Lesson #244: Stop Selling the 'What', Start Selling the 'Why'

You gotta love entrepreneurs.  All their passion and excitement around the innovative new products they are building.  And, they love talking about their products with others, detailing every feature and functionality of their offering.  They are laser-focused on getting others to love their products as much as they do.  But, then they realize, sales are not coming in.  They question how can that possibly be, given how great our product is?  It’s about that time I usually need to tell them, their customers don’t really care about the product itself (e.g., the “What”), they care much more about how it can improve their business (e.g., the “Why”).  The sooner you learn to ditch focusing on the “What” and start focusing on the “Why” to get their attention, the sooner your sales will start to accelerate.

Defining “Why”

For most customers, the things they truly care about are: (i) how will this help me drive more revenues; (ii) how will this help me lower my costs; or (iii) how will this improve my user experience (e.g., where users can either be their customers or their employees).  Sure, there are other things, but these are the big ones.  And, the bigger you can economically illustrate the impact of your product or service to helping them achieve one of the above three goals, the more attention they will give it (e.g., a 10% boost will resonate a lot better than a 1% boost).

Calculating “Why”

If you are pitching a revenue lift to their business, first you need to research what their current revenues are, and ideate ways on how your business can help them grow their revenues (where a minimum lift of 5-10% should get their attention).  If you are pitching a cost savings rationale, you need to estimate how big their current costs are, and how your product can help them lower those costs by at least 5-10%, where costs savings on their biggest expense line items will get more attention (e.g., help them maximize their overall margins and cash flow).  In both scenarios, you don’t want to price your product or service any higher than 10-20% of the overall revenue lift, or the overall cost savings estimated (e.g., a gross gain of 10%, may only net them 8-9% after they pay your fees).  Again, the bigger the lift, and the more of the lift they keep for themselves (vs. paying it to you), the better it will be for them.

A Case Study on “Why?”

When I was at iExplore, building my adventure travel business, I was trying to close a strategic relationship with National Geographic, and was pitching their CEO and CFO on the idea.  I tried to put on their hats?  What would get their attention?  With the traditional magazine industry hurting, I knew they were on the hunt for material new revenue streams with which to pivot their business (e.g., cable channel).  I also knew that the demographics of their readers, were frequent adventure travelers, buying active and experiential vacations like the ones iExplore offered.

I told them the collective reach of National Geographic was around 100MM households across their magazines, websites, cable channels, etc.  If we could get 1% of them to buy a vacation from National Geographic at iExplore’s average price of $10,000 per transaction, that would result in a $10BN revenue opportunity, or around 20x the $500MM in revenues they were generating at the time.  Needless to say, I had their attention, and we closed the deal.

I didn’t lead with the cutting edge features of our website, or the 5,000 trips we offered in our database or our snazzy marketing plan.  I focused on the economic impact of what it would mean to their business and the estimated financial return they could make from their investment in iExplore.  And, I gently let them know other media companies, like their direct competitors at Discovery Channel, were also interested in working with us.  That was simply the icing on the cake, creating the fear of missing out on a big opportunity to one of their rivals.

Summary

At the end of the day, you are selling compelling stories, not products. Hopefully, from this post, you have learned that the key to successful sales is putting on the hat of your customers.  How are you going to materially improve THEIR business (as they don’t care on how it is going to help your business)?  And, how are you going to make them look smart to their boss, so they can get the personal win?  Stop focusing on the “What” (as they don’t really care how it works, as long as it works) and start focusing on the “Why”, and good things will surely follow. 

Once you hook them on the “Why”, then you can backfill on the “What”, after you already have their attention.  Because, the “What” alone, may simply put them to sleep and your revenues on life support.  

For future posts, please follow me on Twitter at: @georgedeeb 

Need a Salesperson? Recruit Three!

A startup cannot survive without revenues, and more importantly, revenue growth that will impress investors.  And, oftentimes, this success rests squarely on the shoulders of your sales team.  Therefore, your sales team will make or break your success.  Hiring your sales team is arguably the single most important hires you are going to make.  You have to get it right!!

Read the rest of this post in Forbes, which I guest authored this week.

For future posts, please follow me on Twitter:  @georgedeeb

Personality Tests: Useful Tool or Lazy Shortcut?

For decades, personality tests have been used by big corporations to evaluate candidates during their hiring process. But, more and more, I am seeing early-stage companies using these tests to help them in their hiring process. I am not sure who is pointing them in this direction, most likely the increased access to free online personality tests. But, just because they are there, doesn’t mean you should use them. They are often used as a crutch to help make decisions, instead of using true leadership by hiring managers. And, often times, the practice does not result in actionable changes within an organization. Let’s dig deeper here.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb

Lesson #243: What is Your Digital Business REALLY Worth?

I was recently reading a great blog post from Digital Exits, a business broker based in Los Angeles that has expertise selling digital companies.  Their president, Jock Purtle, has been compiling exit data from 712 digital businesses that were sold over the last four years.  In Jock's post, which he graciously allowed me to reshare with all of you below, I found the results very eye opening.

Most of the time, we are talking about high flying, venture capital backed startups shooting for the moon and "Unicorn level" valuations.  Even when we are doing early stage venture financings, big multiples like 10x revenues can be used to value early stage businesses.  But, what happens if you don't raise a lot of capital and you are growing a lot slower, or are running a lifestyle business.  The exit multiples for digital businesses are materially lower.

In Jock's analysis below, we see that the average sale multiple for the digital businesses he studied was only 2.4x profits (not revenues).  And, it ranged from 2.0x to 3.4x based on the type of digital business you had, where software businesses with recurring revenues getting a lot more than a simple mobile app business, as an example.  This reflected the full gamut of companies from $0 to $10MM in revenues, where a small business would average around 2x profits and a large business could get closer to 4x profits, showing size clearly matters.  Only 17 of 712 businesses were sold for over 6x profits (yet alone revenues).

Wow!  What a reality check.  If you don't strike it big, which you most likely won't as a risky startup, make sure your expectations are clearly managed in terms of what your business is really worth.  The only silver lining here:  If you are thinking about pursuing a rollup strategy, there could be a big arbitrage opportunity between the 2x-3x revenue multiples most successful, big digital companies achieve, and the 2x-3x profit multiples they could be paying for acquisitions along the way.

Thanks, Jock, for sharing your wisdom with our readers.

Lesson #242: Top 50 Content Marketing Strategies

I have been wanting to write a how-to lesson on how best to optimize your content marketing efforts, and I was fortunate to stumble on a great post from my good colleague Andy Crestodina, Strategic Director at Orbit Media Studios, a content marketing agency who is expert on the topic. So, instead of writing a very similar lesson from scratch, Andy was kind enough to let me repurpose his wisdom as a Red Rocket lesson and guest post.

Stop Cherry Coating Your True Opinion!!

Too often in business, people want to be nice, avoid conflict or not upset their boss or co-workers by stating their true opinions.  All that does is create problems for all involved.  You get frustrated that the business is not going in the direction you think is most logical.  And, the listener is provided an opinion from you, which they think you are supportive of, that is potentially the wrong direction for the business and not truly what you feel is the right thing to do.  Hence, keeping the listener headed in the wrong direction.   In business, and particularly in startups where you cannot afford to waste time or resources heading down the wrong direction, there is only one mandate to live by:  always call it like you see it, regardless your role or title.

Read the rest of this post in Forbes, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.