Landing from the cloud is not that straight forward

This week while at Microsoft Worldwide Partner Conference I had a very interesting discussion with a cool French start-up offering a cloud-based solution.

As we were discussing about the great elasticity that the cloud provides, it dawned on me that there was another part of the business scaling equation that I never hear that much about when it comes to cloud-based businesses: the front-end sales and marketing side or, to rephrase, the actual business landing from a cloud-based solution.

At a conceptual level, the 3 core elements of any end-to-end business that is developing and selling products (using “product” in the broader sense of the term here: services, solutions, technology plug-ins…) will always have are:

1) Product development

2) Manufacturing

3) Sales and marketing

In a cloud based business model, product development will leverage scalable assets, tools and pre-build components to help accelerate it.

From the “manufacturing” standpoint (which also includes installation, logistics..), the cloud is an amazing asset as it allows start-up (and any size corporation for that matter) to deliver their product from quantity 1 to as large as necessary in a matter of hours. This is the great promise of cloud-based computing.

What about Sales and Marketing then?

As we were discussing it became clear that this company’s challenge was not the product (they were already done developing their v1), the manufacturing (they were very pleased with the scale Windows Azure was providing them) but the sales and marketing side. Being based in France, how to immediately get a sales and marketing scale equivalent to a US company, i.e. to reach not one country but all top-tier markets from the get go, was not an easy problem to solve.

Or course the “world is flat”, to quote Tom Friedman, and it’s easier than ever to reach-out to the other side of the world, leverage social networks, industry groups or partner programs to find local partners you can associate with. Still, developing the right business model to go through these distributors, finding the right ones (size, coverage areas, services, vested interest in your business success vs. adding one more product to a 100-items product line…), and setting up an infrastructure to deal with and manage daily 5, 10, 50 distributors or value added resellers is not quick, simple or risk free.

So, what would be the initial conclusions from this situation?

1) We should not be surprised to see cloud-based technology companies, in particular start-up, to initially have what it could look like a fairly heavy sales and marketing organization for a high-tech business (i.e. vs. the development team size) as this will be needed to quickly scale out at the sales and marketing level.

2) If you are looking to invest in such a company and there is not real “business landing” talent in the management team, i.e. people that understand that landing this business with customers globally will not happen on its own, this should raise a red flag.

3) The cloud allowing anyone to scale extremely rapidly, there is a good chance that in certain (many? most?) situations what will separate winners from losers will not be the detailed features and functionalities but the ability to scale their sales and marketing landing capabilities. Quickly.

One thought on “Landing from the cloud is not that straight forward

  1. Olivier F Fontana Post author

    Interesting interview of the CEO of a could based company: http://www.businessinsider.com/zach-nelson-ceo-netsuite-2011-9#ixzz1Z6wTRxu3

    Quoting the relevant part pertaining to my earlier post above:
    Journalist: The sales and marketing is huge.

    CEO: The sales and marketing part. Yeah.

    43% of revenue, I think, for you. It’s very large. Same as sales force. How are you paying your salespeople? When they sell a deal that is over ten years, are the taking the full — is it a ten-year calculation? Do they get paid every year that the client continues with you?

    No, our sales model, most SaaS companies’ sales models, typically pays them on the first year’s — at least in our model — first year’s bookings, first year’s cash collection. And then they don’t get paid subsequently down the road. We do have a second sales force that does upsell and renewal sales and they get paid a small piece on the renewal.

    Reply

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