Chapter OneSelling in a New Market Space
In 1989 IBM signed a purchase order with Rational Software Corp. for $2.5 million. The next year IBM invested $25 million in Rational, and 13 years later IBM bought Rational outright for $2.1 billion. And it all began with one Paul Levy, maverick. We're going to call what Paul Levy did an example of what is required to sell in a new market space.
THE STORY OF A MAVERICK: PAUL LEVY
Paul Levy and Mike Devlin founded Rational Machines in 1981. By 1989 they were in what has been called the chasm, that precarious space between the visionary early adopters of disruptive new technologies and the early majority of the mainstream market. It is a time in business akin to the time when a hermit crab leaves its shell and scurries about looking for a new homeand it is a period fraught with danger. Rational was having a difficult quarter; it was running low on cash and needed a big win to raise additional venture capital.
On a sultry summer day, the two founders of Rational flew to Washington, D.C., for a meeting with the president of IBM Federal Systems. They had been given 30 minutes, at 10 a.m., on the last day of the quarter. Much rode on the outcome of that meeting. At the time, IBM Federal Systems was running the air traffic control systems at the nation's 170 major airport terminals. They met in a large office and were uncomfortably nervous. A lot was at stake. After they had given the pitch, the president turned to the IBM project manager, Susan Murphy, and said, "Is this the right thing for us to do?" After a moment Ms. Murphy said, "No. Because we don't really use it enough; it's not IBM equipment; it's not running our software...."
Everyone turned white. After a moment of shock, Paul Levy asked one question, "May I ask? What do you see as your largest risk with regards to meeting your projects schedule?" Ebker's answer flowed with little need to reflect: "My largest risk to meeting the schedule is being able to write all the software that is required for the project." Playing into Levy's hand, Levy rallied and started explaining his vision for revolutionizing software across the federal government, and across the world. He went into a 45-minute unbridled presentation about how the entire world economy was going to be totally dependent on software within the next decade. And as it turned out, he was right.
Paul Levy began talking, and others tried to shut the meeting down, but no one left. No one got up. It was too riveting. He started by saying that over the next five years, IBM was going to need tens of millions of dollars of Rational's products to meet productivity required to hit their commitments. He then went on to point out that he had met with the leaders of the FAA, who realized that this project was critical to the United States' air traffic control system and to the safety of each passenger. As he built the vision, it expanded beyond IBM, the project, and even the nation. By the end, it was a new vision for the world. And by 5:30 p.m., they walked out with a $2.5 million purchase order in hand.
Levy just wouldn't let them leave. They needed to understand the Big Picture. Most sellers would have quit at the words of Susan Murphy: "I'm sorry. We just don't need what you have to offer." They'd sheepishly say, "OK, well, thanks anyway." And then they'd go back to their manager and say, "They didn't like it." And that would be the end of the story. But Paul Levy was no ordinary salesperson. He was a maverick, a salesperson par excellence.
What made Paul Levy unusual was that he was both so inherently passionate about his vision and frustrated that no one saw it that he was going to share his vision and they were literally going to have to leave him in mid-sentence if they didn't want to listen. It has been said that where there is no vision, the people perish. The unstated corollary is that where there is vision, the people flourish. Levy understood the importance of the vision, and he realized that he had to express it, to make the full reality of the need apparent and the power of the outcome evident. He understood that Ms. Murphy was too narrowly focused, too myopic to see the magnificence of the vision. He needed to back up and paint the picture of what the future could look like. And on that basis, he ended up with a $2.5 million purchase order on the last day of the quarter, at a time when the company was in desperate need of it.
BY DEFINITION, A MAVERICK
It must be said at the outset that "the maverick method" may be a bit of a misnomereven an oxymoron, because mavericks by definition do not stick to the prescribed formula. It is more of an "approach." Every salesperson may have a unique approach, but there are characteristics and skills that are common to them all. These teachable skills can be developed into an art.
WordNet 3.0 defines a maverick as "someone who exhibits great independence in thought and action"and such is the sense in which we shall use it. It is the salesperson who is ideally suited to sell innovations or disruptive technologies in new, untested markets. It is the salesperson who successfully sells new products in new markets (see Figure 1.1). It is the sales person who goes outside the predetermined boundaries. It is the salesperson who gets things done. This book is not about the left half of the matrix in this figurethat is, we are not concerning ourselves with existing products, either with new or existing customers (although the skills and techniques that we will be describing are applicable to any selling situation). We are looking at new products, sometimes with existing customers but mostly with new customers: the new market quadrant at the top right of the matrix.
New products in existing markets (new product introduction) and new products in new markets (new market growth) require highly skilled salespeople. The new market quadrant is not for the novice. Selling in this quadrant requires the salesperson to create markets from scratch. You don't get a handicapthese markets do not previously exist. Creating a new market requires developed skills at pinpointing potential pockets of interest, developing and building that interest, and creating real value for the potentially interested parties. There is no sense in employing a novice, or even the B-team, to do this. They simply won't have the experience or the skill to execute.
But before we leave the subject of definitions, let's take care of a few that will help in our discussion. First, maverick salespeople deal in the world of the complex salethat is, in a world where the marketing strategy merely plays a supporting role. It does not drive the sale; it doesn't make the complex sale. That is the responsibility of the sales organization. It is simply too complex for marketing to handle. The complex sale has a long sales cycle (taking several calls to close); it requires a large commitment by the buyer (and the consequences matter); it has more than one decision maker; and it often involves a long-term relationship between the companies.
Next, let's define innovation and disruptive technology. We will often use the terms in tandem, but they are not interchangeable and they do not refer to the same things. Innovations can be any products or services, in any industry, that are new, often paradigm-changing, and disruptive to the status quo. They usually portend some kind of a learning curve for the user, and most of the time there is no ready-made market for them. Like the innovative product or service itself, the market must be created from ground zero. We are not talking about marginal, or even terrific, improvements to existing products or services. We are talking about what is genuinely fresh, original, and perhaps unprecedented.
The term disruptive technology was coined by Joseph L. Bower and Clayton M. Christensen in their January 1, 1995, Harvard Business Review article "Disruptive Technologies: Catching the Wave." Disruptive technology describes a technological innovation, product, or service that uses a "disruptive" strategy, rather than a "revolutionary" or "sustaining" strategy, to overturn the existing dominant technologies or status quo products in a market. It disrupts the marketplace by being newer, cheaper, fasterand usually not until laterbetter.
START WITH A VISION
Let's return for a moment to Rational Software and look at some of the elements of selling in a new market space. The first lesson we learned is that with innovation, it is vital that you create the vision for the customer. Create a vision for the future; for the benefits that your product or service will bring. Paul Levy painted a picture of a whole world running on software; he wove a tapestry so grand and immense that it couldn't be forgotten and compelled IBM to buy his vision on the spot.
Vision is crucially important in the new market sale because the sale takes place very early. So early, in fact, that the customer usually doesn't even know he or she is in the market for something new. Everything is humming along quite nicely in the customer's domain, and there may be no hint of trouble on the horizon. So when you're selling innovation, you're selling in an earlier phase of the decision cycle of your customers that most sellers have never faced beforehence the need to create vision, a vision of a different kind of world.
Late in 1989, the salespeople at Rational hit a wall. It was a strong group of salespeople, many of them from Hewlett-Packard, an established major player in the high-tech industry. They were bright and energetic and had been very successful in conventional sales. But they were facing a new challenge. They were being asked to sell a powerful computer and accompanying software, internally referred to as a "Box," for a million dollars. All they had to do, or so it seemed to them, was sell the box and then reap the rewards. That's the way it had worked at Hewlett-Packard: The customer bought the box; they knew how to use it; they used it to maximum capacity; and then they bought more. Simple, right? But there was a missing link between the vision and the reality. Missing in the sense that it didn't existat least not yet. The problem was that these excellent conventional salespeople would sell a box, mainly to large defense contractors. These contractors would buy the box, and it would sit in their data center and never get used. They were certainly not in the market for repeat business with Rational, because the dream never came alive for them. Sales fell off quickly. The model didn't scale. Something radical had to be done.
It is a hallmark of the new market salesperson that he or she plows new ground, independent of what would normally be expected of the salesperson. The salesperson does something that at the time seems rather radical, even crazy, but in hindsight it turns out to be completely obvious.
The reason sales had fallen off was because customers simply weren't using the product. It was too different than what they were used to, and no one had taken the time to integrate it with their existing software development systems. The customer's perception of the risk involved far outweighed the desire to harvest the promised benefits. When you're selling new products to new customers, which is what the Rational salespeople were doing, then one of the most important things is to have ease of implementation. Customers' perception of risk is very high. Their perception of risk prevents them from engaging the technology without a safety net. The answer, of course, is to mitigate the risk and provide the safety net.
When you hire the A-players from the adjacent leaders to sell into a new market, they're coming from a world where implementation is always well understood and relatively easy because it's an established offering. It's something customers are familiar with; they've used it multiple times. The customer is very well-informed, and he or she knows as much as the seller does about implementing it. When a seller grows up in that world and comes to the new market world, the seller doesn't perceive that the customer sees only risk.
At Rational, it was John Lovett, the VP of North American Sales, and one of the Washington, D.C.based sales teams who cracked the code. Lovett was the sales leader, and he had noticed that one of his teams was over achieving, apparently by investing a substantial amount of time with each customer after the initial sale. That sales team realized that to get repeat sales, customers would not only have to use the product, but they'd have to maximize its capacity to receive the intended benefits. Lovett figured out that customers weren't using the product because the implementation was perceived as too complex and simply too much for the customer to figure out. He decided to change the sales model. Completely. Realizing that customers would be unlikely to pay more for implementation assistance, he decided to offer it for free if the customers were not willing to pay for it. He realized that his team needed to integrate the product into the customers' environment and then teach them how to use it, reducing the resistance to adapting the approach.
Rational changed from selling boxes to selling an application environment that helped customers automate their development, accelerating the productivity of the software engineering teams. And it wasn't just a lone salesperson anymore. It was a salesperson and a whole team of engineers. They would go into an account, teach the people how to use the product, and integrate the product with the customers' existing environment. At last, customers were getting the full benefit of the product. The engineers didn't cost a dime. It was their job to ensure that the product be used, and that the customer be satisfied. It was radical, and it was completely unconventional, but it worked. It was the catalyst for change that took Rational from $10 million in sales to $25 million in one year, creating a repeatable and predictable sales method. And after 20 years and after IBM acquired Rational, the model is still in use to this day.
Rational is a classic example of selling into a market space. Paul Levy sold the vision; John Lovett found a way to implement it. His way was considered risky and radical at the timebut he was proven right.
Another example of the successful use of the maverick method is the company that recently sold a new security system to Harrods Casino. It was a great and disruptive purchase by the casino, and genuinely risky. In order to mitigate the risk, the maverick CEO of the security company sat an engineer outside the door of the Harrods Casino CEO. He was promised to Harrods for 120 days. And he just sat there reading magazines, until there was a problem. As soon as anything went wrong, the CEO had merely to poke his nose into the hall and the engineer (who had immediate access to anyone he needed at the home office) was there to fix the problem. It provided a comfort level because the risk has been reduced greatly. And as a result, the inevitable implementation gaffes were minimal and troubleshooting was immediate. Everything turned up roses on what might otherwise have been a disaster.
There's a funny story that illustrates the notion of the disconnect between vision and implementation. Charles Atlas (the Arnold Schwarzenegger of his day) sold the dream of all young lads: the perfect body. Many of you will remember the famous advertisement that appeared on the back of comic booksthat advertisement caught the attention of one young boy in particular.
Charles Atlas told the story about getting a letter from this young boy, which read:
Dear Mr. Atlas,
I sent you my 50 cents and I received your pamphlet. Thank you very much. When can I expect my muscles?
Amusing, and yet it perfectly illustrates what had happened at Rational: Paul Levy successfully sold a magnificent vision, but there was nobody delivering on that vision. Levy had made a leap from saying it's a box that gives you a set of benefits, but missing in the middle was the hard part.
The sellers thought it an easy sell: This box produces those benefits. They gave stellar presentations, all vision and possibilities. Because of their relationship with the customer, or trust or what have you, some customers said, "OK, I'll give you a million dollars for the box." It sounds almost farcical, but it actually happened. Levy got his sales force to believe that his box delivered the vision, when in fact the box only enabled the vision. The only way to deliver the vision was to link up the box and the vision with a group of people who did the implementation. And that implementation had to include training, integration, and whatever else was necessary to raise the comfort level of customers and get them to use the million-dollar box.
It should also be said that these new markets were selling into a space where neither the seller nor the customer had any experience with making it work; hence the need to focus on implementationwhich is about making it work. You connect whatever it is you're selling and the vision with a bridge called "implementation." It's plowing new ground for both seller and buyer, so it takes overinvestment of resources on the part of the seller.
As shown in Figure 1.2, the implementation itself is part of the sales process, not the purchase. That's why Rational gave it away for free. The implementation has been the missing link in the selling process of new products into a new market space. The reasons why the implementation is overlooked are many. Most likely the cause is created by organization's leadership coming from established markets, where the implementation is both understood and anticipated. Of course, in the ideal world, the implementation would be best handled by making the product simple enough that anyone can implement it, but the nature of new products is that they are complex and all the contingencies are not yet identified.
In sales we are directed to go out and get the next big deal, but without references and repeat business from existing customers, the next big deal becomes no easier than the last big deal. So the success of the implementation must become as important as the closure of the next big deal if the seller and company have any chance at winning their new market.