Message-ID: <27015849.1075860247935.JavaMail.evans@thyme>
Date: Wed, 28 Mar 2001 07:43:00 -0800 (PST)
From: ted.bockius@ivita.com
To: mark.taylor@enron.com
Subject: FW: This got a lot of heads nodding last week -worth a read.  Lar
	ry loved #8 and 9 !
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Mark,

Per our conversations, as the e-mail below indicates, there is a big demand
for a company that can help start-ups identify visionairy customers.

> The Ten Dangers of Early Market Selling
> 1. Ignoring the key goals of Early Market sales
> 2. Not understanding the psychographics you are dealing with
> 3. Employing ineffective qualification (i.e., segmentation) criteria
> 4. Asking the wrong people in your organization to find and close the
> first few deals
> 5. Not knowing where to find likely visionary buyers
> 6. Failing to align with the visionary's goals and requirements
> 7. Mistaking "pragmatists in drag" for visionaries
> 8. Not charging for custom R&D and/or implementation services
> 9. Structuring each deal as a product sale rather than a "whole project"
> 10. Failing to see when/how to cross the chasm (and avoid the plunge!)
>
> 1. Back to Basics: Surviving the Ten Traps of Early Market Selling (Part
> I)
> In December's edition of Under the Buzz (vol.1, no.8: "LifeCycle-based
> Enterprise Sales: The Key to Crossing the Chasm"), I made brief references
> to sales strategies for the Early Market, while focusing attention on
> strategies for crossing the Chasm. Executives and VCs among our readers
> responded that the topic of enterprise sales was indeed timely, and many
> welcomed the guidance offered. In parallel, at the Net Market Makers
> Ground Zero 4 conference panel I hosted in early December, enterprise
> sales was a key concern on the minds of panelists and audience members
> alike. Even though some product categories appear to have passed beyond
> the stage of gestation that the early market represents, many categories
> appear still to be experiencing early adoption: in fact, while many B2B
> companies - especially erstwhile net marketplaces - re-purpose their
> businesses (see section 3 of this edition), new categories of offerings
> continue to emerge, including e-finance services, supply chain
> visibility/execution, and collaborative commerce solutions (section 4 of
> this issue). And, even companies in categories that may be starting to
> move across the chasm still need to tackle the "big, hairy audacious
> projects" of their visionary customers more effectively.
> Early Market Adoption Dynamics and Ten Key Traps to Avoid
> It is frequently stated that, in order to establish the value proposition
> of a new technology, the early market phase requires a simple strategy:
> "just go get a customer". Reinforcing this approach, our firm emphasizes
> that the core market development strategy at this point is indeed
> "deal-driven". So, what's the problem? If you have a sufficiently
> attractive - and discontinuous - innovation to bring to the table, surely
> it is indeed a question of "just" going out and closing a deal with a
> willing customer. Well, not so fast. In my own personal experience running
> software companies, I experienced significant difficulties to make this
> strategy work, and in my consulting practice I see companies flounder
> every day in early market customer engagement. Hence, success in the Early
> Market is far from being a trivial feat. Therefore, I want to examine in
> some detail the principal traps and how companies can avoid them. At least
> ten potentially critical dangers lie in wait for unsuspecting companies,
> the first five of which I shall address here:
> 1. Ignoring the key goals of Early Market sales: Companies tend to act as
> if this is a time to sell to as many customers as possible, in order to
> build a reference list that will impress later adopters. Unfortunately, by
> treating all comers as "early adopters", they often end up with the worst
> possible compromise: they get involved in extended sales cycles with
> mainly hesitant customers who end up requesting custom enhancements in
> return for small "pilot" contracts that take ages to close. In those cases
> where companies do attract a bona-fide visionary customer, they are often
> unsure how to manage the opportunity. Thus, they jump through technical
> hoops to satisfy the customer's aggressive requirements, but fail to get
> compensated for the value they deliver. Assuming for a moment that your
> company does have a valid Early Market proposition - i.e., a discontinuous
> innovation that promises to enable business in a significantly new way -
> then the main objectives are to prove (a) that the new category is indeed
> a hot one, and (b) that you are a player with leadership potential. The
> best way of achieving these goals is to find a few big company-making
> deals with visible customers who are willing to take a risk on your
> technology because they believe it can garner for them a real and dramatic
> competitive advantage. Commerce One's deal with General Motors in late
> 1999 to build an online e-procurement marketplace was a good example of
> how to do this. On the day the deal was announced, the company's stock
> price registered a significant uptick and it emerged as a leading players
> in e-procurement alongside Ariba.
> 2. Not understanding the psychographics you are dealing with: The early
> market has two distinct constituencies, each of which is quite different
> in turn from the other three (pragmatists, conservatives, and skeptics).
> While technology enthusiasts are technology-focused, visionaries are
> business-focused. More important, they are critical partners in the early
> market "buyer alliance" required to make anything of significance happen:
> techies need the funding provided by empowered visionaries to implement
> the new technologies in a true, industry-shaping project, while
> visionaries rely on techies to tell them whether or not the new technology
> has a chance of actually working in a live setting. Thus, while
> visionaries may not actually care two hoots about technology per se, or
> they may not really understand its intrinsic characteristics, they do have
> a keen awareness of its relevance to their business objectives.
> Unfortunately, in their anxiety to find acceptance for their "new new
> thing", companies confuse pragmatists with these two groups, resulting in
> missed opportunities - perhaps the worst of which is the sin of giving too
> much away for free, because visionaries are results-sensitive, but not
> price-sensitive.
> 3. Employing ineffective qualification (i.e., segmentation) criteria: Many
> companies fail to recognize that Early Market selling, in common with
> later stages in the Life Cycle, does require a segmentation strategy -
> though quite a counter-intuitive one. As a result, they spend precious
> energy selling to the wrong target customers. For example, in the Bowling
> Alley you segment for pragmatist managers in self-referencing groups (such
> as micro-niches of vertical markets), whereas in the tornado you segment
> for anyone ready to make a quick purchase decision for maximum volume, and
> on Main Street you segment for end users in selected niche markets whose
> needs and preferences you can serve effectively. In contrast, during the
> Early Market stage, when all constituencies except for the small number of
> techies and visionary executives automatically disqualify themselves from
> buying the new new thing, vendors must segment ruthlessly for visionary
> executives in visible organizations.
> 4. Asking the wrong people in your organization to find and close the
> first few deals: In most cases, assigning your entire sales force, large
> or small, to the task of finding and closing big deals with visionaries is
> asking for trouble. In order to engage with executives in such
> organizations, your best resources must be actively engaged. After all,
> these are the defining projects that will establish your company in the
> new category, so they are core for the company. The basic model for this
> in a young B2B company is an evangelistic "sales team" led by the CEO and
> CTO, supported wherever possible by a cadre of evangelist sales,
> technology and domain professionals. Though not entirely unlike the SWAT
> group which is appropriate for the Bowling Alley, this teaming model tends
> to be more of a virtual team, consisting of the key partners in the
> project: (i) the visionary customer, (ii) the technology company, and
> (iii) the senior service firm.
> 5. Not knowing where to find likely visionary buyers: One of the main
> problems associated with selling to techies and visionaries is that
> there's no way of telling from their business card or job title what their
> IT adoption behavior is. Worse still they tend not to congregate in herds,
> so it's difficult to find groups of them. Fortunately, however,
> visionaries tend to leave a trail - there aren't many of them and they
> usually have a track record (of sorts). While visionary individuals
> quickly make a name for themselves and (unlike company owners such as
> Michael Dell) often move from one company to another, companies stay in
> one place and, in general, they fall into one of two categories: large
> Global 2000 organizations, or fast-growing companies, often in new-ish
> industries (e.g., wireless telecommunications). One of the best ways of
> identifying them is the combined personal networks of any management team,
> as well as in publications that detail their successful and unsuccessful
> projects. After a short brainstorm session, you can usually draw up a list
> of twenty or more "suspects", and this is as good a place as any to start.
>
> The five points above deal mainly with understanding what the early market
> stage is really about, and how to identify and connect with visionary
> buyers. The last five dangers relate to how to successfully engage with
> bona-fide visionaries, and determine when to move to the next stage in the
> Life Cycle. Here is the complete list of ten traps, the last five (in
> bold) to be addressed later:
>
> For readers whose business is currently in the early market stage, I
> encourage you to measure your progress in avoiding the traps we have
> described here, by analyzing each significant sale closed to date, as well
> as those currently in the pipeline. If you have fallen into one of these
> traps, I strongly recommend that you debate this issue with your
> colleagues, because every mistake made here can cost you dearly. For
> readers whose business is not currently in this adoption stage, consider
> the contrast between the dynamics of the early market and the stage you
> believe your business is in. This will help you to distinguish between the
> appropriate strategies for each stage.
>
> 6. Failing to align with the visionary's goals and requirements: From the
> time you first hit it off with a true visionary buyer, you must do
> everything possible to fit in with their vision - because they always have
> a project in mind before you came along - whether it be a plan to change
> the ground-rules in their industry, gain a defensible leap in market
> share, or revolutionize some business process. Strangely enough, the worst
> possible mistake is to act like a typical product vendor, because the one
> thing that will scare them off is a vendor eager to do a deal at all
> costs. For example, agreeing to do complex custom product enhancements at
> the drop of a hat smack of desperation, and tends to make them feel that
> you may not be able to deliver what they need in the timeframe they need
> it. Remember, far from being price-sensitive, visionaries are extremely
> results-sensitive. This is because, if you think about it, their
> willingness to go where no man hath gone before makes them vulnerable if
> it should fail. Thus, visionaries need their chosen technology provider to
> do whatever it takes to make them successful. In light of this, you can
> and should count on them to be a true partner in the "whole project",
> along with the senior service partner who may already be a valued
> counselor to them.
> 7. Mistaking pragmatists "in drag" for visionaries: Pragmatists, just like
> conservatives, and even skeptics, read the same books on core competencies
> and competitive advantage as do visionaries, and they can be equally
> proficient in the lingo of strategy. Apart from any other consideration,
> talking big sounds much better than to admit right off the bat that the
> real reason they came to your seminar is, well, fear that they may be
> missing out on something important. Not -- as Seinfeld might say -- that
> there's anything wrong with being a pragmatist. It's just that, if we
> don't listen carefully, we can waste fatal amounts of time and money
> courting them, only to have a big deal forecast to close within three
> months turn into a small pilot that doesn't close for a year (or ever),
> with very little resource commitment by the customer. So, how can you tell
> immediately that you are dealing with a pragmatist rather than a
> visionary? Well, there are two guaranteed signs to probe for: (1) the
> visionary always has a project in mind that they are dying to tell you
> about, whereas the pragmatist or conservative is only there to keep tabs
> on the new stuff and make sure they don't need to do anything about it for
> the time being; (2) when your prospective customer asks "so, who else is
> doing this?" if they are a visionary, their expression is one of
> anticipation that they might be the first in their industry to invest in
> this new stuff, whereas pragmatists will always betray their true colors
> by the concerned look on their faces at this point. Having spotted a
> pragmatist, the best way to deal with them is to let them know that you
> understand their lack of readiness to buy at this time, and will keep them
> informed about your progress. This "reverse psychology" provides them with
> valuable assurance, and may even intrigue them enough to result in a pilot
> purchase- that you will not treat as a big deal warranting "whatever it
> takes" support.
> 8. Not charging for custom R&D or implementation services: Due to the
> plain anxiety to gain acceptance for the new innovation, companies have a
> strong tendency to want to give everything away in order to please their
> customer and thus get the contract signed quickly. Since we have said that
> visionary buyers are results-sensitive rather than price-sensitive, this
> approach can only delay the deal -- and, worse still, actually diminish
> the size of the initial commitment. In fact, the one thing that worries
> them about a vendor's eager-to-please approach in an early-market project
> negotiation is when we agree to do everything for free -- and by next
> week, into the bargain. Why would this worry them, if they stand to
> receive extra value for free? Well, put yourself in their place: if you
> have just knowingly asked your chosen vendor to develop one or two
> additional features in an still untested technology, wouldn't you worry
> just a little whether or not they can deliver something working in such a
> short time? In pure financial terms, this foolhardy attitude reduces
> dramatically the revenue received from the hard work of providing the
> requisite technology and services (usually at the cost of other key
> commitments).
> 9. Structuring each deal as a product sales rather than a "whole project":
> Most software companies are designed from the start to be product
> businesses, even if they know they will have to provide for plenty of
> customization to their products by engineering and/or professional
> services. Furthermore, the business model is set as a license-fee
> business, with service fees tacked on as a secondary, tactical sideline.
> This generally makes it difficult to identify and close true early-market
> opportunities effectively and profitably. The reason is that this model
> causes the vendor to focus on selling a product license, which flies
> directly in the face of the customer's goals. The clearest sign that
> vendors are approaching the early market sales opportunities incorrectly
> is that the product becomes their key point of reference; for every
> question asked by the customer, they point to benefits the product
> provides, to show how the product can solve the customer's problem --
> whatever it may be. Unfortunately for product vendors, visionary customers
> see new technologies as concepts in search of proof, rather than as
> finished products. Furthermore, they recognize that they are the only
> customers willing to commit time, resources, and money to incorporating
> the new technology into their project - assuming it is a key catalyst to
> make the project viable. However, the more the vendor sets out to prove
> that the product does everything the customer needs, the more they get
> into hot water, via repeated demos; the customer sends different teams to
> see the latest custom demo that doesn't quite do everything the customer
> dreams of, the company then has to do unnatural acts by the following week
> in order to recover the lost ground with a demo that actually works, by
> which time the customer has become concerned that the vendor is not really
> listening to their requests, but just trying to sell them something.
> The only solution to this problem during this stage is for the vendor to
> think like a service company, evaluating every valid opportunity as a
> project, rather than a product sale. Engineering and implementation
> resources should be allocated a priori to these projects, the best and
> most senior talent needs to be allocated to co-managing the project and
> ensuring follow-through, contracts should be structured on a risk-reward
> basis, and every piece of value-adding work should be charged for (large
> companies understand that you are not a registered charity). By and large,
> deal structure should emulate the structure of large technology
> integration projects: the customer should commit to (a) a significant cash
> payment up-front to fund start-up resources, then (b) milestone payments
> for each key project phase, and (c) a final payment for project completion
> and full rollout. Customers need to know that the vendor is committed to
> their success, so pricing and fees must reflect this emphasis. Remember,
> they are results-sensitive, so that whenever they are not charged for work
> that they consider critical, they will become concerned about on-time
> delivery of a working solution. There is only one exception to this
> pricing guideline: work performed to make good on basic, existing
> functionality should be funded by technology vendor, as a basic part of
> their contractual obligation.
> 10. Failing to see know when/how to move to the next stage: Unfortunately,
> a year or two into the Early Market stage, there is no Gartner Group or
> Forrester report to let you know for sure that it's time to change
> strategies and negotiate the delicate but vital leap across the Chasm. In
> fact, the only reliable indications that you have reached the end of this
> big-project stage are two-fold: (1) no new visionaries -- all of the
> visionaries that could have been attracted to your technology have already
> made their commitments (and these customers are now anxiously waiting to
> for their project to be completed), and (2) pragmatists are still wary of
> making any more than a token toe-in-the-water commitment to a pilot
> project. Now, if you've been reasonably successful during this stage, you
> probably have between three and seven live projects at various stages of
> completion, and a number of pilots in place with the pragmatists you
> managed to eke out a deal with. But, still, it's not easy to know that
> it's time to cross the chasm. What's left to do is review each significant
> project in detail, to see what competitive advantage benefits your
> visionary customers have realized. Selling to pragmatist department
> managers in the bowling alley requires that you translate this discourse
> about "pursuing competitive advantage" to "eliminating severe competitive
> disadvantage". No matter how clearly your first pragmatist customers
> intellectualize the positive benefits of the technology, remember that
> they are not sufficiently motivated to emotionally to take the plunge,
> unless they truly believe that they are suffering a "severed jugular" type
> of emergency. This allows you to start plotting a target beachhead
> strategy. If herd behavior starts to occur in the same market segment,
> this is an indication that it is safe to proceed.
> Deciding when enough is enough in the Early Market is about determining
> when you have too many one-off projects to deal with, and don't see new
> visionaries calling to discuss new ones. This is the most reliable way of
> knowing that it is time to start the delicate transition toward the
> Bowling Alley -- without, hopefully, crashing down into the Chasm. In a
> forthcoming issue, we shall discuss the "how" of this challenge -- how to
> negotiate the delicate and crucial task of crossing the awesome and
> dangerous chasm.
>
>
> ================================
> Giri Iyer
> Corporate Evangelist
> iVita Corp.
> 13111, Northwest Freeway, Suite 400
> Houston, TX 77040
> (P) 832-590-7404
> (M)281-435-2406
> (F) 713-895-7461
> Giri.Iyer@iVita.com
> www.iVita.com
> ================================
>