John's Music Blog

For the 3rd time this month, Mark Leslie was mentioned in a conversation or presentation. The most recent was at TiE Boston’s Annual VC Outlook Dinner. Actually, mentioned, is way too soft. He was cited, praised, quoted, and otherwise venerated. Mark has a remarkable story. He took VERITAS from 12 employees and $95,000 in annual revenue to over 6,000 employees and $1.5B in revenue, before the company merged with Symantec on July 5, 2005.

I first met Mark, when I hosted IDC’s StorageVision conference in San Jose in May 2000, a year in which we recruited Steve Luczo, then CEO, and now Chairman of Seagate, and Joe Tucci, then the newly appointed President and COO  of EMC.  Mark wasn’t the best dressed (that was Joe) or most poised (that was Steve), but he gave, by far, the best talk. The talk that was discussed three times this month wasn’t, however, his StorageVision speech. That honor goes to this talk: “It Always Takes Longer and Costs More.” On Page 15 of the presentation, Mark begins a discussion of the Sales Learn Curve (SLC), which is the sales equivalent of the Manufacturing Learning Curve (MLC). The SLC is critical, Mark argues, to knowing when to step on the gas with sales.

Almost every company I’ve talked to measures the cost of sales. But where organizations differ is in the costs that are included in the cost of sales. Mark includes:

• Marketing
• Product management
• Product marketing
• Product  support
• Sales engineering
• Sales

Some of these costs are more fixed than variable. Marketing, product management and product marketing don’t need to grow linearly with sales. Support, sales engineering, and sales costs are, however, more directly proportional to revenue.

Since more sales means that the fixed costs in the cost of sales calculation decline as a percent of sales, many startups are tempted to hit the gas early on deploying sales and sales engineering resources. But until they have gone through the iterative process of perfecting the sales process, this approach just burns cash.  Instead, he stresses the importance of  investing for learning in the early stages, making iterative improvements in the sales process. When the sales process is perfected, then, and only then, should a company put the “Pedal to the Metal,” making significant investments in sales and sales engineering.

In last week’s post I talked about the importance of a start up knowing the percentage of customers that would recommend their product or their company. There’s actually a name for this metric. It’s called the Net Promoter Score or NPS. Here’s an article that provides a way to calculate your NPS.  In order to have a high NPS, you need more than the right product. You need the right customer experience.

I’m always a little shocked by companies that see unhappy customers and fail to take immediate action. My wife recently took her car into the local dealership for routine service.  Between a post-doctoral fellowship, an active private practice, and several non-profit board seats, she’s very busy. So she wanted to know how long the service would take. The answer was, “No more than an hour.” After a two and a half hour wait for her service to  be completed, she was obviously steaming. She complained to the service manager, who apologized and then sent her on her way.

When the post-service customer satisfaction survey call came, she gave candid answers. She was not satisfied. Less than 24 hours later, she received a call from the service manager apologizing profusely, telling her to call him directly, the next time she had her car serviced. He then offered her a complimentary car detailing service along with a polite recommendation that she wait until the winter season was done, in order to get the maximum benefit from the detailing. The coupon for the free detailing arrived the next day in the mail. My wife was somewhat calmed by the gesture, but still doesn’t mind repeating the story of the dealership’s poor service.

Now, imagine how different her reaction might have been, had the service manager, to whom she expressed her dissatisfaction before she left the dealership, had then offered her a discount, or a free detailing service. Her anger would probably have been assuaged immediately. What if it didn’t require the service manager’s involvement at all, but the clerk at the service desk had been empowered and taken the initiative to make things right? What if the dealership’s response had been as it was for me at a local restaurant, when the waitress offered my meal for free, because I had to wait too long to be served. Rather than a detractor, I became a promoter, for her willingness to proactively do the right thing.

I met a few weeks ago with a friend who is the CEO of a startup company based in the Boston area. He’s not a first time CEO, and he’s had at least one successful exit, selling his company to a major system company. How good was the exit? Lets just say that he didn’t have trouble raising money, when he was ready to do his next venture. When he did his last round, it was significant and at a very nice valuation, by IT infrastructure standards.

I think data is important, and I like to know what corporate executives care about, so, now, every time I meet with a startup company, I ask the CEO what they measure. Typically on the finance side, I’ll get answers like revenue, cash flow, burn rate. On the sales side, they tell me they track new customers, number of deals, repeat sales or renewals, and average deal size.  And on the development side, they will track the total number of bugs, sometimes by criticality, and the bug retirement rate. These are all good things to measure, so, if you are measuring these things, good for you.  And if you’re not measuring them, time to break out a yardstick and some monitoring tools.

My very successful friend gave me one more number to track before all others. Given his track record, I paid attention. The most important number for him is the percentage of customers that say they would recommend the  solution to a colleague. He actually has someone call every single customer and ask only one question:

Would you recommend our solution to a colleague?

This is not the same question as “Would you be a press reference or allow us to do a case study on your installation?” That brings with it the usual baggage of legal and PR approval processes. No, for an early stage company, this question, “Would you recommend our solution to a colleague?” encapsulates the only truly important metric into it. It answers the question, “Am I building the right product?”