This is the second posting in our series that analyzes the niche that Grey Sparling Solutions has gone after. The first posting already looked at the niche itself. Now that we've ascertained that Grey Sparling Solutions is a products company, focused on PeopleSoft, selling to other businesses (large organizations); let's look at how that affects our corporate strategy, sales, and marketing.

The Market Opportunity
When we started Grey Sparling Solutions, we believed strongly that PeopleSoft customers would be staying on their PeopleSoft applications for quite a while, and that there was a lot of pent up demand for new technical functionality. We also realized that customers did not want to move from their existing PeopleSoft products, due to the cost of doing so.

What we didn't know was whether PeopleSoft customers would "batten down the hatches" with their PeopleSoft applications with Fusion on the horizon. With this concern in mind, we included in our business plan strategies to make sure that customers could measure the ROI of our products in weeks, not months.

What we found is that PeopleSoft customers are willing to spend money on their ERP systems, and that there is, indeed, a solid market for PeopleSoft bolt-ons.

Marketing
The next area is Marketing. Because we are selling to large organizations, it's imperative that they know who we are and what we represent. Being self-funded, we also recognized that every dollar we spend in marketing is one less dollar we have for engineering and other things.

Our marketing strategy is pretty simple (and is used very successfully by many Business-to-Consumer organizations). Instead of putting together fancy advertisements, a flashy website, and spending money on all the other things that organizations spend money on to get attention, we focus on viral marketing. Therefore, our marketing is focused on the following areas:

• Our Blog. By putting out tips and techniques that help people get their jobs done, there are a lot of organizations who know about us, and see that we know our stuff.
• User group meetings. Because we used to give the PeopleTools sessions at various PeopleSoft conferences, we've been asked to give similar presentations at user group meetings. Because we're often asked as PeopleSoft experts and not as vendors, our presentations almost never discuss our products, which is something a lot of organizations aren't willing to do. It is our belief that if we provide good enough content, people will look us up after the user group meetings (or talk with us there).
• Swagware. This is a term we coined to represent our marketing give-aways. Instead of providing give-aways that have nothing to do with who we represent (such as mugs, pens, etc.), we provide licenses to product that solve specific problems for PeopleSoft customers.

By all measurable accounts, these techniques have been working well for us. PeopleSoft customers definitely know who we are, based on the various techniques we use to measure this (website traffic, number of self-referred prospects, 3rd party referrals, and contact list).

That said, we've also found (and we'll cover this in more detail in the sales setion) that although the folks who work with PeopleSoft know us very well, many of the higher level decision makers, aren't that familiar with us (which isn't surprising, given the places we've focused). Often, this means that we're dependent on the people internally who run the PeopleSoft applications to educate their management as to who we are when it gets to a certain point in the sales process.

Sales
The last topic of today's posting is sales. As I mentioned in the first posting of this series, we've made a conscious decision to avoid hiring dedicated sales people where all they do is sales. This is probably the one decision that we spend the most time discussing and revisiting (especially when we see large opportunities on the horizon that require a lot of effort to work the sales process). Here are the main reasons why we haven't done this yet:

• We want to ensure that our corporate identity as the PeopleTools experts is reinforced with every communication we have with an organization. Most of the best salespeople we know are great at building relationships, identifying the decision-making process in a company, and working the process to get a deal closed. This is why many sales organizations have the relationship people and the product people (my first view into this was at IBM, where my father was a Systems Engineer (SE), and he was lined up with a Sales Manager... my Dad knew the products, and the sales manager knew how to sell).
• We want to manage our growth carefully. Being near Silicon Valley, we have lots of colleagues (many of the former PeopleSoft-ers) who ended up having excellent salespeople who ended up bringing in more new customers than the organization could support. This caused all sorts of issues with those companies because the company usually didn't have time to build a sufficient infrastructure internally to support all these new customers. We didn't want to fall into this trap, and Chris has been instrumental in helping us get the infrastructure in place that we need for growing the business successfully.
• We wanted to make sure that we always followed through on our commitments to customers. One of the best ways to ensure this is to keep the person doing the selling involved in the delivery and/or support of that product. If you have to make a customer successful on what you're selling to him, you'll make sure that you can deliver on what you promise.

Although we think this is the right thing for use to do, we've also had enough times where we've been tripped up in the sales process due to this decision. When your sales team has other responsibilities, it's easy to get immersed in activites and miss a sales opportunity because you weren't at right place at the right time. In addition, many large organizations are set up to buy from organizations with large sales teams who can dedicate lots of time to each and every deal. Quite often, this means spending a lot of time providing lots of information to help justify the decision, but it also means ensuring that the price of the product reflects the additional cost of sales. We've put lots of things in place on our end to help streamline the process.

• We provide a lot of detailed information about our products on the website. Although this is something that few organizations do because of concerns of theft of intellectual property, we decided that the benefits outweigh the risks (and in the end, we believe that even if somebody tries to match us feature for feature, that our expertise with PeopleSoft means that our product would beat one that somebody tries to copy).
• We record and provide demos of each of our products on our website. In other words, we not only provide information on our website, we show exactly how the product works in demo form. This means that organizations can very easily evaluate the product on their own schedule with as many people participating as they'd like.
• We allow organizations to try out the products prior to purchasing them (aka trial versions). This took a bit of engineering effort on our side, to ensure that when a trial period runs out, that the products stop working; but from a sales perspective, this has been more than worth it. Just two weeks ago, we were working with an organization who couldn't get all the people together on a conference call to ask us questions about the product. Instead of cancelling the call, we used the hour to install a trial version of the product in one of their environments and they were able to see that it would work as they needed (thus taking all the technical and operational risk out of the equation). They're well on their way to becoming a customer.

Pricing
Pricing is the other aspect of sales that we spend a lot of time discussing. When we first started the company, we discussed our plans with many of the early PeopleSoft employees, asking them about pricing, thinking that they'd have a magic answer for us. And, guess what... there was no magic answer. Joel Spolsky has a very good posting to discuss the issues from a general pespective (but for the sake of simplicity, didn't delve into the fact that you can also choose several of the things that are fixed in the analysis).

For us, we needed to take into consideration many of the assumptions about our business and the sales process (much of which was accurate, but much of which wasn't). One of the things you'll find as you look at the rest of this section is how much we look at internal factors that probably shouldn't be considered in setting a price. This is because we believe that by offering the best price we can to customers, we can use word of mouth to get other customers (feeding into our viral marketing strategy). Anyways, here are some of the factors that drive the pricing of our products:

• The competition. For us, there are 4 ways that we lose any given sales opporutnity:
  • The prospect develops something to solve the problem internally.
  • The prospect hires a consultant to develop something for them.
  • The prospect upgrades to a new version where Oracle has solved this problem (fyi... this hasn't happened to date)
  • The prospect decides not to solve the problem after all
  Of all of these scenarios, the consulting one is the only one where pricing is a pertinent factor (I could go into why, but that would be a completely separate blog entry)
• How the price of the product affects the amount of time it takes for it to pay for itself to a customer (ROI).
• How the price affects cost of sales. A higher priced product will generally take more effort to sell than a lower priced product.
• How the price of the product affects our margins.

One thing that jumps out pretty quickly in all these factors is that it's hard to get good, objective data to make these decisions and how it's easy to undervalue important aspects because they're hard to measure. Here are some things that we've learned in this ares:

• Using consulting as a benchmark undervalues much of what we offer.
  • We eliminate almost all of the risk for the problem we solve. The price is fixed, the product either works or it doesn't, and the implementation time is immediate.
  • Our products are easier to support. Because we have to support customers on a wide variety of situations, we have a lot of diagnostics and error handling built in.
  • Customers are not locked into one way of doing things. In other words, if an organization upgrades or decides to change the way they do things, it's relatively easy to do this with a product (versus a consulting engagement that was built to only solve one problem on one release).
  • If a customer has a problem several years down the road, there's somebody on the other end of the phone who can help them.
• It's easy to undervalue your own internal costs of doing business. Because you don't know all your internal costs until you have a good sample of customers using those products, and because you can't justify a price to a customer based on these costs, it's easy to overlook this piece. Here are some things that we missed until recently
  • Cost of Services. Because we provide a high level of service with our products (even before the customer pays us any money), our prices need to take that into consideration (our marketing should as well, because many organizations require companies to pay additional consulting for what we include in the product).
  • Cost of sales. One thing we underestimated was the amount of effort it takes to close business that has essentially been won. In other words, you've gone in, made the case, provided a trial version with the exact configuration of the production system, and the customer's ready to buy. Pretty easy from this point on, right? WRONG! There are all sorts of things that add costs from this point on: getting the budget approved or the budget manager to spend the time to buy the product that the project team has been working with, getting the purchasing folks and legal folks to agree to the language in the license agreement are two that can be problematic.
• The price we charge has not had as much of an effect on the effort to close business as we had thought. It appears that although pricing is an important factor in justifying a purchase, other factors can be just as important or more important and a lower price generally can't reduce the time or risk in these areas. These include:
  • Release plans
  • Competing initiatives (mainly from a time perspective)
  • Purchasing and Legal (one that we really hoped could be streamlined with a low price... the thinking is that if the dollar risk is low, then the purchasing and legal process would be streamlined... what we missed is that the other areas of risk are more important to them than price at this point in the process)

So, what does this pricing discussion mean? For one thing, it means that our early customers got really good deals from us. It also means that as we get more data from each PeopleSoft customer we talk with, we have better information to help us get better at pricing.

Tomorrow will be the 3rd installment of this topic, where we'll look at the parts of the business that are not directly on the sales and marketing side: Engineering, Support, and Administration.

Labels: Business