Moritz Zimmermann - Co-Founder, hybris
hybris Software was founded in 1997 by Moritz Zimmermann together with two co-founders as a provider of software for omni-channel customer experience and commerce (CEC). The company was acquired by SAP in 2013 for $1.3 billion--the highest value private acquisition of a technology business at the time. Until recently, Moritz has overseen all product innovation and development as CTO at SAP Customer Experience. Today Moritz is General Partner at seed stage SaaS VC 42CAP.
On founder sales:
We initially refused to do any sales. We were techies and just wanted to build products, so we tried to outsource selling to agencies or partners. Only when that didn’t work out, we tried selling ourselves--and found out, hey, it’s not rocket science after all!
Expanding in Europe with a B2B business model is a tough job. German references count for nothing in France. In every single country, you start over from nothing. In my opinion, that’s one of the reasons why we don’t have any big tech businesses in the EU--it’s really hard to scale this way.
Scaling is much easier in the USA. It’s a huge market with no difference between east coast or west coast. For founders who want to grow fast, I recommend quickly moving to the UK as a beachhead, then to the USA.
For the first couple years in a new market, the quality of the sales team--their skills and experience in the market--is much more important than the market’s size. But to get started quickly, make sure your sales playbook is ready, including pitch, KPIs, team management, recruiting, and so on.
In the beginning, we just made up a price that seemed reasonable. The better we understood the value of our solution versus the competition, the more we could raise our price. After a while, even though our product was still the same, we also leveraged our higher brand recognition and references to further increase the price.
It was a big learning for us to realize that selling at this price level--our ACV started at 6 figures for a license--only works if the price points are high enough. In fact, we increased our prices every single year by a hefty rate for more than 15 years!
A field sales model only works if you have 6-figure deals because of the inherent cost for the sales person and their expenses.
In the beginning, we only compromised the price to buy references in a certain market. For example, we closed a €100,000 deal with Toys’R’Us that would’ve been worth €5 million, but included other value for us, such as shared PR.
Try to get your customers to give you money in advance that you can then use for growing your startup. It’s much better to give a 5% discount to a customer who pays you three years in advance than having to raise capital from investors.
On pricing models:
In the oldschool model, where you sell a perpetual license or a subscription, you try to sell as much as you can to the customer at once. But this means that the customer might pay for stuff he won’t eventually need. And you may give too much discount because you can’t precisely define the value your solutions have for the customer.
In the land-consume-expand model, you use consumption-based pricing. The advantage for the customer is that he only pays for what he uses. Maybe their sales persons use your software daily, but finance only logs in three days per month. This model makes it much easier to get a foot into the door and then expand after you have proven your value proposition!
The land-consume-expand model implies that your software is “sticky”--the customer stops paying when he stops using your software, so make sure it’s useful and switching is hard. But if you incentivize your engineers to increase adoption and consumption, and combine it with functions that allow the customer to measure and use the consumption data, you actually achieve a very high renewal rate.
On upsell and retention:
Include automatic price increases from the start. I recommend writing something like a 7% annual price increase into the contracts--just try and see what happens.
If possible (by local regulation), try to obscure the due dates for renewals, so that customers can’t just conveniently cancel the entire contract by December 31st. Telecoms are really good at cancellation deadlines: if you miss the cancellation date, your contract auto-renews for another year or so.
Use a self-compliance tool to continuously illustrate the value your product contributes. This is typically a dashboard or usage notifications that tell the customer where they stand in using your product. Avoid breaking their trust by suddenly charging €50,000 in “usage fees” that they have no idea where they come from!
On customer success:
The role of customer success in your sales process varies depending on the relative importance of “hunting” (acquiring new business) versus “farming” (expanding existing business). Another factor influencing the importance of customer success is your product and how hard it is to close the initial sale.
On the sales organization:
In comparison to a software corporation offering an entire portfolio of products, a startup is a one-trick pony. The risk of hearing a “No” after spending a lot of time trying to sell the product is higher, which is why lead qualification is so important. In general, a salesperson in a startup needs to have more fire, take higher risks, engage more with the customer. A sales person in a big corporation, in contrast, doesn’t know what they will sell, but they know that they will sell something. This kind of portfolio-oriented sales strategy is much more comfortable. In fact, many corporate sales people are able to get by without making too much of an effort.
Many corporate sales people are spoiled by large commissions for easy-to-hit quotas. They are used to earning a lot and spending a lot, so they aren’t likely to join a startup. That’s why it’s so important for a startup to use fresh talent, and to invest heavily in training.
On pipeline management:
Many startups neglect pipeline coverage as a metric to watch. As a consequence, they focus too little on top-of-funnel lead generation. Your goal should be to stuff your expensive top sales people with opportunities, so they have the luxury of choosing the most profitable customer instead of giving discounts to get the only one they have.
If you focus on inbound sales, it’s a three-step process. First, marketing generates leads through PR or content marketing, social media, and events. Then the SDR team qualifies those via phone and email. Only after the SDR team has delivered the SQL to the sales people, you start tracking the conversion rate.