Jason Lemkin knows a thing or two about creating and funding successful start-up companies. He is the Managing Director at Storm Ventures, an early-stage VC fund; he was co-founder and CEO of EchoSign, which was acquired by Adobe; and co-founder of NanoGram Devices, acquired by Greatbatch. His insights into SaaS business and sales are incredibly valuable, and he shares his thoughts often on his website saastr.com. He also helped Aaron Ross co-author the recent eBook sequel to Ross’ best-selling book, “The Predictable Revenue Guide To Tripling Your Sales.”
I’ve personally learned so much from Lemkin about sales and business strategy, specifically for SaaS companies and growing start-ups. I’d like to share some of his sales lessons with you.
1. Scale Quickly or Die
In order to succeed, your sales organization must be agile and able grow quickly – especially those with a SaaS business model. Lemkin says it is critical to optimize your sales organization to make incremental improvements to your growth rate. If your business is growing 80% year over year, Lemkin advises that you work diligently to increase that to 90% or 100%. What starts out as a small improvement in the first year will compound quickly in the coming years as more and more of your existing customers renew SaaS contracts.
2. Offer a Great Price
One of the ways to optimize your sales is to offer a clear and competitive pricing model to customers. In the world of SaaS, many people offer a “freemium” type model, but Lemkin shies away from that. Freemium pricing, he says, is just not enough to support the growth of a powerful inside sales team. You need to figure out the best, competitive price for your product in your market, but still support your business’s overall growth rate.
3. Customer Happiness is Vital
In order to keep those valuable customers renewing SaaS contracts year after year, the happiness of even your smallest customers must be your primary concern. If you’re getting phone calls from customers with problems and complaints, you need to invest in your customer services department. For anyone that’s run a SaaS company, Lemkin emphasizes the old adage: the customer is always right. Your growing company relies on positive word-of-mouth so pick up the phone and make your customers happier right now.
4. Don’t Be Afraid to Talk to Competitors
Lemkin recommends talking with both your direct and indirect competitors. It is a tough world out there for start-ups, but it doesn’t have to be cutthroat. Obviously keep sensitive information confidential, but openly sharing some information with another company can be mutually beneficial. You could learn something new, and so could they. And you never know what the future will hold – you could be partnered one day. Lemkin references the merger of GrubHub and Seamless, two food delivery startups who used to compete, but are now one dominant force.
5. Fire Bad Fast, Keep Good Forever
Key hires, like a VP of Sales, can make or break your sales team. In order to prevent a bad hire from dragging down your entire team, Lemkin recommends that managers act quickly. He says that you’ll know within a month if your new hire is working out or not. If a new sales rep isn’t stepping up, you need to let them go now. On the other hand, if you have great people on your team, you need to ensure that turnover is low and no one wants to leave your company for another position at another company.
6. Close the Gap Between Sales and Marketing
While Lemkin says he hates the word “alignment,” he emphasizes that the VP of Sales and VP of Marketing need to work together closely. If the two departments can’t communicate or aren’t focused on the same goals, there is a huge problem. He recommends that the two sit right next to each other in the office, and also meet at least twice a week. Marketing is the engine that fuels sales, especially for smaller companies without a strong outbound sales division.
7. Give Customers the Freedom to Leave
One of the biggest concerns for SaaS companies is churn. Many SaaS companies like to brag about how “sticky” they are – how churn is low because customers can’t get rid of their application. However, Lemkin says this is a bad thing, because you’re essentially imprisoning your customers. They’re not buying your product every year because they’re happy; they’re buying it because they’re stuck! He says it’s better to give customers the freedom to leave, but provide such a great product that they won’t WANT to.
8. Upselling is Key
In SaaS, Lemkin says that small increases in price for each customer can add up to huge revenue over the years. Upselling customers by offering more features, professional services, or creating an Enterprise edition of your product can all increase revenue more than you’d expect. It’s also less expensive to invest in a team to work on upselling to your existing customers than to market and then sell to new customer. By growing that revenue stream slightly you will see a big increase overall.
9. Don’t Knock Outbound Sales
Inbound sales may be all the rage, but Lemkin says outbound sales can still be valuable to your team. You don’t have to invest a ton and hire a huge team, but a small number of outbound reps can contribute another 10% to your overall sales. And as he noted before, a 10% increase in SaaS sales over time has a big impact on your bottom line.
10. Offer Big Incentives to Sales Reps
Lemkin says at EchoSign, he learned that you have to offer big incentives to push sales reps to work hard. Have a fair, base salary, but then make sure your best reps can make a lot of money and will want to stay. Lemkin said he paid his reps 25% commission after they pay for their own base salary – a huge incentive, but not enough to break the bank. He recommends creating an easy-to-understand sales comp program that doesn’t create any incentives for your mediocre reps to stay mediocre.
The world of SaaS selling has unique challenges, and Lemkin admits that he made many mistakes while building his past companies and gained valuable knowledge from the experiences. By following his advice, you too can build a great SaaS sales team and start to increase your revenues.