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Software Startups

February 24th, 2004 · No Comments

From the abstract of an article by MIT Sloan Management Review :

For years, startup software companies have assumed that bringing a product to market first and then investing more than their competitors in sales, marketing and product development was the road map to a winning outcome. However, a new study charting the common characteristics of both successful and unsuccessful software companies claims that, on average, winners are not first to market and do not spend more on sales and marketing or product development. Rather, successful companies become large, profitable businesses for a variety of unexpected reasons.

A key finding is that sales-force productivity is an excellent predictor of long-term success. Sales-force productivity is the critical differentiator, says Crisan. In successful firms, sales forces are 80% to 120% more productive than in unsuccessful ones.

Moreover, the authors found that, on average, total sales and marketing expense had no relationship to long-term company success. Successful companies spent about the same on sales and marketing as companies that failed. In fact, operational research conducted with Jim Maikranz, former senior vice president of sales at SAP AG, and Michael Krupka and Jeffrey Schwartz, both managing directors at Bain, has led the authors to conclude that sales success is not about how much a company spends.

Its about developing a finely honed, repeatable sales message that will resonate with customers, Crisan points out. Only after this has been achieved can a software firm effectively grow both its sales and its sales organization.

The authors [also] suggest that new software firms should emulate the tactics of successful ones in several ways. For example, they advise companies to build products to solve a well-defined customer problem; to charge a high, sustained initial price to reflect the value being provided; and to limit product complexity to only essential features. They also suggest that a sales force be developed with a targeted industry expansion in mind, only staffing fully when a company can articulate a clear, repeatable sales message to its customer base. The common traits for success, say the authors, can be used as benchmarks to gauge a companys progress.

Tags: Entrepreneurship

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