Sales

  • Advertising matters because it works
    • It’s easy to resist the most obvious sales pitches, so we entertain a false confidence in our own independence of mind. But advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived.

    • All salesmen are actors: their priority is persuasion, not sincerity.
      • The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it. The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself).

    • Superior sales and distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product—even if it easily fits into already established habits and anybody who tries it likes it immediately—you must still support it with a strong distribution plan.

  • How to sell a product

      • Two metrics set the limits for effective distribution:
        • Customer Lifetime Value (CLV)
          • The total net profit that you earn on average over the course of your relationship with a customer
        • Customer Acquisition Cost (CAC)
          • Amount you spend on average to acquire a new customer
        • CLV must exceed CAC
          • In general, the higher the price of your product, the more you have to spend to make a sale—and the more it makes sense to spend it.

    • Complex Sales
      • If your average sale is seven figures or more, every detail of every deal requires close personal attention.
        • It might take months to develop the right relationships. You might make a sale only once every year or two. Then you’ll usually have to follow up during installation and service the product long after the deal is done. It’s hard to do, but this kind of “complex sales” is the only way to sell some of the most valuable products.

      • Businesses with complex sales models succeed if they achieve 50% to 100% year-over-year growth over the course of a decade.
        • This will seem slow to any entrepreneur dreaming of viral growth. You might expect revenue to increase 10x as soon as customers learn about an obviously superior product, but that almost never happens.

          • Good enterprise sales strategy starts small, as it must: a new customer might agree to become your biggest customer, but they’ll rarely be comfortable signing a deal completely out of scale with what you’ve sold before. Once you have a pool of reference customers who are successfully using your product, then you can begin the long and methodical work of hustling toward ever bigger deals.

    • Personal Sales
      • Most sales are not particularly complex: average deal sizes might range between $10,000 and $100,000, and usually the CEO won’t have to do all the selling himself. The challenge here isn’t about how to make any particular sale, but how to establish a process by which a sales team of modest size can move the product to a wide audience.

    • Dead Zone
      • For a product priced around $1,000, there might be no good distribution channel to reach the small businesses that might buy it.
        • The product needs a personal sales effort, but at that price point, you simply don’t have the resources to send an actual person to talk to every prospective customer. This is why so many small and medium-sized businesses don’t use tools that bigger firms take for granted. It’s not that small business proprietors are unusually backward or that good tools don’t exist: distribution is the hidden bottleneck.

    • Marketing and Advertising
      • Works for relatively low-priced products that have mass appeal but lack any method of viral distribution.
      • Every entrepreneur envies a recognizable ad campaign, but startups should resist the temptation to compete with bigger companies in the endless contest to put on the most memorable TV spots or the most elaborate PR stunts.

      • Viral marketing
        • A product is viral if its core functionality encourages users to invite their friends to become users too.
        • Whoever is first to dominate the most important segment of a market with viral potential will be the last mover in the whole market.

  • The power law of distribution
    • One of [the previously mentioned] methods is likely to be far more powerful than every other for any given business: distribution follows a power law of its own.

      • This is counterintuitive for most entrepreneurs, who assume that more is more. But the kitchen sink approach—employ a few salespeople, place some magazine ads, and try to add some kind of viral functionality to the product as an afterthought—doesn’t work. Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.

  • Selling your company to non-customers
    • Your company needs to sell more than its product. You must also sell your company to employees and investors. There is a “human resources” version of the lie that great products sell themselves: “This company is so good that people will be clamoring to join it.” And there’s a fundraising version too: “This company is so great that investors will be banging down our door to invest.” Clamor and frenzy are very real, but they rarely happen without calculated recruiting and pitching.

    • Selling your company to the media is a necessary part of selling it to everyone else. veryone else.