Caution – boring sales management content ahead.
It’s coming up on two years this summer since I left Microsoft to join Xero. Shortly after joining I light-heartedly documented some of the things I noticed that were different about working inside a growing online software business after twenty-years in the world of on-premise software. Although I’m now fully rehabilitated and long since out of therapy, occasionally I get flashbacks that draw into sharp focus some of the bigger differences.
I had another flashback this morning.
One of the biggest differences about an online software business compared with, say Microsoft, or any other mature software business is what I’ll cack-handedly describe as the sales metabolism of the business. Before I attempt to explain that, here’s how things work in a traditional software business.
In traditional software as long as you land the big deal before the quarter end, or the year-end, you generally still get to count all the revenue in the reporting period the deal lands, whether thats inside a quarter or a financial year. While there are often complex revenue recognition and accounting rules that prevent traditional software businesses from counting all the related services revenue in the period in which a software license contract is inked, generally all the up-front license revenue is counted in the reporting period it was won.
Over time this creates a quarterly ramp shaped revenue cycle that is a kind of self-fulfilling prophecy whereby the final month of every quarter or financial year records a disproportionate amount of revenue and the first few weeks of every quarter are depressed. This is partly because traditional software sales quarter ends often clean out the sales pipeline for the beginning of the next quarter, and partly because it’s become learned behaviour. One outcome feeds into the other.
So, it’s not uncommon for most traditional software businesses to take the foot of the gas early in a quarter and even more acutely at the beginning of a new financial year. For example Microsoft is often criticised for ‘going dark’ in the two months immediately after it’s June year-end, although this quiet time of year is further aggravated by it being Microsoft’s summer vacation season, too.
However in spite of this staccato, on/off sales focus, the up-front license revenue model means that even if a traditional software business has a bad quarter or even a bad couple of quarters, as long as it mounts a successful sales fight-back before the clock stops at the end of the accounting period, then the sales team’s bacon is usually saved.
This sits in stark contrast to a growing online business where all your revenues are recorded on a monthly basis as a subscription. There is nowhere to hide a bad sales month or a weak quarter and to compound that, it’s consequently very tough to catch back up if your sales engine strikes-out for few weeks. If the monthly revenue model dictates that every sales month in an online business has to be exceptional then it stands that you’re unlikely to deliver an exceptional month and be able to erase a deficit carried over from a prior weak month. So, in short there’s nowhere to hide.
When I joined Xero in 2009, it took me a few weeks to fully retune my 20 year old software sales brain into thinking that way. In an online business the only way to ensure your sales team optimises its ability to meet its goals is to work to meet micro-goals every single day, and not just on the last few days of a quarter. Put simply; look after the days and the quarters look after themselves.
So, in the UK we’ve refined our sales sensitivity or metabolism down to the level of a daily half-time score. The logic being that if we’re not where we ought to by 1pm every day of the week, there’s a pretty good chance we won’t make our daily number which in turn knocks out the week, month, quarter and finally the year. Nothing can be left to chance.
And so this entire blog post was inspired by the flashback I had this morning when I noticed that in spite of the fact that we’re barely into the second week of our new financial year, the sales team focus is only marginally less intense than it was in the lead up to our March 31 close.
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13 April 2011 #