A Day in the Life

A day in my life. Thoughts on leadership, management, startups, technology, software, concurrent development, etc... Basically the stuff I think about from 10am to 6pm.

1/01/2006

Marketing and Sales: Why We Want the Big Fish

A few days ago Walter S. Mossberg wrote an article "Computer Makers Cater to Big Business Slight the Rest of Us”. Basically he points out the computer companies either large or small focus on enterprise level IT department needs rather than the individual consumer or SMB IT department needs. And I agree with him. I just want to take a look at the situation from the computer vendor’s perspective.

Running a business is a balancing act between expenses and cash flow. Notice I didn’t say income. Income is counted before the money is actually in hand. Cash flow is the money you’ve got available to pay your bills (rent, paychecks, taxes, etc...). This is the number business owners need to keep a close eye on. Failure to do so can sink your company even when your books indicate that your income is more than enough to keep the doors open. To keep on eye on cash flow, companies will often have a budget. Sometimes each department gets their own budget, sometimes it’s a running budget. Either way the majority of companies will try to plan how they can optimally use their part of the projected cash flow to meet corporate strategic and tactical objectives.

When deciding which market segment to focus marketing and sales budgets on, companies realize one important factor. Sales and marketing cost money. The key is to spend the least amount of money to generate the most amount of revenue. Therefore one of the elements the marketing department will identify is which market sector is going to provide the most bang for the buck. Working with the sales department they will narrow that down. And this is why many software and hardware companies focus on enterprise sales. Enterprise sales generally provide the most bang for the buck. I like to see sales departments that are set up with a telemarketing arm, reaching the SMBs, a sales force arm, reaching large corporations, and when applicable a distribution arm, reaching the individual consumer.

While I was at Kaseworks I got to see the importance of understanding how marketing and sales tactics directly affect cash flow. When I started I was told that Kaseworks had $2 million in the bank and was growing. We were doing pretty well. Because we were small and our product was a new innovation we had a telemarketing department that directly targeted individual programmers. (Kaseworks had been Caseworks and had the first graphical code generators for both Windows and OS/2.) At some point Joe, the owner, decided that he wanted to, “take the company to the next level”. I assume that he was going to try for an IPO. He brought in several executives from large companies: IBM, Dun & Bradstreet, etc... These guys decided to change the sales model from telemarketing to “deep carpet sales” and they jacked up the price of the product and converted our telesales department into an enterprise sales force. One year after this experiment was started...Caseworks had become Kaseworks, we had several rounds of layoffs, and some of us were sold as assets and converted into consultants. I believe the biggest mistake the executives made was that they didn’t understand the importance of cash flow in a small company. I think their second biggest mistake was to eliminate a revenue stream that was working. I agree that going after enterprise level clients is a very good idea, however I would say don’t shut off a revenue stream that is working. Build an enterprise sales force from a core of experienced enterprise sales folks. And don’t make the mistake that things are going to happen over night. Enterprise sales take a little longer.

Companies focus product improvements primarily for the enterprise IT departments because that is who the sales folks are talking to. So the data coming back from the field is coming from the targeted enterprise customers. Those very customers identified by the marketing and sales teams. Sometimes companies are able to split their products so that they target different size companies, but that requires good planning and is far more expensive. Even if you can do it from one code base and one engineering team, your configuration management, testing, and documentation teams might need to be expanded.

So why computer based companies target the enterprise IT departments is simple economics.

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