Rapid Innovation Group blog

Sourcing referrals – part 1

I was recently asked to run a workshop on sourcing referrals from existing clients. The workshop was for the account management team of a SaaS company which provides productivity software to blue-chips’ communications departments. There is a lot of literature on the web regarding referrals as a key part of marketing. I found the most useful opinions, which subsequently helped steer my approach, were on Ian Brodie’s blog.

Everyone knows referrals are a great source of new business – the leads are low-cost and well qualified, and you are able to enter the sales process with a heightened credibility. However, the account management team in question were not hitting their targets in this area. This is not atypical – despite general recognition of the effectiveness of referrals, most companies do not reflect this in their marketing strategies. It is the norm to have a systematic approach to sourcing business through other channels (as part of a multi-modal demand generation strategy) where attention is focused on measuring the effectiveness of each channel (cost, frequency, and quality of leads) and then optimising the process to drive repeatability and visibility.

As such, my objective for the workshop was to co-design a repeatable and effective process for sourcing referrals. I used the following structure to help elucidate such a process:

• What is required to make a referral work?


• For what reasons might you be reluctant to ask for a referral?


• How can each of these points be addressed?


• How can these be tied up into a systematic referral process?

In the following post, I will summarise the points we explored under each of these areas, and what our resulting process looked like.

10 questions to ask yourself about pricing

I met a number of entrepreneurs at the Internet World event at Earl's Court a few weeks ago, which was attended by both B2B and B2C technology firms. I came across business model ideas that ranged wildly from free-to-use to freemium to software-as-a-service to licence plus annual maintenance.

However, a lot of entrepreneurs admitted that they were at best unsure that they had the right pricing model and at worst making it up for each opportunity.

When we discuss pricing with our clients these are some of the typical questions we go through:

1. What are your business objectives? - e.g., win your first 10 big customers/build a user base/win a first customer in a new territory


2. What are your buyer's constraints? - what level of budget can be signed off without making your customer's buying process too arduous?


3. To what will you be compared? - is your buyer more accustomed to signing cheques for million-dollar infrastructure or thousand-dollar training budgets?


4. Will your buyer's budget typically be operational or capital expenditure? - e.g., a software-as-a-service model won't be appropriate if your buyer signs off budgets on a one-off, project-by-project basis rather than on a recurring basis


5. What are your cash flow requirements? - when do you need to get cash in to sustain the business?


6. Who else is involved? - is it possible to make your product or service free for one set of users whilst another set pays? For instance, eBay charges its sellers so that its buyers can use the service for free


7. How does your cost of delivery scale? - what advantages of scale can you derive from higher volume orders?


8. How does your value scale? - how much opportunity is there for up-selling to the same customer


9. What are the different components of your solution? - is it more effective to charge separately for training, installation, configuration or is it better to wrap everything into a single price?


10. What have you told your investors about pricing? - although this may not be the most important factor in your process it is worth flagging up

See our other posts on pricing for further ideas on this topic.

Radian6 Acquisition

So Radian6, the Canadian backed social media monitoring and engagement platform provider, has been bought by Salesforce.com.

Having looked at the deal, I have two observations:

1. The revenue multiple was just short of 10


2. Salesforce.com paid A LOT of cash.

There must have been an intense amount of competition in the space. Both of these points are interesting for differing reasons. A multiple of ten shows these type of exit deals can still happen for VCs – the buyer clearly saw massive opportunity value in the technology platform (they estimated a three year build cycle if they attempted it in hour), rather than just the current revenues. Salesforce.com must be scared by the social space to pay this kind of money, and this leads onto my second observation – they paid A LOT of cash.

I realise that a lot of the large tech companies are cash-rich at the moment but this deal implies that there was a lot of perceived competition for Radian6 – Salesforce.com wanted it badly, and knew that if they didn’t get it then someone else would (who maybe wouldn’t give them access to the capability). I don’t know whether a single line in Vocus’ recent quarterly report (Q1 2011), detailing $1.2m fees spent on a failed cross-border acquisition, has anything to do with it.

I also reflected on my own experience in that marketplace in the UK. That a Canadian company had the sales and growth trajectory to get picked up by Salesforce.com shows how far behind the UK is. I cannot think of many companies, with the exception of Glide Technologies, that provide a similar level of social media engagement service in Europe. Equally, I haven’t heard of many corporates this side of the pond that have engaged with the space to the extent that a best practice technology platform provider has been able to emerge.

Should your pricing be based on perceived value?

I've written several posts on the ideas behind value-based pricing for entrepreneurs. I argued here that although value-based pricing makes sense it is often best to link your pricing to something else.

During preparations for a pricing study that one entrepreneur asked us to look into, one of my colleagues noted that there is a difference between the actual value and the perceived value of your product or service.

To make the distinction clear, we at RIG just like any other professional services are reminded that the only metric that matters is perceived value: it is of little use in a professional services relationship to be valuable if your client does not recognise it.

There are also countless examples of products that have prices correlated to perceived value rather than actual value. Nobody tries to work out whether an iPad will make them £500 more efficient or effective before spending the same amount of money - and not knowing the actual value doesn't stop people wanting one. The actual value of a Lottery ticket can be calculated and millions each week are still happy to part with a full £1 or more because of the thrill that it might be their lucky week.

If your product or service has a great deal of emotional appeal beyond its functionality then you may be able to extract a price that is higher than the actual value. But if the emotional appeal subsequently stops (for instance, if your brand is somehow compromised) then the high prices will become unsustainable overnight. On the other hand, if your product or service is more about helping customers to be more effective or efficient then you might end up with a higher price by linking it closely to its actual value.

When is an elephant worth forgetting??

Continuing on the theme of elephants....

I was lucky enough to be at GeeknRolla – the excellent TechCrunch Europe startup event – a couple of weeks back, and two very similar conversations I had during the day with online-software entrepreneurs stayed with me.

The conversations with the went something like this:

“We have started to gain good traction in the SME market, we have secured a good channel partner / we are proving that we can scale…now we just need to win a {blue chip / really big} customer to get the next round of funding”

There’s something about winning an elephant customer that seems irresistible: while the idea of having large annual recurring contracts is attractive, for a new company that has worked hard to get its model working and scaling in the SME space, winning an ‘elephant deal’ is almost certainly a double-edged sword.

One of RIG’s former clients had an online enterprise software offering and it was making good progress winning large companies. Then it had the chance to bid for an enormous global customer. In the process of preparing the tender it had become clear that a lot of customization and special support would be needed, but it was such a prestigious account that the client pressed ahead and ended up winning it. 

The strain from having to service the new customer was evident – development resources were insufficient to cover the new customer, continue core development and keep the existing customer base happy. Funds that might have been put into marketing to drive the critical transition from predominantly out-bound to predominantly in-bound lead generation were diverted to providing customized support. It is very hard, even as a growth-stage technology company, to serve multiple masters, and even harder as a start-up. 

If you have worked out how to acquire, deliver to, service, and retain SME customers in a scalable way, then you are already doing very well. SME customers are often under-rated: they can be very dependable, and as a service provider, you don’t have the risks associated with revenue concentration.

Think carefully before you go elephant hunting. Scalability is a key driver of the valuations that SaaS companies can receive. At the point where a company is having to customize and maintain customer-specific resources, it can still call itself ‘SaaS’ but it starts to look more and more ‘old economy’. Savvy buyers and investors increasingly recognise this. So, as ever, if you do choose to try to break into the enterprise market, make sure your assumptions stand up to heavy scrutiny.