Posts
At least once each day I get a call from someone trying to sell me outsourced development services. It's difficult to not be frustrated with these calls and it is increasingly hard to be polite, because they come so frequently. Yet, more than frustrated, I am just puzzled. Does this tactic still work? Who in this day and age would give business based on a cold call? These companies could definitely use a dose of business development 2.0.
Because of these calls, for a while I have been thinking about the impact of the modern age on business development. In the good old days, it all boiled down to the salesmen with the big rolodexes who could close the deal. But clearly, the rules have changed. How does business development work this days? What makes sense and what does not? In this post we take a look.
Cold Calling is Dead
The reason we all hate cold calls so much is because they are very intrusive. A stranger interrupts our flow, and takes precious seconds away from our lives. But maybe even as recently as 10 years ago we did not feel it so acutely. Why? A few reasons. First, the pace of our lives was not as fast, the minutes did not feel as precious. But more importantly, today we have a much less intrusive form of solicitation - email. True we all hate spam, but an unwanted email doesn't feel like as sharp an interruption as an unsolicited phone call.
Besides being annoying, cold calling is no longer effective. People are smarter these days, and have learned to ignore upsells. A targeted email which avoids the spam box has a higher chance of getting a response than a call. With a call, the default allergic reaction is now "no." But with a brief and sincere email it could be, "hmmm, this might be interesting..." However, even cold emails do not work. To have a chance at making a sale, you need to get a warm introduction. It used to be that the business web was hidden inside of people's heads and rolodexes. Today, however, a lot of it is out there in the open - inside a digital business network called LinkedIn.
Warm Calling via LinkedIn
LinkedIn is a business network that has emerged as a substitute to the rolodex. Because it is online and self-managed, LinkedIn offers a much more robust way of maintaining your business connections and seeing what they are up to. But beyond that, LinkedIn has become an indispensable tool for business introductions.
Say you're interested in talking to Acme Co. about your new product. You log into LinkedIn and search for people who work for Acme. Then you see how you might be connected to them. Ideally connection is just one degree away, or in other words, you know someone who knows the person you are looking to connect with directly. And then you ask for an introduction.
An introduction received via LinkedIn is much warmer than a cold call, because it comes with a bit of trust. You are no longer a stranger trying to upsell things that no one needs, instead you come with a recommendation, however light, from a person that the receiver is connected to. And even if you can't find a path to connect to someone, sending a direct message via LinkedIn is better than sending a cold email. The reason is that LinkedIn implies business context, and so the person you're trying to reach likely is not going to be as surprised or angry about the unsolicited ping.
Creative Calling via Social Media
Beyond connecting on LinkedIn there are other modern means of connecting with people. Facebook message, Twitter @response, a comment on a photo or blog post, etc. These are ways of getting someone's attention that are creative, but you need to be careful when employing them because they can be unwelcome. People do not use Twitter to get unsolicited business pings, nor do they post pictures for strangers to comment on. Facebook is probably somewhat acceptable because a lot of people are mixing business contacts with friends there. But the most solid way of connecting with someone outside of LinkedIn is via their blog.
People who blog generally want to have a conversation. If you engage with someone around their blog and participate in a conversation on a topic that they are interested in, you will naturally connect with them. Particularly if your business engagement is relevant to the topic they are discussing, blog comments are likely the best way to engage. However, if you try to push the conversation off topic, the person will perceive you as disingenuous and there will be no business.
Transaction 2.0
Let's suppose you've found the right way to connect and you've got your meeting. Now you're looking at the whole sales cycle. Particularly, if you are small startup aiming to sell your product to a big company, has anything changed? Not really. You still have two fundamental hurdles - the time and the risk. Between startups and big companies expectations of how quickly the deal can get done are completely misaligned. Big companies are scared of the startup speed. Startups are frustrated with big companies' turtle pace.
Beyond the length of the sales cycle the issue that kills most transactions between startups and large firms is risk. Will this 5 person company be around tomorrow? That's a question that large companies are likely to answer with a "no" and that becomes a big problem. For this reason it doesn't make sense to buy from startups - it is too risky. However the mitigating factor is often cost - startup products are often cheaper or even free. Yet even if the technology is free and easy to remove if things don't work out, big companies are wary. They do not understand free, it scares them and perhaps rightly so.
The worst part about having a startup that sells to big firms is actually scale. The famous crossing of the chasm necessary to get big is really complicated. In the enterprise world, it means signing up many clients, keeping the pipes open, and sending out more and more products. This model is so costly and risky that venture capitalists are reluctant to shell out the money to fund it. Because of the complexity of building the enterprise business that knocks on doors a new model is emerging - web services and APIs.
Door Knocking 2.0: Web Services and APIs
How can a small start up that has no capacity to knock on doors sell to big companies? A possible answer can be via a web service or an API. The model is applicable to a whole range of services - from data plays like del.icio.us to messaging systems like Twitter to infrastructure like Amazon Web Services and semantic web services like Open Calais from Reuters. The basic model is to have a web service which is accessible via API (application programming interface). Clients sign up to use the service and have to agree to the terms in order to obtain a key. Using those keys, clients can use the service programmatically to send and get data from it.
Some examples: the del.icio.us API, allows clients to access information about specific users (if the user permits that). The Twitter API allows sending and receiving messages without using the Twitter web site. The Calais API is an example of a web service which encapsulates an algorithm. In this particular case, the algorithm takes a document and extracts semantic information from it. Unlike del.icio.us, which offers an interface to consumer data, Calais is a one shot deal algorithm. And perhaps the most important example of a web service play comes from Amazon. Taken collectively, the offered Amazon services is powerful infrastructure for building web-scale applications.
What is common between all these web services is the simple monetization strategy - pay per API call. For each call into the web service, the callee has to pay based on the amount of the resources consumed by the call. For example, Amazon has been charging for bandwidth, storage, and CPU time. The exact model does not matter as long as a fraction of a cent is charged for each call. Remarkably, this is a business that has a huge potential to scale. Each individual client is paying an affordable price, because each call into the web service is very cheap. However, collectively clients might amount to big revenue for the service provider.
What is the most attractive about this business model is that it is completely forecastable. By estimating the cost of scaling the business (mostly hardware, support and maintenance) and setting the price per web service call and the number of clients, you can determine if the business will work or not. Of course to be fair, we need to mention that just like in traditional sales, there is number of clients hidden in every equation. Two fundamental risks exist in this model - clients will not want to use the service and clients might not be able to figure out how to use it.
Still, the risks and costs of a web services based business are much less than the traditional enterprise approach. There is no need for an expensive sales force and an army of consultants to implement the solution. We are yet to see this model succeed in a major way, but because of their simplicity and straight revenue model the API based businesses are looking attractive.
Conclusion
Nothing stays constant in this world. The technology, the web and the society always evolve. Business development evolves along with everything else and lead generation has been changing along with methods of communication. Business networks like LinkedIn have replaced old rolodexes and email have made cold calling look ridiculous. Yet, there are no fundamental changes in the sales cycles and risks for startups that choose to go the traditional route of knocking on the doors of large companies.
The markets are iterating to come up with a new form of business development called web services. This new form is both cheaper and simpler - no enterprise sales force is needed to scale the business. However the question, "If we build it, will they come?" still remains unanswered. If any company can make this model work really well it is likely to be replicated and become widespread. Will web services succeed? Time will tell.
For now, please share your favorite examples and stories of business development 2.0 in the comments.
No comments:
Post a Comment