or year ‘gotchas’ that customers hate. And remember, the more information you put up on your website, the better your SEO will be and the easier it will become for people to discover you.
Focus on land-and-expand
The key to achieving high-velocity in enterprise sales is the land-and-expand model. This is the secret to gaining traction quickly and growing revenue exponentially. The formula is simple: you start with a project or ‘land’ deal, which might be in the $20k-30k range. That gets you in a position, from the inside, to secure much larger ‘expand’ deals as a customer gets used to the product and sees its full potential. This will typically start to happen within about six months of the initial deal.
I can’t think of a successful enterprise software company that hasn’t been built using land-and-expand. The key advantage is the speed at which it allows you to move: a deal at or under $30k can close in 90 days, where one over $75k will take at least 6 months. When you’re chasing growth, you need that velocity of the quick deal to get the machine running. It’s also something that will, more often than not, set you up for long-term growth with that customer.
It’s all about pipeline, pipeline, pipeline
If an enterprise software company is struggling, it’s probably because it doesn’t have enough deals in its pipeline. When this happens, you become over-exposed to the problems of a handful of customers: one might have a bad quarter, get acquired, or key people might change. There’s always something going on with at least some of your customers, and a full pipeline is your best insurance against deals slipping, reducing in size, or being lost altogether.
My standard metric is that we should always have a pipeline 3.5x greater than our quarterly revenue target. Of that, I expect 70% to be generated by marketing, and the remainder by field sales. Never get complacent about pipeline: you always need more. That’s why, once a week, I ask my entire team to clear their calendars and focus just on pipeline generation for the day.
Speak a common language
You can only sell when you speak the same language as the customer. That means understanding their pain points and matching your solution to that pain. There’s no sale unless you identify that overlap between what the customer needs and the product you are offering.
Sales engineers are your secret weapon in this, especially when selling a technical product. They speak the language of developers in a way your sales reps never will, which allows them to build relationships on a different level. The role of the sales team is to ask the difficult questions – like who they need to be speaking to in the business to move forward – and to put a price on the table early. Some people hate doing this, but it’s an important means to change the direction of a conversation towards a sale and avoids surprises late in the process.
This way, you run a two-track process with the technical and the business sale running alongside each other in parallel rather than having a technical conversation which suddenly has to switch to a commercial one.
A common language is important internally too. You need accepted definitions for what different stages of the sales process are, so your sales team and executives are all on the same page when assessing progress.
When you’re running a land-and-expand model, renewals are not an area of administration, but one of growth. Every renewal is an expand sales opportunity and should be thought of in those terms. New revenue doesn’t have to mean new logos – in fact, it’s often easier if you can drive it through existing customers.
When your business is at early-stage, it’s usually worth keeping renewals within the core sales team. I set quotas that include both ARR and renewals, which makes renewals part of the comp incentive and reinforces that they are sales opportunities in their own right. Approaching them in this way is crucial to making the ‘expand’ part of your sales model work.
Structure your team right
To make this model work, you need to have the right sales team, one that’s structured, equipped and incentivised appropriately. Once the key territories for a business have been established, my ideal team for each is one field sales rep, one inside sales rep and 75% of a sales engineer’s time. The ISR focuses on the land deals and the FSR on handling large accounts and driving the expand pipeline. Sales engineers are in a pool, so you can move them to where they are needed.
It takes about six months to get a new sales team ramped, so you need to be patient. The first 90 days I treat almost as a loss, while they get to know the product and value proposition and build pipeline. In its second quarter, I expect a team to be running at about 50% of target, and then by the third to have reached full speed. I find people achieve more working in small teams, with shared incentives and targets. It’s a reminder that the competition is your competitors, not field vs. inside sales.
As well as structuring the team right, you need good sales enablement to equip people to succeed, and targets that are challenging but not absurdly so. You want a low churn rate of about 5-10%, and this relies on good recruitment and onboarding. As a CRO, you should always be interviewing, even when you’re not hiring. I like to keep a virtual bench filled, so when an opening does become available, we can move quickly to fill it with someone of the right calibre.
Thank you, Frank. More insight from Instana and Mirko Novakovic from when he recently joined us to talk about go-to-market strategy and community building as a developer-focused firm.