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Duck, Duck, Duck, Ch 9 Startup Bankruptcy (lecture 19, CS 183b)

by Larry Chiang on December 16, 2014

Larry Chiang helps sorority girls to get a FICO up over 750. Duck9 was birthed as an undergrad. He started Duck9 as a sequel business with his co-founder. It’s Deep Underground Credit Knowledge 9. After a Harvard Law School keynote, Harvard Business wrote: “What They Don’t Teach You at Stanford Business School“. He self studied an MBA and self funded his college startup

NY Fashion Week is Feb 8 -15!
By Larry Chiang
Avoid startup failure. Learn CS 183b’s Lec 19. Tyler spoke.

My comments are in BOLD 

Tyler: Ok. Great! Thanks for having me.

My name’s Tyler. I’m the CEO of Clever. What I want to talk today is about sales. I graduated college, where I studied math and statistics, and thought I was destined for this world of finance. I was about to start at a hedge fund, but at the last second a friend of mine roped me into joining his startup to do sales, which I knew nothing about. I had to figure it out on the fly. I spent a couple of years there figuring out sales for this very early stage company. When it came time to start Clever, I started Clever with two co-founders who were very technical and very product oriented. We wanted to build this product for schools and I thought that experience would have no relevancy whatsoever. It turns out that what I picked up while doing sales at this previous job has been a huge part of what’s made Clever grow so quickly today.


A quick background on Clever: we build software for schools. We are an app platform for developers that is used today by about one in five schools in America. We started it about two years ago.

Sales has been key. I want to use this time to share some of the things that have worked for me along the way. Of course, there’s a million ways to do this, so you’ll find what works for you.



First I want to start about how I used to perceive sales. A lot of people see sales as having mystique around it. It’s people who are articulate and impossibly charming. They have these killer closing lines that they use. This is how I saw sales. I think this is how a lot of founders I talk to see sales because they say things to me like, “You know, we’re just going to work on the product and build a great product and then when it’s finally finished, we’re going hire the sales people.” What I’ve learned is that when it comes to “hiring the sales people,” as a founder, the reality is that it’s you. 




Paul Graham likes to talk about how there’s two things you should be doing at any point in time when you’re starting your company. You should be either talking to your users or building your product. The talking to your users part, that’s selling. This is intimidating to some people because they’re like, “I’ve never done sales, and I wouldn’t even know where to begin.” It turns out that as a founder you have some unique advantages that make it possible for you to be really, really good at sales. 

– One of those is your passion for the product and what you’re building. 

– The second is your knowledge of the industry and the problem that you’re solving. Those two things actually totally trump sales experience from what I’ve seen.




This is actually my co-founder doing sales. This is what sales looks like in the very early stage of a startup. It’s not Don Drapers. It’s a lot of calls like these. This is something that even as a founder who has never done it before, is very easy to do but you have to commit yourself. What we did at Clever is we dedicated one founder, which was me, to peel off and say, “Ok, Tyler you gotta go figure this out and work on this full time because it’s so important to our business.”

The first thing that everybody knows about sales is it’s a funnel. You have these different stages of the funnel and you move your customers through it. A pretty common category is the prospecting category. We were trying to figure out who’s even interested. Then you’re having a lot of conversations, which is the second level of the funnel. Then you’re finding out who’s really serious and you want to close them and sign the deal. Then you’re in the promised land of revenue. I thought it would be interesting to talk about each stage and a couple of strategies that we’ve used at Clever that have worked well, so that these aren’t abstract but hopefully lessons you can use at your start up.

Prospecting is the process of figuring out who will even take your call. There’s this guy at Everett Rogers who has created a technology life cycle adoption curve. He describes it as a bell curve where you have innovators who will try new things, early adopters, mid-stage adopters, late adopters, and laggers. 




One of the things that was really helpful for me in understanding sales at an early start up is he’s quantified the tail of this bell curve. This part over here are innovators, those are your potential customers. It might seem discouraging that only 2.5 percent of companies are your potential customers or would even consider buying from a startup that has no users and no revenue, but I found the opposite. I found it extremely helpful to have this frame of mind because when only 2.5 percent of companies will even take your call or consider using your product, you realize what a numbers game this becomes. If you want to reach that 2.5 percent and you want to get some early sales, you’re hopefully starting to realize you have to do a lot of calling. You have to talk to a lot of people.



In the early days Clever, this was my job. In the first two months of YC I reached out to over 400 companies trying to to get them to take a call and talk to us about what we were building.

There are three methods that I have found to be most successful in prospecting and getting these people. One is your personal network. That’s obvious. I’m not going to spend any time there. Another one is conferences, which is surprising to a lot of people. The one that people are most familiar with is cold email. When I say conferences, people think I am talking about CES or E3. The kind of conferences where sales happen look more like this. In the early days we would go to a lot of these because you’ve got to go to where your users are. If you’re selling to CIO’s and there happens to be a gathering of them at a hotel in Milwaukee, guess what? That’s where you should be. 















So we went to conferences like these. We got the attendee list in advance. We’d email every single person in advance and try set up meetings so when we got there every single minute of that trip was was well spent. It was huge in Clever’s early days. This is where met all of our earliest customers.




The second thing I mentioned is cold email. A lot of people don’t know how to write cold emails. It’s actually easy and the key is not to write a lot. Your email should be concise. This is an email template that I used early on. You’re welcome to copy it but it’s really short. Here’s who I am. Here’s what I’m building. I’d love to talk to you about this. Could we find time tomorrow? It’s really easy and you can customize this for every business you want to sell to. Find out who the right person is to send it to and you can send out quite a few of these.

That’s prospecting. The reason this so important is because you have to build that first layer of the funnel.

Then you have to get them to take your call. This is another place where a lot of founders have questions about what to actually do. The biggest thing to take away, in fact if you ONLY take away one thing from this presentation today this should be it, is when you get them on the phone, remember to shut up. That’s really surprising to people. So many founders, when I help them with their first sales pitch, would finally get somebody on the phone who wanted to talk to them about their product and they’d be so proud of this thing that they’d been building for the last three months that all they wanted to do was get on the phone and talk about every feature and talk about why it’s the greatest thing in the world. I have that temptation too. It’s just part of being really proud of something.

It turns out that if you watch the best sales people, the top one percent, or you have a chance to listen in on a call with some of those people, the most surprising thing is how little talking they do. In fact I’ve seen calls where the sales person told me their goal was to only spend 30 percent of the call talking and have 70 percent of the call be the other person. They would ask a lot of questions. They’d say things like, “Why did you even agree to take my call today?” “This problem that we’re talking about solving for you, how do you solve it today?” “What would your ideal solution look like?” They’re not doing the talking. They’re doing everything they can to find out what this person needs and hopefully understand their problem even better than they do. That’s what really great sales is. This is something I drill into everybody at Clever. It’s a really important part of sales. If any of you use UberConference, they have this amazing feature where when you hang up a call it sends you an email automatically and tells you how much you talked versus how much the other person talked. Looking at one of those emails, I can tell immediately how likely the sale is based on how much talking we were doing. Do a lot of listening. Really understand their problem.





The other part of this stage that surprises a lot of people is you have to follow up. Here’s a lot of different steps that you go through: emailing somebody, not getting a response and emailing them back. Calling them, leaving a voice mail. Having a pricing call. There are probably sixty things on this slide that could be steps for closing a deal. These aren’t random things — this was the second deal Clever ever signed. These are all the different steps that we had to do in order to get this done. You can see there’s a lot of really embarrassing things up there. I emailed somebody and they didn’t respond. I emailed them again and they didn’t respond. I emailed them again. This was from somebody who wanted to buy our product. Isn’t that crazy? That surprises a lot of people. I see so many founders who think they have a great call with someone and send an email, but don’t hear back. They say, “Oh that person might not be interested.” Well guess what? This is what it looks like in the best case. You really have to have kind this unhuman and unreasonable willingness to follow up and drive things to closure.

I qualify with that with one thing which is to say when starting a company your time is extremely valuable because it’s your only resource. You couldn’t possibly do this for every single person who might buy your product. Your goal should be to get people to a yes or no as quickly as you can. Where you die is if you have a thousand maybes and sometimes I talk to founders who say, “Oh yeah I have this great pipeline of a hundred people who have expressed interest in our product.” The maybes are what kill you. If you can get to a yes or a no, in some ways a no is even better than a maybe because it allows you to move on and focus somebody who might be a yes.

So, have a super human level of follow up and ambition, but make sure you’re focusing it on the right pieces.

Alright, so you’ve talked to a ton of people. You’ve had all these phone calls. You’ve followed up with them to the point where they know you’re not going away and they’ve got to sign an agreement. This final step is something if you haven’t done before it might seem hard but it’s actually really simple. It’s called red lining. You’ll send over an agreement and their lawyers will mark it up. Your lawyers will also mark it up and you kind of go back and forth. If you’re part of YC this is really easy because YC has standard template agreements that they give you so you can just use those. But if you weren’t part of YC you have to figure this out on your own.

One of the things that I am really excited about is as part of this presentation, YC has agreed to open source their deal documents. The documents that YC founders use are going to be available to everybody. So this should never be a barrier to anyone who wants to do sales for their start up. You’ve got some great documents. The other place where so many smart people go wrong is they don’t remember what their goal is. Your goal is to sign some deals, get some reference customers, get some validation, and get some revenue. If you don’t do that, your startup is toast.

In light of that it’s really surprising how many smart people will want to do ten rounds of document review over the most minor points because of pride. Whatever. Make sure the agreement is the way you want it but then sign and move on. I’ve seen founders spend month quibbling over some indemnification clauses. Their business would have been way better off if they’d just signed the deal and moved on to the next one. That’s one trap you can fall into.

Another trap that I see founders struggle with a lot is they’re talking to a company who says, “I will use your product but I just need one more feature.” Or they say, “You know I’d love to use your product but it doesn’t have this one feature. So we’re just not ready.” To most people, especially if you’re ambitious, when somebody says that to you, what you want to think is, “Oh. I can build that feature and then they’re going to use my product.” The problem is it almost never works that way. Somebody telling you that they want to use your product but it’s missing this one feature, I would almost map that to a pass in your mind. Nine times out of ten if you actually build that feature and go back to them, there will be one more feature or some other reason that they’re not using the product.

If somebody says to you, “There’s this one thing that’s preventing us from using your product.” I would do one of two things. One say, “Well that’s great! Let’s sign an agreement and we’ll put in the agreement that we’re going to build this feature.” In which case, if you build it you’re off to the races. More commonly, what we did at Clever was we would say, “That’s great. We’re going to wait to see if we hear that demand from more customers.” Once you have a lot of customers requesting it, then you should build it. Then you don’t have to worry about doing something that’s a one off, which is what you really want to avoid.





The other trap I would highly recommend you try to avoid is the free trial trap. The customer says, “Can I get a free trial?” You can’t blame them that’s a totally reasonable thing to ask for. The problem is when you are starting a startup you need revenue. You need validation. You need users. You need commitment. Free trials get you none of those things. You do all this work and if you end up with a free trial, unfortunately you haven’t made as much progress as you think, it’s actually terrible. You think you’ve made progress but at the end of the free trial you’re going to have to sell them all over again. The way I handle this that has worked really well is that when somebody says, “Can I get a free trial?” you say, “We don’t do free trials. We do annual agreements and what we’ll do is for the first 30 or 60 days, if for any reason you’re not happy, you can opt out.” That’s a way to get you the things that you need while giving them the comfort that they might need to take a chance on a startup. That minor change actually makes a night and day difference when you’re thinking about these things.






Alright, so you’ve prospected. You’ve had a lot of conversations. Now you’ve closed people. You’ve gone through the red line process. You worked out the free trials. You’re on your way to your first sales. Early on, you can think of sales as just like any other thing at a startup. You don’t have to do things at scale. In fact you can purposely do unscalable things to try and get early customers. That’s the fun part. The other thing that is important to keep in mind is once you’ve done this enough, what you should start thinking about is what aspects of this are repeatable. What aspects are we going to scale further? Christoph Janz wrote this really great blog post online about the five ways to build a hundred million dollar company. He talks about how he can have a thousand customers buy a product that costs a hundred thousand dollars. Or he can have ten thousand customers buy a product that cost ten thousand dollars. Or he can have a hundred thousand customers by a product that cost a thousand dollars. Even though you don’t need to know on day one which bucket you’re going to fall into, most companies do fall into one of these buckets. If you want to be in the elephant category of a hundred thousand dollar product, you’re going to have a really high touch sales cycle. That’s Salesforce. That’s Workday. If you think that you’re going to be a rabbit and sell products for a thousand dollars a year and your sales process involves flying out to see them, and eight demos, and three months of redlining, then you probably have to rethink something.

I see a lot of startups who want to be rabbits that don’t think about how to do it in a scalable way. That’s one area where you can get under water or it just forces you to increase your prices.

This is how I think about different businesses. It will be helpful for you when you get started and once you’ve done sales to say, “Ok, where am I?” The corollary to that is, “How do I have to price my product to be a viable business?”

Those are some of the things I figured out building sales at a few different companies, specifically on this very narrow stage of zero to one million. After you get to one million, you’ll find there’s a million blog posts about how to get from five million to fifty million or ten million to a hundred million, but not the zero to one step. I wanted to focus the presentation on that because there’s not as much written about it and it is something that I think is very opaque to our founders. 



I figured this out just by doing it and I’m confident that if you’re starting a company you can too. If for whatever reason you would like to join a startup that’s figured it out and hone your skills and hone your craft, we are hiring at Clever. That’s an option. If you do want start your own company and you have questions about sales, I put my email address up here. Feel free to reach out at any time. I am happy to help.

Thank you.

Larry Chiang (@LarryChiang)
CC @tstonez (retweet/ Re Request: @bosmeny great #CS183B talk on sales. Any link to open source YC sales docs?

Cc Sam Altman

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