Editorial Sample (Full Length): 17 Software Sales Tips from Industry Star Service-Now.com
Service-now seems to be on everyone's radar. The Solana Beach, Calif.-based developer, which sells cloud-based IT service management apps, posted revenues that were 3,441% higher than -- good enough for the #69 slot on the Inc. 500 list of fastest-growing companies.
And last month, analyst firm Gartner Group named Service-now.com as the "challenger" to its Magic Quadrant review of IT apps, where BMC Software is Gartner's named leader.
Keep in mind, BMC was founded and is a $2 billion company. Other competitors in the IT management space include CA Technologies ($4.4 billion revenue), Hewlett-Packard ($114.2 billion), and IBM ($95.8 billion).
For relatively tiny Service-now.com, founded just six years ago, to be named as the challenger -- essentially the #2 position in Gartner's hierarchy -- is a pretty spectacular David vs. Goliath story.
When Service-now.com filed its report with Inc., the firm had 132 employees. That's now up to 250, with eight to 12 people being added every month. The company just signed a lease for 40,000 square feet of office space.
Rob Luddy, Service-now.com's VP of worldwide sales, joined the company. He recently revealed 17 secrets of Service-now.com's amazing success:
Tip #1: Build a better mousetrap.
"We have had a phenomenal amount of growth and success," Luddy says. "Since we have grown to 525 enterprise-class customers. We sell a pretty large suite of applications used by the CIO to run their organizations.
"We started with and unfair advantage, in that we had a keen understanding of the marketplace.
"We built a better mousetrap -- it really is better, faster, and cheaper than what's currently on the market.
"I had the good luck to be able to launch with a very strong value proposition."
Tip #2: Get them in the door, even if the ticket price is small.
"Our customers make a minimal investment that's a six-figure transaction to start with," says Luddy, "but have a tendency to grow over 24 months. Sales tickets start in the $100K to $150K range, but grow over a period of time.
"We did very small transactions at the start. Our first customer, in September, paid $2,640 per year. I was thrilled, because they were paying me money to use our technology. They have grown and flourished wildly, and are now paying us well in excess of $200K per year.
"We're a software-as-a-service company -- we license on a subscription. Our typical contract is 36 months; our contracts all pretty much look like that."
Tip #3: Focus. Focus. Focus. Then focus some more.
"This is about understanding a marketplace and being 100% committed to doing one thing and doing one thing well," Luddy says.
"You will meet a lot of people who will be anxious to drag you off in one direction or another. 'Hey, I can get $50 if I change my direction just a little!'
"We stayed focused on our core service, and did not go chasing after everybody who walked into our lives. Avoid the temptation that's not in your core business."
Tip #4: Pay attention to sales first, your business plan second.
"We never worried about the business plan or how much revenue we were supposed to generated on a monthly or quarterly or annually plan," says Luddy.
"I mean, we had a business plan in place, but our focus was on five paying customers. Just focus on getting five legitimate customers who will pay you money for your product. If we could get five, the first five would lead to 15 others, and that first 20 would lead us to 100 others."
Tip #5: Your first customers will map your future; take care of them.
"Once we had a customer, it was all hands on deck to ensure the customerís success," Luddy says. "It's not enough to sell the technology -- that's only where the hard work begins. You have to ensure that the customer is getting the most value for their money.
"You can run all the marketing programs you want, and hire all the big-money sales people you want, but nothing will sell like a reference. If they're happy, they will tell your story on your behalf."
Tip #6: Put your developers in front of the customers.
"In the early days, every time we came back from a sales call, we had a company meeting," says Luddy. "The developers were keenly interested -- What was the customer's reaction when you put the product in front of them? -- and they themselves became ingrained in the process.
"We had very close interaction between the development organization and the customers. When the customer needed something, we either fixed a problem or built something that they thought was a good idea and applicable to other customers."
Tip #7: Public references don't count; private ones do.
"I’ve got large customers who would be upset if their names ended up in the press," Luddy says, "but they're happy to talk to another prospect, one-on-one, to tell them how they're using the product.
"That's where the software gets sold."
Tip #8: Test your ideas (and propositions) in the marketplace.
"When it comes to certain elements of your business," says Luddy, "the best way to figure out if you've got it right is take it to the marketplace and let the marketplace tell you, 'Yeah, you've got it' -- or you don't.
"Over the initial development period of six to nine months we both learned that there were some tweaks we needed to make. Don't be afraid to test in the marketplace, and don't over-think these things."
Tip #9: Decide on your route to market.
"In the software business there are two modes, says Luddy. "There's either direct or indirect. I wouldnít say that one's better than another, but for us what worked was a direct model.
"We hired salespeople and those people went out and sold to customers. We were not distracted by trying to start a channel at the same time.
"It's very, very easy to either feed or starve one of those two routes to market. If you try to have both, you will have inevitable channel conflict. At the same time, you should not underestimate the amount of invest it takes to get a partner up and running."
Tip #10: Choose partners who have no other partners.
"I have a direct sales force in a couple of international geographies -- the UK and Germany -- and I have only worked with partners who are 100% dedicated to Service-now.com," Luddy says.
"We started that. I know that it sort of runs counter to what I was saying earlier, but these were opportunities that presented themselves to us. For our particular company, we knew that the majority of the market is in North America and western Europe."
Tip #11: Work the markets you know.
"There are marketplaces I know how to operate in and know how to sell," says Luddy.
"We restricted ourselves to North America, Benelux, Switzerland, and Australia.
"I avoid places where it's frankly just more difficult to do business -- not just from a sales standpoint, but also from a support standpoint. You have to ask yourself, 'Can I afford to have that customer?'"
Tip #12: The due diligence test for potential partners.
"There's a very simple litmus test that we applied very early," Luddy says. "Bring me a prospect. If you're in the business of selling and servicing the IT management space, you should be able to understand the value proposition.
"Bring me the prospect, and I will be extremely loyal to the person who brought me to the dance. When you're successful, well-intentioned people will come out the woodwork; it's very easy to be distracted.
"For us, it was all about concentrating our efforts on the people who supported us directly; those people who stepped up to the plate and brought us a prospect, and we would go and jointly sell.
"The two people in Switzerland brought us a prospect, have now grown their organization to 25 people. The two guys in Australia brought us a prospect, and have now grown to 25 or 30 people.
"The actionable item here is choose a market: You're either a channel person, or you're a direct person. You have to be willing to entertain a little bit of a hybrid model, but the position that we have evolved to is that our channel partners in essence own a piece of geography on our behalf."
Today, partners contribute 10% to 15% of Service-now.com's overall revenue. Partners handle 70% to 80% of customer support in their regions, Luddy says, "but have to come to back to HQ occasionally. All get the same training, same programs, same everything."
Tip #13: The best partner relationship feeds the partner's business model.
Service-now.com's deals with its sales partners vary, but all are based on the tenet of supporting what makes sense for the partner, Luddy says.
"It can be as simple as the partners buy from me at wholesale, then mark it up and take it to the market. The partner earns a couple points on the license. It's interesting for them, because it's predictable and renewable.
"But more importantly, you have to look at what is the business model of the partner. It may not be selling licenses, it may be about providing professional consulting services. You create the opportunity, they manage the sales cycle, they buy at a wholesale, but the bulk of their revenue -- and profits -- are the services that are follow-on to the installation.
"We are simply the catalyst that creates the opportunity for them to sell the services. This has to be true partnership; you have to understand their business model, then try to work out a relationship that allows them to make money around their core expertise."
Tip #14: Create partnership models for all partners, active and less-so.
"We put in a three-tier participation model," Luddy says.
"If you drive the sale from start to finish, you'll earn a higher percentage. If it's a joint sale, then it's a reduced fee. And we have simple referrals: If you simply recommend our technology to a potential buyer and can give us an active introduction, then you'll earn something from that as well."
And what kind of contractual protection does Service-now.com use for these deals? "A handshake and a look in the eye," says Luddy.
"At the end of the day, we view those [partner] contracts the same way we view contracts with our customers: It's not the words on the page, it's about creating a relationship built on trust. You have to be a man or a woman of your word."
Tip #15: Hire sales people according to what you already have.
"I was the company's first salesperson, so by definition the role of senior salesperson -- someone who leads the organization -- fell to me," Luddy says.
"The first rep I hired was a young kid who had almost no experience in the software industry, but he had a passion and a fire about him that was undeniable. That young man is still with us five-and-a-half years later, and is one of the top reps.
"If you're looking to hire your first people, there's a trade-off between what you're going to have to pay for the senior person -- who comes with his own Rolodex and self-sufficiency -- versus hiring someone with limited experience, no Rolodex, but a lot of passion.
"I don't know the right answer, though I can tell you that for us the latter was the answer. But if you're going to build a direct sales force, you want someone with industry knowledge, someone who is going to think on their own and just go make things happen for you.
"I think the more important question is, What is the DNA of the rep you're trying to attract? They may look great on paper if they're coming from a large company, but they may know only how to operate in a very large organization.
"Go and hire somebody who is a sales professional. They know how to manage, they know how to prospect, they know how to close a piece of business -- but you also want some demonstration of a clear entrepreneurial spirit."
Tip #16: Find your sales (and other) hires through word of mouth.
"We put everybody on the 'friends and family' program," says Luddy. "If want to work here, you have to tell everybody you know. You've got work your own internal network. I think you'll have more success doing that than placing an ad on Monster.com.
"If you look at the nucleus of this company, I'll bet 10 of us knew each other intimately for years. We knew each other, we trusted each other, we knew we could be collaborative.
"One critical question we asked with every hire: When you come to work in the morning and you see that individual's car in the parking lot, how does that make you feel?
"You have to get the right people on the bus, you have to work together as a team, because you're going to survive and thrive or die as a team."
A telling note about sales hires: Luddy says that his first rep's initial sales provided the proof he needed to hire more reps with more experience. "Nothing will breed success like success," he says.
"When [the first rep] quickly knocked down his first couple of deals -- well, no one took the time to tell him this is going to be hard. That success gave me the ability to go and recruit more senior people."
Tip #17: CEOs are very rarely sales professionals.
Luddy thinks some software startups suffer from lack of self-awareness at the top:
"CEOs ought to ask themselves, 'Am I a technologist or am I a sales and marketing person?'
"A lot of technologists are not sales people, and you need to realize that there are people who do this for a profession. You don't want to be operating under the misguided assumption that technical people can sell to technical people."