How can engineering learn from sales losses?
How can engineering learn from sales losses?
Losing sucks, but can be great way to learn and grow.
Over the past 10 or so years at various enterprise software companies, I have won my share of large and very exciting deals. I have also lost many. You know, you win some and you lose some too. The losses were, and still are, both memorable and painful. I remember the lost opportunities more than the ones I won. My feelings about losing aside, losing deals is both painful and a yet great learning opportunity. The latter is true if and only if you are able to use a loss as an opportunity to learn and grow.
At this point you might be wondering, don’t sales teams have Win-Loss reports and meetings? And how is this relevant to an engineering team? The answer is yes, they do, or should and that the learnings from a loss are of huge importance to a product and engineering organization.
Sales opportunities can be lost due to a myriad of reasons, which I won’t be able to cover in a single post. To simplify, I will make a (simplistic) assumption that they are lost for one of the following two reasons.
GTM Execution
Product Value
GTM execution
When referring to sales execution, I am referring to the set of activities that occur between the GTM team, sales, customer success, sales engineering, marketing and the customer. This is really the block and tackling portion of the sales process. During which, there could be a variety of reasons why an opportunity is lost. Below are some of the more common ones I have encountered.
Lack of alignment with customer needs: Failing to understand and address the specific needs and pain points of the customer can lead to a lost deal. It's crucial to thoroughly research the customer's industry, challenges, and goals to tailor your solution effectively.
Inadequate value proposition: If your solution doesn't clearly communicate the unique value it offers and how it addresses the customer's needs better than competitors, it becomes challenging to differentiate yourself and win the deal. We will expound on this one a lot more, because ultimately this is a Product Value problem.
Lack of executive buy-in: In enterprise sales, decision-making often involves multiple stakeholders, including executives. Failing to gain buy-in from key decision-makers and executives can lead to a lost deal, as they hold significant influence over the final decision. The buy-in process is almost usually aligned with some business objective the executives need to accomplish. This buy-in is both critical and very complex to navigate in today’s environment where the most pressing objective tends to be cost savings.
Inability to navigate the buying process: Enterprise sales cycles can be long and complex, involving multiple stages and decision-makers. If you're unable to navigate the buying process effectively, understand the decision-making dynamics, and provide the necessary support and information, it becomes challenging to move the deal forward.
Competitive pressures: Strong competition is a common factor in enterprise sales. If a competitor offers a more compelling solution, has a better reputation, or offers more attractive pricing, it can result in losing the deal. Again, this is on the product side of the fence.
Price and budget constraints: Pricing is often a significant consideration in enterprise sales. If your solution is perceived as too expensive or exceeds the customer's budget constraints, it may lead to losing the deal. Pricing straddles both sides of the fence: execution and product capabilities. On the one hand, ascertaining that the buyer has the budget approved for your product is a sales execution concern. On the other hand, ensuring that the product is properly priced is a Product capability question. You might lose deals because the price is correct, but the budget isn’t available. You might also lose because the budget is available but the price is too high (relative to value). We’ll get to this in a bit.
Product Value
Before diving into this section, it would be helpful to level on what I mean by value and why I think it’s important. There are two sides to value, the one that you, the vendor, places on your product, and then there is the one your customer perceives. The placed-value, or absolute, is the advertised price for said product. The perceived, or relative, value is very difficult to gauge and is truly in the eye of the beholder.
Sales are lost because there is a gap between both of these values. The absolute value you want to derive from your product is higher than the relative value the customer perceives from it. In very simple economic terms the price you placed on the product exceeds the customer’s willingness to pay. And that gap, in my experience is the most critical and often overlooked reason as to why you lose.
I know, I know, I just said that there are many other reasons on the execution side. They are all true and can all kill a deal. However, understanding this value gap and getting to the root of it will allow you to win more deals.
Another way of saying it is the following. As a product or engineering leader you strive to build products that “sell themselves” (apologies to my sales leadership friends who are probably wincing now) This doesn’t not negate the need or importance for sales, marketing, customer success and so on. Not at all. Developing that mindset makes it substantially easier for these organizations, and your customers, to purchase your products.
Motherhood and apple pie, I hear you say. Yes it is, but developing this mindset and trying to attain this (impossible) limit will help you understand why customers say no to your products.
Concretely then, how do you try to validate if the sales opportunity was lost due to that value gap then? I’ve seen this tackled in two ways.
The first approach is to have your sales team annotate the reasons why a sales opportunity was lost in the company CRM. These reasons tend to be price and a set of features. For example, a sales person can annotate a lost sales opportunity like so (the below is illustrative)
This data is helpful in the aggregate, not so much when looked at individually. When you aggregate this data, you should be able to quantify the number, and dollars, of deals lost for each of these features. Therefore, you can get the sense of relative priority amongst this set of features. If you look at this list in isolation you lose this relative priority. Perhaps Feature m is 10x more valuable than the others put together. The annotated list can also miss out on other reasons that cannot be captured in a CRM, at least not easily.
The second approach is to interview the customer. This interview should be conducted by product management + engineering. You want these two personas to go directly to the source and get an unbiased view of why said customer decided to walk away from your product. Interviewing the customer will offer invaluable qualitative and quantitive data that will enable PM & Engineering to validate the presence of this value gap and how to bridge it. It might also unveil other reasons, beyond the intrinsic product capabilities.
Some of the more surprising, and critical, reasons I have discovered when conducting these interviews are the following:
Switching costs: The customer already has an incumbent solution in place. Your product is substantially better than the incumbent but switching from that to yours requires significant time and resources. This ultimately reduces the perceived value of your product, and therefore, you must care about it. The value of your product isn’t just the sum of the value of its capabilities, but it is that plus the cost of operating it, which includes switching from another product to yours.
Wrong, or missing, persona: You thought that your product is only used by the Data Science organization, but it turns out it will also be used by Risk and Compliance, and they have very different needs relative to DS.
Missing features: Remember that nice list of features you populated in your CRM? Well, you missed features {r, s, t, u, v and w}
Relative value of features: This is arguably the most important reason to have the interview, to get the relative priority and value of missing features. One great question to ask the customer is the following:
Would you buy the product if it were offered for $0?
I love this question. If they answer “no”, you know that they have absolutely no use or value for your product. You just made the gap between absolute and perceived value as wide as possible in their favor and they answer is still “no”. You should absolutely double click to find out why. Usually the reasons are you missed an entire set of features, or you have the wrong buyer persona. Both are great data points. On the other hand, if they say “yes”, then build up on that. Try and find a middle ground between $0 and the price you want them to pay. Which features do they value more than most, why and so on.
These two approaches, annotating lost reasons and interviewing the customer, are not mutually exclusive. You should do them both. You should also review the loss reasons annotated in your CRM on an ongoing basis to get a sense of aggregate loss reasons.