Tennant Consulting

David Skok: Customer Acquisition Costs

Check out this excellent post by David Skok from Matrix Partners on how to factor customer acquisition costs into your business plan.  David recommends the lifetime value of your customer be 3x your customer acquisition costs, and all customer acquisition costs be recovered in the first 12 months, or else you will require excessive capital to grow the business.

David also offers an excellent spreadsheet showing the incremental costs of having humans assist in the sales process -- which creates interesting implications for everyone out there currently working in sales -- and offers several Sales 2.0 techniques to lower customer acquisition costs.

Highly recommended for entrepreneurs developing business plans, and anyone involved in starting a company, or in sales or marketing.

How to Conduct Win Loss Analysis

 Win/Loss Analysis is one of the most powerful processes I conduct for clients to improve their  performance.  Win/loss analysis is concerned with "Why did your company win a most recent opportunity?" or "Why did you lose?"  The answers are frequently not what you'd expect -- especially if asked by someone impartial, not involved wthe the deal.

The process consists of interviewing companies who have recently exited my clients' sales funnel - because their prospective customers made a decision in favor of my client (a "win") or a decision for their competition (a "loss").   We get to the heart of my clients' customers' decision making process, giving companies much more objective information about why they ended up a "winner" or "loser".  Imagine conducting 10-20 of these interviews for a typical emerging B2B company in the course of a quarter.  Rarely do companies get the massive insights available that come from a series of win/loss interviews.

Who should conduct win/loss interviews?  At some companies, I hear people say, "Well, our sales people talk to customers all the time, and when they make decisions, our sales people find out about it."  While this is no doubt true, it's definitely a "worst practice" in the world of win/loss analysis.  Why?  Sales people have a vested interest in the outcome, and the customer knows it.  Just having the sales person asking the questions to a customer they know inserts a bias into the process.  Will the customer be comfortable speaking honestly and truthfully, including any negative feedback about the sales rep or company's products, to the rep directly?  In addition, like any human, there's a non-zero probability that the rep will get defensive, or seek to counter or debate a point, which has the unfortunate outcome of turning an interview into an argument.  Bottom line, do not have your sales people conduct your win/loss analysis.

Best to have someone not involved in the deal.  If possible, have one person contacting each company so they can identify patterns across the deals and provide that in their analysis.  Marketing staff who are used to meeting with customers may qualify, or a senior person in the product management function.  It also helps if the person is an awesome note taker, like, able to type as fast as people talk.  While you can record some of the calls, depending on your market, there will be some percent of customers who will not agree to be recorded, so you have to take good notes.  U.S. customers are more comfortable with recording, but it seems other parts of the world are less comfortable with recording.  If you just talk to people and don't write the comments down, you will be challenged to turn the interviews into any sort of corporate learning, which is really insulting for the customers who spent the time being interviewed.

The CEO at one of my client companies just told me the reason he likes having me do the interviews is he knows I have no agenda.  Anyone else in the company has some kind of agenda -- a certain type of functionality to add to the product, a new service they want to offer, a partner they think we should work with, etc.  Uncontrolled, win/loss analysis could be distorted to support such agendas.  By having someone from the outside, the facts come in as a clear signal, without distortion.

The exact questions to ask vary slightly depending on your research objectives and whether you're calling for a win or loss, but core questions include:

• What problem or need were you experiencing that led to a search for a solution?
• What was most important as you considered solutions?
• How did our solution compare for your primary evaluation criteria?
• Why did you choose us?
• How did you perceive us to be different that the other solutions?
• What caused you to take action, instead of "no decision"?
• What happened to have the other providers become eliminated?
• How can we continue to increase the value we deliver to you?

I want to say something about "analysis" too.  It's one thing to listen to customers, and something again to determine 

a) which information to act on and

b) what actions to take.

I provide my own observations and recommendations (aka "analysis") along with every win/loss interview, as well as across the whole set of interviews.  This requires looking at the totality of the business as a system, applying some judgment, rather than taking all comments at face value.

For example, a client's customer indicated they started their selection process by doing some research on the Internet (but the CRM system indicated the source of the lead was an existing relationship with the CTO) .  In another part of the interview, the customer indicated what name they gave to this particular category of software solutions.  Putting those two things together - I conducted a Google search using the customer's terminology for the product category, and sure enough, my client's products were no where to be found in the organic or paid search results.  They are likely missing out on some percentage of opportunities because they are not going to surface when people conduct Internet research at the beginning of the sales process. Recommendation:  optimize the company's site to focus not just on the product name, but also category, so the company appears in search results when the customer looks for solutions in the product category -- like "ERP Software" if you're SAP or Oracle, or "Anti-Virus Software" if you're Symantec.  In initial stages of research, prospective customers may not yet be familiar with your brand.

For huge value, run a win/loss analysis cycle of several interviews prior to starting your process to update your company strategy.  The insights may provide facts and shortcut the typical internal discussions about where and how you are perceived to be different in the market, and may help to determine where to focus going forward.

Best of luck with your win/loss analysis -- and if you'd like to outsource your win/loss to someone else, or would like coaching to create your own function, please contact us.

Wall Street Meltdown - Impacts on VC Funding? October 20, 2008, 7-9PM at UC Berkeley Extension

I am hosting a VC panel discussion on Wall Street's impact on the Venture Capital industry - here's the session description.

Wall Street Meltdown - Impacts on VC Funding?

If you’re an entrepreneur seeking venture capital, how do today’s financial headlines impact your business? Looking ahead, does the investment banking industry collapse, mortgage industry bailout, and a softened dollar have a direct connection to investment dollars? If so, what can entrepreneurs expect in the coming year?

Before the recent demise of Lehman, Merrill, and other investment banks, the venture capital industry was already having a challenging year. For the first time in 30 years, no VC-funded company went public in the second quarter. The IPO drought ties up capital and extends investment timeframes, lowering returns. Now with the Wall Street meltdown, there are fewer firms to support M&A deals and IPOs. How are VC firms planning to navigate the coming years, and what does this mean to an entrepreneur seeking capital? What sectors are gaining momentum, and which are falling out of favor?

Join us Monday, October 20, 2008 for the EBIG Startups/Venture Capital Special Interest Group Meeting in Berkeley. Learn from a panel of VC investors who will discuss:

- What is the impact of the economy on venture capital and entrepreneurs?
- What sectors are gaining investor momentum?
- Where is the smart money going in the rest of 2008?
- How can entrepreneurs make the most of these trends?
- How to avoid common pitfalls when approaching investors

Confirmed panelists include:

• Peter Gardner, Wavepoint Ventures bio
• Shomit Ghose, Onset Ventures bio
• Lars Leckie, Hummer Winblad bio
• John Steuart, Claremont Creek Ventures bio (scroll down to John)
• Spencer Tall, Allegis Capital bio

The meeting will be held:

Monday, October 20, from 7-9PM
University of California Berkeley Extension, Golden Bear Building
1995 University Avenue
Berkeley, California

(Two blocks from Downtown Berkeley BART)

I hope you can join us for what promises to be a lively and interactive session.

Who should attend?  Founders, CEOs of early stage technology companies seeking equity investment and others interested in the implications on high tech for the current economy.

Thank you to our sponsors, Siemens TTB, for hosting us at the UC Berkeley Extension.

To register, please visit www.ebig.org. We look forward to seeing you October 20!

Update 10/16:  Here's a draft of questions for the panel - what would you add?

Download panel questions (MS Word)

Marc Andreessen on Entrepreneurship

Considering starting a high-tech startup?  I found this heartfelt article by Marc Andreessen, who along with Jim Clark created Netscape, extremely insightful (with a little YouTube candy at the end).  I found the article  consistent with the 20+ software and high-tech startups I've worked with.

Have some compassion for yourselves, entrepreneurs!  Creating a startup is not a cake walk, even for the rock stars!

Uncovering Entrepreneurial Education Requirements: Innovation Games at the EBIG Startups/VCs SIG

Last night, we got some excellent "customer input" from our members at the East Bay IT Group Startups and Venture Capital Special Interest Group (SIG) meeting. Tom Johanix facilitated a session where we played two  "Innovation Games" developed by Luke Hohmann, product management consulting firm Enthiosys.  Innovation Games are a dozen interactive exercises that help to uncover customer needs, product functionality and priorities.  I have been working with Enthiosys at a joint client, and during that time, Luke has been bending my ear about Innovation Games for the past year or so, but I had not seen the games in action.

Innovation continues to be a hot topic throughout the technology industry, and Innovation Games is one way of accessing customers' unspoken requirements.  In this case, instead of talking about a hypothetical product, we used our monthly entrepreneur SIG meeting as our "product" in order to eat our own dogfood and test the ideas we're teaching--and used two of the Innovation Games to gather customer requirements.  I had seen Luke Hohmann present Innovation Games at M.R. Rangaswami's Software 2007 Conference, and though the session was extremely short, was favorably impressed based on all the customer testimonials during that session.

So I thought we would present an educational topic for our entrepreneurial networking group and at the same time, get some feedback about how we can improve the SIG going forward.

We played two games.  First, we played Product Box, then we did a quick version of 20:20 Vision to prioritize the ideas that had been genertaed from the Product Box conversation.  We identified over 30 topics for future sessions, and the kinds of information that entrepreneurs would most value.

To be honest -- and as I had told Luke -- I was somewhat skeptical that you could put a bunch of markers and boxes on tables and people would engage – but you know, it worked!  And I can't speak for everyone, but it sure looked to me like everyone had a good time.

In Product Box, each person developed a mock-up of an actual "product box" -- an actual white cardboard box with the participant's sketches of product functionality and features -- and then each participant was gracious enough to give us a brief presentation "selling" their box to the group while I furiously took down notes about their desired features, benefits and outcomes.

In 20:20 Vision, we took the ideas recorded on large post-it notes, and prioritized them on the wall.  The group decided to prioritize based on a show of hands for how many people were interested in each topic or suggested idea.  I found seeing the shows of hands as interesting as the first exercise to generate the ideas to begin with.  Some ideas that I thought were great, the group didn't like, and thing I didn't think would be  very popular got nearly unanimous votes.  The #1 item?  Storytelling from other entrepreneurs about their successes and disasters.

Not taking anything away from our session evaluation forms -- which we pretty consistently use to survey attendees at the end of each monthly session -- I can count on two hands the number of suggestions for new topics we’ve received from participants in the last two years.  None generated anywhere near what we were able to gather tonight, and there was a surprising number of ideas that I would not have thought of before. So for those of you keeping score at home, put a checkmark in the “It works!” column for Innovation Games, as it definitely worked for us.  I look forward to working with my co-chair, Holly Nelson from Randick, O'Dea and Tooliatos to incorporate the suggestions in our program over the coming year.

Thanks again to all our members and guests for providing some outstanding feedback.  Thanks to Tom Johanix for his great facilitation, and Luke Hohmann of Enthiosys for inventing the Innovation Games.  If you are interested in learning more about it, I encourage you to check out Luke's book Innovation Games and try the games for yourself!

Salesforce.com: Marketing in the Google Era

Yesterday, I listened to a Salesforce.com seminar, "Marketing in the Google Era", presented by Kraig Swensrud of Salesforce.com's marketing team.  They were good enough to make a recorded version of his presentation available for you to view here (email registration required).

Kraig gave an overview of 7 techniques of effective marketing in the Google era.  I agreed with all of what Kraig presented - companies are still coming to grips with how the world of marketing has changed, and I agree all the suggestions provided are good ideas to consider:

• Invest in Web properties
• Invest in search marketing
• Make your message relevant
• Create landing pages for every program
• Measure everything in real time
• Use the Web for PR
• Engage your community.

What I liked about the presentation was Kraig gave a good overview of all these concepts - some of which are pretty complex.  He also did a good job of describing blogging and RSS - and some of the best graphics I've seen illustrating those concepts.  The presentation was also rich in examples and other online services you could use - in a very short period of time.

8 out of 10 times, Kraig's online concepts will come into play in some form, but the relative level of investment people put into these online initiatives versus other investments will vary widely depending on your business.

While there's little room for improvement, I felt like the presentation was a bit marketing-centric, and online-centric.  Kraig was implying companies should invest in search, blogging, online communities.  I agree these activities make sense for Salesforce.com - but they may or may not make sense for other depending on your industry, business, budget and resources, and prospective or existing customer interactions.  It also didn't help the marketer understand how important it is to link these programs to how your customers actually buy, your competition, and if you have a human salesforce, how to support them more effectively.

For example, someone buying, say, rice has a very different set of needs than someone buying a CRM system, or someone hiring a lawyer.  I would recommend starting with the customer - and what they need to be successful throughout their purchase and use of the company's products or services, and what the sales force needs to be successful.  The consumer rice buyer may not be going to look for "rice" online - but they might want healthy recipes, or ideas on how to make rice more interesting. 

A lawyer needs to show they are knowledgable, experienced, and able to add value in excess of their fees - so speaking or writing a book on their area of specialty may be a more appropriate marketing investment. 

A CRM company - especially if they have an online offering - should absolutely do the things Kraig describes.  And Salesforce is probably at the forefront of those - albeit with messaging that's too company-centric for my tastes, and at a very high sales and marketing spend relative to R&D.

All things considered, though, my feedback is minor relative to the presentation's strengths.  I recommend highly that you check it out!

Business Concept Questionnaire

Do you have a new business idea?  Wondering where to start?  Many high-tech entrepreneurs tend to focus on their technology, without examining other factors surrounding their core business concept that will have greater impact on the success or failure of the business.

This month, Technology Venture Corporation's entrepreneurial training seminar focuses on the entrepreneur's assessment of a business opportunity.  This is session #1 of a 6-seminar series.  You can jump off and jump on the series whenever you like.

To download your electronic copy of the Business Concept Questionnaire, click here.

Some from the session wanted a copy of the slides from the session, which are available here  (8MB PowerPoint file - attempt only with a high-speed connection).

How to Build a Bullet-Proof Startup

I guess companies won't need any more startup help -- all the answers are here in this Business 2.0 article.  The breathless descriptions make it sound so easy, anyone can do it!  Ladies and Gentlemen, start your companies!

Seriously, the article gets some things right, but it still sounds like it was written in 1999 compared to what I'm seeing today in the Silicon Valley.  In terms of the steps, there's a lack of customer involvement, market analysis and competitive analysis.  I haven't seen many investors -- Angel's or VC's wanting to jump in until you've demonstrated you can produce revenues.

90% of companies following the article's prescribed route will not secure the funding they need -- and that strikes me as pretty irresponsible.  Seed funding might have doubled in the last year, but it's still extremely difficult to get unless you are an experienced entrepreneur who's made investors money previously.  A lot more market sizing and market research is required up front to determine whether you could even qualify for venture funding. 

A much better option is to have a mechanism for self-funding - a consulting project, a spouse, parents or family with an extra bedroom.  This is the barrier to entry for starting a company for many Americans. 

Good entertainment, but let the reader beware before leaving your day job.

Strategic Marketing Consultant San Francisco Bay Area Seeks More Hours in Day

I guess in 10 years, we'll have replaced our job titles with the search terms we'd most like to be found by.  Given how much driving I've been doing in the car lately, I wish mine was, Strategic Marketing Consultant - Orinda, CA -- or even Strategic Marketing Consultant - East Bay.   There are some great software companies in Orinda - like Intraware, and Maxis, makers of Sim City started in Orinda.  Down the road in Walnut Creek, CA, Dave Duffield founded PeopleSoft in 1987 and in 2005 Dave and Aneel Bhusri founded their newest startup, Workday.

I've not been posting a lot to the blog lately, thanks to some exciting new client projects.  What few writing cycles I've had have gone to my online newsletter, Tennant Consulting Times.

This month's issue of Tennant Consulting Times talks about sales models -- and the many mistakes entrepreneurs make in putting together the go-to-market section of their business plan.  I also took to the road to interview Joe Blank and Paul Gariboldi from Virsalent, a company offering a sales force-for-hire that may be relevant for many high-tech startups as an alternative to bringing on a VP Sales and entire team.  Joe and Paul offer 10 common mistakes entreprenuers make - and I highly recommend you tap into their experience if you're starting your own company, launching a product in an existing company, or are in a sales or marketing role.

To subscribe, just enter your name and email on my home page, www.tennantconsulting.com.  I only use the information for the newsletter, which currently comes once a month.  You'll get  a confirmation email back, click a link and - presto! - you'll  immediately receive this month's issue.

I've used the most conservative email list building approach - double-opt-in - which results in a smaller email list, but a more enthusiastic audience because they're all people who explicity choose to hear from me.  That means better delivery rates long term.  I believe one can be successful marketing to people without SPAMMING them, and I plan to use my newsletter as a one small business data point to prove it. 

In the Tennant Consulting Times newsletter, I'm committed to printing free articles from me and interviews of smart people I know to add value to my clients.  Don't worry, it won't be hogwash about me which you could care less about, or pitching you my services.

Practicing Your Pitch Session Notes

Tonight's EBIG VC/Startup event was our first educational investor pitch practice session - and judging from the comments and feedback, it was a hit (if I may so myself as the totally unbiased organizer).  Several folks indicated they'd like to see us do more sessions like it - and want to come and present at future events. 

On a 5-point scale, the sessions scored 4.7 for overall effectiveness of the session, 4.6 for presentations being educational and 4.6 for panelists being effective.  So hat's off to our presenters and panelists!

We had a full house as about 40 folks went to school - mostly entrepreneurs and investors - as three companies each had 10-minutes to pitch their business idea to our three investor panelists.  Our esteemed panel included: Steve Elefant from Claremont Creek Ventures, Greg Beattie from Reed Smith who works with many angel groups and investors and as an angel himself, and Tim Taylor, a pitch coach and consultant working the Band of Angels and other VC and investor groups.

All three had excellent input and feedback for the presenting companies - Raj Baronia from PureMail, an innovative email service provider; Zach Gentry from Adura Technologies, which has a very interesting energy efficient light control solution; and Bill Nye from Espilon Active, which makes a multiplayer computer-projected game that you have to see to believe.  Each company is at a slightly different stage in development, but I believe were better than average presentations for companies at their respective stages in development.

I must say I felt very supported by the local entreprenerial community in putting on tonight's event, which is a real testament to the East Bay.  Thanks go to our panelists and presenters for all the time and energy they put into preparing and spending the evening with us.  I want to thank Scott Gilbert and Dave Weinerth at Technology Ventures Corporation (who, by the way, got unsolicited rave reviews for their work from our panelists) for helping to help us identify presenters among their client base and panelists.   Thanks also to Sonja Markova and Rick Choy at the Keiretsu Forum who were also very supportive in helping us find panelists and presenters.

As always, thanks and get well soon wishes to my co-chair, Holly Nelson, at McNichols Randick and her colleage John Neilsen for his help filling in for Holly in orchestrating the event and sponsoring dinner for the group.  Finally, thanks to Joy Montgomery for graciously stepping in at the last minute as a volunteer to help coordinate the event, and thanks to Kristen Kuhns at EBIG for her never-ending support for the EBIG organization and this SIG.

Can't wait for next month's session on February 13th!  If you haven't already done so, be sure to get notified when our agenda and registration email blast comes out at www.ebig.org - click on "sign up" in the left navigation bar.