Software Sales Succeed Because They Are Built Around Unreasonable Investor Expectations
Introduction to SignalsFromTheOP
Guide to episode
- SaaS & manufacturing are different to scale - but growth rates are a matter of expectation
- SaaS companies respond to investor pressure by proactively creating demand and generating leads
- Manufacturers can adopt many of the tactics, including BDRs and proactive prospecting
- With strong lead gen, manufacturers can select profitable growth and manage the rate
Transcript follows
Hi, I’m Ed Marsh. Welcome to this episode of Signals from the OP – a periodic video blog in which I send up flares about issues that might catch industrial manufacturers by surprise.
Today I’m talking about what industrial manufacturers can learn about revenue growth from software companies. I believe it’s a lot
But let’s start by acknowledging the differences, because they’re important. Scaling software sales is much easier than scaling sales of industrial manufactured products. The software challenge is primarily building the first one – versus every one. So the goals for sales growth, or certainly the growth rate, are different. And that means that expectations are as well.
Margins and incremental cost per customer are very different as well. So spending on marketing and sales can be substantially higher in the SaaS space
And there’s often a lower barrier to adoption for some simple SaaS products – the price is often relatively low and the implementation can be managed by one person. Obviously company wide roll outs are more potentially complex, but the whole freemium model reflects the fact that one person can decide and go – where as in capital equipment, for instance, there’s often planning around changing process and workflow and disrupting the factory floor that takes thought.
So there are legitimate factors that make these different worlds.
The other big difference is investor mindset.
In traditional privately held industrial manufacturers the investors are often the owners, probably family and often the founder or founders. They may explicitly want to cap growth rates so that they don’t have huge hassles scaling. They may be profitable and support the lifestyles of various family members and the real goal may simply be enough growth to remain vibrant. Often sales people are long time employees, maybe friends, and perhaps family. There’s often loyalty in addition to some strong connection to “the way we’ve always done it.”
In contrast, SaaS software companies are fueled by financial investors. They are impatient and expect a substantial return on their investment –quickly. These investors are looking for rapidly accelerating growth rates.
SaaS companies have to meet investor expectations – no matter how aggressive or impatient they may be. So they have to figure out how to sell in today’s markets – and sell fast. They simply can’t afford to accept the excuses that many capital equipment manufacturers accept from themselves and their sales teams.
Here’s the thing – capital equipment manufactures don’t have to double their sales in a year, but what if they could grow by 20% (that’s reasonably scalable) AND grow price/margin by focusing on the orders, customers, and niches where they make more. That probably takes some different sales and marketing approaches – and that’s where they can learn from SaaS companies.
Let’s compare typical revenue growth models.
Manufacturers often have a small marketing team, a modest field sales team, and indirect channel sales. Of course this varies, but many of them think of marketing as trade shows and some magazine ads, and they staff accordingly. Most of the lead gen is done by field sales – and friction arises with sales channel because there’s always bi-directional frustration - that they don’t send enough leads to channel, and that channel doesn’t create enough on their own.
In contrast, SaaS companies typically have large marketing departments which include PR, events, demand gen, lead gen and sales enablement. They typically have BDRs or SDRs (business development or sales development reps) whose job is to vet inbound leads and proactively do outbound prospecting for other leads.
After all, research shows that only 3% of potential buyers for any given product or service are in the market at any given time – so the proactive outbound is pretty important….but almost entirely overlooked by manufacturers who tend to wait for folks to make an inquiry.
SaaS companies also have inside sales, often field sales, partner programs for products that fit into an ecosystem, and indirect channel
In many cases they’re creating categories and solving problems that buyers might not even realize they have – that requires active demand generation to support the inbound and outbound lead generation.
So in short, typical capital equipment manufacturers have little marketing – probably a website, some data sheets, a couple application videos, some trade shows – and a field sales team with some indirect channel which sells a variety of products. They’re content with manageable 10% growth – and that’s about the best they could ever achieve when a strong economy helps all to grow.
SaaS companies have teams creating content, engaging and educating the market, explaining the problem and solution, creating leads, guiding prospects through a seamless journey of learning, research, comparison, decision & implementation, and they grow quickly.
So, again acknowledging that a manufacturer might not want 100% growth, but would like profitable, consistent, growth – then what lessons can we take from SaaS revenue growth that could be applied to the industrial space?
There are three key points. Predictable, proactive growth requires:
- Insights to help prospects packaged in a full range of content to attract, educate and convert a wide range of buyers at very different stages in their buying journey
- A continuum of customer facing folks at different stages in the journey – BDRs, inside sales, field sales, implementation support – not just field sales & channel
- A proactive growth mindset. This will include:
- a stretch goal and accountabilities
- reinforcing behaviors by senior execs
- metrics tracking where leads come from and how they’re nurtured and sold
- an updated sales methodology (maybe challenger)
- some updated selling techniques (social selling)
- emphasis on qualification
- reallocating resources and shifting some budget – maybe a bit less on trade shows, an increase in marketing
- org chart changes including shifting some field sales to inside sales. This has to be sales, not customer service.
It also means creating a BDR function. While changing sales rep behaviors, shifting the company mindset and allocating more funds for marketing are going to feel like huge hurdles, the BDR piece is going to be maybe the biggest change. The good news is there are some ways to facilitate it.
First, buyer intent data will reveal who’s actively searching for solutions to problems you solve, and engaging around important key terms and competitors. Then you have to have proactive outbound prospecting to those leads. That means phone, email, social and more. The reality is that many traditional sales organizations are not successfully going to grow that in house. But there are outsource options for it like VOIQ.
The mindset shift will be key though, and has to support this work. I’ve seen cases where innovative and amazing outbound lead gen is simply ignored by sales reps who are unwilling to change what’s easy and comfortable - and where middle market management, content with 5% growth, let’s them dictate the company’s strategy.
A company will reflect the strength of its leadership. If your sales and operations folks passively dictate your strategy and growth rate, and you allow that, then thanks for listening this far, but this isn’t a fit for you.
On the other hand, if you are intent on deciding where you’re going, and how fast, then this is precisely the sort of model that has worked in complex B2B sales elsewhere, and can be adapted to help you grow at the rate you want and improve forecasting and profitability.
I’m Ed Marsh. Thank you for joining me for this episode of Signals from the OP. If you enjoyed it, please share it and subscribe – either to my youtube channel EdMarshSpeaks.TV or at the related blog SignalsFromTheOP.com.
