Customer Empathy As the Great Sales Enabler

I’ve been thinking about empathy a lot lately in the realm of sales and a host of other real-world opportunities. Empathy via the Oxford dictionary is defined, “the ability to understand and share the feelings of another.” Is it any surprise, then,

I’ve been thinking about empathy a lot lately in the realm of sales and a host of other real-world opportunities. Empathy via the Oxford dictionary is defined, “the ability to understand and share the feelings of another.”

Is it any surprise, then, to hear Founder and CEO of Spanx Sara Blakely recently share with University of Southern California students the importance of understanding a prospect’s personality when selling? She told students to understand buyers’ motivations as one of four personality types. For Sara, who really bootstrapped her way to building a renowned billion-dollar company, it’s about knowing the customer.

And as we think our interactions with people everyday, empathy helps us connect to one another. It helps us be more open while also not seemingly attacking (or defending) one another. Empathy is what gives us the ability to share our thoughts and opinions in a way that would be well-received, while being true to ourselves. I say, “share our thoughts” not just “hear” because, let’s face it, oftentimes, we’re trying to sell our perspectives. That matters a lot to us. So, okay, let’s start with we want to get our thoughts across. We want to sell our software to this buyer. Got it.

Empathy, then, helps us communicate with our buyers. This way, our message resonates. It does not fall on deaf or defensive ears.

Great. You got it? Empathy is key. But how? How do we be empathetic with our customers, prospects? Loaded question. Why would you ask it that way? Just kidding. Kind of.

Being empathetic requires three key tenets right off the bat.

  1. You have be open to be wrong. In another way of saying this, you have to be open to learning. Knowing your ideas or your product can be wrong is a great way to start the conversation as to why. It helps us understand if our product is wrong, our message is wrong, the opportunity is wrong. Sometimes, it’s actually not even wrong. Instead, it’s knowing things can be different. This helps us learn what are the other opportunities? How can we improve? This is really more of a foundational tenet than a particular “action” that should be done during any interaction. It’s not “done” as much as “it’s there”.
  2. You have to listen. The first step allows us to realize that maybe we’ve got the wrong approach. From there, we have that ability to ask questions and learn, but it doesn’t happen if we don’t listen. Of course, by “listen” this can come in many forms such as watching or experiencing first-hand. What this does NOT include talking to share more of our position and interests, or not witnessing how goals are accomplished today. It means taking a step back and being an observer.
  3. Apply what you’ve learned. This is where all the learning and observing really comes together. This is where we can react to our buyer. We are understanding what we’ve learned and observed. We can relate to how this all applies to what we wanted to share in the first place–you gotta sell to put food on the table, right? If the prior tenets are the hardest, this is the most fun and creative.

Selling is persuading. And to persuade, isn’t it important to know what’s important to the other person? Not important? Isn’t it important to know how they might view what you’re selling? Why do you think it’s easier or harder for a potential buyer to agree with you if they got a chance to tell you what’s keeping them up at night? Customer empathy is the key.

Empathy then snowballs into being more authentic to one another. Then, we get into new worlds where we care about the success of one another, not just the success of me. Empathy allows us to then realize this may not be the right opportunity for us to work together. And you know what? That’s okay. We can move on. That… is fantastic.

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Frustratingly Forgotten Companies

Hopping back in the blogging world! Yes, yes, thanks for the welcome back.

I’m immersed again in the joy of startups and entrepreneurship. That now includes so much more perspective in the engineering and product world. My role as a Director of Solutions provides me incredible insight in the “other side” of the house of “building” vs. “growing”. Read: in product vs. sales / growth.

The first topic I want to bring to light comes courtesy and inspiration from a discussion with a colleague about a company / service now in irrelevance. That service was supposed to be the second coming of PowerPoint. That is, to kill how linear and static presentations were. This new, at the time, tool was supposed to be all the rage. It was innovation for presentations and slide decks.

It enabled presenters to more visually engage audiences with visuals that would seemingly go deep into parts of a presentation. It’s like zooming in and out and navigating around a giant canvas. It was “the hotness”. I remember seeing my first presentation with this tool, and I was floored. I thought it was great. So, why doesn’t anyone use it today? Why am I not?

It’s a pretty simple answer, really–it provided little value, and had a high hurdle for adoption.

I signed up for the service trying to create a “cool” presentation. But it was so frustrating trying to create the same effects that I witnessed before. My transitions were not smooth. I didn’t have a clear roadmap of how I wanted to walk the audience through. And yet, I had to get my presentation DONE. I needed to be ready to present in a few short days. I was busy trying to figure out the presentation visuals after completing the initial story and slides. It just took too much work.

The tool was cool. It could snazzy up my presentation. But like how I felt with the presentation I witnessed with this service, would my audience really listen to what I was presenting? Or, would the audience be like me–in awe of this tool.

Many others likely fell into this same trap. It’d be cool, but… I got work to do. My audience needs to get the message, and we all need to walk away with XYZ decisions made.

The user experience of tools are critical to getting a user onboarded and getting to their Aha! moment. But also, there needs to be a clear benefit of using the innovation. It’s like selling blockchain. It’s a “cool” innovation, sure. Or at least, the idea is cool. But what’s blockchain really getting me? More often than not, cool doesn’t cut it in the market. There needs to be clear benefits.

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The Value Must Be Greater Than The Risk, But Show It, Too

I met with an aspiring entrepreneur recently who was deep into the customer discovery process with potential first customers. He was sharing with me how he was speaking to different customers but they were really of different market segments with different challenges. That was a big reason why he was hesitant around what features to build that would be critical to an MVP.

But one of the more interesting considerations during our discussion was how he identified a truly valuable insight and value that would actually bridge both customer segments due to this one problem. However, when he brought it up with one of the customers, there was immediate push back. What this wantrepreneur heard was really the fear and risk the customer felt when considering this new way of doing things.

But the question is, is this fear a true stumbling block that would make this offering dead on arrival? Or, was this fear just because “it’s how we’ve always done it”?

In these cases, it’s important to present what the value of such a solution would be. Part of this process includes asking, “why?” over and over (5 whys will do the trick) to get to the root of the problem. Then, present why and how the offering brings benefits and value to the customer. But also, consider if this customer can be an early partner to truly discover if this fear will hinder success or be a truly beneficial opportunity that can bring about much greater success to the company.

But also, consider how the risks and fears can be mitigated to enable the partner to keep going.

No one would have thought about people would let strangers in their home. Why would they ever do that? But then, when a company like Airbnb will insure the home for any potential damages + provide income + enable hosts to “vet” potential guests, the reality sets in that this can work. Consider days prior to Uber. Think about upsetting the status quo of taxis and cabs with long established systems with medallions vs. having strangers driver strangers around.

To disrupt established norms, one must only present enough value and benefits that overcome potential risks. Don’t let negative feedback stop the pursuit of something that could be great. Instead, dig in. Find out why that negative feedback exists. What would usurp the risks?

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Book Review: The Hard Thing About Hard Things by Ben Horowitz

I just finished one of the first books in a long time called The Hard Thing About Hard Things. This one is by VC Ben Horowitz of Andreesen Horowitz. Ben shares the lessons he learned during the tumultuous years of building LoudCloud then Opsware which was later acquired in 2007 by Hewlett-Packard for $1.6B.

The gist of the book is sharing all the hidden experiences entrepreneurs face to create a valuable company—lessons that are rarely, if ever, discussed in other entrepreneurship / CEO books. For example, what is going through an entrepreneur and founder’s mind when having to lay off an entire workforce.

There are many lessons I learned from the book, but the one lesson / theme I came away with was the appreciation for my former CEO, Gregg Freishtat, at SalesWise—the startup I was a part of from 2016 through 2018. In the book, Ben discusses many of the trials and the thrust to push through incredibly difficult circumstances or fail. Some of those stories included running out of money and having to raise capital on the back of little revenue, competing against much larger, well-funded rivals, and even the challenge of hiring a friend / acquaintance. SalesWise was very much an up and down experience that eventually led to the company largely dissolving (though, created another brand that was acquired—Burner Rocket). My former CEO kept looking for “veins of gold”… constantly pushing and prodding looking for new ways to sell and grow. Unfortunately, unlike Ben’s company, things did not work out. But it was the sheer determination and the scrappiness to survive that was such a big appreciation I did not have prior to this book.

Other lessons I took include:

  • The nuances between a peacetime CEO vs. a wartime CEO including adherence to control and procedure (or otherwise), paranoia of competition, focus on execution vs. finer details, etc.
  • How to make decisions with little to no real experience or knowledge and the impact to the company when decisions go against consensus.
  • The lonely road sometimes walked by CEOs and founders during difficult times. This reminded me a lot of Ray Dalio’s journey described early in his book Principles including having to lay everyone off and then having his cofounder leave as well. It’s critical to have a support system with people who have experience.

There are a lot of fine details in the book to which I have less experience to truly appreciate what Ben went through. Instead, what will forever resonate with me is the determination, focus, and grit required by entrepreneurs / CEOs to pull companies to survive. Having been a witness to the gargantuan effort this requires in a startup I was a part of, I better understand now the true commitment I must make to create a valuable company.

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Beware of Self-Preservation

When it comes to sales, perhaps the biggest challenge a buyer is wary of is the risk to his / her job. Selection of a product or service can have consequences to the results of a key initiative. The success of the selection can help a mid-level manager rise to a leadership position—the ability to usher in a transformation. Or, the poor results of a selection (or the grander transformation, for that matter) can stall a career, if not end it for at least the current company. The bigger the selection, the transformation, the more visibility and interest in its results. Will this investment return the ROI as expected? But that self-preservation holds back progress.

Self-preservation can come in the form of staying stagnant because it’s known. The risks are mitigated. The upsides, though can be great, comes with greater risk of the “what if it fails?”. But, self-preservation can also come in the form of focus on the self when things go well and the shift of focus onto others when things go poorly. Self-preservation can be the focus of accelerating the individual over the collective. It’s dangerous. It creates a “me vs. everyone” view. It risks the progress of the collective. It can be that undercurrent that works against the larger wave.

It comes in many forms and can be hard to spot. A lot of times, we’re doing it ourselves. It might not even be one person. It can be a breakaway set of peers. It can be not sharing the status or progress of what is occurring. It can be holding onto the keys to other people, other opportunities—that need to be known as “THE” person that everything must go through. It’s information holding, not sharing. It’s not power. It’s a bottleneck.

Self-preservation does not allow us to grow together. It creates riffs and politics. It prevents transformations from taking hold for the collective progression.

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Stock Options and Restricted Stock Units

Stock options are not restricted stock units. That’s my big lesson from this week. I thought I knew what getting equity was all about, but given I’ve gone through few meaningful liquidity events other than Burner Rocket, I didn’t know what options truly meant. Burner Rocket, after all, was a much simpler transaction that my partner and I largely split.

Over the last couple startups I joined, I have been offered more significant stock options as part of my compensation. These were all early stage startups with great risk involved and lower-than-market salaries. I’ve realized the big difference of stock options while financial planning. Meanwhile, I have several friends who have joined companies and received restricted stock units (RSUs).

Here’s a quick breakdown about each.

Stock options

Stock options are typically given as compensation and earned as a reward for hitting milestones with a company. They are typically earned over a vesting schedule. A common vesting schedule for modern startups:

  • 1-year cliff – to mitigate the risk of new employees earning high-value options, companies instill a period that an employee must stay in order to start earning options. Stay 8 months, no options. Stay 1 year 8 months, options.
  • 4 years – stock options are earned out over some time period where the 4 years includes the 1-year cliff. Typically, the earn out is evenly distributed over the years. If given 1,000 options, year 1 would earn 250 options. Year 2 would earn another 250 options (500 options, cumulative).
  • Typically, after the 1-year cliff, options are earned every month (1/12th of the annual period, or 1/48th overall).

The key part about stock options is that they come with a strike price (or exercise price). This is a value per option usually based on the last valuation of the company. This is also the price to which a new employee has the right to acquire the options for at a later date when the options are earned (based on the vesting schedule).

For example, take a new employee can earn 1,000 options over 4 years. After 18 months, the employee earns the right to exercise her options on 375 options (18 x 1 / 48 x 1,000 = 375). The value of a share of stock is $50, but in her contract, she has a strike price of $0.50. This means she can exercise her shares of the company at $187.50 (375 shares x $0.50). However, the value of her shares are actually $18,750 (375 shares x $50). That would represent $18,562.50 in value earned.

Employees can exercise their stock options based on a contract. Read: employees cannot hold onto options forever and expect to exercise at forever + 1 day. They expire. Some startups may provide 3 months for employees to exercise following the voluntary or involuntary termination. There could also be no ability to exercise (o days) for termination with cause. This should be spelled out in the options agreement.

And finally, stock options come in two flavors:

  • Nonqualified stock options – these options are extended to general employees, consultants, other partners of the company. No difference in value. The difference appears in taxes, to be discussed below.
  • Incentive stock options – these options are typically reserved to executive management of the company (C-level managers and other key personnel). These individuals (via this type of stock option) receive preferential tax treatment (to be discussed below). Lawmakers wanted to provide another incentive for these leadership personnel who lawmakers believe bring greater value to the grander economy.

Restricted stock units

Restricted stock units (RSUs) are another way of saying shares of a company that have been reserved as compensation to an employee. RSUs, like stock options, may be earned on a vesting schedule–many, also, on 4-year schedules.

The big difference for RSUs is that they do not need to be purchased by the employee to own. Instead, employees earn them outright after vesting periods elapse. There is no strike price here. Instead, the number of shares would be earned based on the value of the stock at the time of earning.

Important to note here that RSUs could also mean earning the cash / liquidity of the value instead of owning the actual stock. This provides some flexibility to the employee on what and how to deploy her compensation.

The big differences

In short, RSUs are a safer, less volatile compensation type over stock options which require the employee to “buy” at an agreed upon strike price.

The other key difference between stock options and RSUs is how they are taxed.

For stock options, taxes are paid when the employee sells the shares. This will be based on the capital gains rate applicable. Additionally, if the stock options were marked as nonqualified (NSO), then, incomes taxes will also be assumed here.

RSUs, on the other hand, are treated as income as they are directly earned by the employee. As such, they incur the normal income tax on the market value of the earn out at the time of earning. Typically, the employer will withhold some number of shares (or cash) to pay the taxes rather than issues full to the employee and having the employee deal with the income tax implications. If the employee takes the option for stock shares, then capital gains taxes may be incurred if sold later than a year.

As you can see, stock options and RSUs are very similar in how they are used to compensate employees. The biggest differences are on risk (RSUs being the lower risk) and the way employees are taxed.

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The Finance of Startups for Dummies: Add Backs in Valuation

I was speaking to a colleague recently working in private equity, and I heard about a very interesting concept called “add backs”. Add backs can play a big role in the valuation of a company. Add backs can be expenses made prior to an acquisition that are one-time and can further the growth of a company or reduce costs. These add backs can be added back to the EBITDA (earnings before interest, taxes, depreciation, and amortization).

Some examples of add backs include:

  • $300,000 for laying off the bottom performing 25% sales team
  • $50,000 for company jet for executive that is no longer involved in the day-to-day operations
  • $1,000,000 in consulting services to deliver a strategic and execution for high growth

If a company has an EBITDA of $5,000,000 with all of the above add backs, the adjusted EBITDA (true profitability) would be $6,350,000 ($5,000,000 + $300,000 + $50,000 + $1,000,000).

In M&A transactions where multiples are applied to EBITDA, add backs can be massive. For example, if a technology company typically sells at a 7x multiple, the valuation of the EBITDA would be $35,000,000; however, its valuation on an adjusted EBITDA would be $44,450,000. That would be a difference of $9,450,000. Or simply, every $1 of add back is an additional $7 of valuation.

Sellers need to consider these one-time, transactional expenses when valuating their companies. It could be a massive missed opportunity.

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Time for a Break

Last week was the first time in a long time I just said, “eff it, I’m not posting”. I could’ve still posted later like I had done for several weeks prior. However, I just didn’t. Maybe it’s time for a break?

The last several months have been a whirlwind for me with travel all around the world—including writing this post from Dubai. Meanwhile, I’ve sold my previous home. Closed on a new home. I’ve gotten married. I’ve taken on new roles at a new job. It’s a lot.

Meanwhile, I’ve felt so much less entrepreneurial in my current role. Perhaps because I’ve realized more and more that while I am in my current role in this startup, it’s crystal clear I am no longer an entrepreneur. Sure, I can be entrepreneurial. However, I’ve hung up my keyboard as an entrepreneur since selling Burner Rocket. Now, I’m just an employee.

I’ve felt so much less an entrepreneur. I have things to share, for sure, as I take on this “Solutions Architect” role while also taking on some elements of sales and some in marketing. However, it’s all… not mine. As I stare at a future that is quickly approaching with my new personal life changes, I must make the decision to stay on my current course as an officer of a ship, or find a new way for me to be the captain of one.

Whatever the next step is, however, I’ve reached a saturation point and exhaustion that has me saying I should cut back my posts here to at least bi-weekly if not stop altogether. Or, I go with something in between as a time bound hiatus or choose to post only when I want to (read: have material I feel should be shared rather than the obligatory weekly, or bi-weekly, post).

Life is changing. My role is changing. My views on how I pursue my life’s passions and ambitions are not changing. Though, these feelings are the same feelings many entrepreneurs face, especially in light of struggling to gain enough traction to stay the course and being able to do so—emotionally, socially, emotionally, etc.

Stay tuned. But also, reflect on where you are. How is your life changing? Are your ambitions and passions changing, too? Or, are your ambitions and passions playing second fiddle now due to some changes? Will you stay this course or do you have plans to change?

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Walk-Up Sales Pitches

My [new] wife and I are out in Hawaii checking out the sands and crashing waves of the North Shore, and we’re approached by a man looking straight at me saying, “you look like you’re from around here”. I’m dressed like I am definitely not–pure “tourist” on me. But I know what he’s up to. Before he walked up to us, he grabs a binder, and his face is beaming.

This man proceeded to pitch my wife and I on the problems of rusty, beaten-up old barrels the government is using as trashcans on beaches. Well, he started off showing his business license (a welcome surprise to help bring some legitimacy to his walk-up pitches). Then, the man shows us pictures of these horrendous barrels (much like those used for oil) that are rusty. They’re not only ugly but they are dangerous with their sharp rusty hulls and polluting our environment. He’s got a solution, of course–safe, durable plastic barrels. Oh, but there’s more! They can also be wrapped with beautiful art. In fact, this is his main pitch. He wants to not only provide / fund better containers, but he really means to slap artwork on barrels. He also has a picture of himself and others with the mayor of the local town. Not sure what they’re taking a picture of. After all, I could’ve taken a picture with an A-list celebrity on my flight to LA the other day, but that does not mean he and I are best buds even if I tell you it’s true.

I told him I was “skeptical of people who walk up to me asking for money” without legitimate opportunity to validate. With that, the man agreed that he probably wouldn’t give a couple dollars to someone like him either and promptly thanked us for our time and left.

My wife laughed out how upfront I was, but I mentioned to her that I knew what he was trying to do before he said a word. She asked me how I knew, and it’s quite simple. His opening salvo is employed by countless walk-up salespeople. When I was in Dubai a few weeks ago in the Old City Souq (marketplace much like a bazaar), I was constantly bombarded by merchants trying to lure me into their shops to buy herbs, scarves, etc. Much like this man at the beach, the salespeople at the souq would try to entice me with:

  • “Hi friend! Where are you from?”
  • “Ni hao!” (Mandarin for, “hello”.)
  • “Have you seen such a beautiful scarf?”
  • “Where are you heading today?”
  • “You look like you exercise.”
  • “I think you’re from Trump country.” (I heard this term too often.)

In several instances, merchants would try to lasso me in by actually hooking scarves around my neck to try them on. Subtle, these folks were not.

Today’s encounter made me think about these pitches.

  • Most of these pitches are for low-conversion, high-volume transactional sales. They’re just looking for one thing and are ready to move on.
  • Today’s man was actually quite nice, but he also realizes a “no” when he hears one. Hence, he was quick to give his thanks and take off. He’s ready to find someone else to sell to.
  • His business license made my head turn that he could be legitimate. In the least, I can hear out his plan further. However, my skepticism prevailed.
  • His opening line saying I could be from here was, likely, based on my ethnicity and skin tone. This is much like in the souq when folks would try to lure me by saying hello in various Asian languages. Playing on race is usually not a good way to start things off.
  • By launching full on into a pitch does a couple main things: (1) creates defensiveness to the audience and immediately creates a negative environment; (2) gives the pitcher the opportunity to lay out the message before the listener can say no and risk the defensiveness.

Folks get these pitches all the time. Some are more subtle in everyday life such as a grocery store food sample station or while walking around at a car dealership. They just keep coming.

How have you been pitched? Was there a pitch that worked on you? Why?

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Play Up the Emotional Experience

I’ve spoken to a few marketers and entrepreneurs recently about reinvigorating old customers in more transactional sales. These types of sales can be layups if done right, and though, would likely not yield 100% conversion, these opportunities can still have a high conversion rate. At least, if customers had a positive experience before.

In one case, a mooted marketing campaign involved a give-away with minimal reward but to buy a new “package” would’ve required planning and an investment over several thousands of dollars. In fact, this type of sale was more luxury-oriented and highly experiential. Though the marketing ploy could’ve been fun, I didn’t feel it would bear much fruit. More importantly, there was a better opportunity—create a campaign around the customers’ prior experiences.  

This luxury service offering meant the cost of acquisition could be higher. This also meant there was a good opportunity to leverage more personalized messaging. A more effective campaign would be to lean on the prior experience. That is, provoke the customer to think back and relive the experience. Building on the pleasurable experience will entice the customer back.

In traditional B2B sales, building a sales opportunity involves provoking the pain point. Then, show the customer how a proposed solution would relieve the pain.

Play up the emotional experience.

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