At the end of the day, companies have to make money. In Silicon Valley this self-evident truth can be an uncomfortable difficulty for some, struggling to “monetize” their revolutionary technology or their audience after many years on the market. ZenProspect sits somewhere on the other end of the spectrum, with the very young company being one of the fastest-growing startups in revenue since coming out of YCombinator’s Winter 2016 batch. We talk to their CEO Tim Zheng about why your own psychology can be the hardest obstacle to overcome, and explain the mix of proven & cutting-edge techniques one can use to go from 0 to a $1M in sales in 2016. (With a focus on B2B software sales although most of the advice should apply outside of these lines.)
Tim Anglade, Executive in Residence at Scale Venture Partners: And conversely, I feel like everything that I’ve learned about startup, I’ve learned from like just grabbing coffee with smart people or like sitting in a board meeting and being like, “Oh, that’s how you do things, I didn’t even know this.” I’m just trying to kind of bring that into the conversation of like, this is like, you and I actually had a conversation about like what you’re doing, and how you’re selling, and how impressive it is that you know, just out of YC that you’re like you closed so much AR, and you’re growing still so fast. And so, you know, I feel like I’ve learned a lot from our conversation about like how a young company can go about selling and closing a lot of sales, and I think that the spirit in which you’re doing it is both extremely self evident, and also very aware. Most companies I see, especially young companies, they really, really struggle. And so I guess you know, I’d love to talk about kind of those different phases of like how you closed your first sale, and then how you kind of scaled that to what you’re doing now, ‘cause you’re near a very high level of ARR (Annual Recurring Revenue). We’re not gonna go into detail of your company, but let’s say if you know, lets try to give people a blueprint of like how to like a million ARR. Like what does that look like, and how would you recommend that people go at it, right? So let’s start at the beginning like you know, you have this product, and you’re getting out there, what was your first sale like?
Tim Zheng, CEO at ZenProspect: Yeah, so it was very interesting I think there, so as somebody who’s sort of an engineer, I’m not really, like I’m the last person who knows how to do sales. So for me it was like spending almost like a year building the product, and the first step to actually trying to get the first sale is sort of a scary step in some ways, because you spent all this time building the product, you don’t know if people want it. And so you know, the first step is okay, well let’s try to get some meetings, let’s get some conversations. So thankfully we have like, ironically, our own software helps us get meetings with these people, so we basically thought about who our target buyer might be, and it’s usually you know VP of sales, or VP of marketing, or people who need, kind of leads. So we searched our database to find a bunch of leads, and I email them. So I think that’s also a very scary step. It’s like you don’t know if the world’s gonna reject you, or if it’s like gonna accept you. And for me, I think the first batch of emails I sent, I actually didn’t get any replies. Which kind of, kind of sucks.
Tim A.: How many did you send?
Tim Z.: Sent like 200, 300 emails, no replies.
Tim A.: That’s more than most people can send right, so that’s like your product was giving you way too much leeway there right. So what was wrong about it? Do you feel like the product was wrong and you didn’t work on it enough, or was your pitch wrong or what was wrong about it?
Tim Z.: Yeah, so it took me a while to figure it out. I mean at first I thought like people didn’t want it, or I thought I’d maybe, you know, there’s something wrong, it’s either something wrong with the messaging or like the core audience, or product. So we ended up figuring out it’s kind of a combination of all that stuff. So it’s, the audience was not as targeted as we want it to be. The messaging was like a one page essay of an email, and not like a very, like targeted email. And so after like three or four tweaks, I’d end up having a message that was able to resonate with some people, and get our first like, three or four conversations.
Tim A.: Right, and so, that’s kind of a lot of things there, and I wanna kind of really unpack, and then, like it’s kind of three things, the first thing I wanna ask is ‘cause you said you spend like a year building the product. Do you feel like that was too long, too short? Would you do it the same way again, or like, let’s talk about that first.
Tim Z.: Sure, so I think for us, it was relatively, like, the product is something that you actually need to spend a year building to actually get some value out of it. So it’s one of those hard problems that you have to solve. So there’s no trying to spend less time doing it. Before we actually devoted the time to build the product, we did a lot of customer development and research to make sure we’re actually building the right thing.
Tim A.: Yeah, so you weren’t like building blind in your garage. You kind of had a blueprint, and you had some customer feedback of what you wanted to build, right. So there was still a little bit of like a feedback loop there in terms of like, making sure you were on the right track. Even if it wasn’t actual money coming in.
Tim Z.: Exactly, yeah, and in some ways I was my own customer, ‘cause I basically started the idea. So basically the company helped as a massive database of leads, and helps you, give you sales communication tools to help you reach out to them, right. And so I had this idea because from my previous startup, which was an education company that sold writing and math apps to high schools, I was trying to you know, get conversations with teachers. And so, you know, I tried the typical channels like Facebook or Google, and I decided to hey, why don’t I just scrape all the teacher emails from the internet and email them? It seemed like a natural thing to try. I tried that, it was pretty effective. So friends and other startups starting asking for my help to help them with their startups. And I think for us, we got from like 5,000 to 150,000 users in like three or four weeks by just doing these outbound campaigns.
Tim A.: So you have this blueprint and you were like your own user which helps in a lot of ways, right? It can be a bit of a red herring too, it can force you down into this niche path where’s there’s not really a market, like a buyer’s market for what you’re doing. But it helps kind of make sure that you’re not working in the wrong direction. There’s other stuff about the first sale, right, so we talked about you know, like a lot of things were wrong, the email was too long and different things. So how do you suggest that people like break that down? What’s a good guideline? Do you feel like it really takes 200 emails to figure that out and you should just kind of send a lot of stuff? Or do you feel like there’s this particular, like response rate, for example, that people should expect and if they’re not getting that response rate then is something else is wrong. Like is there any guideline I guess to how people should think about their initial outreach?
Tim Z.: Yeah, so the process that I used to try to get our first sort of outbound process setting up, is first I sent an email, it didn’t work. Then I shifted the approach a little bit so I didn’t really understand why it didn’t work. So instead of just trying to like having an email that asked for the sale I just sent a bunch of emails asking for advice from other people. People seemed a little bit more receptive to that and so I got a few like advice seeking calls just to understand like what their actual pain points where ‘cause I think as you mentioned one of the red herring’s was that I was building the product for myself but there’s not that many really small sole entrepreneurs out there and so we’re selling to like cellular companies which have similar needs but not the exact same needs. So in having these advice type conversations with these larger directors of marketing at these large companies I was better able to understand what exactly their pain points are and how to like phrase it in a way that resonates with them much more.
Tim A.: That’s a sneaky, that’s a sneaky thing right? Like I’ve used that quite a bit too, instead of asking directly for a sale you ask for advice and then you know, if anything you get feedback and then I’ve found personally that it also kind of leads to a sale down the road because people get a sense not just of like, you’ll probably be able to get a sense of your mindset and the spirit in which you’re trying to do this and that builds a lot of confidence to, right? So it’s kind of like a win-win in my experience, to ask for advice as opposed to asking for a sale. Then what would you say, you know, is a good response rate? I still feel like that’s an important thing, maybe I’m wrong, right, so feel free to disagree. But I kinda feel like at some point you can be in a situation where you’re sending too many emails and spamming too many people and you’re not really bringing value, so do you agree there’s kind of a benchmark you need to set for yourself after the initial kind of first few responses? For like if my email isn’t getting that many responses I’m probably like doing the email wrong or I’m probably explaining the product wrong or I’m probably really building the wrong product?
Tim Z.: Sure, so for us, we see a ton of other emails and we sort of, for me personally, I think the first email was zero percent reply rate and then it became like a one or 2% reply rate and I think during our growth period during YC I think we’re seeing about a 20% reply rate. Now we’re seeing like a 30 or 40% reply rate, obviously not all the replies are gonna be positive. Some are just like, not interested right now, thanks, check back next month.
Tim A.: That’s something right?
Tim Z.: Yeah and so I think the key metric, another key metric is like how many of those end up in actual meetings? Right now we’re seeing like 15% or so, but that’s like definitely much higher than the industry average. I would say anything above like 1%, typically gives you a pretty positive ROI because if you send 1,000 emails it’s like 10 meetings, if you can close one of the 10 deals then it’s gonna be pretty positive.
Tim A.: But very interesting, I kinda agree with that guideline that people should aim for something relatively in the 1% range, but I’ve found that there is this weird kind of plateau, right, where a lot of products kind of hover around that. But I’ve found that there’s very few products that after you’re more around, like what you were saying, there’s 20 or 30% kind of range of replies, or like this 15% range of meetings and while very, very rare I find it very intriguing that there do seem to be products or pitches at least that elicit like this giant jump in responses and that’s always been an interesting thing to think about. I can’t say that I’ve figured out what makes those products so successful, but you know my experience has been and I don’t know if matches yours, that there’s kind of those plateaus, like most people are gonna be in this kind of percent size of response range but then sometimes you really nail communication and get like an order of magnitude more responses and that’s kind of worth thinking about right? Like the sky is pretty high if you can optimize or if you can really nail your value proposition and your targeting and your communication there. So what was the first sale like, actually like? So eventually you got somebody, we’ve been talking about a bunch of other stuff, let’s go back to that first sale. Like what’d it actually look like?
Tim Z.: I was pretty fortunate in that I had one call closing my first call, but it was I think much harder afterwards, but I think it’s good for a confidence booster to have that one call close. So basically it was this large staffing and recruiting agency with a few thousand employees. So this director of marketing reached out to me, or I emailed him and then he checked out the product, emailed me back saying, “Hey, let’s have a call “I’m interested in your product.” So this is probably my first ever sales call with a BBD context, so I really didn’t have any idea what I’m supposed to do. So before the call I read a bunch of blogs on what you should be doing. You’re supposed to like discover their needs, you’re supposed to ask for pain points and like all that kind of stuff, right? So this was sort of a weird call because this guy, he’s like a very experienced purchaser, so he’s just like, hey like, so I started trying to ask him for his pain points–
Tim A.: You had your grid right, but he knew you had a grid and he was like, “I don’t care for that.”
Tim Z.: Yeah, so he was like, “Hey dude, just listen to me, “I just want to ask you some questions, “answer the questions and we’ll be good to go.” So he just asked me some questions about the product and then he’s like, “Okay, great, now so tell me about pricing?” I didn’t really expect the call to go that far because it was sort of my first one but I was like, “Okay, well, why don’t we say $600 a month.” He’s like, “Really, 600 a month, that’s it. “Like we have a quarter million budget for this.” I was like, “Oh, too late.” So that was like probably a pretty smooth first call and then like he ended up putting me on a demo with a follow-up call which I did not know how to do. So for the follow-up demo we had to meet with the CMO of the company. It was more of a like one hour long demo and also didn’t really know you’re supposed to have like screen shares and all that sort of stuff so I bought my first screen share program and set that up and it went pretty smoothly, they ended up signing like a week or two later. So it was much smoother than expected.
Tim A.: Right and that first sale, that can go and sometimes that works your way, right. And sometimes, you know, you just kinda sell to friends or family or something like that and you can get rolling in that way. But then you said the next few sales were harder, right. So at some point did you kinda figure out like a template, how did it get easier? Because eventually it did get easier right? You guys are growing really, really fast. So what was the trick to kind of passing that, kind of like, sophomore slump so to speak, of selling two, three, four and getting kind of rolling into a good rhythm?
Tim Z.: Yeah, I think it’s about really selling to enough people where you kind of understand based on the questions you want to ask what they’re pain points are. So the first sale is sort of an anomaly, the next few sales you have like a staff startup, you have an HR agency, you have like a benefits brokers, you have all these different people, they all have different pain points and if you don’t really understand what they’re pain points are it was pretty hard for me to just like give the same pitch to everyone. So eventually I sort of was able to bucket down these different people into different groups, also like sorta of, I think this is something that I personally find really helpful which is have some sort of process that you write down, cause otherwise if you’re just ad-libbing it, it’s hard to improve but if you have some sort of process written down that you can constantly sort of see which parts works, which part doesn’t work and eventually you have a process written down that’s like, you know, talk about this and this and this and then it worked for most people and essentially you can consistently close about 4o, 50% of the deals so that’s where we ended up being.
Tim A.: Yeah, that’s nice. Is it true that this is kind of like, you know like just getting that momentum is kind of a key thing, right. It feels like a lot of stuff in startup, but particular sales, it’s like the more you just kind of make it a point to like just send emails and getting calls and the easier everything’s gonna get, right, downstream. Because you will naturally start to optimize every little thing in your way. So is that kind of a correct assumption from the outside?
Tim Z.: Yeah definitely and I think the other thing is that was helpful is if you have a lot of meetings Coming in, then you don’t really care about the outcome of a call which actually conversely makes it beneficial for you to help them because you don’t care about closing the deal, you’re just kinda like hey, can we help them? If it’s not a good fit you’re not gonna force them to sign with you right? So that mentality works a lot. So I think for us, the hardest part, like even after the first call we still had some trouble, like how do we consistently get the meetings? And once we were able to, it took us like two or three months to do that, actually be able to get like 10, 20, 30 meetings a week. Once we did that then it just, once you have that volume of meetings, you also then have the data that you can play with to be able to optimize your actual sales process.
Tim A.: But there the reason like your thing is interesting, like not caring about the outcomes. I had a friend in sales, he would always say to me, “The thing that makes a really good salesperson “is being able to ignore rejection.” It’s in a couple different ways, right. One of them is like, hey, if a sales call doesn’t go well then you just move on and you don’t let that wear you down, it’s not some rejection of you or your company or anything like that. But it’s also I think in the middle of a call it can be very, very helpful to kind of have that experience of like, no, you’re not gonna say no to me or I’m not gonna take it personally if you say no to me and I’m just gonna keep pushing. How much do you think like, especially not being kind of like, a self-described sales person, right, coming form engineering background, how much do you feel like the success in the sales and getting that rolling was kind of a mental exercise, of like changing your mindset about the act of selling and the way you dealt with conversations?
Tim Z.: Yeah I think mental is a pretty large part of it. I’d say I think if you shift the mindset, I think initially I had a mindset of hey I really want to close this deal and then once I shifted it to like not caring so much about that into more like how can I, can I help this customer? If so, like how can I help this customer? Then not even caring if the deal closes as much. We actually did a test and the close rate rose a lot and I think part of the reason we were able to do that is because hey, well we have like, if this call doesn’t close we’ll have like the next call in like a couple hours anyway so we’ll just keep doing these calls.
Tim A.: You just got to optimize, right. You know sometimes it’s not worth your time to keep pushing this conversation that’s kinda not gonna go anywhere and you’re better off just kind of moving on and like literally and then just kind of moving to the next call. So we’ve talked about kinda the volume quite a bit, right. Of like how do you gonna get more calls and how do you get better at the calls and how do you prioritize your time but another thing obviously, to get to a million is you know you can do a million deals for $1 or you can do one deal for one million dollars. So let’s talk about pricing a little bit and obviously that changed a lot from software to software and from company to company, but what are some of the things that you learned in terms of how to price your product? You know, starting from something that you were like charging $600 a month for instead of like charging a quarter million, to like what you’re doing now, right. How did you get better at figuring out how to charge for your product?
Tim Z.: Yeah, that’s a good question. So at first we sort of, I mean there’s a few ways that we tried to benchmark, to price our product versus like we just benchmark against competitors. I mean generally speaking that’s like–
Tim A.: So how do you get that info for example? That seems like something that sometimes it’s online, I mean how do you kind of figure out who your competitors are and what the pricing is, right. What did you go through?
Tim Z.: For us where it’s sort of in the leads and the sales marketing space, so you sort of take a look at what the typical price is, like price per lead, price per months for these spaces and then just like maybe discount it a little bit, since you’re early to startup. Then take into account the other side and then sort of combine them sot that’s sort of, just do a bunch of committed research and then just match the pricing and be a little bit cheaper.
Tim A.: So the interesting thing there, right, it’s how much do you feel like you should match the pricing model, not the price itself, but like how people price per lead so we should do it, versus like how we should kind of completely like mix it up and have a different pricing grid. Like I feel like that’s a struggle and so did you guys debate that at all or did you kinda go and say like, okay well the industry has decided and we must follow?
Tim Z.: Yeah, we tried a bunch of different strategies which is pricing per lead, pricing per month, pricing per like appointment that we set. In the end we found that just pricing, just following the industries standard at least for us made a lot of sense because are used to buying like that and if your product truly delivers the value then there sort of used to it and there’s no major issues. I would say the other thing that we did in terms of pricing that was really helpful is instead of pricing by competitor benchmark is just pricing by the amount of value that we create. So one line I used during a lot of these calls that I found pretty effective was, So basically we help these companies get meetings with their prospective customers, right? And so instead selling them on the value of a lead, like basically a record of somebody they might want to contact, we sell them on the value of the number of demos that they’ll get and how much they’ll close. So typically our customers, each deal for them is worth 10,000 or $100,000 right. So it was like well if we can get you 100 meetings per month which you could with our software, then if only 1% of them close, you’ll get like 100 extra ROI. So in that case we’re able to like pretty much increase our price, three or four X, by just sort of pricing around value rather than around competitor influence.
Tim A.: That seemed like to me a good way to do it, right. Cause if you’re just pricing against your competitors you can get into like a death spiral where you’re just like always slashing prices. We can get into kind of like, bake-offs or competition, where like customers kind of, quote unquote, choose you for the wrong reasons. So it might be hard to kind of sustain it long-term as a company, right, to kind of just focus on beating people on price, where if you can beat people on value that usually is more sustainable long-term as well, right.
The Startup Tapes chronicle the highs & lows of building a startup, through candid, immersive interviews with founders, operators & advisors. Tim Anglade, an Executive-in-Residence at Scale Venture Partners and formerly with Realm, Apigee, and Cloudant leads the project with the goal to de-mystify the process through which startups emerge, grow & succeed. His unfiltered interviews transcribe the conversations we often hear in the boardroom, amongst our portfolio community and with entrepreneurs and partners we engage with every day.
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