I wrote about buyer personas last week and how I thought most VC's just didn't do enough homework before investing to determine if a company's product is sellable, and if so, who exactly they'd be selling it.
Phil Ressler, in his talk entitled "Communications are Strategic", went into quite a bit of detail about his personal experiences at three different software companies (Nantucket, Gupta and Callidus) and how he was able to transform these companies at a very early stage by changing their focus in the buying process, and using clear messaging and communications to creating a market need. He explained that at all three companies, the founders and early exec teams were very technology focused and understood marketing to be product marketing - talking about products, performance, and features. He was able to add a messaging layer on top focused on creating a bond with a buyer. These communications described the brand and tied prospective buyers to the company emotionally, rather than descriptively. It gave them the 'big picture' of the company.
Phil outlined very eloquently what I've always described as the promise to the customer. When you take away the debate about product features, speeds and feeds, and instead focus on understanding a customer's real problems, you position yourself as a trusted partner to help them solve them. That promise to the customer is something that most tech companies don't have, and can't possibly think of because they haven't identified the real buyer of their product or their motivations for buying. The promise is the 'big' vision that the company has, and it's also usually the most simple and clearest elevator pitch - it's not too detailed and conveys the end benefit to just about everyone.
Ressler provided 14 separate tips to help the audience understand how to become a 'market maker' and create demand, rather than remain a product-centric company selling into an existing, well defined space. A few things really stood out for me:
- First, startup success isn't about selling a product really well, it's about creating market value. I've not heard it phrased quite so simply, but companies that have more buzz, more market presence, more mindshare, and more vocal customers get sold for a much higher valuations than companies with great technology or who are building a solid business quietly. That means creating company value, not just product value. It means providing solutions to solve a problem, including product, services, support, and a partner ecosystem. It means keeping that promise to the customer and exceeding expectations.
- Next, successful market makers invest about 10% of their resources in engineering and technology and 90% into making the market - public relations, market education, public speaking, business development, awareness and becoming the perceived market leader. Market makers build the perception that their company is much larger than it really is, and talk about a problem as if everyone needs to solve it. If prospects think their peers are working on something, they won't want to be left behind. Creating a market need will drive business to come to you, rather than you having to seek the business.
- Companies that are focused on creating value also understand that value has a time limit, and value actually goes down at some point. I think that inflection point is when buzz and mindshare about the company is at its highest. Its at the time of the greatest percentage in growth, rather than greatest real-dollar growth. The growth trajectory is the most important - it will level out at some point, but the most value is right before that when the company is 'hot' and seemingly unstoppable. At that time it becomes an emotional sale for the buyer - they've got to have it - and there's less attention paid to revenue, customers, and products due to this intangible aura of success. Companies who know their end-game is an acquisition must sell at this point and not continue to build an empire in the hopes of getting sold for more. Founders who think they will get more money later because they will have more revenue do an extreme disservice to shareholders.
- Lastly, companies that build value offer multiple products. Even if the different products are varieties of the same core product, cutting out features is a great way to create an instant product portfolio and multiple price points. This is interesting because it does a few things: It gives customers a choice, it enables the maximization of revenue , it allows the sales team to close more deals that would have been lost due to price points (improving that growth trajectory), and it makes the company seem bigger than it is. Companies with one product can't go it alone at some point, especially in enterprise software - it becomes to hard and expensive to scale. Companies that have multiple products become a) more appealing to potential buyers b) have a greater chance of stand-alone success which in turn c) makes them even more appealing and valuable to potential buyers. Companies who have the choice to continue stand alone become more coveted, increasing their value in the eyes of a buyer.