Shrink to Grow, or Focus on Cost of Sales?

Scott Francis
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Interesting article from John Gannon, covering a talk by Joe Liemandt, CEO of Trilogy. The conference was dedicated to low-touch sales models, and featured Joe as someone who could share his experiences in converting companies to this approach.

First John catches us up on what Trilogy is up to:

Every presentation and panel at the conference was great, although the most engaging one was from Joe Liemandt, the CEO and founder of Trilogy.  I remembered Trilogy from the late 90’s, when they were running splashy recruiting events at my alma mater.  Over time they have morphed into a holding company that buys struggling software companies for pennies on the dollar, restructures them, and then turns them profitable.  In his talk “Shrink Before You Grow,” Joe made many great observations and suggestions which came from his experience purchasing and restructuring these companies – and advice which I think is also applicable to software startups.

So what was Joe’s advice?

  1. If the direct sales force isn’t selling deals for more than $100k on average he cuts them loose.  When he acquires companies he typically fires the whole field sales force and moves to inside sales models instead.  A team may be retained to chase the big deals.
  2. Focus on attach rate and install base more than price.  Retention is more important than the specific price.

Rather than rely on specific rules, I think you can boil this down to a couple of basic points:

  • keep your cost of sale low relative to the dollar value of the sale
  • customer retention may be the most important metric you have as to the health of your business.

If you focus on those two things you can have a healthy business.  But for many businesses, once you start shrinking, culturally it is hard to turn the corner and start growing again.