I had coffee with an ex student earlier in the week that reminded me how startups burn through so many early VP’s – but still have a hard time articulating why. Here’s one possible explanation – Job titles in a startup mean something different than titles in a large company.

I hadn’t seen Rajiv in the two years since he started his second company. He had raised a seed round and then a Series A from a name brand Venture firm. I was glad to see him but it was clear over coffee that he was struggling with his first hiring failure.

“I’ve been running our company, cycling through Customer Discovery and Validation and the board suggested that I was running out of bandwidth and needed some help in closing our initial orders. They suggested I get a VP of Sales to help.”

It was deja vu all over again. I knew where this conversation was going. “Let me guess, your VC’s helped you find a recruiter?”

“Yeah, and they were great. They helped me hire the best VP of Sales I could find. The recruiter verified all the references and he completely checked out. He was in the top 1 percent club at (insert the name of your favorite large company here.) He’s been in sales for almost 15 years.”

I listened as he told me the rest of the story.

“I thought our new Sales VP would be out in front helping us lead Customer Validation and help us find the Pivot. That was the plan. We had talked about it in the interview and he said he understood and agreed that’s what he would do. Even when we went out to dinner before we hired him he said, he said he read the Four Steps and couldn’t wait to try this Customer Development stuff.”

“So what happened,” I asked, though I was betting I could finish the conversation for him (since I had made the same mistake.)

“Well, he’s completely lost at the job. When we ask him to call on a different group of customers, all he wants to do is call on the people already in his rolodex. When a customer throws us out, he wants to get on to the next sales call and I want to talk about why we failed. He says great sales people don’t do that, they just keep selling. Every time we iterate even a small part of our business model or product, he gets upset. When we change the company presentation it takes him days to get up to speed to the smallest change. He’s finally told us we’ve got to stop changing everything or else he can’t sell. He was supposed to be a great VP of Sales. I’m probably going to fire him and start a search for another one, but what do I do wrong?”

“Nothing,” I said, “You got what you asked for – but you didn’t get what you need. The problem isn’t his; it’s yours. You didn’t need a VP of Sales, you needed something very different.

I offered that in an existing company, job titles reflect the way tasks are organized to execute a known business model. For example, the role of “Sales” in an existing company means that:

1.       There’s a sales team executing…

2.       A repeatable and scalable business model…

3.       Selling a known product to…

4.       A well-understood group of customers…

5.       Using a standard corporate presentation…

6.       With an existing price-list and…

7.       Standard terms, conditions and contract.

Therefore the job title “Sales” in an existing company is all about execution around a series of “knowns.”

We Use the Same Title For Two Very Different Jobs

I asked Rajiv to go through this checklist.  Did he have a repeatable and scalable business model?  “No.”  Did he have a well understood group of customers? “No.”  Did he have a standard corporate presentation? “No.” etc. Did he and his recruiter say any of this when they put together the job spec or interviewed candidates?  “No.”

Then why was he surprised the executive he hired wasn’t a fit.

In a startup you need executives whose skills are 180 degrees different from what defines success in an existing company.  A startup wants execs comfortable in chaos and change – with presentations changing daily, with the product changing daily and with analyzing failure rather than high-fiving a success.  In short you are looking for the rare breed that’s:

1.       Comfortable with learning and discovery.

2.       Trying to search for a repeatable and scalable business model.

3.       Agile enough to deal with daily change and operating “without a map”.

4.       Has the self-confidence to celebrate failure when it leads to iteration and Pivots

That means the function called Sales used in a large company (and the title that goes with it, “VP of Sales”) don’t make sense in a startup searching for a business model. Sales implies “execution,” but that mindset impedes (or, to put it bluntly, majorly screws-up) progress in searching for a business model. Therefore we need a different job function, job title and different type of person. They would be responsible for Customer Validation and finding Pivots and searching around a series of unknowns. And they would look nothing like his failed VP of Sales.

I suggested to Rajiv his problem was pretty simple. Since he hadn’t yet found a repeatable and scalable business model, his startup did not need a “VP of Sales.” The early hire he needed to help him run Customer Validation and Pivots has a very different skill set and job spec. What Rajiv needed to hire was a VP of Customer Development and part ways with his VP of Sales.

I suggested he chat with his investors and see if they agreed.  “I hope they don’t make me hire another “experienced” VP of Sales,” he said as left.

At a board meeting last week I watched as the young startup CEO delivered bad news. “Our current plan isn’t working. We can’t scale the company. Each sale requires us to handhold the customer and takes way too long to close.  But I think I know how to fix it.”

He took a deep breath, looked around the boardroom table and then proceeded to outline a radical reconfiguration of the product line (repackaging the products rather than reengineering them) and a change in sales strategy, focusing on a different customer segment. Some of the junior investors blew a gasket. “We invested in the plan you sold us on.” A few investors suggested he add new product features, others suggested firing the VP of Sales. I noticed that through all of this, the lead VC just sat back and listened.

Finally, when everyone else had their turn, the grey-haired VC turned to the founder and said, “If you do what we tell you to do and fail, we’ll fire you. And if you do what you think is right and you fail, we may also fire you. But at least you’d be executing your plan not ours. Go with your gut and do what you think the market is telling you.  That’s why we invested in you.”  He turned to the other VC’s and added, “That’s why we write the checks and entrepreneurs run the company.”

The Search for the Business Model
A startup is an organization formed to search for a repeatable and scalable business model.

Investors bet on a startup CEO to find the repeatable and scalable business model.

Unlike the stories in the popular press, entrepreneurs who build successful companies don’t get it right the first time. (That only happens after the fact when they tell the story.) The real world is much, much messier.  And a lot more interesting. Here’s what really happens.

Whether they’re using a formal process to search for a business model like Customer Development or just trial and error, startup founders are intuitively goal-seeking to optimize their business model. They may draw their business model formally or they may keep the pieces in their head. In either case founders who succeed observe that something isn’t working in their current business model, orient themselves to the new facts, decide what part of their business model needs to change and then act decisively.

(A U.S. Air Force strategist, Colonel John Boyd, first described this iterative Observe, Orient, Decide and Act (OODA) loop. The Customer Development model that I write and teach about is the entrepreneur’s version of Boyds’ OODA loop.)

What happens when the startup’s leader recognizes that the original business model is not working as planned? In traditional startups this is when the VP of Sales or Marketing gets fired and the finger-pointing starts. In contrast, in a startup following the Customer Development process, this is when the founders realize that something is wrong with the business model (because revenue is not scaling.) They decide what to change and then take action to reconfigure some part(s) of their model.

The Customer Development process assumed that many of the initial assumptions about your business model would probably be wrong, so it built in a iteration loop to fix them. Eric Ries coined this business model iteration loop – the Pivot.

(One of the Pivot’s positive consequences for the startup team is realizing that a lack of scalable revenue is not the fault of Sales or Marketing or Engineering departments – and the solution is not to fire executives – it’s recognizing that there’s a problem with the assumptions in the initial business model.)

“Pivoting” is when you change a fundamental part of the business model. It can be as simple as recognizing that your product was priced incorrectly. It can be more complex if you find the your target customer or users need to change or the feature set is wrong or you need to “repackage” a monolithic product into a family of products or you chose the wrong sales channel or your customer acquisition programs were ineffective.

If you draw your business model, figuring out how to Pivot is simpler as you can diagram the options of what to change. There are lots of books to help you figure out how to get to “Plan B,” but great entrepreneurs (and their boards) recognize that this process needs to occur rapidly and continuously.

Unlike a large profitable company, startups are constrained by their available cash. If a startup does not find a profitable and scalable business model, it will go out of business (or worse end up in the “land of the living dead” eking out breakeven revenue.)

This means CEO’s of startups are continually looking to see if they need to make a Pivot to find a better model. If they believe one is necessary, they do not hesitate to make the change. The search for a profitable and scalable business model might require a startup to make multiple pivots – some small adjustments and others major changes.

As a founder, you need to prepare yourself to think creatively and independently because more often than not, conditions on the ground will change so rapidly that your original well thought out business model will quickly become irrelevant.

Startups are inherently chaotic. The rapid shifts in the business model are what differentiates a startup from an established company. Pivots are the essence of entrepreneurship and the key to startup success.

If you can’t pivot or pivot quickly, chances are you will fail.

It’s easy to think that your start-up is centered in a green field or blue ocean, but typically, that’s not the case. Only the lucky few are truly creating new customers out of thin air. Most have to steal them from someone else.

This is a fact that few entrepreneurs want to hear.  But smart start-up owners know when to face reality and focus on luring customers to their side of the fence. The most important consideration before doing so is determining whether they’re chasing a regular expenditure or one that only occurs once.

Regular expenditures are the easiest and potentially most lucrative to attack.  There is long-term recurring revenue available, plus customers are more likely to try a new option when it’s just one in a series of purchases – think home DVD delivery (like Netflix), SaaS software, anything retail or ad networks.  In these cases, purchasers spend money regularly and are more open to trying something new. The downside risk for them is low, as they can always revert to their current provider.

Winning these customers entails two tasks – trial and retention.

Sales and marketing have to work together to generate the first purchase, convincing customers to shift their spending, at least temporarily, away from the current choice.  Your operations team then has to deliver on marketing’s promise, ideally exceeding customer expectations.  Customer relationship management and social marketing are crucial to support and engage customers throughout this period.

Irregular expenditures – for products such as laptops, enterprise software, car tires, or tuxedo rentals – don’t have a regular purchase cycle.  Customers generally have a brand or provider they trust and fall back on them when they’re looking to buy – or they go through a short, intense research period to find the appropriate source.

Winning these customers is a much harder process – and primarily comes down to trial and error. It’s critical to be in front of the buyer when she is ready to buy. The time between original intent to buy and choice can be very short, meaning all of your resources need to be in front of her when she needs to make a choice.

You’ll have plenty of ways to do this, but things like search engine marketing, positioning on Yelp, good word of mouth, SEO, thought leadership, strategic locations and good reviews from independent editorial sources can be crucial.

Whether you’re targeting regular or irregular customers, you can drive business by creating alternate products with vastly superior price or quality attributes. Without this, in fact, there isn’t much point to launching a new enterprise.  Good examples of this include Craigslist for classifieds and job postings, Amazon.com (when it was competing solely with bookstores), Southwest Airlines or Salesforce.com for sales force automation.

The rarer, more difficult – and potentially more lucrative – scenario is when a company creates demand for a product or service that didn’t previously exist, such as iTunes, eBay, Bazaarvoice, Google AdWords or Facebook. When these launched, there were few, if any, alternatives. It’s an entrepreneurial dream – owning a market completely.

Customers, in these cases, create a new mental category for spending.  And while they do need to reallocate spending in one sense, they’re not taking that money from something similar.

Instead, something else less useful goes away.  Because there isn’t an explicit trade off to try these products or services, uptake can be much faster.  The advantage is the product pulls business away from the least useful expenditure in the mix, which is a really, really easy win.

Early position, fast uptake and minimal competition usually mean superior margins and early adopters, both of which allow faster iteration and improvement.  Play your cards right and you can end up with vocal supporters who both act as advocates and provide you with valuable feedback.

Uptake is sometimes slower than normal, due to higher prices or barriers to adoption, but you still have a time and learning curve advantage over new entrants.  Free trials are particularly effective here, since there isn’t allocated budget just yet for your product, and you may need to stick around for a while and wait for money to be freed up elsewhere.

It’s important to be sensitive to where your customer’s money will come from.  Never lose sight of the fact that every buyer has a finite budget.  Align your strategy with the source of funds and revenue growth will follow.

When I was at Zilog, the Z8000 peripheral chips included the new “Serial Communications Controller” (SCC). As the (very junior) product marketing manager, I got a call from our local salesman that someone at Apple wanted more technical information than just the spec sheets about our new (not yet shipping) chip. I vividly remember the sales guy saying, “It’s only some kid in field service. I’m too busy so why don’t you drive over there and talk to him.”  (My guess is that our salesman was busy trying to sell into the “official” projects of Apple — the Lisa and the Apple III.)

Zilog was also in Cupertino near Apple, and I remember driving to a small non-descript Apple building at the intersection of Stevens Creek and Sunnyvale/Saratoga. I had a pleasant meeting and was as convincing as a marketing type could be to a very earnest and quirky field service guy, mostly promising the moon for a versatile but then very buggy piece of silicon. We talked about some simple design rules and I remember him thanking me for coming, saying we were the only chip company who cared enough to call on him (little did he know.)

I thought nothing about the meeting until years later. Long gone from Zilog I saw the picture of the original Macintosh design team. The field service guy I had sold the chip to was Burrell Smith who had designed the Mac hardware.

The SCC had been designed into the Mac and became the hardware that drove all the serial communications as well as the AppleTalk network that allowed Macs to share printers and files.

Some sales guy who was too busy to take the meeting was probably retired in Maui on the commissions.

For years I thought this “million unit chip sale by accident” was a “one-off” funny story. That is until I saw that in startup after startup customers come from places you don’t plan on.

Unfortunately most startups learn this by going through the “Fire the first Sales VP” drill: You start your company with a list of potential customers reading like a “who’s who” of whatever vertical market you’re in (or the Fortune 1000 list.) Your board nods sagely at your target customer list.  A year goes by, you miss your revenue plan, and you’ve burned through your first VP of Sales.  What happened?

What happened was that you didn’t understand what “type of startup” you were and consequently you never had a chance to tailor your sales strategy to your “Market Type.” Most startups tend to think they are selling into an Existing market - a market exists and your company has a faster and better product. If that’s you, by all means hire a VP of Sales with a great rolodex and call on established mainstream companies – and ignore the rest of this column.

But most startups aren’t in existing markets.  Some are resegmenting an existing market-directed at a niche that an incumbent isn’t satisfying (like Dell and Compaq when they were startups) or providing a low cost alternative to an existing supplier (like Southwest Airlines when it first started.) And other startups are in a New Market - creating a market from scratch (like Apple with the iPhone, or iPod/iTunes.)

(“Market Type” radically changes how you sell and market at each step in Customer Development. It’s one of the subtle distinctions that at times gets lost in the process. I cover this in the Four Steps to the Epiphany.)

If you’re resegmenting an existing market or creating a new market, the odds are low that your target list of market leaders will become your first customers. In fact having any large company buy from you will be difficult unless you know how to recognize the five signs you can get a large company to buy from a startup:

• They have a problem
• They know they have a problem
• They’ve been actively looking for a solution
• They tried to solve the problem with piece parts or other vendors
• They have or can acquire a budget to pay for your solution

I advise startups to first go after the companies that aren’t the market leaders in their industries, but are fighting hard to get there. (They usually fit the checklist above.) Then find the early adopter/internal evangelist inside that company who wants to gain a competitive advantage. These companies will look at innovative startups to help them gain market share from the incumbent.

The other place for a startup to go is the nooks and crannies of a market leader. Look for some “skunk works” project where the product developers are actively seeking alternatives to their own engineering organization.

In Apple’s case Burrell Smith was designing a computer in a skunk works unbeknownst to the rest of Apple’s engineering.  He was looking for a communications chip that could cut parts cost to build an innovative new type of computer – which turned out to be the Mac.

Twenty eight years ago I was the bright, young, eager product marketing manager called out to the field to support sales by explaining the technical details of Convergent Technologies products to potential customers.

Convergent’s business was selling desktop computers (with our own operating system and office applications) to other computer manufacturers – most of them long gone: Burroughs, Prime, Monroe Data Systems, ADP, Mohawk, Gould, NCR, 4-Phase, AT&T.  These companies would take our computers and put their name on them and resell them to their customers.

Business customers were starting to ask for “office automation solutions” – word processing, spreadsheets, graphing software on a desktop.  This was just before the IBM PC hit the desktop so there were no “standard” operating systems or applications for desktop platforms. Computer hardware companies were faced with their customers asking for low-cost (relatively) desktop computers they had no experience in building.

Their engineering teams didn’t have the expertise using off-the-shelf microprocessors (back then “real” computer companies designed their own instruction sets and operating systems). They couldn’t keep up with the fast product development times that were enabled by using standard microprocessors. So their management teams were insisting that they OEM (buy from someone else) these products.  Convergent Technologies was one of those OEM suppliers.

Their engineers hated us.

I was traveling with the regional sales manager who had called on these companies, gotten them interested and now needed someone from the factory to provide technical details and answer questions about how the product could be configured and customized.

See How Smart I Am
As the eager young marketer on my first sales call, as soon as we shook hands I was in front of the room pitching our product and technical features. I knew everything about our operating system, hardware and applications – and I was going to prove it.  I talked all about how great the new products were and went into excruciating detail on our hardware and operating system and explained why no one other than our company could build something so brilliantly designed. (This being presented to another company’s proud engineering team who was being forced to buy product from us because they couldn’t build their own in time.)  After I sat down I was convinced the only logical conclusion was for the customer to tell us how many they wanted to buy.

The result wasn’t what I expected. The customers didn’t act particularly excited about the product and how brilliantly I presented it. I do believe some actually rolled their eyes.  They looked at their watches, gave our sales guy a quizzical look and left.

After the meeting our sale rep took me aside and asked if “perhaps I wouldn’t mind watching him on the next call.”

Sports Scores
The next day, as I drove to our next meeting the sales guy was intently reading the sports section of the newspaper and as I glanced over he seemed to be writing down the scores.  I wondered if he had a bookie.  When we got to the meeting he reminded me to be quiet and follow his lead.

We shook hands with the customers, but instead of launching into a product pitch (or better, letting me launch into the pitch) he started asking how their families were.  He even remembered the names of their wives and kids and some details about schools or events. (I couldn’t believe it, here we were wasting precious time and the dumb sales guy is talking about other stuff.)

Just as I thought we were going to talk about the product, he then mentioned the previous nights football game. (Damn, another five minutes down the tube as the whole room chimed in with an opinion as we talked about something else unimportant.)

The Customer is a Genius
Then instead of talking about our products he segued the conversation into theirproducts. He complemented their elegantly designed minicomputers and made some astute comment about their architecture (now I’m rolling my eyes, their computers were dinosaurs) and asked who were the brilliant designers.

I was surprised to see that they were in the room.  And soon the conversation were about architectural tradeoffs and then how customers didn’t appreciate the elegant designs and how the world was going to hell in a handbasket because of these commodity microprocessors.  And our sales guy was agreeing and commiserating.  (And I’m thinking why is he doing all this, just tell these idiots that the world has passed them by and they need to buy our stuff and lets get an order.)

The engineers spoke about all the pressure they were getting from management to build desktop personal computers rather than their traditional minicomputers. And that their management wanted these new systems on a schedule that was impossible to meet. Then our sales guy says something that makes me stop breathing for a while.  “I bet if your management team would give you guys the resources, you guys could build desktop computers better than anyone – even better than us.”  There’s a unanimous agreement around the table about how great they were and how bad management was.

The Consultative Sale
Our sales guy then quietly asked if there was any way we could help them.  (Help them?!! We’re here to sell them our stuff, why can’t we just present what we got and they’ll buy it.)  The VP of Engineering says, “well we don’t have the resources or time, and as long as you know we could build better computers then you guys, why don’t you tell us the details about your computers.”

I had just watched a master of the consultative sale.

Engineers as Salesmen
I thought (and still do) that this sales guy walked on water. He had spent 12 years at DEC, first as a hardware engineer designing part of the PDP-16, then as the marketing manager for the LSI-11 and then into sales.

Making sales calls with him taught me what a world class salesperson was like.  It also made me understand what kind of support sales people needed from marketing and what marketing programs were wasted motion.

It also made me realize that there are times you don’t want any sales people in your company.

Startups and Sales
It might seem that every startup with a direct salesforce needs a consultative sales team.  Not true.

The answer depends on your answer to two questions:

1. which step in the Customer Development process are you on?
2. what Market Type is your startup?

Customer Development and Selling Strategy
If you’ve just started your company you are in customer discovery.  If you’ve tried to slog your way through my book on Customer Development you know that I’m insistent that the founders need to be the ones getting outside the building (physically or virtually) to validate all the initial hypotheses of the business model and product.  If you hire a VP of Sales with the idea that they can do customer discovery you violated the first principle of Customer Development – this isn’t a step the can be outsourced to a non-founder.

Hiring a VP of Sales in customer discovery typically sets a startup back. It’s only after you’re done with customer discovery and are in the final steps of customer validation (building a repeatable and scalable sales process) that you start hiring a sales executive.

The next thing you need to do is match your sales team with your market type.

Market Type and Sales Teams
Startups fall into four Types of Markets. You need to hire the right type of sales people for the type of market.

If you are in a New Market, (delivering what Clayton Christensen calls disruptive innovation) the market doesn’t even have a name and customers have no clue on how your product works or how it could help them.  This market cries out for a sales force that can help educate and guide the market to making the right choices.

Your sales team is an extension of your marketing department.  The same is true if you are in an existing marketing and trying to sell to a niche or a segment of the market based on your knowledge of their particular needs.  Both New Markets and Resegmented Niche Markets required a skilled consultative sales force.

This is very different from the sales team you would hire to sell in an existing market or a cheaper product.

If you’re in an existing market and you have a superior product, by all means tout your features and specifications.  However, your product itself will be doing a lot of the selling.  If it is demonstrably better as you claim your marketing department needs to communicate that competitive advantage and your sales curve should look linear as you take share from the existing incumbents.

If you are resegmenting an existing market a product with a cheaper alternative, by all means tout your price.  Your marketing department should be all over this.  In both cases you really don’t need a skilled/consultative sales force.  A sales team with a great rolodex will do.

Sales by Market Type

Steve Blank is a retired serial entrepreneur and has been a founder or participant in eight Silicon Valley startups since 1978. After he retired, he wrote a book about building early stage companies: Four Steps to the Epiphany.  He’s moved from being an entrepreneur to teaching entrepreneurship to both undergraduate and graduate students at U.C. Berkeley, Stanford University and the Columbia University/Berkeley Joint Executive MBA program. The “Customer Development” model that he developed in his book is one of the core themes for these classes.  In 2009 he was awarded the Stanford University Undergraduate Teaching Award in the department of Management Science and Engineering.