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Just finished reading “Setting Up in the US Playbook” by the team at Frontline Ventures. It is basically a recipe book for getting your US entry planned and executed. The primary assumption here is that there is a clear product/market fit for your venture in the US, and that the US market can be a primary market for you. Obviously there are all kind of nuances, and no ebook can cover them all.
Over the last 18 months as I’ve been advising and helping various non-US startups get into the US (or dissuade them from doing that), I’ve had to retrospect on some of the ground rules I had been preaching. For examples:
- I used to think that a company can’t scale with a virtual office model. But the team at ProofHQ have shown that it can be done, now with 100 employees, 80% of whom work from virtual offices.
- I used to think that the founding CEO needs to move to the US. But the CEO at ThinkTank has shown that there are exceptions.
- I used to think that US debt-based funding is not an option for non-US companies. But firms like SaaS Capital have started to invest in non-US companies like FreeAgent.
You all probably (or should) have already read and implemented the best practices of Predictable Revenue. I ran into this interesting bundle around Aaron’s teachings. It’s the Predictable Revenue Bundle of books and apps for sales teams.
The latest I’ve seen in sales tools around my portfolio companies include:
CRM: Pipedrive to get started. Salesforce when you’re ready to graduate. Avoid Zoho.
Contact management: I hear Contactually is good. I personally use Streak because it is built into Gmail.
Lead scraping: Combine LinkedIn searches with Salesloft Prospector. The latter is a nifty tool that embeds within the LinkedIn browser to automate the scraping. It also has a decent email finder, which tends to be better than Data.com. I found it figures out emails with 60% or so accuracy, and the rest you have to do manually. For more on scraping hacks check out this post.
Lead lookup: I use Rapportive in Gmail to automate LinkedIn and email lookups.
Email tracking: Toutapp and Yesware seems to be battling it out. The team at ProofHQ started with Yesware and switched to Touapp and they’re happy.
Outbound calling cadence: Your outbound prospecting team should not rely on your CRM to maintain cadence. Check out Salesloft Cadence and SalesVue (for Salesfroce.com). Salesloft Cadence is the newer tool, and the company is an awesome startup with very good service. SalesVue doesn’t have a model user interface, but is very well built to work with SFDC. And their team is very good at the science of outbound calling.
Phone tools: many to mention, but start with InsideSales.com
And the list goes on and on.
More on tools in this post by Bowery Capital and InsightSquared
I recently had breakfast with a couple of Europe-based entrepreneurs who were getting ready to establish their company’s first US sales office in Boston. Up until that point, they had managed to bootstrap the business, getting it close to a $3 million run rate with a highly efficient sales model (primarily online and inside sales to mostly US customers, executed
through their London operations). We spoke at length about the composition of the US team, and the persona of the first sales manager they want to hire.
The first sales manager is a very tough persona to hire. That is especially so in companies with a distribution model and segment focus that is still forming and in flux.
This is especially true with non-US companies entering the US market. Given that circumstance, what the founders had experienced selling their product in the startup phase from Europe, does not fully apply to the experience of establishing a US sales team. The persona of the first set of sales reps, and their manager, should be that of the The Renaissance Rep.
More on this in “The Sales Learning Curve,” a classic paper by Mark Leslie and Charles Holloway. It is a must-read for any founder/CEO looking to build or ramp up a sales team. Mark and Charles primarily focus on the launch of new products and the organizational learning curve required to support their success. I would say the learning curve also applies to pushing an existing product through a new distribution model or channel.
The key ingredients for successfully navigating the sales learning curve:
- It requires the attention of the entire senior executive team, as the effort will impact each function in one way or another.
- It should be tackled by a “tiger” cross-functional team that can adequately pursue the initiative with an open and learning mind frame.
- Dive deep into the success requirements from the standpoint of the prospect/channel partner to understand the true pain points of each, the company’s value proposition for each, and how each wants to engage the company.
- Adapt as learning is accumulated — adapt again, and again…
- Once the learning is near complete (it never truly ends), drive to a clearly mapped out engagement model and the specific associated touch points through the whole distribution channel (company to partner to prospect to customer).
- Once the core model is baked, only then hire the “steady state” team that will carry it forward.
- And this is where the renaissance sales rep comes in… As Mark and Charles point out, in a new market or channel, the learning curve of the organization is different from that of the sales rep. The sales executive on the tiger team is very different from the executive who would carry the process forward once it is baked.
Hence the concept of the renaissance rep referenced in the learning curve paper. The renaissance rep must have the following characteristics:
- Entrepreneurial (as much as a sales executive can be)
- Has experience at an early-stage company and wants to do it again
- Willing to learn and adapt, learn and adapt
- Willing to roll with the punches without pointing fingers at marketing or development or finance
- Has the instinct to walk away from deals that will never close
- Has the strength to push back on prospects that try to get something for nothing from an emerging company
- Willing to forgo some compensation in return for company success and equity
- Has faith that the money will come eventually, and the company will do well by him if it doesn’t
I have worked with and mentored several renaissance sales executives and reps over the years. Typically, I find them right after we invest in a new company. Successful founding-team sales executives are almost always renaissance sales people. One has to be in the start-up phase.
As the company enters the expansion-stage where the sales model matures and the market segment is more clearly defined, I find that the renaissance sales executive invariably begins to struggle with his or her evolving role. I see this especially with VPs of Sales, but just as often in rank and file sales reps. The first challenge is in their ability to adapt to a more prescribed and structured sales process (they miss the days when they used to make fast decisions and “wing it.”) The second is expectations. Founding renaissance sales people feel a sense of entitlement, and have a hard time recognizing that they can be easily replaced with sales people who have lower expectations, and are possibly better at selling in the execution phase.
I am very sensitive to this transition and have mentored more than one person through it. My advice to the CEO is to try as hard as he or she can to retain the renaissance rep. They are invaluable to the company as it looks to enter new markets or release new products. My advice to the renaissance rep is to go with the flow and happily take on a new role. There is nothing more fulfilling than going from challenge to challenge. Career advancement and wealth will eventually find their way to the renaissance rep, and in big ways.
A recent email discussion I had with a London based founding CEO who has recently received a round of funding. Thought I’d share it with you…
From: Firas Raouf <firstname.lastname@example.org>
Focus, focus, focus… Sigh… Its a recurring theme, and one of the most important priorities for an expansion stage CEO…
As you already know, your top priorities should be:
1. Set Aspirations and Goals and have them clearly and constantly communicated. The analogy here is that you have a clear definition of your company’s “North Star” and the means/path that you’re taking to get there. For Columbus, the North Star was India, the path was sailing west instead of riding east, and the means was the royals funding three ships and a crew. Once that aspiration/plan was clearly set, the focus became much easier to manage (buy three ships, recruit three captains, buy bunch of ship food, etc.). So I would start there, and after that you’ll find that setting goals and getting everyone focused is much easier. The first thing I do when engaging a company is run a two day planning workshop that lays all this stuff out with extreme clarity. The latter part of that workshop is the process for managing the management rhythm. I can show you the tools and method that I use for the goal/focus, but I just need to make sure you’ve got the harder stuff already baked.
2. Hire, motivate and focus a senior team. This is a two year process. You will have to remove some of your current “senior” members from the table; you will hire senior members who won’t last more than 12-18 months; you will hire more experienced executives when the time is right; and eventually you will get to a stable team. That doesn’t even take into account the US entry. Experience hiring and managing senior people is invaluable for you, so get some (ongoing) help here.
3. Culture: manage the culture more and more as the company grows. As the team expands and becomes more geographically dispersed, you will need to spend more time to proactively communicate and live the culture. Don’t take this for granted. It is easy to think that your culture will continue to be infectious, but as the company grows, the infection will need to be proactively dispersed.
4. Never run out of money… once you get on the funding train, it is exceptionally hard to balance being hooked on that crack cocaine, versus being disciplined enough to be a casual user. Always assume you don’t have as much access to funds as you actually do, and plan the business accordingly. Make sure your investors are aware at all times, but not over managing your priorities. Set up a good cohesive board with some independents that balance out the loud VCs.
I could go on for much longer…
A good read about the pros and cons of a uber-fast growth strategy is an article published by McKinsey & Company here. Go ahead and read the article… I’ll wait…
The article lays a compelling argument for early stage technology companies pursuing a high growth strategy. It pretty much says it all in the title.
Im my experience as a B2B software startup entrepreneur and an expansion stage VC investor, I found about as many exceptions and nuances as the number of companies I’ve built and invested in (and more in companies I was not involved in).
Here are some thoughts that went through my head as I read this article…
I don’t believe that the choice is always between fast growth or slow death. I think it is more of a choice between fast growth and equity value. No startup would forgo high growth if it can achieve it. The question is whether it can in fact achieve it, with exceptional (or acceptable) equity value for all shareholders.
Take the example of Box. The company has raised (as of the writing of this post) over $400M in eight years to achieve billings in FY2014 of $174M which were 100% higher than FY2013. That is outstanding growth for a company that size. But it took $170M in sales and marketing in FY14 to generate an increase of about $90M over FY2013. That is uber expensive.
Peeling the onion, here’s a good analysis by Dave Kellog that makes the case for Box’s strategy of sacrificing capital efficiency for growth and market share. The idea is that Box’s customer acquisition cost, while high, is good enough to be deemed scalable. All it requires is lots and lots and lots of cash, which is directly proportional to the desired growth rate.
Box was able to raise that much cash because investors were willing to bet on that math. But underlying this investment strategy is a bit of the bubble factor… or if I may be so bold… the Ponzi scheme factor. I will bet a dollar that part of Box investor’s rationale is their ability to put the company on the path to a hyped-up IPO. Hyped-up IPOs in 2013 and early 2014 for B2B tech companies required an uber-growth story. Box investors are betting that the hype will create a big IPO exit for themselves… But does that leave the public market institutional investor with a ticking bomb if Box is not able to sustain growth or achieve profitability post-IPO?
But here-in lies a perfect example of the pros and cons of going big fast at the cost of capital efficiency. It is interesting to note that Aaron Levie had to give up the majority of his equity in the process. So don’t expect him to join the Zuckerberg, Ellison, Jobs, Gates Billionaire’s club. That is assuming that his IPO does goes through.
Now let’s talk about what it takes to get on the uber-growth track:
- You need a BIG market: you can’t grow fast for long if you don’t have a lot of customers that want to buy your product at a price that would sustain growth. And market size is not only critical for growth, but more importantly for sustainable growth. So before hitting the accelerator, make sure to figure out the basic equation of market sizing = Total number of addressable customers * percent of them that you realistically can acquire * your average sales price.
- You need an awesome complete product: the days of crappy software are over. In oder to acquire customer fast and at a scalable cost, your web presence and product experience must address your target market’s pain/desire precisely… and the service you wrap around your product must be exceptionally good to ensure renewal and upsell after the first year of subscription.
- Your sales and marketing process must be scalable: the more efficient and scalable your customer acquisition process, the more capital efficiently you can grow. And as you grow, make sure to invest in more and more experience sales and marketing management to reflect the growing complexities of your business.
- Raise the right amount of money at each stage of growth: nothing kills the capital efficiency of a startup than raising too much money too early in the company’s evolution. Make sure you are always in control of your enterprise and its scalability before you raise for the next stage of growth.
I could go on forever on this topic, but I suspect you’re getting tired of reading…
When most software startup founders embark on creating a business, they envision leading it to greatness. These founders see CEOs like Bill Gates, Steve Jobs, Larry Ellison, and Mark Zuckerberg and aspire to be like them.
Unfortunately, it very rarely works out that way.
Typically, founding CEOs — whether they’re founders of US or non-US startups — never make it beyond the expansion-stage, when the business has grown beyond $10-20M in revenue and has begun to scale. In fact, in my eight years as an investor at OpenView Venture Partners, more than 50 percent of the companies we invested in experienced some sort of CEO transition a few years after our initial investment.
And there’s nothing wrong with that.
While every founder may aspire to be the next Jobs, Gates, Zuckerberg, or Ellison, the reality is that CEO persona required of the startup phase is very different than the one that required of a CEO leading a company at scale. Startup CEOs need to be highly entrepreneurial and/or technical, while successful later-stage CEOs must be exceptional operational leaders. And the likelihood of founding CEOs having all of those characteristics is very small.
Then, of course, there’s the unique challenge for international founders of migrating a company from their home market to the U.S., and having to harmoniously manage successful operations in both locations. All of a sudden, you’re wearing two hats, and finding yourself torn between your home country and your new opportunity. As ForgeRock founding CEO Lasse Andresen recently revealed in a conversation for my blog, those responsibilities can quickly take their toll.
Should Non-U.S. Founders Pass the Baton When They Move to the U.S.?
With all of that said, there’s no perfect time for an international founding CEO to step down and hand over the reins to a new leader. In fact, in most circumstances, that transition isn’t always best move in the early stages of a U.S. migration.
After all, starting a company and moving it to a new country require vision, energy, and the audacity to do something in the face of seemingly insurmountable obstacles and risks. It requires the passion to inspire others to take similar risks, as well as the tenacity and agility to attack a new market or disrupt an existing one.
Frankly, I actually think it’s imperative that international founders remain the CEO of their companies when they initially migrate to the U.S. — at least until the company is well established and executing against a successful and sustainable economic model.
Once the business reaches that point, however, international founders need to sit down and perform some much-needed self-reflection.
As Mendix’s Derek Roos told me in another blog conversation, it’s critical that non-U.S. founding CEOs understand the lifecycle of their company and assess whether their skill set translates to the stage it’s entering. If they truly believe that they possess the characteristics, capabilities, and energy to continue leading the company’s U.S. growth, they might be able to live the dream of being the next Zuckerberg, Gates, or Ellison.
But I wouldn’t necessarily plan on that happening…
Be Honest: Would You Hire Yourself as CEO?
Again, the role of an expansion-stage CEO at high-growth American company is completely different than that of founding CEO for a European startup.
Scaling a business — particularly in a market that you’re not familiar with — requires critical operational experience and the network to recruit highly experienced senior managers who have specific functional expertise. You’ll need to establish an operating rhythm that ensures your growing team remains focused on the right set of priorities. And you’ll need to be willing to abandon your home country, because once your business builds momentum in the U.S., you’ll likely be stuck here.
Maybe you are capable of those things, but there’s absolutely no reason to be ashamed if you aren’t. In fact, international founders who recognize their shortcomings and raise their hand first to point out the need for a transition are brave and shrewd, not failures.
So, put your own personal aspirations aside and dispassionately assess your skills against what the company needs right now and well into the future. Could you have steered the company better last year? Could you have better managed the company rhythm so that all goals you set were achieved? What was missing? Where did you fail and why?
Next, ask your board of directors to conduct a formal review of your performance, and jot down a list of the skills you would look for if you were asked to help recruit the ideal CEO candidate for your business. If you genuinely believe that you’re the best leader for the business as it transitions and grows in the U.S., then by all means say so.
But if your objective and honest answer reveals that you’re not the best person to lead your international company’s growth in the U.S., it’s probably time to figure out why — and then do something about it.