Sales Start Up

Using psychology in sales

Many of us grossly underestimate the effort, skill and persistence it takes to sell something. The theory of “Build it and they will come” applies to a small percentage of products and is usually serendipitous.

A sale is an exchange of value. It is also a persuasion. You are influencing someone to make a decision to buy your product. Since it involves people and emotions, psychology is therefore involved. Understanding the psychology of compliance (someone is complying by buying your product) should provide a distinct advantage in your sales process.

Recently, I read this book “Influence – The Psychology of Persuasion by Dr. Robert Cialdini” He is both a Distinguished Professor of Marketing and Regent’s Professor of Psychology in Arizona State University.

He lays down the “Weapons of Influence” as the following

1. Reciprocation
2. Commitment and Consistency
3. Social Proof
4. Liking
5. Authority
6. Scarcity

In reciprocation, there is a give and take. A small give is offered by the influencer as a strategy to take from the buyer. The author cites the now defunct practice of Hare Krishna devotees “giving away” flowers to strangers at public places to incentivize them to donate to their cause. The author states that the impressive aspect of the rule for reciprocation and the sense of obligation that goes with it is its pervasiveness in human culture.

In today’s digital and social world, influencers actively build a following by actively liking pages, tweets, and blogs of other people. In the physical world, a dinner, a golf outing etc. create opportunities for using reciprocation.

Another variation of reciprocation is reciprocal concessions. This is when the influencer steps back from an initial request that gets rejected to a backup request that has a higher chance of compliance. An example would be when your push for an Enterprise or Premium Edition of a product gets rejected and you come back to sell the Pro Version of the product. This needs to be structured well to be successful.

In Commitment and Consistency, the psychology being used is that Human beings want to stay true to their commitments. Psychologists see that consistency as a powerful principle, according to the author. So, if you are able get an early commitment from someone, it is a wonderful thing. The odds are that they are going to keep that commitment. In a public setting, it is even more powerful. When fund raising, CEOs should try to get commitments really quickly from individuals, however soft.

Social Proof is a powerful tool used by influencers to get people to comply. The laugh track in TV sitcoms is cited repeatedly as a tactic to get audience to comply. It seems highly effective. The principle applied here is that we determine what is correct by finding out what other people think is correct. Modern media has used this effectively by publicly displaying product reviews, likes, shares, comments and much more. There are some really astounding case studies of influence of one’s behavior based on observation of other people’s in similar settings.

It has been proven time and again that people tend to comply with requests from people they like. The Liking principle is used by Sales Professionals to enhance their likability factor with customers. Acting on referrals from friends is one classic example. Endorsements and recommendations from people that you like influence you to repeat their actions.

Authority or “directed deference” is a powerful tool used by advertisers. Companies spend a ton of money on celebrity endorsements, because it has been proven to work. We have all at various points of time complied easily with authority. As a sales professional, it would help a great deal if you can identify and get endorsements from specific authorities or entities.

As the final weapon, scarcity relies on the psychological principle that if something is thought to be scarce, it is deemed very valuable to possess. There is lots of case studies for this.

As a sales professional, it is very important to understand the psychology of your buyer. Some of these techniques can be abused, so one has got to use them ethically. It should be realized that the other person may be aware of the persuasion principles and is actively resisting you by saying no.

Overall, I found this book to be a very good read, chock full of case studies and real life examples. It can be a fast read as some of the many studies can be skipped.

Happy Selling!

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Entrepreneurship Sales Start Up

Wisdom from a startup veteran

Samir Bodas is the CEO of iCertis a Bellevue WA based company providing SaaS based contract management software.  Recently, he gave a talk at a TiE event on Scaling a Startup. The interactive questions took us to areas other than scaling.  Few of my observations:-

  1. If you want to do a startup, just do it. 9/10 people don’t even start despite having an idea. 9/10 people who start something don’t succeed. Don’t be in the former camp. You will learn a lot by doing, even if you fail.
  1. Try to create a wave or ride one. Creating a wave is tough and requires the likes of Bill Gates, Steve Jobs, and Mark Zuckerberg. If you are riding a wave, get onto it early. Have a reasonably good idea that it will be a big wave. iCertis bet early on the cloud in 2009. Betting on Azure was pivotal in getting into the Microsoft ecosystem.
  1. Serendipity plays a crucial part in startup success. Many talented folks have not succeeded in building a successful company and many hardworking folks have failed too. Going back to #1, you will not know until you start something.
  1. Focus your startup by going deep in an area. In the original theme of “ERP Surround Software”, his company tried other areas such as transportation logistics but decided to focus on contract management. Once they did that, it was easy to raise money from VCs.
  1. In enterprise sales, respond to RFPs. Common wisdom is that this is cumbersome and costly process for startups, but could be an extremely valuable opportunity.
  1. It’s not necessary to have a full product before starting sales. Project confidence in your abilities and do the demo. The customer has likely not checked your competitor’s full capabilities.
  1. During early stages, have the Engineering team work extremely close with the customer. They were able to have 6 week turnaround time from customer ask to delivery.
  1. A sign of scale is when you can sign deals without seeing the customer. Their last 2 deals in Europe was signed, all via remote interactions.
  1. Getting your early customers into a customer advisory council is powerful. They are usually your strongest advocates and want to see you succeed.
  1. A company’s culture is captured in its values. Values need to be written down and adhered to across the board and consistently for true scaling of the company. Don’t get surprised if your customer asks you about your company’s values.
  1. Keep sales folks hungry. Compensate them enough to survive, but not enough to give them luxury of waiting for next year. Be maniacal about targets and don’t be wimpy about firing people that don’t meet it.
  1. Samir gets invited to all sales calls. His calendar is full of sales calls. Important thing is to listen for tone from the customers. As CEO, don’t be afraid to engage at the level of each sales call.
  1. With SaaS, it is not necessary to build a large remote sales force or have Satellite offices, unless situation demands it. Due to lack of skilled sales people in Seattle, iCertis has offices in Dallas, Philadelphia and Bellevue.
  1. If you can pull it off, having relationships with Industry Analysts is invaluable. Usually, analysts will look for you to have at least 20 customers, unless you are doing something completely differentiated in the space. They are a great source of leads.

These stood out for me. Overall, great stuff from Samir and thanks to TiE for organizing the Startup on TAP event.

Sales Start Up

Creating a Sales Team

A CEO and I recently discussed a sales commission plan for his company. I thought that sharing some of the aspects would also be useful to CEOs who are looking to hire sales people

  1. Should I hire a sales person? – It is often advised that CEOs need to sell as long and as much as possible until they can’t keep up. While this is reasonable advice, it should be thought through. Not all CEOs have the sales attitude and aptitude. They may be doing a disservice to their own company by not having effective sales techniques.
  2. Should I hire a VP of Sales first? – If you are lucky to have a sales person as your co-founder, then this is not a problem. For others, you should think of hiring a VP of Sales, after your 3rd or 4th sales hire.  By that time, you have got some traction and the VP of Sales would be a great addition to put together a scalable sales process and also help in closing deals.
  3. Should I create the incentive structure myself? – If it is possible, have the sales person work with you for a month or so, while you mutually create the incentive structure.
  4. What should Commissions look like? – Yes, this is the bread and butter for sales folks and is the big motivator. You should have a ladder structure for incentives and take into account the following results a) Email with interest from Decision Maker(s) b) Face to Face meetings with Decision Maker(s) c) Signed Deal (of various revenue levels)
  5. When should I pay my sales folks? – You would pay sales folks only when revenues are realized, never before that. If the sales person has succeeded in selling a multiyear deal, his/her commissions need to be calculated only on Year 1 revenues. If the customer is paying a monthly subscription, sales people are expecting their commissions upon the first revenue from customer.
  6. What if the customer cancels? – The customer may cancel for a variety of reasons. Therefore it is not good practice to penalize your sales person for that unfortunate situation. However, if the reason for customer cancellation is due to misrepresentation by your sales person, you should be able to reverse commissions (or withhold some future ones).  When you draw up your sales contract, remember to have a term that addresses customer cancellation scenario.
  7. Should I pay my sales person in company stock? Depends.  Stocks have vesting schedules, voting rights, and risks. While a VP of Sales may agree to be paid in stock for some of their work, it is unlikely that you would find a full time sales person working for equity. So, if you don’t have to, then don’t.

Of course, there are a lot of other details to hash through, but this provides a good framework to think about your sales hire and sales commissions.