I’ve heard many investors and some executives repeat the mantra, “Never offer exclusive deals,” and since this blanket statement is generally bad advice I thought I’d offer the less conventional but I believe more practical version of why exclusive deals can actually be a huge bonus for a startup and why I actively encourage them.
So that we’re speaking the same language I would define “exclusive” as a period in which your company is prohibited from doing business with certain customers or business partners, which is why many incorrectly assume this is necessarily bad. I need to give credit for the topic to PR Malloy who Tweeted me this question. I must admit I discuss this very frequently with portfolio companies but hadn’t thought to write about it.
@msuster looking for an inspired post on when an exclusivity deal (w/ major industry player) works (cons as well) for an early stage tech co
— PR Malloy (@diddly_do_indy) June 13, 2015
The Mother of All Exclusivity Agreements – the iPhone Wouldn’t Exist
Before weighing in on the subject I would point out one thing that should be obvious to many of you – the iPhone was originally launched in 2007 in an exclusive partnership with AT&T and this was vital to both Apple and AT&T and was a hard negotiation throughout 2005 and 2006.
Between the mid nineties until 2007 wireless carriers around the world religiously protected the software that went on to phones and they guarded the end consumer relationship by controlling this software. If a company wanted to distribute software on a mobile device it need to sell via a “portal” (US term) or a “deck” (UK term) of a mobile carrier.
Since 2009 we’ve been in an unequivocal bull market. Venture capitalists have raised increasing amounts of money from their investors (LPs) every year. An impressive number of new VCs have been created – most of them with new seed funds. We’ve had an explosion of alternate sources of financing from crowd-sourcing, angels, accelerators, incubators, corporates, corporate incubators. And importantly we’ve had revenue. Consumers buying through smart phones, travelers using the new, shared economy and businesses replacing old software with modern cloud-based solutions.
It has been a good run.
But it won’t last forever. It could last 6 more months or 6 more years for all I know. But the economy grows in cycles and always has: Expansion & contraction. For what ever reason we’re wired to have amnesia during the run up and prescient memories of how we ‘knew it all along’ as soon as the slide begins. I do believe that we are in structural change where technology will increasingly play a bigger role in all facets of life so the long run up for tech is promising through all of these cycles. Once you understand both sides of the cycle you start to recognize signs of behavior during each phase.
Most technology startups seem to be funded by product people or business people. Specifically what is often not in the DNA of founders are sales skills. Nor do they exist in the investors of early-stage companies.
The result is a lack of knowledge of the process and of sales people themselves.
My first startup was no different. I had never had any sales training so everything we did for the first couple of years was instinctual. While we did fine learning on the fly, it turned out that a lot of what we did was wrong.
As we grew into several millions of dollars of sales per year it was no longer acceptable to “wing it.”
So I did want any rational person who wants to improve does – I hired a coach. We focused together on improving our sales methodology, our training and our comp plans through a larger than life ex country manager from PTC named Kai Krickel. He taught me much – most of it unconventional. Most of it worked and his philosophies have proved enduring to me.
His business was called TEDIC – The Excuse Department is Closed. That mindset always stayed with me and even rung true at the time. Excuses.
One of the questions I’m most often asked by CEOs is how to hire sales people.
I’ve written a lot about recruiting and hiring at startups including my controversial post on whom not to hire and my rapid response to the flame war. I’ve also written extensively on sales and on which sales execs to hire and how to think about the different kinds of sales leaders.
I work with a lot of startups. I start to notice when bad behavior creeps into the system as a whole. I have seen much of that behavior over the past 2 years get worse.
Nobody seems to want to make money any more. I remember just a decade ago in 2003 when we all laughed at how dumb people in the 90’s were talking about the race to “capture as many eyeballs as possible” before your competition. You would figure out how to monetize later.
I say ring the freaking cash register. I have said so for years.
Not everybody agrees and in some cases they’re right so you have to decide for yourself.
If you are a super young, well-connected, Stanford CS or EE, worked at Facebook early, have a bit o’ dosh and have VCs chasing you … you are exempt. Or anybody who remotely resembles you.
Why? Because at least while the VC spigot is open and flowing for high-potential individuals that fit a pattern that some VCs seem to favor they can access cheap capital that isn’t terribly dilutive and can use the to fund development and swing for the fences with limited focus on monetization.
Ok. That leaves 99.99% of you.
Ring the freaking cash register.
This is final part of a series that describes a sales methodology for technology companies or frankly many other types of companies, too.
We developed this at our first company and called it PUCCKA – the overall methodology is described here.
Pain. Unique Selling Proposition. Compelling Event. Champion. Key Players such as enemies, sages and blockers.