All salesmen are actors: their priority is persuasion, not sincerity. That’s why the word “salesman”
can be a slur and the used car dealer is our archetype of shadiness.
But we only react negatively to awkward, obvious salesmen—that is, the bad ones. There’s a wide range of sales ability: there are many gradations between novices, experts, and masters. There are even sales grandmasters.
If you don’t know any grandmasters, it’s not because you haven’t encountered them, but rather because their art is hidden in plain sight. Tom Sawyer managed to persuade his neighborhood friends to whitewash the fence for him—a masterful move.
But convincing them to actually pay him for the privilege of doing his chores was the move of a grandmaster, and his friends were none the wiser. Not much has changed since Twain wrote in 1876.
Like acting, sales works best when hidden. This explains why almost everyone whose job involves
distribution—whether they’re in sales, marketing, or advertising—has a job title that has nothing to
do with those things.
People who sell advertising are called “account executives.”
People who sell customers work in “business development.”
People who sell companies are “investment bankers.”And
People who sell themselves are called “politicians.”
There’s a reason for these redescriptions: none of us wants to be reminded when we’re being sold.
Whatever the career, sales ability distinguishes superstars from also-rans. On Wall Street/Cac40/BSE, a new hire starts as an “analyst” wielding technical expertise, but his goal is to become a dealmaker.
A lawyer prides himself on professional credentials, but law firms are led by the rainmakers who bring in big clients. Even university professors, who claim authority for scholarly achievement, are
envious of the self-promoters who define their fields.
Academic ideas about history or English don’t just sell themselves on their intellectual merits. Even the agenda of fundamental physics and the future path of cancer research are results of persuasion.
The most fundamental reason that even businesspeople underestimate the importance of sales is the systematic effort to hide it at every level of every field in a world secretly driven by it.
The engineer’s grail is a product great enough that “it sells itself.” But anyone who would actually
say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling
something (and thereby contradicting himself).
The polar opposite business cliché warns that “the best product doesn’t always win.” Economists attribute this to “path dependence”: specific historical circumstances independent of objective quality can determine which products enjoy widespread adoption.
That’s true, but it doesn’t mean the operating systems we use today and the keyboard layouts on which we type were imposed by mere chance. It’s better to think of distribution as something essential to the design of your product.
If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.
HOW TO SELL A PRODUCT
Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
The converse is not true. No matter how strong your product—even if it easily fits into already
established habits and anybody who tries it likes it immediately—you must still support it with a
strong distribution plan.
Two metrics set the limits for effective distribution. The total net profit that you earn on average
over the course of your relationship with a customer (Customer Lifetime Value, or CLV) must exceed
the amount you spend on average to acquire a new customer (Customer Acquisition Cost, or CAC).
In general, the higher the price of your product, the more you have to spend to make a sale—and the
more it makes sense to spend it. Distribution methods can be plotted on a continuum:
Complex/Large b2b Sales
If your average sale is seven figures or more, every detail of every deal requires close personal
attention. It might take months to develop the right relationships.
You might make a sale only once every year or two. Then you’ll usually have to follow up during installation and service the product long after the deal is done. It’s hard to do, but this kind of “complex sales” is the only way to sell some of the most valuable products.
SpaceX shows that it can be done. Within just a few years of launching his rocket startup, Elon
Musk persuaded NASA to sign billion-dollar contracts to replace the decommissioned space shuttle
with a newly designed vessel from SpaceX.
Politics matters in big deals just as much as technological ingenuity, so this wasn’t easy. SpaceX employs more than 3,000 people, mostly in California. The traditional U.S. aerospace industry employs more than 500,000 people, spread throughout all 50 states.
Unsurprisingly, members of Congress don’t want to give up federal funds going to their home districts. But since complex sales require making just a few deals each year, a sales grandmaster like Elon Musk can use that time to focus on the most crucial people—and even to overcome political inertia.
Businesses with complex sales models succeed if they achieve 50% to 100% year-over-year
growth over the course of a decade. This will seem slow to any entrepreneur dreaming of viral
growth.
You might expect revenue to increase 10x as soon as customers learn about an obviously
superior product, but that almost never happens. Good enterprise sales strategy starts small, as it
must: a new customer might agree to become your biggest customer, but they’ll rarely be comfortable
signing a deal completely out of scale with what you’ve sold before.
Once you have a pool of reference customers who are successfully using your product, then you can begin the long and methodical work of hustling toward ever bigger deals.
Personal Sales
Most sales are not particularly complex: average deal sizes might range between €10,000 and
€100,000, and usually the CEO won’t have to do all the selling himself.
The challenge here isn’t about how to make any particular sale, but how to establish a process by which a sales team of modest size can move the product to a wide audience.
In 2008, Box had a good way for companies to store their data safely and accessible in the cloud.
But people didn’t know they needed such a thing—cloud computing hadn’t caught on yet.
That summer, Blake was hired as Box’s third salesperson to help change that. Starting with small groups of users who had the acutest file sharing problems, Box’s sales reps built relationships with more and more users in each client company.
In 2009, Blake sold a small Box account to the Stanford Sleep Clinic, where researchers needed an easy, secure way to store experimental data logs.
Today the university offers a Stanford-branded Box account to every one of its students and faculty members, and Stanford Hospital runs on Box. If it had started off by trying to sell the president of the university on an enterprise-wide solution, Box would have sold nothing.
A complex sales approach would have made Box a forgotten startup failure; instead, personal sales made it a multibillion-dollar business.
Sometimes the product itself is a kind of distribution such as Alibaba, Indiamart, loboncoin etc. ZocDoc is a Founders Fund portfolio company that helps people find and book medical appointments online.
The company Zondoc charges doctors a few hundred dollars per month to be included in its network. With an average deal size of just a few thousand dollars, ZocDoc needs lots of salespeople—so many that they have an internal recruiting team to do nothing but hire more.
But making personal sales to doctors don't just bring in revenue; by adding doctors to the network, salespeople make the product more valuable to consumers (and more consumer users increases its appeal to doctors).
More than 5 million people already use the service each month, and if it can continue to scale its network to include a majority of practitioners.
Distribution Doldrums
In between personal sales (salespeople obviously required) and traditional advertising (no
salespeople required), there is a dead zone. Suppose you create a software service that helps
convenience store owners track their inventory and manage to order.
For a product priced around €1,000, there might be no good distribution channel to reach the small businesses that might buy it.
Even if you have a clear value proposition, how do you get people to hear it? Advertising would
either be too broad (there’s no TV channel that only convenience store owners watch) or too
inefficient (on its own, an ad in Convenience Store News probably won’t convince any owner to part
with €1,000 a year).
The product needs a personal sales effort, but at that price point, you simply don’t have the resources to send an actual person to talk to every prospective customer.
This is why so many small and medium-sized businesses don’t use tools that bigger firms take for granted. It’s not that small business proprietors are unusually backward or that good tools don’t exist: distribution is the hidden bottleneck.
Marketing and Advertising
Marketing and advertising work for relatively low-priced products that have mass appeal but lack
any method of viral distribution.
Procter & Gamble can’t afford to pay salespeople to go door-to door selling laundry detergent. (P&G does employ salespeople to talk to grocery chains and large retail outlets since one detergent sale made to these buyers might mean 100,000 one-gallon bottles.)
To reach its end user, a packaged goods company has to produce television commercials, print
coupons in newspapers, and design its product boxes to attract attention.
Advertising can work for startups, too, but only when your customer acquisition costs and customer
lifetime value make every other distribution channel uneconomical.
Consider e-commerce startup Warby Parker, which designs and sells fashionable prescription eyeglasses online instead of contracting sales out to retail eyewear distributors. Each pair starts at around $100, so assuming the average customer buys a few pairs in her lifetime, the company’s CLV is a few hundred dollars.
That’s too little to justify personal attention on every transaction, but at the other extreme, hundred-dollar physical products don’t exactly go viral.
By running advertisements and creating quirky TV commercials, Warby is able to get its better, less expensive offerings in front of millions of eyeglass-wearing customers.
The company states plainly on its website that “TV is a great big megaphone,” and when you can only afford to spend dozens of dollars acquiring a new customer, you need the biggest megaphone you can find.
Every entrepreneur envies a recognizable ad campaign, but startups should resist the temptation to
compete with bigger companies in the endless contest to put on the most memorable TV spots or the
most elaborate PR stunts.
Viral Marketing
A product is viral if its core functionality encourages users to invite their friends to become users too.
This is how Facebook and PayPal both grew quickly: every time someone shares with a friend or
makes a payment, they naturally invite more and more people into the network.
This isn’t just cheap—it’s fast, too. If every new user leads to more than one additional user, you can achieve a chain reaction of exponential growth. The ideal viral loop should be as quick and frictionless as possible.
Funny YouTube videos or internet memes get millions of views very quickly because they have
extremely short cycle times: people see the kitten, feel warm inside, and forward it to their friends in
a matter of seconds.
Whoever is first to dominate the most important segment of a market with viral potential will be the
last mover in the whole market.
The Power Law of Distribution
One of these methods is likely to be far more powerful than every other for any given business:
distribution follows a power law of its own.
This is counterintuitive for most entrepreneurs, who assume that more is more. But the kitchen sink approach—employ a few salespeople, place some magazine ads, and try to add some kind of viral functionality to the product as an afterthought—doesn’t work.
Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. If you try for several but don’t nail one, you’re finished.
Selling to Non-Customers
Your company needs to sell more than its product. You must also sell your company to employees and investors. There is a “human resources” version of the lie that great products sell themselves: “This company is so good that people will be clamoring to join it.”
And there’s a fundraising version too: “This company is so great that investors will be banging down our door to invest.” Clamor and frenzy are very real, but they rarely happen without calculated recruiting and pitching beneath the surface.
Selling your company to the media is a necessary part of selling it to everyone else. Nerds who
instinctively mistrust the media often make the mistake of trying to ignore it.
But just as you can never expect people to buy a superior product merely on its obvious merits without any distribution strategy, you should never assume that people will admire your company without a public relations strategy.
Even if your particular product doesn’t need media exposure to acquire customers because
you have a viral distribution strategy, the press can help attract investors and employees.
Any prospective employee worth hiring will do his own diligence; what he finds or doesn’t find when he googles you will be critical to the success of your company.
EVERYBODY SELLS
Foolish might wish that distribution could be ignored and salesmen banished to another planet. All of
us want to believe that we make up our own minds, that sales don’t work on us. But it’s not true.
Everybody has a product to sell—no matter whether you’re an employee, a founder, or an investor.
It’s true even if your company consists of just you and your computer. Look around. If you don’t see
any salespeople, you’re the salesperson.
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