SALES

By 2012, things were looking up at Okta. We’d pulled out of our death spiral and had started to win a bunch of contracts. We were finally offering a product that fit the market. I began to feel good: we might actually survive.

So I was floored when things went south again.

I had flown to Louisiana to make a final pitch to a company there, and it had gone great. The deal was going to propel us forward, and I knew we were well positioned. I asked who we were competing against, and when they told me, I smiled smugly.

“That’s great,” I said. “We love competing against them because we beat them every time.” Two weeks later, the prospect called and said they’d given the contract to our competitor.

“You sure you dialed the right number?” I said, flummoxed. “You should be telling that to the other guy.”

“No, I dialed the right number,” the executive said sharply. I felt a knot in my stomach and got off the phone. I couldn’t believe we’d lost.

The next day, I called the prospect back. I wasn’t trying to change his mind. (Who am I kidding, of course I was!) But I also wanted to know why he’d gone with the competition. “You were too arrogant,” he said bluntly. “This is a new technology, and we’re going to have to work closely with the winning company to implement it.” He said he didn’t like our attitude. “We thought you’d be a bad partner.”

It hurt, but I needed to hear it, as did my whole team. Being aggressive is fine. But, unfortunately, we’d also signaled we weren’t listening. The loss led me to change the mentality of our sales group. We needed to focus on partnership, not bombastic pitches. It took a while, but once we reoriented, our sales started to accelerate.

Sales is a complicated topic, and there are entire books that cover it. In this chapter I will focus on enterprise sales, which means selling to companies and government agencies, often very large organizations. It’s very different from consumer sales, but it’s what I know best.

I’m going to talk about some of the most important things I’ve learned about selling to other organizations, like how it’s a people-to-people business and how you must focus on building relationships above all else. I will explain why you, the founder, need to stay extremely close to your sales team. I will share some tricks about how to close deals and about how you must go above and beyond to make your first customers extraordinarily successful.

For some of you, sales will be a new experience. Some will find it awkward. Others might even find it distasteful. But for a founder, it must become a way of life. I hope you get to the end of this chapter and feel more empowered. If your stomach starts churning, however, pay attention. Sales is the foundation of your business. As I said in the Introduction, “nothing happens until someone sells something.” Unless someone buys what you produce, there is no business. You don’t get to work on your idea. You don’t get to grow. And you definitely don’t get to IPO.

Being aggressive is fine. But, unfortunately, we’d also signaled we weren’t listening. The loss led me to change the mentality of our sales group.

People Buy from People

Exhibit A in why relationships matter.

About that blown deal I mentioned earlier: it has an epilogue. Another company came along soon after and did end up becoming our customer. It was a business in Boston. The deal was worth a lot less than the Louisiana one, only about $30,000. Though it wasn’t a huge amount of money, I still ended up flying across the country to walk them through the product. They agreed to do a paid test run, which worked out great, and I flew back to Boston to check in on how things were going. A little while later, they called and told us we had a deal.

Much later, one of the company’s executives explained to me that we had been competing for the deal with another company, also based in San Francisco. “Your product worked fine,” the customer told me, “and the other guy’s product worked fine.” So why did they go with Okta? “Because you came in person to see us—twice.”

Sales really are all about relationships. People buy from people. When you buy commodities—be it pencils or duct tape—that’s just transactional. It’s impersonal. You, the customer, know what you want. You find someone who’s selling it. You place an order. You get your purchase. There’s no interaction with another person.

But enterprise sales are different. They’re time-intensive. You have to invest hours, days, and months persuading your prospects that your product is something they want and can trust. With some companies, you only have to work with a single person. With the largest organizations, however, like those in the Fortune 500, you could have 2, 3, or even 10 different people to convince. Some will be fans who will help you move through the organization. Others might resist. Some do so simply because your product threatens some part of their fiefdom. You have to spend time trying to downshift their objections enough to get the sale, even if you never turn them into actual supporters. By definition, you need to build relationships with those people the same way you do with the fans, and it’s how you nurture and handle those relationships that often makes the difference in whether you get a deal or not, as well as how big it is and how fast it grows. The team at that Boston company decided to buy from me because they had met me and they had confidence in me.

The last reason for building relationships is that the individual executives who buy from you today will move to other companies. If you do a good job of creating a relationship with them now—and of proving, over and over, that you’re awesome at listening and serving their evolving needs—they will continue buying from you at the next two, three, four companies where they work.

Scare ’Em with Scarcity

Another litmus test for customer seriousness.

Your first big deals are going to feel like they’re make-or-break. And they kind of are. You’re going to feel like you’d do anything to make them work: come down on price, give your prospect extra product, show up at their homes and shine their shoes for a month. But don’t give in to that impulse. In fact, do the exact opposite. First, do your homework. Make sure your prospect is a serious potential customer. Then, after you’ve gone to see them, demonstrated the product, discussed how they might use it, and sketched out the beginnings of an implementation plan, introduce the Scarcity Argument.

Here’s how Carl Eschenbach, who led VMware from 200 to 20,000 employees and grew sales 100× from $40 million to $4 billion, puts it: “You tell the customer with conviction and confidence that, ‘Listen, I don’t have a lot of resources to do implementations right now. We have a massive amount of customers interested in this, and I can only focus on the biggest ones. If you’re not serious about this, it’s OK. We’ll come back at a later time.’”

It’s not that different from nailing down a contractor to remodel your home. If you want a good one, you have to work according to their schedule. In this case, it’s reverse psychology. You tell them you can take them on now, but given how many people are closing deals, you might not be available in a month. Take Carl’s word for it. He’s now a successful venture capitalist with Sequoia Capital and sits on the boards of Zoom, Workday, Palo Alto Networks, and Snowflake, among others. “I have seen this work so many times,” he says.

No Free Pilots

Why gratis is never a good look.

Pilots are a common step in the enterprise sales process. Buying a new product is a complicated endeavor for a large company. They need to be sure it works before they agree to bring it on board, so they have numerous rounds of vetting and approvals. That puts early-stage startups at a disadvantage. Without paying customers, there’s no proof your product really works. But a large company can’t simply roll the dice on you. If you crashed, it would disrupt their business. So how do you work through this Catch-22? The answer: pilots.

These are short-term assessments of how a piece of enterprise software will work in which a discrete group or department agrees to give it a whirl. The pilot helps the company figure out what’s involved in implementing the software and how it can best be used. A successful pilot can bolster the in-house champion’s argument.

New startup founders are often so eager to do these pilots that they’ll offer them for free. But don’t do that. Always insist that the customer pay for the pilot.

Here’s why: Unless the customer has skin in the game, the pilot will be a net drain on you. A funny thing happens when customers get stuff for free: they tend to dawdle. Your pilots will get sidelined for other, more urgent projects. And that hurts you. It will stretch out the time to an actual sale, but it hurts you in another way as well. Pilots are also your opportunity to do research: to get your product into the hands of real-world customers and see what really works and what doesn’t. If the customer isn’t using it, you can’t learn.

A funny thing happens when customers get stuff for free: they tend to dawdle. Your pilots will get sidelined for other, more urgent projects. And that hurts you.

If a customer pays for a pilot, however, they’ll start cranking. The person who signed the purchase order is on the line for the money they’re paying you. They need to have something tangible to show to their boss. The contract lights a fuse that works to your benefit.

Lastly, insisting the customer pay helps you figure out whether a company is really serious about giving you a shot. Many executives will take your meetings even when they have no intention (or budget) to actually move forward. Talking with you helps them stay current on the changing marketplace. They can afford to spend that time, but you can’t. Bringing up money becomes a litmus test. The customers who aren’t serious will start backpedaling. “It’s not the right time for us,” they might say. “I’m not sure it’s our highest priority right now.” You now know you can put them on the back burner while you pursue more promising leads.

One tip: If a customer tells you they aren’t ready to pay for what you’re offering, ask them what they would pay for. That’s how you discover their biggest pain points and highest priorities. It’s how Todd and I figured out that our first idea for Okta was a dud. When we asked IT executives about their biggest needs, they told us about identity management. After we heard that from enough people, we changed course and started building the company that is Okta today.

A last thought: In the beginning, it’s intimidating to ask people to pay for pilots. You think they’re doing you a favor by testing your product. But if you actually believe in what you’re building, you have to believe that it’s you who are doing them a favor by solving their problems. Take Brian Halligan at HubSpot. In 2006, Brian and Dharmesh Shah cofounded the company (now worth almost $40 billion) to build online marketing tools. In their early days, Brian would show up at customers’ offices with an old-school credit-card imprinter (the kind that made carbon copies of credit cards) to collect payments. His customers would complain about bugs in the system (typical of early versions of new software) as if to suggest he shouldn’t charge them. Did Brian back down? Nope. Instead, he gave them the option of simply canceling. Few ever did. Bugs or not, Brian’s software was better than their old way of doing things, and most still pulled out their credit cards.

How to Push Past the No

A little chutzpah goes a long way.

Carl Eschenbach of VMware has one of the most amazing sales stories I’ve ever heard. As he was building the sales team in the company’s early days, they’d gotten some traction with a large pharmaceutical company for their server virtualization technology. The company, which was on the East Coast, had added a couple dozen user licenses, so it was clear they were ramping up usage. Carl decided to propose a new kind of deal, one that would cover all the customer’s usage needs for the foreseeable future: VMware would significantly slash the price in return for an upfront commitment. If Carl could close the deal, it would be the biggest VMware had done yet.

Carl and a junior sales rep headed east for a meeting with the key decision makers. “We get in there, and they start beating us up over pricing,” Carl says. “They beat us up over the fact that we were a young startup. They asked whether they could really commit to us, whether we had the resources to back up the deal we were proposing.”

Carl could tell the customer really wanted to use their product, but they were insisting on a lower price. Carl wouldn’t budge. “We could actually show them the value and all the cost savings,” Carl says. The customer wasn’t impressed. “Finally, they just said, ‘I’m sorry, we’re not going to do it. The price just isn’t right.’”

As the executives filed out of the room, Carl sat in shocked silence. He didn’t doubt his strategy, and yet there they were. Then Carl had a stroke of brilliance. He told his rep, “Let’s just sit here.” Someone would eventually ask them to vacate the conference room, of course. But in the meantime, Carl figured, why not just stay, pretending to finish up their work, and see what happened.

Fifteen minutes later, Carl’s main contact showed up. “Are you guys going to leave?” he asked.

Carl asked if they could stay for just a little bit. The guy said OK.

Fifteen minutes later, the contact came back and asked if they were done.

Carl told me what happened next: “Usually, I have this rule in negotiation that the first person to talk loses. But in this case, we were already losing, so I just said to the guy, ‘Can we talk this through for a couple of minutes?’” Deal or no deal, he wanted to understand where the sticking point was. The guy explained that it wasn’t about the price. Actually, it had nothing to do with the price. It was the size of the discount. The company was simply used to getting much bigger reductions. It made them feel like they’d “won.” VMware hadn’t played ball, so they were passing.

Carl listened and then explained how he preferred to structure deals: He didn’t like to give discounts, he said, but he was happy to throw in more product. The guy listened and then said he’d run it by his team. A while later, he came back and said they had a deal.

I like this story for several reasons:

•   When you get a No, always try to find out the Why. If you don’t understand the customer’s reason for turning you down, you can’t possibly change their mind. And even if you can’t flip them, you’ll at least learn something that will help you next time.

•   Pride plays a bigger role than you might think. For some buyers, it really is about the game. Customers want to feel like they got a good deal. Figure out how you can make your buyers feel like they’ve “won” while still getting the deal you need and want.

•   There’s no substitute for chutzpah. Not a lot of people would feel comfortable camping out in another company’s conference room, especially one that’d just thrown a big deal back in their face. But docility gets you nowhere. Don’t be a jackass, of course. But get comfortable being uncomfortable. A good chunk of your deals may depend on it.

•   All good deals die five times. Most deals will seem dead in the water several times before they finally close. Never take a No as final. It usually just means there’s some aspect that doesn’t work for the customer. Try to identify the sticking point. It could be a legal clause in the contract. It could be the payment terms. Maybe it’s something else. Most of these can be adjusted—or discarded entirely.

After the Yes

Three steps to seal the deal.

Congratulations! A customer has decided to give you a try. You’re on your way, but the Yes is just the first step in closing the deal. There’s still a lot of work ahead. Here are some key next steps:

1 Make a MAP (Mutual Action Plan) Actually, make two of them: one for closing the deal and another for getting the customer up and running.

Mutual action plans, or MAPs, are essentially project plans in which you and your customer are joint partners. The goal of the first MAP is to get the deal closed. That doesn’t happen when the customer says Yes. It happens when the contract is signed and a purchase order is created. Once you have the Yes, you need to figure out which departments have to sign off and in what order. Who are the signatories? What are the customer’s processes for reviewing contracts? What do you need to provide them? If you can, check with colleagues at other companies who’ve done business with your customer, to find out how the process usually goes and where the hiccups might be.

The second MAP focuses on getting the prospect up and running on the system. You’d think this would be straightforward, but customers are easily distracted. Without a written roadmap and explicit buy-in from both sides, the implementation can drift.

If your customer does start dragging their feet even on the MAPs, you can motivate them by finding something important to tie it to. They might have promised their CEO they were going to launch a new customer-facing app by the holidays, and they need your service for that. Or they’re buying a new company that they now need to integrate. Or maybe they simply said on a recent earnings call that they’re going to reduce costs by X percent in Y quarters. Whatever it is, link the need to finish drafting the MAP to those larger goals.

2 Schedule “Show Backs” These presentations show the customer data to prove they are indeed getting the value you promised. Set up systems and processes to track that value, and then schedule these meetings every 6 to 12 months. Carl Eschenbach loved doing these at VMware. “They let you strengthen the trust and the relationship,” he says. Plus, “you’ve positioned yourself for the next sale.”

3 Make Early Customers Commit to “Must-Haves” All contracts with early customers should include at least one of the following items, which you’ll need for future marketing or fundraising efforts. In order of priority, they are:

•   Participation in a case study or a video testimonial. The customer will let you write a case study on them or will allow you to produce a video testimonial about how well the system works for them.

•   Three to five customer reference calls. The customer will take calls from other companies that are considering using your product or service.

•   Three to five press or investor calls. The customer will take calls from media outlets or from investors who are considering putting money in a future round.

What’s in it for you is obvious: You need happy customers to confirm all the great things about your product or service. They help you gain traction with ever-larger customers and will more than repay any discounts you’ve given them.

Many customers will be used to these requests, since other enterprise companies will have asked for the same. Plus, it’s in their interest to help you. If they love what you do, they’ll want you to stay in business. The more customers you have, the more solvent you’ll be. Some might hesitate. What if they end up not liking the product? Assure them you won’t hold them to their commitments if they feel they can’t endorse it.

Commit to “Unnatural Acts”

How to ensure the success of early customers or die trying.

A best practice that Todd established at Okta that has worked well for us is that we don’t consider a new product to be fully launched until it’s operating successfully in at least five companies. By definition, with the first few customers, you’re going to discover all kinds of problems in the product itself and in the implementation strategy. Hopefully, these are not huge problems. Just small- to medium-sized kinks that are hard to uncover until your product is being used under real-world conditions.

But you want those early customers to be happy despite the hiccups, right? These are your reference customers. So for those first five customers, you need to pull out all the stops and throw maximum manpower, time, and creativity to problem-solve any issue, so the customer experiences as few interruptions as possible. Those efforts are called “unnatural acts,” a term-of-art in the business world that refers to above-and-beyond efforts you make on behalf of the first users. (“Natural acts,” by contrast, are what you plan for, which don’t require extraordinary effort.)

In Okta’s early days, if a customer ran into a bug, we would put them on the phone directly with a programmer so it could be fixed as fast as possible. We obviously stopped doing that once our products reached maturity. With 10,000+ customers, it’s simply not scalable. (It’s also not necessary. A mature product is one where the bugs have already been found and fixed.) Still, we follow that protocol every time we launch a new product. Once five customers are fully up and running, and we’ve addressed any important issues, only then do we consider the product ready for a broader rollout.

Another example of an “unnatural act” from our early days was when we’d have customer support calls go directly to my personal phone. At first, we didn’t have much of a support team. I also wanted to make sure I was staying on top of any issues our customers had. (Sadly, this left me with an understandably disgruntled wife when one of our early customers, who was based in Japan, made frequent calls during their workday, which rang in the middle of our night. Just one more reason your spouse needs to be on board when you decide to launch a startup.)

Unnatural acts will run you ragged and are unsustainable for the long haul. But they’re much bigger than simple customer service. They’re more like the last stage of your research and design process. You need to plan for these, so you have the people and the bandwidth on hand for when they’re needed.