The #1 way to add value

There is a massive amount of chatter about the idea of adding value to your customers.

Most of it seems to come from MarTech startups churning out content to try and rope in buyers in Sales, Business Development, and Marketing.

Tons of people saying, “make a better product”, “improve your customer service”, “go faster”, “give discounts”, “engage more”, “package your product better”, “try new things”, “understand your competition”.

Almost none of them actually putting down anything tangible on paper.

So much for adding value.

Here’s something tangible: You want to add value?

Ask questions.

That’s it.

Sounds easy, right?

Sometimes it is. Sometimes it isn’t because the questions could make you or your audience make uneasy. Further, what you’re trying to get at with the questions is what matters, because the questions themselves don’t add value, the responses do. The questions just help open the audience up to feeling free and confident enough to respond.

Below is a series of questions I asked the founder of a failed startup. Failed in the revenue sense – it suffered financial collapse.

Before you dig in, some key things to consider:

  1. Context matters. Here’s the link to the blog post the founder wrote about the failure. https://medium.com/@nbashaw/a-terrible-horrible-no-good-very-bad-hardbound-update-eacaf767db6a
  2. If you truly want to add value, don’t hold back in your questioning. You need to get to the heart of the matter and you don’t get there by being gentle around the edges. You get there by being the tip of the spear.

Questions to the founder of Hardbound:

#1 The copy on hardbound.co tells me what you do, but not why you do it. What is the power of why? For your consideration see, “Start with Why” by Simon Sinek.

#2 hardbound.co lets me sign up to, “Get free books in my inbox every week”. Is this a compelling call-to-action for a large audience? For a narrowly-defined persona? Or is it “just another” form field and Join button?

#3 On first visiting hardbound.co, I had a glimpse of a beautiful journey starting with the clean site and sample book and had just started down the path to a wonderful customer experience. Then I attempted to learn more About Hardbound and The Team, and instead of a beautiful experience I was catapulted away. To a website “hackernoon”. What was behind this decision?

#4 What was the decision criteria leading to not providing a link on the website to the Hardbound app on the iTunes Store? I can sign up to get books, but how do I get to the App? How do I even know it’s an App in the first place?

#5 Similar to #4, what was the decision criteria leading to not providing a link on the iTunes Store to the Hardbound.co main page? I see a Privacy and TOC link far down the page, and surely I can figure out the URL, but I’m a power user. How do I even know there is a website in the first place?

#6 What’s the Hardbound mission and vision?

  • “To make visual, interactive books that are designed for mobile”
  • “Create a totally new way to read”
  • “Connect with readers’ brains in a deeper way than ever before”
  • “Turn bestselling nonfiction books into fun, illustrated stories
    that you can finish in 5 minutes.”
  • “We think it should be easier to be smarter.”

I can’t put my finger on the singular mission statement. There are various statements that might be it, but without you and others copy/pasting the one bold statement on everything you touch, I’m left to guesswork.

#7 Did you make targeted plans for each investor you spoke with, or did you have more or less the same pitch for all 72 investors?

#8 Similar to #7, was it a quality decision and all 72 investors were good possible fits after paring down from a list of more (100+?), or was it a quantity decision? Why did you choose the path you did?

#9 Of your 1,200 paying customers, how many have you yourself spoken with to gather their direct feedback on:

  • Why they purchased / subscribed
  • What keeps them using the app
  • What keeps them paying their subscription
  • What they like
  • What they dislike
  • What they would specifically pay more for

#10 Is there a community for your paying customers? Why or why not?

#11 From #10 OR.. have your customers self-organized? Why or why not?

#12 How can you monetize your 250,000 readers?

#13 Is monetizing all users even appealing, or is the free model more appealing?

#14 What does the free model get you?

#15 What does the free model get the user?

#16 Why would someone pay at all?

#17 Do you have any customer champions?

#18 I see only a half-dozen reviews on the iTunes Store. How can you drive more reviews? Why aren’t there naturally more reviews when, “almost every day people send us notes telling us how much they love our product”?

#19 What made up your $13,000/mo costs?

#20 Was every cost absolutely necessary die-without-it? Or if you didn’t follow a lean model — why didn’t you?

#21 With 7,000 readers (uniques I’m guessing? Kudos!) a week, how can you convert them and why do they convert? (see #16).

#22 From #21, perhaps more importantly, why do they not convert?

#23 Is it easier to grow the 7k/mo number, or the conversion rate? Why or why not? (Knowing you can only approach these questions if you understand #16 and #21)

#24 What quantifiable data led you to your theory that by “creating a lot more content (…) then the numbers would improve”?

#25 From #24 was this theory evaluated and found true at any time? Why or why not?

#26 “many investors saw that as too risky” did you ask them why? What were the answers? If you did not, when are you reaching back out to each of them to do so and then organizing the feedback?

#27-a “It takes a lot of time and money to make a Hardbound story.”

Why? How can you get time down? How can you get cost down?

#27-b “Each one (each Hardbound story) needs to be researched, written, edited, and illustrated.”

Why? Can you stick with MVPs or does each one have to be perfect on day 1? Why one over the other? Is early-access a possible subscriber benefit where they get book MVPs at one point and then receive early access to each final release as well?

#28 “With a team of 3 part-time freelancers” — what part of their costs make up the $10,500/mo burn rate?

#29 “We’d rather die than turn into yet another shitty content farm” — are content farms successful financially, and what can you take away from them that is useful while ignoring the rest?

#30 “The content we’re creating (book summaries) is evergreen” — is it? I punched it into Google and got over 400,000 results. I understand this isn’t necessarily an actual sample size as this search result could contain thousands of backlinks, sub-links, and so on — but are book summaries truly always fresh?

#31 What does a successful book summary company look like? What do they do that you do? What do they do that you don’t?

#32 “With venture capitalists, you never really know what they’re thinking.” — assuming you did capture what they were thinking after the fact, did you catalog it for reference and reflection?

#33 “I have no significant new data that changes my mind about Hardbound’s potential” — what data do you have? What does it tell you? If you hand it to another person not in your space, do they come up with the same thoughts or other takeaways?

Compensation ideas for Renewals Reps

I was talking with someone who was in the process of building comp plans for next year and they had a number of challenges regarding reps who handle only renewals and upsells at time of renewal. We referred to them as “Renewals Reps” and I’ll do the same in this article.

Below are some of the challenges they noted along with my feedback:

  • Challenge: We have always done individual quotas for Renewal Reps. How would Team quotas play out? The issue we run into with individual quotas is the constant potential quota adjustments for renewals that are mis-categorized or “Dead on Arrival”.
  • My feedback: Team quotas are used to drive the behavior of teaming. If your Renewals Reps work independently, you don’t want to drive that behavior. Instead, I recommend working to identify what makes a renewal miscategorized or DOA and fix the root cause instead.

  • Challenge: We don’t want the rep to take a hit for events completely out of their control. At the same time, I can’t have a full-time person constantly making individual quota adjustments.
  • My feedback: The need for constant individual quota adjustments makes me wonder if you’re assuming a top-down model. You need to build bottom-up, too. Given the assumptions we can make about quota attainment (example: roughly 60% of reps make quota) and rep ramp time (example: 6 months to productivity), you can work out how many Renewals Reps and at what quota-per-rep it would take to achieve zero churn – or net negative churn which is the real goal.

  • Challenge: If a renewal is due on Sept 30th, it matters that it comes in on or before the 30th and not Oct 1. How can we drive renewals to close in the right time period?
  • My feedback: Consider automatically creating renewal Opportunities in your CRM 90 days before the renewal is due, or whatever the high-end of your average sales cycle for renewals is, with a close date in the appropriate period. Also automatic: assign the Opps to the relevant rep and push them into that rep’s forecast as best case/most likely (not commit). Then the reps will essentially work from their forecast as their “queue” of renewals.

  • Challenge: Finding the right split between Renewal (Retention) and Upsell.  Currently we are 80/20 as we want to emphasize retention and we’re not sure if a different mix would be more appropriate.
  • My feedback: Remember that comp drives behavior. If you want to drive a reduction in churn, you need to over-comp on renewals and contract length. If you want to drive upsell, you need to over-comp on upselling.

  • Challenge: What about incentives for multi-year renewals as long as the ARR stays the same and discount does not increase? We don’t want reps giving additional discounts to lock customers into multi-year terms.
  • My feedback: Customers generally expect discounts for multi-year terms. There’s nothing wrong with not falling in line with that expectation but you need to keep it in mind. Plus, cash now is usually better than cash later. Generally speaking, if a reasonable discount means winning a multi-year contract, I’ll take the win.

Advice for building a discount strategy

I caught up with someone whose SaaS platform has an entry price of $20k. Their products were starting to really sell in the mid-market and enterprise space. As they moved upmarket, they felt the need to re-evaluate their discount strategy for these deals, and they asked for some advice.

Assuming the question of “are we going to discount to win deals?” has been answered “yes”, the first thing I’d do is pull in your finance team. You as a company need to determine the maximum discount the company can withstand on any one deal. Your finance team can help with this. In fact, their input is vital, because your ability to discount is tied to financial factors. Metrics like customer acquisition cost (CAC), cost of goods sold (COGS), customer lifetime value (LTV), net present value (NPV), and your cash flow needs are all critical to building a discount strategy.

Work with your finance team to build the case and get CFO sign-off. Get it in writing.

The reason I recommend determining this max discount as your first step is that all the numbers below will be different whether you can bear a max discount of 88% or 18%.

Once you have a handle on the max discount you can withstand, you can move on to the following:

  1. Create a table (e.g. list/chart, not furniture) of your max discounts relative to contract duration. The max discount you can bear on a 1-year contract will be different than on a 5-year due to NPV, your own returns on cash, etc.
  2. Determine breakpoints for approvals and who (the role, not the individual) needs to be involved at each approval tier. This comes down to crunching data and then working with a cross-functional group of sales, finance, and executive leadership to codify e.g. devise and implement a standard of discount tiers and an approvals matrix.
  3. Create one or more reports, and/or a dashboard, to monitor:
    1. Discount requests and requests outstanding
    2. Approval durations / “close time” (how long approvals take, so you can factor into your sales cycle time)
    3. Deal size and discounts relative to those deal sizes
    4. Contract duration and discounts relative to those contract durations
    5. Trends
  4. Establish a regular review process to make sure you’re staying on sound financial footing.

As your data on discounts and discounting matures you need to refine your model and your enablement practices relative to onboarding and ongoing development of individual sellers and sales leaders.

One benefit we got from this was being able to provide better guidance on deals. We’ve got a decent understanding of the combination of deal size, contract duration, and discount rate as those relate to customer type (by size and industry). This means we know (i) what a win-win-win deal looks like, meaning us-partner-customer and (ii) what a bad sales rep looks like, meaning a salesperson who doesn’t know better than to compete on pricing (as opposed to selling on reducing/eliminating customer pain).

A detailed example with commentary is below:

  • We can withstand a maximum discount of A%
  • We’re sold exclusively through partners and the partner who registers a deal is guaranteed a percentage so they can markup; assume a guarantee of [A / 4]%
  • Let’s assume A is 100. It’s not, or we’d be out of business, but we’ll use 100% for simplicity’s sake
  • The above means the partner with deal reg gets 25% (again, I’m shooting for simplicity here)
  • We aren’t going to require approvals at 25% or our sales cycle time would skyrocket
  • We ran the numbers on a couple of years of deals and found the standard deviation was +/- 10, meaning the vast majority of our discounts fall into a range of 15-35%
  • To constrain discounts to fit within that standard, we’d set our first breakpoint at 35%, meaning approval is required by the seller’s direct manager to do a deal at a discount of 35% or greater
  • From there, consider setting additional breakpoints by the discount tiers you determined. Continuing with our example:
    • We set additional breakpoints at each 5% increment up to 50%
    • 35% and above requires approval from the seller’s direct manager
    • 40% and above requires approval from that manager’s Area VP
    • 45% and above requires approval from that AVP’s “Geo VP” (in our case that’s AMER, EMEA, APAC)
    • All deals at or above a 50% discount require sign-off from our CRO and our VP Finance
    • All deals at or above a 70% discount require sign-off from our CFO
  • We use an all-in and first-rejected approval model, meaning all approvers must approve and the first rejection is a global rejection of the offer (the seller needs to try, try again)