The Key Elements behind “Business Model”
 Cost to Acquire the Customer (CAC)
 Profit from that Customer (LTV)
 There is a common problem: Startup Killer

An out of balance Business Model
Entrepreneurs are over-optimistic
Cost to
Acquire a
Customer
(CAC)
Monetization
(LTV)

What we are looking for
A well balanced business model
Monetization
(LTV)
Cost to
Acquire a
Customer
(CAC)

The Big Power Shift
 The Internet caused the disruption
 Buyers are now in charge
 Able to find all the information they need on-line
 Comparison shopping
 Detailed reviews
 Consumer reviews, complaints and comments

Buying Behavior has Changed
“Please understand that I get dozens of these types of messages a week. I
simply do not have time to read them, dig into them, follow-up on them, or
reply to them. The most effective solution to this problem is for me to
ignore the messages, which is what I usually do. …
… Finally, a small comment. As a customer, I find this
type of approach to sales to be largely annoying to
me and unproductive for you. We learn far more
about what we want to purchase by searching the
web, looking for customer references in blogs and
forums, word of mouth, and by finding white papers
on your site that concretely describe solutions to
problems we are having.”
CIO of Large Pharma Co.

Sellers need to change
 An intimate understanding of the Buyer
 Buying behavior
 Likes
 Dislikes
… is the key to success

Buying Behavior has Changed
 Outbound Marketing:
 Annoying to your customers
 Expensive
 Increasingly less effective
 What is the new process?
 Google Search
 Web Site
 Reviews
 Blogs & Social Media
 Influencers
 Trials or Free software / services
 Requires Inbound Marketing thought processes

It’s not all bad news
 The Internet has also given marketers some
powerful new tools
 Web sites, videos, trials, etc. to convey rich information
 Search Marketing (SEO/SEM)
 The Social Graph
 Viral acquisition
 Behavioral tracking
 Location information
 A/B Testing
 Etc.

Business Model Disruption in B2B
 New Low Cost Customer Acquisition Models:
 The Low Cost Sales Model
 (Inside Sales instead of Field Sales)
 The Touch-less Conversion
 Freemium

The Low Cost Sales Model (Inside Sales)
 SolarWinds
 2009 Revenues: $116 million
 EBITDA: $60 million
52% operating margins
 Others: HubSpot, JBoss, LogMeIn, Constant
Contact, Salesforce.com, etc.

The Touchless Conversion
ZenDesk
 Common Funnel Metrics:
 10% of visitors do a trial
 20% of trials convert to paid
 Extraordinarily scalable
 Extremely low cost

Free Trials require different Product Thinking
 The product is your salesperson
 Extreme focus on:
 Ease of installation
 Ease of use
 Clear instructions on how to test (short videos, etc.)
 Fast proof that it works

Sales Complexity
No Touch Light Touch High Touch Field Sales
Freemium Field Sales
Self-Service Inside Sales Inside Sales with SE’s

How I assumed the two would relate

A rough estimate of CAC versus Sales Complexity
No Touch Light Touch High Touch Field Sales
Freemium Field Sales
Self-Service Inside Sales Inside Sales with SE’s
Rough Estimates of Cost of Customer Acquisition (CAC)
$0- $50 – $1,000 - $3,000 - $25,000 – $75,000 –
$10 $200 $2,000 $8,000 $75,000 $200,000

The relationship is roughly exponential
Clearly adding
Human Touch
dramatically
increases costs

CAC (logarithmic)
$100,000
10x
$10,000
$1,000 10x
$100
10x
$10
$1
Freemium No Touch Inside Sales Field Sales
Sales Complexity

High CAC, requires high scores for: Value, Pain, Urgency
Value / Pain / Urgency = LTV (logarithmic)
$1,000,000
$100,000
$10,000
$1,000
$100
Unprofitable:
LTV < CAC
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity 

How SaaS changes Sales Complexity
Value / Pain / Urgency = LTV (logarithmic)
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity 

Levers you can use to move from Red to Green
 Make it easy for customers to sell themselves
 Make the first decision to work with your product easy
 Simple product
 Free versions, Free Trials, Open Source
 Remove Complexity from closing the Sale
 Remove IT (SaaS)
 Eliminate committee decision making
 Make the first financial commitment easy
 $10,000 or below for enterprise sales
 $250 per month for very small business SaaS

Able to leverage the Human Costs dominate:
Internet revolution Old world business model
Value/Pain/Urgency
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity 

Another trait of highly successful companies
 A Sales and Marketing Machine

BUILDING
A SALES & MARKETING MACHINE
Brand
Advertising
Email Events
Marketing
PR
Webinars
Sales
Social Tradeshows
Media

?
WHAT IS A
“SALES & MARKETING
MACHINE”

CLEARLY DEFINED
LEVERS THAT YOU
PREDICTABLE
PULL TO MAKE IT GO
FASTER
SALES & INSTRUMENTED
SCALABLE MARKETING WITH GREAT
MACHINE 9 METRICS
AUTOMATED COST OPTIMIZED

HOW DO YOU GO ABOUT
BUILDING ONE OF THOSE?

9 STEPS

4
WHY 4 FIRST?
BECAUSE 1, 2 AND 3 ARE NOT OBVIOUS SO WE WILL COME BACK
TO THEM AT THE END AFTER WE HAVE SEEN WHY THEY ARE
SO VALUABLE

4 ALIGN
ALIGN EVERY MARKETING ACTIVITY AROUND ONE GOAL…
CREATING LEADS THAT HELP SALES
CLOSE MORE
DEALS

Sales CLOSED
DEAL

Blogging
Social Media
eMail
Campaigns
CLOSED
SEO Sales
DEAL
Webinars
SEM
PR

RULE NUMBER 1
If it doesn’t create a lead, or
directly contribute towards
closing a sale, it doesn’t belong

Sales
CLOSED
DEAL

RULE NUMBER 2
If the cost per lead is too high,
it doesn’t belong
Exception to this rule: If you can recover cost through:
• higher conversion rate to closed deals
• higher average deal size

Sales
CLOSED
DEAL

5 LINK

CLEARLY LINK FLOWS FROM
START TO FINISH
$
SEO LANDING FREE EMAIL SALES CLOSE
PAGE TRIAL CAMPAIGN TOUCH
1. At the end of every action, there should be a clear link to the next action
2. The overall flow from start to finish should be carefully designed

AN ORGANIZATIONAL
STRUCTURE…

YOUR CUSTOMER’S
PURCHASING STAGES
PURCHASE
CONSIDERATION
CLOSED
DEAL
AWARENESS

AN ORGANIZATIONAL
METAPHOR FOR THE KEY
FUNNEL STAGES
SALES
MIDDLE OF THE FUNNEL
CLOSED
DEAL
TOP OF THE FUNNEL

WHAT IS TOP OF THE
FUNNEL?
customer is not aware customer has a
they have a problem, or problem and is
that your product looking for a solution
category exists
GENERATE GET FOUND
AWARENESS

WHAT IS TOP OF THE
FUNNEL?
RAW LEAD
GENERATE WEBSITE
AWARENESS

WHAT IS TOP OF THE
FUNNEL?
RAW LEAD
GENERATE WEBSITE
AWARENESS &
GET FOUND
Inbound marketing
Outbound marketing

WHAT IS THE MIDDLE OF
THE FUNNEL?
NURTURE QUALIFY MQL
(MARKETING QUALIFIED
LEAD)
SEGMENT

PROBLEM:
MARKETING SAYS THAT’S
RIDICULOUS, I GAVE
SALES SAYS THEM A TON OF LEADS.
THEY JUST DON’T
MARKETING FOLLOW UP ON THEM
ISN’T GIVING PROPERLY.
THEM
ENOUGH LEADS
MARKETING
SALES

CAUSE:
SALES CALLS A FEW
UNQUALIFIED LEADS,
AND FINDS THEY ARE
WASTE OF TIME -
THEY STOP CALLING
THE REST OF THE
LEADS
SALES

SOLUTION:
GET AGREEMENT ON
THE QUALIFICATION
CRITERIA NEEDED TO
BE ABLE TO PASS A
LEAD ACROSS TO
SALES (MQL)
MARKETING

SALES FURTHER QUALIFIES THOSE
SALES LEADS TO
FIND
OPPORTUNITIES

USING BANT
BUDGET
AUTHORITY
NEEDS
TIMING

COMMON LEAD STATES
RAW LEAD CLOSED
DEAL
MQL OPPORTUNITY
(MARKETING QUALIFIED (SALES QUALIFIED
LEAD) LEAD)

6 AUTOMATE

SALES
MIDDLE OF THE FUNNEL
CRM
CLOSED
MARKETING DEAL
AUTOMATION
TOP OF THE FUNNEL
INBOUND
MARKETING

LEAD SEGMENTATION

7 MEASURE
"IF YOU CAN NOT MEASURE IT,
YOU CAN NOT IMPROVE IT."
- LORD KELVIN

THE KEY METRICS
CAMPAIGNS
TO DRIVE
TRAFFIC
VISITORS
OVERALL
CONVERSION %
CONVERSION
%
TRIALS
(BY LEAD SOURCE)
CONVERSION
%
CLOSED DEALS

8 ANALYZE

Suspects
Suspects
Suspects
Suspects
Suspects
Suspects
Suspects
Suspects Suspects Suspects
Suspects Suspects
BUT EVEN IF YOU ARE MICROSOFT,
CISCO, ORACLE, OR GOOGLE
YOUR FUNNEL WILL HAVE
BLOCKAGE
POINTS

IDENTIFY
YOUR BLOCKAGE POINTS

HOW?

WHAT IS STOPPING ME
FROM INCREASING SALES BY 5X ?

9 IMPROVE

IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,
I HAVE FOUND THAT THERE IS A
CLEAR
PATTERN…

YOU ARE HOPING YOUR
CUSTOMERS WILL DO
SOMETHING
THAT THEY ARE
NOT MOTIVATED TO DO

IN OTHER WORDS…
YOU DESIGNED YOUR FUNNEL
THE WAY YOU HOPED IT WOULD
WORK…
BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT
THE CUSTOMER’S POINT OF
VIEW

JBOSS EXAMPLE
PUT A REGISTRATION FORM
ON THEIR WEB SITE BEFORE
A FREE DOWNLOAD
IMPACT
CUT THE DOWNLOAD RATE
BY MORE THAN 10X

GET INSIDE YOUR
CUSTOMER’S HEAD
CONCERNS
- Hate being sold to
- Don’t want to get spam
sales emails

UNDERSTAND WHAT
MOTIVATES THEM
CONCERNS
MOTIVATIONS
- Want to solve my problem
- Recommended by a friend
- Education
- Data/ information reports
- Entertainment
- Free stuff

CREATE A SOLUTION THAT
ENTICES THEM AND ADDRESS THEIR CONCERNS
CONCERNS
ENTICE &
ADDRESS CONCERNS
- Customer testimonials address
vendor risk
- Free trials address product
viability and fit concerns

EXAMPLE: DRIVING TRAFFIC TO YOUR WEB
SITE
GETTING FOUND
Not going to find your site unless:
- On 1st page of Google search
concerns - Recommended by trusted
source
- Referred to in social media or
blogosphere

LESSONS FROM WEBSITE
GRADER
• Free tools drive viral spread
• Low customer work required
• High value delivered
• Score leverages competitive urge
• Builds trust through clear
demonstration of expertise

GOOD LINKAGE TO NEXT STEP

using engineering for marketing

USING DATA TO DRIVE WEB
TRAFFIC
SYSOMOS: SOCIAL MEDIA MONITORING
LEVERAGED THEIR DATABASE TO
CREATE BLOG POSTS WITH DATA ON
TOPICS OF CURRENT INTEREST:
• IRAN ELECTION RIOTS
• TWITTER’S GROWTH
• FACEBOOK USAGE

LED TO:
SYSOMOS ARTICLES IN
ECONOMIST, NY TIMES
WEB TRAFFIC TO READ THE FULL REPORT
LEADS – IMPRESSED BY THE CAPABILITIES
OF THE SOFTWARE

GETTING CUSTOMERS TO SIGN UP FOR A
TRIAL
- I don’t have the time
- I don’t want to get
spam email
concerns - Yet another password
to remember

RE-THINK THE PROCESS
CONVENTIONAL SIGN UP CONVERT
APPROACH FOR TRIAL WOW! TO
CUSTOMER
WOW! FIRST, CONVERT
SIGN UP
TO
REGISTER LATER WOW! FOR TRIAL
CUSTOMER
Source: Josh Porter – Designing for Social Traction

1
4
2
3

PROBLEM:
GETTING A MEETING

GETTING TO EXECUTIVE
DECISION MAKERS
TECHCRUNCH FOR
INSURANCE CLAIMS

DROPBOX: SIMPLE FILE SHARING SOFTWARE
– Get you hooked for free
– Storage slowly increases to the point where you need to pay
– But by then they have established trust
– And it is hard to move your data that is shared with others

First Contact Sell
Build Build
First Contact Sell
Relationship Trust

SELLING IS 10X EASIER…
ONCE YOU HAVE ESTABLISHED TRUST

YOUR BLOG CAN ESTABLISH TRUST…
HOW?

VALUABLE CONTENT
EDUCATION
INFORMATION
ENTERTAINMENT
WITH ZERO SELLING

THE KEYS TO SUCCESS
DEEP UNDERSTANDING OF YOUR CUSTOMER
• What don’t they like?
• What do they like/need?
• What motivates them?
• What are their problems?
• What does their boss expect of them?
• etc.
Combined with
OUT-OF-THE-BOX THINKING

APOLOGIES
MY EXAMPLES ARE ALL SOFTWARE COMPANIES
THIS APPLIES EQUALLY WELL IN OTHER BUSINESSES

FINALLY…
LET’S GO BACK TO THE BEGINNING…

…AND INTRODUCE
THREE NEW STEPS AT
THE BEGINNING OF
THE FUNNEL DESIGN
PROCESS…

1
IDENTIFY
IDENTIFY ALL THE PEOPLE INVOLVED IN THE
PURCHASE DECISION

2
UNDERSTAND
SKETCH OUT THEIR BUYING PROCESS AND
CONCERNS AT EACH STAGE

3
ENTICE
ADD THE STEPS TO ADDRESS THEIR BUYING
PROCESS
AND:
ADDRESS THEIR CONCERNS
ENTICE THEM

SUMMARY

WE WENT FROM
THIS:
1. Align
2. Link
3. Automate
4. Measure
5. Analyze
6. Improve

TO THIS…
1. IDENTIFY
2. UNDERSTAND
3. ENTICE
4. Align
5. Link
6. Automate
7. Measure
8. Analyze
9. Improve

THE NINE STEPS
1. IDENTIFY Identify people in purchase decision
2. UNDERSTAND Address their buying process and concerns
Design actions to pull them through buying process
3. ENTICE
& address concerns
4. ALIGN Ensure funnel actions lead directly to sales
5. LINK Link every funnel action to the next step
6. AUTOMATE Use software to automate
7. MEASURE Measure key funnel metrics
8. ANALYZE Identify blockage points
Brainstorm better enticements and ways to address
9. IMPROVE
concerns

SALES-DRIVEN
FUNNEL DESIGN
TO A
CUSTOMER-CENTRIC
FUNNEL DESIGN

CASE STUDY
JBOSS

JBOSS
- FREE open source software
- downloaded 5 MILLION times

The Highlights
• Breakthrough Business Model
– Open Source
– A great example of the power of Free
– 5 million downloads
• The first challenge: How to monetize
• The second challenge: Conversion
– While keeping CAC low
– Solution: Build a Sales & Marketing Machine

ORIGINAL BRAINSTORMING SESSION

THE FIRST BLOCKAGE POINT
• 5 million users had downloaded JBoss
– But none had given their names
• The problem:
– email registration in front of download reduces
conversion rates significantly

JBOSS example
a carrot to incent them to provide
NEEDED: an email address
SOLUTION: give away the documentation
for free
RESULT: 10,000 leads per month

JBoss - Sales & Marketing Machine
Enterprise
Suspects Closed Deals
Rollouts
Web Web Phone Inside
Leads Scoring Call Sales
Lead
Nurturing

Metrics: The End Goal
4:1 3:1 4:1
(25%) (33%) (25%)
Raw Web Closed
Tele- Tele-
Leads activity Deals
marketing sales
scoring

Using the model to work backwards
4:1 3:1 4:1
Raw Web Closed
Tele- Inside-
Leads activity Deals
marketing sales
scoring
• To do $4m in the month:
– If Average Deal Size is $10k
– Need $4m divided by $10k deals to reach target = 400 deals
– Means 1,200 deals being worked in Inside sales (400x4)
• Know that each rep can work 60 deals at a time, means 20 reps
– Means 3,600 telemarketing contacts (1,200x3)
– Means 14,400 Raw Leads (3,600x4)

THE NEXT CHALLENGE:
INCREASE LTV
• Multi-pronged approach
– Add services to the subscription (beyond just support)
• Key service was JBoss Operations Network
– Broaden the product line and upsell
• JBoss Enteprise Middleware Suite (JEMS)
– Scalable Pricing
• 4 axes to drive pricing higher
• Result
– Drove average deal size from $10k to $50k
– While maintaining the same pipeline flow and conversion
rates

THE RESULTS
• Before venture financing 70
– 2003 $2m 60
• Early 2004 50
– venture round closes 40
• Bookings Growth: 30
20
– 2004 $11m
10
– 2005 $26m
0
– 2006 on plan to do $65m 2003 2004 2005 2006

JBOSS SUMMARY
• Business Model disruption
– Gave the product away entirely free
– Monetized support & management
• Low CAC
– Leveraged free and virality to acquire non-paying customers
• Sales & Marketing Machine
– Careful study of customer motivations
– Low cost Sales model
– Excellent Metrics
• Scalable pricing model

For More information
 Visit my blog at www.forEntrepreneurs.com