Monday, April 26, 2010

Confusing Marketing with Sales

Despite the vast array of typical MBA definitions of Marketing vs. Sales (i.e., Marketing is selling to groups, sales to individuals; or Marketing is strategic, Sales is tactical), few of us still really understand the difference.

But as a startup CEO it’s a critical difference that needs to be understood. Fortunately, many VCs disagree on the definition, and the need in early stage firms, which forgives a multitude of sins ;-) Many technology startups look more like an engineering team lead by a CEO who does sales and marketing … and often engineering too.

Most good entrepreneurs have a basic fear of letting go and prefer to handle leadership of these functions themselves, at least until the concept is proven. This lean approach is great for cashflow, but there is a point in time where you have to develop muscle tissue in order for the company to grow.

Most founder/CEOs have a pretty clear grasp of the market and a vision for where it will go. Ideally, they wouldn’t have been funded unless they had deep domain expertise in that market either as an engineer, sales or marketing person. It’s very likely that the founder has good sales skills otherwise they wouldn’t have been able to sell the deal and close the funding ;-) Often a founder is so technically brilliant that the VC will fall in love with the technology/founder and fund the deal anyway, knowing that the investors can gather the right team around the founder to make a business.

One of the common startup traps is the great technology, great team with many, many customers but not a whole lot of revenue. A strong sales person can really turn this around--the company has either been totally customer driven and opportunistic in taking whatever sales they can get, or (better) they’ve strategically targeted the key customers, focusing on quality not quantity of revenue, in order to validate their business. The professional sales leader can now come in and monetize all of those initial entrees into the market; they can mine each customer, and generate repeat business across multiple divisions of a large company.

The other case is when the market is emerging (very scary for VCs), so the sales person does not seem necessary. A great sales leader would say if the market hasn’t happened, then you’d better learn to close--genetically engineered sales leaders don’t need marketing or technology to close sales, though of course they had better be selling what we can make … another Blog here :-)

Sales by nature is tactical, all the great marketing in the world won’t help overcome the personality of a particular customer. In the laser business we can be forgiven for confusing sales with marketing because the market tends to be a mile wide but only an inch deep, so a strong sales person must stretch across multiple verticals and ferret out sales from a number of emerging markets. Would marketing be more useful in this scenario? Marketing works best when you have a group to market to--however, deep strategic vision of market is critical especially in this situation because it will enable the company to focus on the particular vertical that marketing feels has the best chance of providing growth. In the meantime, Sales can keep bringing in the orders to feed the company until the market emerges.

All too often success is about the luck of being in the right place at the right time, Sales can enable you to live long enough to get to the right time, and marketing can lead you to the right place ;-)

Tuesday, April 6, 2010

Value Added VCs?

One of the hardest things for me as a former CEO is to get used to the idea of not being the CEO anymore. As a VC I imagined working closely with CEOs of our portfolio companies to help them better manage their business and avoid the pitfalls and mistakes I had made (there were and still are a lot)--of course as any father soon realizes your son never listens, you are an idiot, and you gotta let him make his own mistakes.

Classically we want entrepreneurs who are coachable, so we can help them, but, like sons, we don’t want them to be too pliable. We like the vinegar of self worth, and ego, provided it's fueled by passion and true belief. So what do you do when the CEO won’t listen? With the disclaimer that I am an old-school entrepreneur, I think not listening is a major alarm bell--it usually means the CEO is letting his or her ego make decisions, and there is never a good outcome from this. Now the flip side is that the CEO is better than their VCs and likely more operationally experienced and therefore recognizes bad advice and inexperience and is not willing to do the wrong thing merely to placate the egos of their VCs ;-).

In this scenario, the CEO is actually still wrong; a good experienced CEO with their ego under control knows how to manage their BoD and deal with all types of advice and investors, bad and good. Generally there are nuggets of wisdom in the most unlikely places, and if you can thin slice through the chaff you can find those kernels. Having said this, how much value can an armchair quarterback really bring to a startup?

If you parachute in for a BoD meeting once a month, it's unlikely you will have many pearls of wisdom to impart, unless you have built that type of business before in that specific market with those specific customers, and your knowledge is current. It's true, VCs are great at pattern recognition and can spot a flawed business argument, but often a little knowledge is a dangerous thing. I think the error can go too far the other way as well, when the VC wants to micromanage the CEO, because no VC has the time to really add day-to-day value, and let’s face it, we are wrong as often as we are right, like everyone else.....

The best interaction for me is as an auxiliary brain for your CEO. Ideally they already have this partner in their management team who can fill this role day to day, but it really helps to have an outside view, uncluttered by the day to day management issues. VCs by virtue of looking at lots of deals and companies, can bring a unique perspective to the strategic planning process.

Investors must have a healthy respect for their CEOs, but it's surprising to me how some CEOs can allow themselves to get sideways with their VCs. If it's truly fueled by passion and not ego (or insecurity) then it's excusable occasionally, but I am stunned at the stupidity of any CEO who wants to fight with their investor. I have seen companies go down simply because of this, sadly driven by big egos on both sides--I once saw an entrepreneur so cleverly structure a deal through nested companies that he achieved the equivalent of antidilution over his investors. Even after it was explained step by step it was still hard to understand how it was accomplished. But then the investors stonewalled and refused funding, denying meeting milestones, and killed the company (and their investment)--what a stupid waste.

For any investor to do their job for their LPs, they need to have some degree of control over the company, to do this they need complete transparency from the team, and this enables trust in the CEO. Any CEO who refuses to listen, be coached, and leverage their investors is letting his insecurity drive the bus, likely over a cliff. Fortunately there is an easy solution to this problem ...