Making the Shift to Value-Based Sales
In today’s dynamic business landscape, the shift from feature-centric selling to a more nuanced, value-based approach is not merely a choice but a strategic imperative. As companies navigate the intricacies of this transformative journey, it becomes evident that understanding the client’s needs transcends the technical realm. This article delves into the realm of value-based selling, exploring its universal applicability across businesses of all sizes. Drawing insights from real-world experiences, particularly a transformative engagement with TD Ameritrade, we unravel the layers of considerations, methodologies, and critical decision points involved in this evolution. From aligning with corporate objectives to deciphering the intricacies of technical evaluations, our exploration unveils a roadmap for organizations seeking to transition seamlessly into a value-based sales paradigm.
The Evolution of Sales Teams in a Startup’s Lifecycle
We start with a refresher on the typical lifecycle of a startup that explores revenue expectations over time as a gauge for where value-based sales applies.
Phase 1: A founder or founding team typically bootstraps the initial phase of customer contract acquisition using inherent knowledge of the reason and value that a given solution or service provides. Value-based selling can be strong at this stage… “We built this to solve X problem that we personally experienced and caused Y impact.” Once they achieve a specific revenue target, at this juncture, the company faces a choice: continue to grow slowly and organically or take on early-stage investments to accelerate growth.
Phase 2: At Inflection Point #1, a dedicated sales and customer support team, Sales (A), is established. Success for this new team hinges on the effective transfer of knowledge from the founding members. The early sales team that is hired is often highly specialized or come from a similar technical background to enhance communication and shorten onboarding time. When founding teams are involved in sales opportunities value can still be conveyed but as corporate structures functionally separate teams this value is often lost, and technical expertise becomes paramount. In this phase, we sell the what and lose track of the why.
Phase 3: Once institutional investors begin to expect rapid growth and return of their initial investment, we see Inflection Point #2, often occurring during Series B or Series C funding rounds, and initiates a time-bound growth period. This phase of rapid expansion triggers a transformative event, often ushering in formal processes and scaling practices proven at hundreds of prior companies. This transition may involve additional education for the existing sales team or bringing in teams experienced in executing such processes, marked as Sales (B) above.
A Common Fallacy: “We can meet higher revenue targets by simply scaling the sales team.”
Consider a sales team of 5 sellers, each averaging $400k in new sales, generating $2M in revenue annually. After securing a new round of funding, the board anticipates a 3x revenue increase over the next 12 months (Inflection Point #2). To achieve this goal, you can opt for linear hiring — dividing the revenue target by average rep attainment (adjusting for future quota targets and factoring in ramp time) — or you can multiply Average Contract Value (ACV) so that each representative contributes more to meet the same goal.
Linear hiring maintains the status quo, focusing on hiring new reps and swiftly getting them up to speed. To support the expanding sales team, supporting teams are also linearly scaled. For example, one Sales Engineer and one Support Engineer may support up to five reps, growing to a team of three Sales Engineers and three Support Engineers for a 15-person sales team. To achieve the 3x revenue growth target, the cost of sales increases by 3x. Not necessarily a problem now, but shifting focus on business health metrics can affect future funding rounds.
ACV multiplication employs different strategies to reach the same goal while enhancing the health of the business. Contract values can be increased by reducing discounts, selling a greater quantity of items, targeting a higher market segment or a larger budget, up-selling or cross-selling, or structuring Enterprise License Agreements (ELAs). Value-based selling facilitates such outcomes and is highly favored by investors as it lowers the cost of sales and overall operational expenses, creating favorable conditions for the next round of funding and paving the way to profitability.
Value-based selling is highly favored by investors as it lowers the cost of sales and operational expenses as companies grow, creating favorable conditions for the next round of funding and paving the way to profitability.
Considerations
If you’re offering a product or service with inherent value, it’s crucial to communicate that value throughout your entire organization. Nevertheless, I’ve observed instances where the transition to value-based selling has faltered. Here are three common reasons, though there are others.
People, Process, Technology — These three components must align for successful business operations and change management. Resistance to change among people, processes that inadvertently create friction, and technology that might automate away established practices can hinder the transition. Before embarking on this new approach, thoroughly assess the alignment of your organization in all three areas.
Inbound Organic Growth— If your product’s success heavily relies on inbound interest or developer communities, sales teams might not be the most effective drivers of 2–4x growth. In such cases, consider investing in Marketing, Community, and Customer Support teams as expert communicators of business value. While value selling still plays a role, it may not happen through direct sales. Examples include open-source software or community-driven projects such as Imgur or Instagram.
Knowledge Base Maturity — Value-based selling is about benefiting the customer, particularly on the business side, during the sales process. For this to occur, teams across the organization must be proficient in understanding and communicating business value, translating technical value, presenting case studies, highlighting competitive differentiation, fostering community and brand, and aligning with the company’s vision. Establish a culture of continuous enablement and knowledge transfer to ensure the system doesn’t rely on any single person or group. This ensures a robust foundation moving forward.
Embracing Value-Based Sales
Shifting from a technical selling mindset to value-based selling requires a comprehensive perspective. It transcends the mere presentation of features and functions, reaching beyond familiar contacts and responding to RFIs. Instead, it necessitates a profound understanding of the customer — their goals, strategies, and internal relationships. This understanding serves as the foundation for a top-down rationale, shaping the decision-making process in your sales engagement.
Simultaneously, a thorough comprehension of your own offering is essential. Translating technical components into tangible business value becomes the cornerstone of this bottom-up approach. Navigating both top-down and bottom-up strategies creates opportunities at various organizational levels. It enables you to ascribe value to different stakeholders and establish a network of business champions, fostering a more holistic and effective approach that all enterprise sales and value-based sellers embrace.
Below are two frameworks to start you on this journey.
The Value Pyramid
Effective research is pivotal in any value-based sale. Achieving a nuanced understanding of the customer is just as crucial as comprehending your own product. To streamline and optimize this research process, Greylock and others offer a valuable framework called the ‘value pyramid’ to their portfolio companies. Employing a top-down approach, this framework serves as a guide to unravel corporate-level objectives set by the CEO, influencing decisions throughout the organization. Additionally, it functions as an educational tool for your customer contacts, often positioned lower in the organizational hierarchy. This tool empowers them to advocate for and defend your solution to their superiors, utilizing language that resonates with each stakeholder’s preferences and priorities.
For instance, by examining Disney’s 10k report, I quickly found corporate strategy and business unit initiatives. This insight enabled the construction of a theoretical selling opportunity within the Media & Entertainment line of business which can be summarized in the context of the value pyramid. Armed with this knowledge, discussions about my offering can seamlessly traverse all levels of the buying process. This structured approach ensures that your research is not only thorough but also efficiently aligned with the overarching goals of the customer organization. I would discuss this initial understanding, or hypothesis, with my initial contacts at Disney and refine my understanding and positioning for a later conversation with the Economic Buyer (EB).
Feature, Benefit, Value
Supplementing the value pyramid is the feature-benefit-value framework, a structure that transforms the most technical aspects of your service or solution into tangible business value. While many organizations can translate features into benefits, the key lies in understanding your customer to translate those benefits into meaningful value. Here, value is synonymous with a business need, categorized broadly into making money, saving money, or reducing risk.
In the visual above, typical RFIs and initial prospect engagements often center on technical features. As discussed in previous articles, research and buying criteria are usually established before vendor involvement, placing you in feature/function battles. Even in productive benefit-based dialogues, competitors echo similar conversations about increased ROI, reduced TCO, and enhanced revenue. Ultimately, contract price often determines the winner.
Value-based sellers sidestep this cycle by seeking the true reason for engagement. They elevate conversations beyond technology to understand the overarching objective. In this instance, with a wedding on the horizon, the goal is to ensure the bride and groom shine on their big day, regardless of weather. Framing discussions around this objective positions the umbrella salesperson as a unique advisor and advocate for the fortunate couple, transcending typical product-centric dialogues.
To effectively navigate this landscape, a sales team should collaborate with founders, product, marketing etc. to construct a feature-benefit-value matrix highlighting the top tangible differentiators of their product or service. This matrix should then be translated into a series of benefit statements applicable to a broad audience. Complementing each benefit statement should be a collection of value statements drawn from customer case studies or correlated to discoveries made from the Value Pyramid. This strategic approach ensures that sales efforts resonate with the immediate needs and long-term objectives of the customer. Ultimately, the value statement will be refined to match the needs of the prospect account.
A Practical Example: 20x Sales Growth
Let’s delve into an opportunity between AppDynamics and TD Ameritrade in 2017, where the initial plan did not align with value-based selling. In this sales opportunity, the vendor solution was application performance monitoring to ensure the speed and availability of critical client-facing applications. During the early conversations with the prospect, two levels of contact were identified: the managing director, who facilitated our entry into the account, and the managers of the technical teams in Operations and Middleware. Additionally, there were tangential requirements from peripheral teams in Applications and an emerging HALO team.
In the context of the value pyramid, this was the information available at the onset, and the deal was forecasted for approximately $400k.
As evident, these decision criteria are predominantly technical and lack a direct connection to business value or, for that matter, even technical value. The Managing Director, who was the technical decision maker, delegated the technical evaluation to his team of technical managers in Middleware and Operations. When we first engaged with these teams, outlining our solution’s capabilities from a Feature-Benefit-Value perspective, we had yet to uncover their personal wins or understand how their efforts aligned with corporate objectives and initiatives.
The conversation unfolded in a manner like this:
“What’s most important to you?”
“Less than 2% overhead in production… you need to support Coherence and WebSockets… I want monitoring intervals in 10sec increments…” and so on.
Encountering such a situation is common if a Value Pyramid hasn’t been completed, and where the business conversations and connections haven’t been established. Seeking guidance from the decision maker may result in a response similar to what we received:
“If that’s what the team needs to see to make a decision, then that’s the decision criteria.”
Consequently, relying solely on technical requirements in a sales process may lead to various challenges and potentially jeopardize or lose the deal entirely.
Moreover, the Managing Director had discretionary budget of around $250k and intended to collaborate with peers in Application and HALO for the remaining funds. Convincing them to allocate funds based on these technical decision criteria would likely prove exceedingly difficult.
When evaluating this deal within the context of MEDDIC, there was significant risk, prompting me to suggest a pause until we could better align with business needs. Interestingly, during this evaluation period, Tim Hockey, the CEO of TD Ameritrade, had been on CNBC defending his company’s decision not to engage in commission fee price wars.
“We’re constantly trying to redefine our value proposition. We’re all about the client experience… It’s around the tools, capabilities and experience, and all those factors.”
— Tim Hockey, president and chief executive officer of TD Ameritrade (1)
And later, in an investor relations call,
“There is an effort underway in our industry to redefine value. While some are leading with price, our clients tell us it’s much more than that. They have told us time and again that value is delivered via rich experiences that prioritize flexibility and client choice, coupled with a simple, straightforward price.”
— Tim Hockey, president and chief executive officer of TD Ameritrade (2)
These are corporate objectives — the cornerstone of value-based selling because it directly ties to the EB’s goals and decision criteria. A product or service that delivers substantial improvement to the client experience, at a reasonable return on investment, will be more likely approved than one under a different banner. Now that we understood the corporate objective, the subsequent tier of the Value Pyramid focused us into strategies and initiatives. Publicly available information again granted us valuable insights into how the CIO, Vijay Sankaran, was actively aligning the priorities of his organization with those of Mr. Hockey.
“Our CEO has introduced an initiative around corporate speed, looking at how do we work more efficiently and apply some of these agile methods across the business, thinking about how to optimize the organization as a whole.”
— Vijay Sankaran, CIO TD Ameritrade (3)
Armed with this information, we formulated our hypothesis, linking the Managing Director’s motivation for our engagement to improving client experience and fostering greater agility. Returning to the same technical teams, we posed a straightforward question:
“How are you currently contributing or intending to contribute to Mr. Sankaran’s goals, ultimately aiding Mr. Hockey in achieving his objectives?”
The responses this time were entirely different. Middleware aimed to reduce the time required to provision hardware and tooling, enabling developers to swiftly create new environments and conduct testing scenarios. Operations sought better information to address issues without escalating them to development teams. Application teams aspired to reduce their involvement in technical support calls, allowing them to focus on substantial development efforts. Meanwhile, HALO, arguably our biggest risk, clearly outlined the principles of their initiative, presenting a more tangible and easily alignable framework compared to a theoretical system.
The visual above presents a simplified rendition of what we utilized to communicate our raison d’être across all levels within the account. The clarity provided by such well-defined alignment also heightened the motivation of individuals collaborating with us. It marked a novel experience for them, offering unparalleled insight into the purpose of their daily tasks. Once we successfully identified and aligned business value across each team, we proceeded to map desired capabilities with those offered by our solution. While the format may vary, I found the following structure to be intuitive enough for effective dissemination and resharing:
Problem | Goal | Owner
Issue | Impact
Quotes | Stakeholder
Subsequently, we linked these goals back to the technical evaluation criteria. Each ‘Use Case’ is a reworded ‘feature’ from our Feature-Benefit-Value framework and each ‘Goal’ is a reworded ‘benefit’ tied to the objectives of the client. Once again, the specific structure and format are not paramount, but a spider diagram clearly visualizes how specific technical use cases correlate with measurable outcomes. This approach also prevents scope creep by avoiding superfluous test cases and prioritize criteria tied to business goals.
Ultimately, engaging in these alignment conversations established us as a preferred vendor early in the process, even before the POC kicked off. Our commitment to understanding, partnering, and showcasing relevant business results set us apart from numerous competitors competing for the sale. Moreover, our emphasis on client experience, particularly TD Ameritrade’s client experience, proved crucial during the Scottrade merger. We provided real-time client experience insights that were instrumental during the rollover event and were shown on Tim Hockey’s desk.
Despite not directly engaging with Tim Hockey or Vijay Sankaran, we successfully cultivated our Managing Director into our champion, whose efforts towards achieving CIO and CEO results made him the shining star within the organization. In the end, this strategic approach resulted in Tim Hockey signing a contract for $7.8M, a significant increase from the initial estimate of around $400k just four weeks earlier.
A $400k opportunity, focused on technical decision criteria, ballooned into a $7.8M win once value-based selling principles were applied
In conclusion, the journey from technical-centric to value-based selling is not just a strategic pivot; it’s a blueprint for sustained success in the ever-evolving business landscape. The case study with TD Ameritrade underscores the transformative power of aligning with client goals, fostering a profound understanding of their needs, and delivering not just solutions but tangible business value. As organizations contemplate this paradigm shift, there are tangible takeaways from these experiences. First and foremost, prioritize understanding your client’s business objectives and aligning your offerings accordingly. Develop a comprehensive value pyramid that transcends technical evaluations and resonates with key decision-makers at all levels. Lastly, foster a culture of continuous knowledge transfer and education within your team, ensuring that everyone is equipped to communicate the business value effectively.
Value-based selling has been around for a very long time, this is nothing new, and organizations that embrace it wholeheartedly will not only survive but thrive in the competitive marketplace.
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(1) TD Ameritrade CEO on Schwab slashing fees: This price point isn’t anything new. CNBC. Feb 2, 2017
(2) TD Ameritrade jumps into pricing battle with Fidelity and Schwab. Investment News. March 1, 2017
(3) Playing the Long Game Quickly. Scrum Alliance.
