Dance Like a Butterfly, Sting Like a Bee

Traditional Sales, Marketing and Business Development organizations are designed to execute a known process. My point all through this book is that during the Discovery and Validation phases nothing is known and everything is a working hypothesis. Traditional functional organizations and the job titles and job descriptions that work in a large company are worse than useless in a startup. Large companies typically have three customer-facing departments, and these departments have executive titles that describe an individual's role as the head of organizations: VP of Sales, VP of Marketing, and VP of Business Development. My belief is that these organizations and the executive titles that go with them are dangerous and dysfunctional in the first three phases of a startup. Why?

Sales

In an existing sales department the sales team knows how to sell to a well-understood group of customers using a standard corporate presentation, with an existing price-list and contract. If you want more revenue, add more salespeople. The conundrum is that during the Customer Discovery and Validation phases your startup doesn't know who its customers are, its presentations are changing daily, and the price lists and contracts are being made up on the spot. The worst thing that can happen to a startup is when the VP of Sales acts like he is in a big, existing company with lots of customer history. He brings his Rolodex, relationships and sales models from his last company and assumes this new startup is just another series of staffing and hiring. When a venture capitalist asks me to figure out what's wrong with sales at one of these startups (typically in a new or resegmented market and badly missing their revenue plan), the phone call with the VP of Sales usually goes like this. Me: “How's sales?” Sales VP: “Well we're just starting to ramp up the team.” Me: “How many salespeople do you have?” Sales VP: “Six and we're interviewing for the last three slots.” Me: “How many deals have you closed?” Sales VP: (Perceptible pause) “Well we have a quite good pipeline. But the problem is the presentation keeps changing.” Me: “What do you mean?” Sales VP: “Well the company keeps changing its strategy and the corporate presentation sometimes changes twice a week.” It's not that the Sales VP is foolish, he is just operating in an environment where all his experience and training have no relevance. In most cases it turns out he scaled the sales force prematurely. It's a startup. It's not IBM.

Ironically if you ask most startups if they would they hire the head of IBM's sales on day one most would leap at the chance. Yet consider what skills a world-class VP of Sales brings to a startup: an exceptional ability to hire, build, and motivate a worldwide sales organization; extreme competence in scaling a repeatable organization nationally and internationally, along with great forecasting and budgeting skills. In the first two steps of a startup none of these skills is relevant; in fact, these big-company skills are toxic. They have a startup building sales organizations before they are needed and staffing at the wrong time. Moreover, these executives are uncomfortable operating in the chaos and uncertainty that defines the opening days of the company.

What is needed in the Discovery and Validation phases are entrepreneurial sales skills; the ability to change presentations, customers and products daily, and to calmly process the news that the product features, schedules and functions have changed yet again; and the ability to listen to customer objections and understand whether they are issues about the product, the presentation, the pricing, or something else. No price list and product presentation will last more than a week. What's needed early on in sales is an individual comfortable with chaos and uncertainty who can close an order and not worry about building an organization. The goal of our first salesperson is to validate the business model by developing a sales roadmap, closing orders, and doing this without having a real product in hand. This may or may not be someone who can manage and build a sales department later.

Marketing

The same is true for marketing. Ask marketers in a startup what they do, and some will tell you their job is to brand the company so customers can understand what their company sells. Or it might be to create end-user demand and leads, and drive demand into the sales channel. Some may say the job is about strategic planning, while others will describe what they do is write Marketing Requirements Documents. And while all of that's correct in a company's later stages, none of it is accurate now. During Discovery and Validation the end users, markets, and channels are not known. So spending marketing dollars to create demand or write intricate product plans is futile and wasteful.

At times VCs ask if I would “take a look” at marketing at a startup missing their revenue plan. “We just think they need some help on positioning,” is the request. If the company is in a new market or trying to redefine an existing one, the remainder of the phone call with the venture capitalist goes like this. Me: “Do they have a sales roadmap yet?” VC: “No.” Me: “Hmm. So, what's marketing doing to help get one?” VC: “Well we can't quite tell exactly, it seems like lots of datasheets, brochures, trade shows, and webinars to generate leads and create demand. Oh, and they just hired an expensive PR agency, and have a new positioning and presentation.” Me: “How many people are in the marketing department?” VC: “Don't know exactly, but it feels like four or five.” As in the case of sales, when faced with chaos and confusion marketing people tend to revert to what they have successfully done before.

At least marketing and marketing communications are not as bad as in the heyday of the Internet Bubble when for awhile a new marketing title emerged, the VP of Branding. This title, essentially a renamed VP of Marketing Communications, sold a “bill of goods” to hundreds of gullible twenty-something CEOs promising to “create a brand,” if only they could have $xx million ($xx million being equal to about 80% of whatever large pile of cash the new startup had raised). The sober reality after billions were spent was that branding is a marketing communications and demand-creation function that doesn't start until the company has figured out who its customers are at the end of the Validation step. You can't spend money on getting, keeping and growing customers until you know who your customers are.

Yet if you ask most startup CEOs if they would hire the head of Disney's Marketing department on day one most would leap at the chance. However, consider what skills a world-class VP of Marketing brings to a startup: positioning and branding skills at home on Madison Avenue. Or perhaps product management skills that would make Proctor & Gamble salivate. Or even strategic planning skills that McKinsey would love to hire. The bad news is the same as in Sales: None of these is relevant in the first two phases of a startup's life.

Business Development

If you want to get my blood pressure up when you invite me in to see your newly formed startup, introduce me to someone with a Business Development title. This is the most ill-used and abused title in a startup. By itself this function and title more than likely decreases the probability of success when used early in a startup more than any other single factor. When I hear it used in an early-stage company I question the competence of all involved. Does Business Development mean someone is involved with non-revenue producing partnerships? Does it means their group is responsible for revenue-producing deals, not done in the primary sales channel the company is using? Or did someone just want to use a fancy title for Sales?

Let's start simply. In the first two stages of a company's life there is no use for any Business Development function. None. Zero. You can cut your burn rate by either walking these people out the door or reassigning them to some productive use on the Customer Development team. Until your startup has finished Validation you don't know who your customers, channel or partners will be. You cannot credibly have traction with any rational partner until you have proven your business yourself.

Eventually Business Development plays an important role in a company. The function of this group is to build the “whole product” so the company can sell to mainstream customers. The whole product is a concept defined by Bill Davidow in the early years of technology marketing. It says that mainstream customers and late adopters on the technology life cycle adoption curve need an off-the-shelf, no risk, complete solution. They do not want to assemble piece parts from startups. In the computer business IBM is the leading supplier of whole products. They provide the hardware, software, system integration support, and all the ancillary software to support your business problem. The theory is that an IBM customer needs to look no further than IBM for a complete business solution. But since you are a startup there is no way your company can currently offer a whole product. There will be pieces you just don't supply: system integration services, third-party software, configuration tools, applications, etc. The Business Development team's job is to assemble the “whole product” via partnerships and deals. This function was unnecessary in Customer Discovery and Validation because you realized that no mainstream customer would buy a half-finished product from your company. Instead you sold to earlyvangelists who not only did not need a whole product, but enjoyed assembling their own.

Viewed from the perspective of your erstwhile partners, before you have credible customers few of the vendors and suppliers you need to assemble your whole product will treat your company seriously. Therefore, during Customer Discovery and Validation the role of Business Development is superfluous and a distraction in a startup.

Engineering

The notion of a traditional engineering organization is also a detriment to the success of a startup. Not that you won't ultimately need an engineering department, but that having one in place before the first product is released is a mistake. Whoa! If there's no engineering, then how does the product get designed and built? I'm not advocating the dissolution of Product Development, just jettisoning the pieces that are not yet needed. The subgroups that make up fully staffed engineering departments found in large companies—an entire cadre of technical publications writers, huge quality assurance departments, detailed product specs the size of phone books, are all unnecessary—now. These accoutrements are as burdensome to getting the product built and shipped as the extra baggage was for sales and marketing.

A startup engineering strategy for the first two product releases is 1) execute against the technical vision of the founders, modified by customer feedback in Discovery and Validation. 2) Develop, then execute “a fast to market” (rather than first to market) plan that gets a first release (along with the vision of the product for the next 18 months) in the hands of the earlyvangelists as quickly as possible. 3) Use feedback from earlyvangelists who bought the product to flesh out the specification for the next release to a broader customer base.

The same rules for who you would want to run Engineering apply as they did for the other groups. Most software startups would probably be in heaven if they could hire Microsoft's VP of Windows Engineering. But as you can now fathom it would be the wrong choice. In a startup you don't need to hire and manage hundreds of engineers. Knowing how to schedule the resources for five-year software projects and run beta tests with tens of thousands of users is immaterial—at least right now. Instead, what a startup needs is someone with a keen product vision, an unerring eye for a minimal feature set, and an ear attuned to feedback from the Customer Development Team.

Titles Matter

One side effect of not having Sales, Marketing or Business Development departments is that you no longer have executives with those titles. Interestingly, the elimination of these titles is more important than getting rid of the departments themselves. If you're an executive in the midst of the confusion and stress of a startup, it's easy to lose sight of what you are supposed to be doing (particularly if you aren't following a Customer Development methodology). The tendency is to default to what you have done before at other companies, and if you were a VP, it was to hire, staff and manage. For example, if a VP of Sales in a startup can't figure out how to achieve the revenue plan, the inclination is for them to think, “Let me go out and recruit a few more salespeople; that will solve our problem.” Don't laugh, it happens all the time. Without a clear path to tell them that they should have been burning up the shoe leather and trying to assemble a sales roadmap before they hired anyone, people tend to revert to the roads they've traveled before.

Forming the Customer and Product Development Teams

For the first two steps in a startup's life (Discovery and Validation), the only functions or titles that exist are those that can be measured against this test: Does this department, title or new hire get your company closer to understanding:

• What the customers problems are?
• How your product matches those problems?
• How to build the sales roadmap?
• Getting orders to validate that roadmap?

If the function or title doesn't get you any closer to answering these questions then it is superfluous. Get rid of it. In place of the traditional Sales, Marketing and Business Development functions, a more effective way to organize in the Discovery and Validation stages of a startup is to assemble a Customer Development Team. This customer-oriented team has two roles: Customer Execution and Customer Vision. Alongside the customer-focused team is a Product Execution and Vision Team. Customer Execution and Vision is responsible for getting out and talking to customers, while Product Execution and Vision stay inside the company building and develop the product. “Vision” refers to those who can articulate the big picture. On the Customer side “vision” means someone who can articulately and passionately talk about the business or personal importance of the new product and company. On the product side vision refers to the individual that can describe the architecture and technology advantages to the customer, while simultaneously interpreting their complex technical requests for the Customer Execution Team. Frequently, the customer execution team will need to borrow technical resources to listen or talk to customers. In a startup's early stages up to 50% of the product visionaries’ time may be spent in front of customers. The Customer and Product teams stay solidly in lock step via the synchronization meetings we've described. At times the Customer Execution group may need to borrow people from Product Execution and Vision.

The Customer Development Team serves as tactical shock troops for the Customer Discovery and Validation steps. At first, this “group” might be nothing more than a single founder out talking to customers to test the “problems” the company elucidated in its business plan (acting as the Customer Execution Team) while five engineers write code (the Technical Execution Team). Later, near the end of Customer Validation, the team might be much larger. There may be a team of five or more validating the sales roadmap, trying to close orders and testing the company positioning, while 20 engineers are about to ship the product.

If creating a Customer Development Team meant simply renaming the traditional sales, marketing and engineering departments and calling it a “Customer Development Team” it would be an exercise in futility. The organizations differ not only by the seamless integration of what are traditionally separate fiefdoms, but by virtue of the type of individuals you hire during Discovery and Validation.

Customer Development Team member characteristics:

• Experience moving between the customer and Product Development Team (Product marketing or product management background)
• Can they listen well? Or are they more interested in talking?
• Can they understand what they hear? Or do they report what they wanted to hear?
• Can they deal with constant change? Or are they more comfortable with doing the same thing day to day?
• Do they have the capacity to put themselves in their customers’ shoes and understand how they work and what problems they have? Or are they more interested in talking about and selling a product?
• Are they self-starters or do they wait for direction?
• Are they innovators and creative or do they do what others tell them?