Late late year I was at the Freemium Summit in NYC put on by Charles Hudson and it reminded me that I had planned to do a follow up from a previous post on the High Velocity Business Model.
At Hummer Winblad, since we invest only in software companies so we pay careful attention to disruptive trends like the high velocity business model. I describe this model as one that breaks the enterprise selling model to reach both enterprise and SMB customers.
In my previous post I pointed out that these businesses focus heavily on consumer style online marketing, have awe inspiring products that are easy to try (specifically getting a quick time to value without talking to a sales person), leverage web sales plus low touch inside selling teams and rely heavily on metrics. Later in this post I will give a sample of metrics from one high velocity business that I have had the pleasure of working with.
Once a high velocity businesses coalesces on their metrics they have unprecedented advantages on the sales model – I believe this represents one of the biggest disruptions in the application market that we have seen in 10+ years.
There are a lot of people to give credit to here, most notably SolarWinds who went public in may 2009 and is an incredible business engine. If you haven’t spent some time understanding their customer acquisition model, it will be worth your time to download their S1. My current poster child for this model would be Zendesk in the customer support area – take a run through their funnel by doing the google search for “customer support software”, following their link to watch a video, sign up for an account and see how long it takes to customize your own version and start collecting tickets. I would be surprised if you aren’t a customer 30 minutes later. Rumor on the street is that they actually have no sales reps at all, so are really leading the way in the high velocity model. From the recent freemium summit I could add SurveyMonkey, YouSendIt, Yammer and others.
Below is a set of metrics pulled together from a high velocity business that I am familiar with. To protect the innocent, I will decline to name the company or when these metrics were collected. To give a rough order of magnitude for the business, it is profitable at about $15M annual runrate and growing by about 80% year over year. I have sat down with three other companies in the last quarter who validated many of these metrics as either comparable with theirs, or good achievable goals to pull into their businesses.
High Velocity Model
This company runs a true high velocity model where they spend $80K in key word buying to generate about 500 high quality ‘warm’ leads per month. These leads are then fed into a round robin system for eight inside telesales team members. There are no assigned territories and you have to be in your seat in the office to get leads. The team is:
7-8 telesales reps
2 account managers (work on upsell opportunities in install base)
1 hands on VP of Sales
They manage aggressively to weekly metrics, focus on hiring and managing out any non-top performers. The process is highly repeatable and in the eyes of the company the business is an endurance sport – one which you can succeed at if you follow the process and drive your leads forward. The timeframe is interesting to note as most enterprise companies work on a quarterly/yearly cadence whereas high velocity companies are more of a weekly/monthly metrics pace. This is a huge cultural change for most organizations but one that can provide sustainable advantage just like when engineering can truly deliver on a weekly agile deployment schedule.
Sales Cycle 45 days
New Deals per month 45
Deals per rep per month 6.5
ACV per deal 16K (average)
ACV quota per rep per year 1.2M (100k per month)
Target 8% conversion to sales
Rough efficiency model = 80K ad spend plus 80K salary spend yields 1M in ACV per month.
The average age of the current sales reps is in the mid thirties. The company looks for people with SaaS, domain and inside selling experience and specifically for people who do not have field rep experience as historically they do not work culturally as they cannot transition to the pace and urgency needed for inside selling. The reps are trained for 2-3 weeks and nurtured by the VP Sales with a goal of getting them productive within 3 months. The training is around the product, the value proposition, the sales model (and metrics).
Their hiring model has reached a steady state where they are replacing about one rep a quarter. All of the metrics are public in the company so the culture drives the performance. You can’t walk into their sales area without seeing the whiteboard with all the stats. If you want further details on how the reps are compensated in this model, drop me an email and I’d be happy to share my insights.
The sales process is an eight step methodology that is implemented through (no surprise here) Salesforce.
Step 1 (10%) – lead is qualified (interest, project has requirements, timing is <6 months) If a rep doesn’t act on a lead in two hours it is sent to another rep.
Step 2 (25%) – product identified, value estimated, pricing discussed, discovery process, demo scheduled
Step 3 (50%) – demo completed (prerecorded, webinar or 1:1), tech requirement reviewed, decision maker identified
Step 4 (60%) – trial in progress, SE engaged, verified requirements
Step 5 (75%) – selected as vendor, pricing sent
Step 6 (90%) – awaiting signed paperwork, verbal commit
Step 7 (95%) – received paperwork, submitted to finance for review
Step 8 (100%) – received payment
The sales reps run the process and use the SE’s for running demos. The company uses an prerecorded demo heavily and have tracking to see when a prospect views it. The SE’s run webinars three times a week for contacts that the sales team has in process. Private SE demos are used for well qualified customers and larger accounts that identify themselves early.
The process is heavily followed by metrics on a weekly basis. They have weekly commit and review meetings to follow the progress. Typically a rep needs to have somewhere in the area of 30 active deals to make their monthly numbers so this is watched closely. Successful reps are at a >25 calls per day volume. They have found that tracking bookings alone is not enough – you need to pull out the underlying activity rate to get a good pulse on the process.
Tracked (by rep by week):
Activities (moving people through process)
Total call volume
Ave Daily Calls
High Quality Leads
Demos driven (broken out prerecorded, webinar, 1:1)
Net new deals
Net new large accounts
Hopefully this is thought provoking for those of you in, or aspiring to, the high velocity model.