Episode 111

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Sam Mallikarjunan is a Marketing Fellow at HubSpot and former Head of Growth at HubSpot Labs, the somewhat-secret experimental arm of the world’s #1 Sales & Marketing platform. Sam teaches Advanced Digital Marketing at the Harvard Division of Continuing Education, and he is also the co-author of the book How To Sell Better Than Amazon (which, thanks to the publisher, is ironically available for purchase on Amazon).

 

 

What you’ll learn about in this episode:

  • The way the internet has changed selling so that there’s almost too much information
  • How salespeople can help consumers sift through the breadth of information out there
  • Structuring sales calls so they’re all about asking the buyers questions about their business
  • The power of inbound: competition where no one else is competing
  • Learning to say no to bad revenue
  • Why you need to build buyer personas — both for your ideal customers and customers that you don’t want to do business with because they’re going to cost you money
  • Why clients need agencies to teach them what to do — not how to do it
  • Getting involved with your client’s complete business — including the sales side of their business
  • How to get your clients to treat your agency like a partner instead of a vendor

The Golden Nugget:

“The ‘always be closing’ methodology is completely dead. The new way is more fulfilling.” – @Mallikarjunan Click To Tweet

 

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We’re proud to announce that Hubspot is now the presenting sponsor of the Build A Better Agency podcast! Many thanks to them for their support!

Speaker 1:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institutes, Build a Better Agency Podcast presented by HubSpot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency owner and agency consultant to you. Please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody Drew McLellan here. With another episode of Build a Better Agency. Today’s conversation is going to go all over the board. We’re going to talk about sales, we’re going to talk about business models, we’re going to talk about this notion of bad revenue inside an agency. And let me tell you a little bit about the guest who has the depth and breadth to have that kind of conversation. So Sam you know what, Sam, I knew I was going to do it. No, I want to try it though, Mallikarjunan, right?

Sam Mallikarjunan:

Yeah. I’m seriously debating, changing my legal name to Sam from HubSpot. More people say it anyways, so but yeah, Mallikarjunan.

Drew McLellan:

Mallikarjunan. See, I practiced before we hit record, I did it right three times and then the pressure of the red button [crosstalk 00:01:17].

Sam Mallikarjunan:

I know.

Drew McLellan:

Yeah. So, anyway, let me tell you a little bit about Sam. So Sam is a marketing fellow at HubSpot. He’s the former Head of Growth at HubSpot Labs. He’s worked in agencies, he’s worked with HubSpot’s partner program. He also teaches advanced digital marketing at the Harvard Division of Continuing Education. He has written a book called How to Sell Better Than Amazon, which he notes in his remarks is ironically available for purchase at Amazon. So he has had a wide variety of experiences that are very relevant to you and to me and so we’re going to just dig right into that. Sam, welcome to the podcast.

Sam Mallikarjunan:

Thanks for having me. I’m really looking forward to it.

Drew McLellan:

Yeah. I’m excited. I’m worried that we’re not going to be able to get it all in an hour, but I will do my best.

Sam Mallikarjunan:

No worries.

Drew McLellan:

So one of the things that you talk about is that the rules of sales have changed. So give us a little bit of context around that. As you know, agency owners typically are the primary salesperson inside their shop. And for many of them, it’s not something that they’re drawn to or something they’ve been trained to do, it’s just a necessity of the job. So agency owners are always anxious about and eager to talk about sales.

Sam Mallikarjunan:

Yeah. So the fundamental nature of sales has changed. And I say that with… I’m going to start off with a confession. You just have to promise to forgive me. You know those really annoying people in the mall who try and sell you cell phones?

Drew McLellan:

Yes.

Sam Mallikarjunan:

I used to train them.

Drew McLellan:

Wow.

Sam Mallikarjunan:

Yeah. But I have changed. I’ve progressed since then. But that used to be how we did sales. It was Glengarry Glen Ross, put that coffee down, always be closing. We literally showed Glengarry Glen Ross and Boiler Room into sales training back then. And it was smile and dial greet to eat, like just trying to crush through sales.

And that actually worked pre-internet. Because anytime somebody needed anything, I was the gatekeeper as the sales rep, I was the gatekeeper of all the information. If they wanted to know features, they had to ask me, if they want to know pricing, ask me, if they want to testimonials, they were going to get introduced to my buddy from college. All of that has changed now. So now, I almost feel bad when I go buy a car. First of all-

Drew McLellan:

It does seem a little unfair, doesn’t it?

Sam Mallikarjunan:

Yeah. It’s really unfair. First of all, I find the guy who’s still in the parking lot when it’s like zero degrees outside at the end of the month. He’s missing quota, so he’s fun to play with, he or she. But then when I get in there, he’s lost all of his power. I already know every model of car on his lot. I know what everybody else has paid for it. I know reviews of all the features. I know what his company has paid for that particular vehicle. So all of the traditional negotiating leverage or this idea that you’re going to be the gatekeeper of information and dribble it out and use that as your method of persuasion is completely dead. The always be closing methodology is completely dead.

The bright side is that the new way of sales is actually a more fun and enjoyable and professionally personally fulfilling way, which is that the promise I have too much information. So I’ve got the entire history and wisdom of the human race literally in my pocket and a ton of cat videos too but after all the information-

Drew McLellan:

I was going to say and Angry Birds.

Sam Mallikarjunan:

And Angry Birds or whatever. What I need sales reps to help me with is to help me make sense of all that. So to help me turn… I don’t actually know if this was included in the pitch sheet, but my wife and I live on the road full time in a converted Mercedes sprinter van. And so when I was buying that-

Drew McLellan:

Really?

Sam Mallikarjunan:

Yeah, yeah. We are in Yukon territory, Canada, right now on our way to Anchorage, Alaska. We’ll dig into that later. But when I was buying the vehicle, what I needed was somebody to help me understand, okay, here’s the job to be done that I’m trying to accomplish. So Henry Ford’s famous quote, if he’d asked his customers what they wanted, they would’ve said a faster horse. Obviously he didn’t open the Henry Ford horse breeding company, he opened the Ford Motor Company. I needed somebody who understood what I was trying to do and can help me make sense of the ridiculous amount of information, all the different features and everything else like that.

So it’s flipped the buying cycle on its head, and it’s just more enjoyable too. If you’re familiar with HubSpot, if you ever gotten a call from one of our reps, it’s weird for me. Because I went from the malls, having people literally throw stuff at us, to hopping on a HubSpot sales calls, and people get like excited. They get excited to talk to sales reps because they know that what it’s actually going to be is a value added conversation about their business.

So whether you’re selling agencies or whatever it is you’re selling, starting from that perspective of understanding the customer and helping them make sense of the information in the world and giving value before you ask for value actually will close more deals. So you’re more likely to hit quota if you are good at that, than if you’re a good, what we call classical closure.

Drew McLellan:

How do you combine that notion that idea of it’s really a more helpful sale and more authentic sale. It’s a more, I am helping you parse out from all of the information, the information that you need to make the best decision. How do you combine that notion with all of the emphasis on inbound and email marketing and all of that? How does that all intersect, do you think for an agency [inaudible 00:07:05]

I’m a typical agency owner. If I can sell four to six, good size new clients a year, that’s a good year for me because I’m keeping most of my clients. So I don’t need to sell millions of people. I just need to find a few of the right people. So how does all of this, from your perspective, fit together in this new kind of rules of sales?

Sam Mallikarjunan:

Yeah. So let’s break that question into two components. One is how does it fit with the sort of inbound marketing inbound lead flow? It changes the whole context of the conversation. Like if I called you and said, “Hey, Drew, this is Sam from HubSpot. I just want to take 15 minutes of your time to tell you how our software can help you grow,” you don’t want to talk to me. Man, let’s be honest. You’re going to hang up if you answer it all. But if I call you and I say that, “Hey, Drew. I saw you downloaded the guide to using podcast to generate sales leads. I took a look at some of the other podcasts in your industry, but before we talk about that, what are you working on? Why podcasting? Why now?” And we just spend the whole time talking about you. First of all, I get all of my qualifying questions answered that are native to the sales process, but I do it from the perspective of here’s some information I’m doing for you.

And I think this is what people forget about marketing is especially in a B2B role, our job is to start value added conversations between two people, between a sales rep and a prospect. Our job is to make the start to that conversation as valuable to the prospect as we can, and with as much contextual information for the sales rep as we can.

Now, the least work that we can do is tell the sales team to cold call, because there’s no context on the prospect side and there’s only whatever the publicly available information is on the sales rep side. The best way that we can do it is to get the customer to give, or they get the prospect to give us information in advance that we can then pass along to the sales rep.

The best model for this, I think actually is actually Netflix, even though it’s not at all a B2B sales model. I’ve rated it between 800 and 900 movies for Netflix. And the reason I do that is because I know, because most of us would kill to have our customers fill out a 900 question survey. But I do that because I know that Netflix is going to use that information to make my experience better. They’re not going to just use it to spam me or whatever, they use it to make the experience that I have with Netflix better. So I’m willing to give them all that information. And it’s the same psychology in inbound marketing and inbound sales. Is consumers will give us a lot of information in exchange for some educational material. And as long as we make it clear that, listen, we’re going to use this information to help you make a better decision, because that’s what prospects really want help with.

And then splitting up the second piece of the question which is, not just how it fits into the sales process, but how it fits into the design and such at the agency. You’re going to get, by definition, when you’re doing inbound marketing, when you’re educating people, you’re not going to get people who are ready to buy right now. You’re going to get some of those-

Drew McLellan:

But where?

Sam Mallikarjunan:

… But you’re not going to… That’s not going to be the only people that you get. Yeah. It’s not going to be the only people that you get because by definition, what you’re doing is you’re moving up the buying cycle and deciding to compete in the awareness and research phases of the buying cycle. Because if you’re competing in the purchase phase of the buying cycle, first of all, you’ve lost all your power. The only thing left is price. And second of all, you’re competing against [crosstalk 00:10:42]-

Drew McLellan:

Now, you’re basically in the RFP model? So right now you’re just filling out the form with everybody else/

Sam Mallikarjunan:

Yeah. And you’re competing against just whoever has more money. So if you’ve ever done PPC and bid on terms for purchase phase, like buy whatever now sort of terms, you’re going to be hit with whoever’s willing to take the lowest margin of profit on the process.

So the concept of inbound marketing and inbound sales is let’s build an audience of people to whom the product or service might be relevant and then let’s nurture that audience along an acquisition lifecycle. So you were saying, for example, you might only do four or five deals a year, but there’s still… that four or five deals a year can be powered incredibly by a 100,000 person community of people who you’ve given free education to.

I like to use… He actually worked at an agency by the way before he became a HubSpot customer, there was this guy who got a tattoo of the HubSpot Sprocket on his leg.

Drew McLellan:

Wow.

Sam Mallikarjunan:

And it was because-

Drew McLellan:

Okay, that is serious customer loyalty.

Sam Mallikarjunan:

I know. First of all, it’s weird. I mean, let’s be honest, that’s weird.

Drew McLellan:

Yeah, right.

Sam Mallikarjunan:

We’re a software company, so weird. But it was because we, we did all this information that helped him get into the world of marketing. So he read our blog, all of our webinars, et cetera. We had a certification that helped him get his job and a community board like jobs board, inbound.org that helped him get a job. And then we have this ongoing support to help him be successful.

And even if he’s not, so he wasn’t a customer, but even if he wasn’t a customer at the time that he got that tattoo, do you really think that we’re going to have to compete on price when it comes to once he does have the authority, and the budget or whatever, whatever reason was keeping him from buying at the time. Once he does have that, we’re not going to have to compete on price. And that’s an extreme example, but that is… When you’re talking about filling your pipeline, particularly with agencies, that’s the real power of inbound is. You’re competing where no one else is competing. It’s brutal. It’s hard to teach and to educate and compete in that phase. So if you do it successfully, you’re going to see a lot of positive results.

Drew McLellan:

Yeah, absolutely. Well, and I think the other part of that too, is that I actually think that the new model of sales fits much better with an agency model. Most agency people that I know love to teach, they love to help their clients have those aha moments. They like to guide them along the process. And so that sort of fits more comfortably, that feels less confrontational or less yucky than traditional sales.

Sam Mallikarjunan:

There are people, people, right?

Drew McLellan:

Yeah, right.

Sam Mallikarjunan:

You go into a people business, like otherwise they would start a software company. So it’s not just yucky by the way. Every year we do a survey that asks a simple question, “Who do you trust?” And in 2016, in North America, at the top where firefighters and teachers, and then further down are barristers and professional sports athletes. And then at the very, very bottom, there’s a tiny sliver of people who say they trust politicians and lobbyists. And then below them, rounding up to 1% of sales and rounding down to 0% is marketers. So in North America, in 2016, if you’ve followed politics at all, it was an interesting year, we lost to those people.

Drew McLellan:

That’s sad.

Sam Mallikarjunan:

We lost to those people in terms of who consumers trust, because we’ve spent the last century abusing people’s attention and making it all about us. So, you’re right. It feels better. It’s a more enjoyable sale, particularly for the people, people that you tend to find at agencies and it’s a better business, like it’s better acquisition and retention economics and it’s just better for the world. Marketing is weird.

As far as I know, one of the few industries that had another industry spring up with the sole intention of stopping us from doing our jobs. So like TiVo and DVR and ad blockers, there is a very large industry whose goal is to prevent marketers from doing their jobs. And it’s because we’ve been incredibly annoying about it for the last 100 year.

Drew McLellan:

Yeah. Yeah. I think this is a better phase for us, hopefully, that’s for sure. So one of the things that agencies are really wrestling with is as you and I talked about offline, before I hit the record button is agencies are struggling. The whole idea of a retainer or ongoing work becomes more and more elusive. Clients are much less likely to sign an agency of record contract, clients are a little cagey or with their budget, and they want to piecemeal it out project by project. And you were talking about this whole idea of really thinking through and designing the business model and that there is a way to get more retainer income built into that model. So you want to talk a little bit about that?

Sam Mallikarjunan:

Yeah, absolutely. So if you ever take finance courses, particularly the US, you’re eventually going to come across a phrase “cashflow is more important than your mother.” And I get that. And I get it and it’s what we’re taught in school. It’s one of the foundations of capitalism is that capitalist [inaudible 00:15:57] resource and you want to keep cash flowing into the business, sometimes you’ve just got to keep the lights on. And I understand that.

But that being said, there is such a thing as unhealthy revenue. You can grow yourself out of business, either by making it so that the time to payback, so the cost to acquire a customer versus how much they pay you. If the time to payback is too long, you could just run out of cash in the bank, that’s one way. Or if you’re just acquiring them, the wrong types of customers, the wrong way, you can lose money. So the cell phone people that I was telling you about, the reason they no longer harass you in malls is because it turned out that the average contract length for somebody who was activated from one of those malls was about three months before they canceled their cell phone contract. And in my store, honestly, it was probably even less because we were just focused on closing. We didn’t really care or talk about what the customer did. And the cell phone company was actually losing money, even though we were closing deals, we never missed quota. I never missed quota. Even though we were closing deals, bringing in revenue, the cost to acquire a customer was out of balance with what that customer is worth to us over the longterm. So they shut down that process.

And we know this intuitively. We know that there are some customers who are worth more to us than other customers. And we’ve all had that one customer where we’re like, this person has got to be costing me money. But we then get stuck in this constant cycle of, well, let’s just bring in any revenue, any revenue is good revenue and that can be really damaging to the business.

So project based work can make sense and you can actually get good cashflow for it, and there’s a time in an agency’s life cycle where that’s absolutely the appropriate thing to do. But if you want to scale and grow and build a sustainable business with healthy revenue, saying no to potential revenue is actually a very important skillset. It’s a very important piece of decision-making, so that you can focus on either increasing the monetization of the existing recurring revenue clients, or investing more cash, more capital in acquiring some of those retainer clients.

So I know it’s hard. Trust me, I wish we could sell HubSpot ad hoc, just pay us on a monthly basis [inaudible 00:18:15]. But no, we have to sell it as a subscription because we know that if you’re not successful with the software, you’re not going to stay around, you’re not going to be a customer longterm. And so we know that if we don’t make that work, that you’re not going to… the business model is going to break down. It’s the same thing with an agency. If they’re not successful with the agency work, they’re not going to stick around. You’re not going to be able to build a long-term business off of that revenue.

Drew McLellan:

Well, one of the metrics that I really encourage agencies to look at as profitability by client, because of exactly what you’re talking about is when you look at the money in, in a big bucket, it’s hard to know who’s contributing to that bucket and who’s not, especially compared to what it costs you to service that business. But it’s pretty easy when you do a client by client comparison of profitability. It’s easy to see. And for most agencies, the first time they do that, it’s a little disheartening because they literally, in most cases for the lower 5% or 10% of their clients, they’re paying for the privilege of doing that work for the client.

Sam Mallikarjunan:

Yeah. And it’s easy to brush it off, because we don’t usually, especially in smaller agencies, we don’t charge for our own time. And so we don’t think about the opportunity cost of other things that I could be doing as well when working with some of those customers. But we all know that. The person who’s paying you the least amount of money is always going to be the loudest, most obnoxious and most demanding. And if the agencies listening have not yet done the buyer persona exercise. It’s not just a useful exercise because it helps you do better marketing and sales, it is how you should segment the user acquisition economics of your business.

If you want a case study on this, by the way, Harvard Business School wrote a case study on HubSpot’s persona based unit economics. But there’s a reason, for example, that we don’t go hard after the enterprise space. So even though the enterprise space might pay us more money, I got to fly 12 people out there to buy 14 other people, 26 different steak dinners in order to close the fricking deal and then they’re going to keep my half the engineering team busy-

Drew McLellan:

Yeah, tweaking.

Sam Mallikarjunan:

… for the next six months customizing it the way they want. Yeah. So, we look at they actually do have a higher monetization value, but they also have a dramatically higher cost of customer acquisition and cost of servicing that deal. And because of that, the business model is out of balance. It’s that is why HubSpot stays in the mid-market space. We don’t want to spend a ton of time acquiring and servicing enterprise.

Now there are some enterprises that are way ahead of their time that [inaudible 00:20:55], things like HubSpot, but it’s not a good business for us. We don’t want to be in that company. So we actively don’t pursue those people because we know that putting a dollar into acquiring a mid-market company might give us $5 out [inaudible 00:21:10] putting a dollar into acquiring an enterprise company might give us $3 out, in terms of monetization.

Drew McLellan:

Well, and I think many agencies don’t have a really clear picture of who their sweet spot or their best customers are. And so they tend to splash around in the water, just looking for anybody and everybody. And in the end those are the clients. Those are the customers who either come and go, or a lot of times out will look at those numbers and some will say, I know we’re not making a lot of money now, but they’re one division of this big company that’s, fill in the blank house. Okay, how often has that worked well for you? How often have you taken it in the shorts for three months and then all of a sudden magically, the vault opens up and money just starts pouring out? But I don’t know if it’s agency owners are just optimistic or they’re afraid to say no to any dollar, but a lot of agencies struggle with this whole idea of this as you call it bad revenue of, I’m taking a $1 in, but the reality is I’m spending a $1.25 between my labor and all my other expenses to service that dollar.

Sam Mallikarjunan:

Yeah. We actually have a exclusionary buyer persona. So people that we won’t sell to, unless there’s a really compelling reason. And as you probably know, we give all of our buyer personas cute alliterative names-

Drew McLellan:

Of course.

Sam Mallikarjunan:

… like Marketing Barry and Owner Ollie. Internet Ian is our exclusionary buyer persona, because, I don’t want to talk about HubSpot too much, but it’s just an example I know well. Our value proposition is that it’s all in one. Everything is stitched together, you have all the tools that you need. Internet Ian is the sort of person who’s going to write their own queries in sequel and then stitch together their own series of to