EP16: How Many SDRs Does It Take to Change a Lightbulb?

Almost 400 years ago, in the early 17th century in Europe, tulip bulbs were considered hard currency. 200 years ago, many islanders of the South Pacific used bleached seashells to flaunt their wealth. 100 years ago, many Texans measured their success by how many heads of cattle they ran. And today, my 8-year-old measures his wealth by the rare skins and VBucks he accumulates through his Fortnite gaming efforts. But today, if you’re a CEO or senior business leader in B2B tech markets, you may also have an alternative form of capital that should be leveraged in every way that the currency in your bank account is currently deployed: If you have created the function of an SDR team – regardless of the size - they are indeed a source of capital that operates in many ways like traditional capital and is also liquid.

Since our focus at the Market Dominance Guys is lending a hand to companies and offering techniques and insight to market penetration, transitioning to NEW and additional markets may be something that isn’t at the top of the list. But, Geoffrey Moore argues – as we discussed in an earlier episode about his book, “Crossing the Chasm” - that breaking into any market is an aggressive act. And as such, Moore proposes a specific and consistent and testable strategy for moving from one market to the next with success. And testing and entering a new market is often a much more simple exercise than many realize…especially if you have the alternative capital – SDRs – to invest in it. It is through your SDR team, after all, that is the means by which you're going to identify the ripeness and opportunity that exists in a new market. 

With their number one job to be an instrument of market exploration and their number two job to be an instrument of market expansion.

That’s why, in essence, the mighty cold call is the essence of this entire market domination thing. Namely, can you hire and train and coach your SDRs to speak empathetically enough to get the prospect to trust them enough in 30 seconds and be curious enough that this curiosity can be transformed into commitment, and that this commitment will turn into the action of actually showing for the meeting.

In this episode, we explore the power of deploying SDRs…how, how many, and when…and why the more markets our SDRs can validate, the less our chances are of going out of business. This is the Market Dominance Guys and this week’s episode, “How Many SDRs does it take to Change a Lightbulb?”

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The complete transcript of this episode is below:

Speaker 4 (04:03):

The cold call today, done by an SDR who believes in the potential value of the meeting, for the human being that they're talking to, in the downside case where there's no business to be done ever, not just today, but ever. That cold call done by that SDR is the equivalent of the assignment of a territory to a good rep in the past.

So my unit of go-to-market the past was get a good rep with a Rolodex, and give them a territory. Why the Rolodex? Because the rep is referenceable within the Rolodex. So it's like, "Why not?" Right? I get myself a market. What's a market? The rep's territory. That was the brilliant act of the past. No longer even interesting. The brilliant act of right now, is one cold call by one competent SDR into a list that is a hypothesis about a self-referencing market.

Why is it so important? Because without it, without that cold call, we can't have a shot at getting enough information back and forth between us and somebody else to get them to come to a meeting where they might confess their desperation. It's a chain of value that goes along. And if you break that chain by refusing to do the cold call, you cannot dominate a market by starting with a list. And you have to rely on your product being magic. And occasionally products are magic and it fools everybody. So SaaStr is all about. The whole SaaStr thing, go to SaaStr. What is it really about? Let's all go into a room that may or may not have dart boards in it. Let's close our eyes and throw the darts really, really fast. And every once in a while, we'll hear a little satisfying thump and somebody will say, "Bull's-eye." That's it. That's it. And then they dress it up with a bunch of words about what you might be doing.

But the right thing to do is, to go find a room where there's just a couple of you in there, turn the lights on. But you still can't see the [inaudible 00:06:13] and you're not that good at throwing darts. And here's the dart board I'm going after and go, "Bop, bop, bop, bop, bop, bop, bop, bop" With good technique. And eventually you'll get a bull's-eye. Darts are funny, they're magnetic. So now future darts will tend toward the bull's-eye because they're attracted to the first one. And over time you get a big cluster there, and now you can blindly throw darts, and they're all going to go in there. At which point the right thing to do is find another room. So it's a different world we live in because of software. Because everything is software now, whether it says it's software, it doesn't say it software, it's all software. And software moves liquidly through the world. And I need to overcome the challenge that it appears to be good for everything.

So this brings you to the next thing, which is when somebody says... I have one today, by the way, there's a test drive we're doing today with a company. They do root cause analysis, training, and software. And what do they say right there on their website? "This can be applied in any domain." Therefore they're going to stay small, and be a consulting business. Because as soon as you say it's for everything, it's for nothing.

Speaker 5 (07:24):

As soon as you say it's for everything, it's for nothing. And so many businesses fall into that.

Speaker 4 (07:28):

Yeah.

Speaker 5 (07:29):

Or worse, they'll do that in the VC pitch. What's the application, what's the use case? "Oh, any market whatsoever." Yeah.

Speaker 4 (07:35):

And even worse, VCs will encourage it. I've got somebody in my CEO group, has this incredibly powerful technology, but they apply to trading, high-frequency trading. It's a nuclear weapon for high-frequency trading. It's a way of turning software into hardware. Reliable, by pushing a button, it turns software into hardware that executes with a thousand times less latency. I'm sure there's other domains for it. The VCs looked at it and went, "Gee, that's a little narrow, just trading. Show us that you have more imagination that you can apply it to other things."

So the poor entrepreneur looks at it and goes, "Oh, I better go develop some of that stuff." Okay. Well, what's the biggest thing that shows the most imagination? Smart cities. Can you imagine selling a smart city? I can't even conceive of what you would do. Who would you approach? [crosstalk 00:08:28] these smart cities?

Speaker 5 (08:30):

The sales process alone would bankrupt the company.

Speaker 4 (08:37):

Exactly, [inaudible 00:08:37] VC.

Speaker 5 (08:37):

You're talking three years.

Speaker 4 (08:38):

Yeah. Three years to get the first proper meeting, and then God knows what's going to happen. It's an opaque. So anyway, so to come back to all this, what's interesting to me and the talk that I'm now giving over and over is this: way over here is strategy, and we used to execute strategy by M&A, because you buy the territories, and you buy the product lines. It's wonderful, right?

Speaker 5 (09:02):

Yep.

Speaker 4 (09:03):

I bought another company. I'm in the Western US, they're in the Eastern. It's more common. The buyers in the East, somebody has done a similar thing in the West, and you buy them. You get all the territories. Yay. It's wonderful. It's just the coolest thing in the world. That used to work, right? How do I do that in a world where it's now software, my territories all overlap, the geography doesn't mean anything. What am I doing? And then how do I compete with private equity, which doesn't have to integrate. Their risk of failure in private equity is very low. My risk of failure when I buy a company and integrate it into mine is essentially 90%.

So private equity spends 10 cents on the dollar for the same product, once risk adjusted. So they don't even have to have more money than me. Then they want machine that's looking for them all the time, so they see all the good stuff, and I'm an amateur part-time guy with my little Corp Dev group, going out, looking for what they can get. You just can't compete with that shit man. You can't. And every example that says you can is a false example, that's the false positive. "Oh, look, that one worked for so-and-so." Well, you're not in there. You don't know what really is going on. It's probably a mess. It's probably not working they're just dressing up because they don't want to look like a failure.

There you are with strategy. Got to take more markets. Why? Because my market that I'm dominating now will eventually be subject to either competitive or secular forces. Probably secular change of technology or changing economy. And I will be unable to cover all my overhead from the gross profit flow of that market. If I'm down to one. This is that game of risk where you don't want.

Speaker 5 (10:49):

I've been there.

Speaker 4 (10:51):

So eventually I'm going to lose, but at least I'm alive now. If my number is zero, I got another problem. So going back to your original question, what do you do first? Find a market that you currently dominate, and ask yourself what the gross profit flow is off that, and how big your company could be. That's contingency plan to shrink to that size if you ever need to.

Speaker 5 (11:14):

There you go. So that's the triage that I have to do. I may have to cut off a limb or two to save the whole body. If I find myself in that position, where listen, I'm not growing. I'm growing 10 to 12% a year, minimally. Whereas my competitors are getting noisier, my sales reps, my SDRs are running into that more and more. I thought I had a head start and I blew my head start. I blew my capital on initiatives, or marketing, or websites that don't mean anything.

Speaker 4 (11:44):

SDR teams calling people they shouldn't be talking to. False top of the funnel. You're top of the funnel should be this big around, because it's like, "We're going after this." They go, "No, talk to everybody." "Why?" "Because we ran out of people to talk to you." "What?" And we have the team. The team is now the factory. When you hit it directly, the SDR team plays the role of the factory. That is they spend money, but they don't produce anything. They don't produce a product.

Speaker 5 (12:10):

But that's a fundamental error, is that the top of the funnel with a company that has SDRs needs to be as narrow as possible, not as broad as possible.

Speaker 4 (12:19):

And the tip needs to be the smallest possible.

Speaker 5 (12:24):

And the smallest possible.

Speaker 4 (12:24):

I mean, this is kind of why we're in business. We let you run that SDR team. Like we won't put this in the book who it is, but we can say it here.

(Bleep)

They're using an STR team of 11 to take the entire (Bleep) services market, which is projected to be a trillion dollar market. They're smart. If you just did the math on that, instead of you have to talk to, your SDR team would be, it'd be the same size as (Bleep) is going to be, which is 450 people.

The difference between carrying 11 people and 450 people is not a difference of size. It's a difference in time.

Speaker 5 (13:01):

Yeah.

Speaker 4 (13:02):

You're a radically different company. This is what happened, in addition to everything else to... What was that insurance company that everybody loved so much out of Silicon Valley, they were going to revolutionize the... I can't even remember their names. Are they still in business? I talked to the guy who was going to Phoenix to hire 300 people. And I asked him, "Would you like to get the job done with 20?"

Announcer (14:12):

And he said, "No, the VCs have told me my job is to hire 300 people."

Speaker 5 (14:17):

Well, there's currency in large teams for these companies. Look at the Silicon Valley model, we see at Chris here in Phoenix. When [inaudible 00:14:26]. You have companies, obviously this is off the record, but you see companies like (Bleep) and (Bleep). As these companies, they get all this capital and they grow the footprint. And (Bleep) ultimate downfall was they tried to go into show many markets their sales, their SDRs, were working in hallways and three to a desk calling people from LinkedIn, sourcing people from everywhere, just trying to get... And they were poorly trained. They didn't pass their licensure.

And it was one thing after another and it just kind of fell apart. So they didn't have a narrow scope out of the gate. They just wanted to cross that chasm, and parachute airdrop to the other side, by thinking, we're just going to throw cannon fodder at it. And that's exactly what led to their downfall.

Speaker 4 (15:16):

Yeah. They ran good slight twitch, which was they had not had the experience of the relationship between the rate of regulatory compliance as needed, that is the creation of people who are allowed to sell, and their behavior in the marketplace, to the market's demand. They didn't understand that. They just made it up. It was like draw a line on a graph. And then when you're off by a little, you're carrying this huge weight. It's like building a factory for a product you don't know that anybody needs. You're deploying capital, and the capital is going to...

Speaker 5 (15:49):

Yes.

Speaker 4 (15:50):

And your ability to get rid of it fast is pretty limited. It's where what's above the line actually plays the role of overhead. If I don't apply the steel to make the car, I don't have to pay for the steel. The excess that I happen to have an inventory, my buffer, is my risk. That's all I've got. And I can, I can sell it. I can salvage it out. I can sell it to somebody else at 40 cents on the dollar, 20 cents on the dollar, or whatever. So I am only liable for the net, times the time it's going to take me to offload this when I realize that I don't need it for production.

We don't execute with that discipline on the top of the funnel sales process. We don't treat those people like a bunch of steel that's sitting there in inventory for cars that it turns out nobody wants for our Edsels.

Speaker 5 (16:35):

Right.

Speaker 4 (16:37):

We don't do it. We kind of do it like this, "Well, I guess that didn't work."

Speaker 5 (16:42):

Yeah. Yeah, that's right. Well, I think a couple of things as we're getting to the top of the hour. So I think next time let's continue to explore how do I unscrew this light bulb? How do I reverse these effects of aging? I think that's a good exercise because that that'll give people hope that I don't have to just start a new company. That's like, "I don't have to take apart all the Legos. If I missed a step. I can create something still pretty sensible out of the legal pieces that are already built."

Speaker 4 (17:17):

Exactly. And I think this is a beautiful thing that you can really do that's so cool. And this is actually why we're in business again. It's what you can do is you have liquidity if you have SDRs. SDRs look like capital in a whole bunch of funny ways. One of which is if they're good, they're liquid. So the time it takes to ramp an SDR to sell the same product into a new market, is zero days. Because they're not selling the product, they're selling the meeting, and the meeting is a consistent product. It may be that the three things that somebody takes out of a meeting in the new market are subtly different, but the SDR only has to believe in the potential value of the meeting. They're not even going to get into its feature set. The belief is within them. So if you have good SDRs, and you keep the numbers down, when you realize you don't need them anymore in order to dominate your current market. You're already dominating it and now it's time to get a second one.

Because dominating two markets, your chance of failure is one fourth. Dominating three markets, your chance of failure is one ninth. It goes with the square of the number of markets that you dominate. If you dominate five markets, your chance of business failure is one twenty-fifth of where you are when you're dominating one market.

It's kind of like Metcalfe's law of the value of a network, but this is just math. You're probability of failing for... Now I'm going to make an assumption here. The assumption is that your financial buffer is sufficient to withstand say 95% of the secular horrors that you might run into in some reasonable period of time. The time it would take to acquire additional capital. But your gross profit flow from dominated markets will continue in downturns. They are your actual buffer against a recession or anything else. Nobody ever goes out on business because the market that they're dominating with a legitimate post chasm offering, mind you, not a pre-chasm thing that's dressed up like post chasm, but a real post chasm offering. It is hard to go out of business. You might find yourself at the margin expanding more slowly, or not expanding at all, or whatever, but you can shrink your overhead. You don't really need it for that much.

So, when you look at it, the number one thing you want to do, as soon as you find what market you truly dominate today, is to find one that you have a shot at dominating and reallocate your SDR resources only. The best of them, the very best, maybe two or three or whatever, to going over into that market with a message, and finding out if you can dominate that market.

What we do, this is the Connect and Sell magic, and that should take a week.

Speaker 5 (20:07):

Hmm.

Speaker 4 (20:08):

So that's your response to unscrewing the light bulb is, find out if you can make the light bulb turn at all, then ignore the light bulb, and take that hand off of it, and go find out if there's a light bulb you can screw in and the room next door. And first you got to get a ladder, that's your STRs, and if you can get up there and reach it and go, "Ooh, look the pitch of the screws about the same. And I think this is electricity. I think we'll be good." Then after just turning it a couple of times, you go, "Oh, we can do this. We can get this light bulb all the way in. We're good." Right?

But if you just sit there in the other room and you keep unscrewing it, seeing whether a different one fits and all of that. Well that rooms only that room, it comes with risk. It's actually a simple, simple program. Now when you have huge bloated SDR teams, you can't actually reallocate them. You don't even know who's good. When you have SDR teams whose purpose is to incubate AEs, you're really screwed, because your SDR team is the means by which you're going to identify the new market. The next market, the one that's going to reduce your risk by 75%, your risk of business failure. So it better be an SDR team that does it like it means it.

Speaker 5 (21:20):

Versus a temporary, stop holding bin, AE and probationary period before I move forward, that's a position in and of itself that has value in and of itself. Inherent in itself in the whole cog. It's a cog in this entire wheel to market dominance.

Speaker 4 (21:36):

It is in fact the true spear point without which you cannot dominate a market. You need to have the SDR function. If you embedded into your AEs, they need to be extraordinarily disciplined, and you have to motivate them appropriately so that the future is important to them.

One of the beauties of an SDR team is they can keep setting appointments for people you've talked to before. They don't mind. But you got to pay them for the appointments. You can't pay them for the sales. That's not their job. That's not their job, morally, that's not my point. It's not their job, their role in your survival is to be the shock troops who can go in and determine that there is a market here. Once you've determined there is a market you can apply resources to dominating. It turns out those same troops can go and do that next thing, which is get the discovery meetings.

Speaker 5 (22:29):

And the point if I paid them on the sale versus the meeting, it's not one customer or a handful of top customers are not going to get me to market dominance. And so what I'm shooting for is off. I need numbers. I don't need dollars necessarily. The numbers will produce a dollar. I like that, that's great.

Speaker 4 (22:51):

This is a new chapter we didn't even think about. And I'm glad we came to it, which is, there was a chapter in here, the mission critical role of the professional SDR. And this isn't a matter of taste, which it tends to be like, "Well, I kind of liked to have SDRs that turn into AEs because otherwise I have to recruit AEs." Really you can't... Okay, so you're saying their job is unimportant, but when their job is not done, you can't explore markets. STRs number one job is to be an instrument of market exploration. Their number two job is to be an instrument of market expansion through the production of meetings where trust can actually grow. Between the AE, not the SDR, but between the AE, there's a transfer of trust. I have a conversation with you and I get you into a meeting with Jonty.

Your trust ends up being between you and Jonty. You forget me, the SDR, which is great. I'm fungible, I'm liquid. So I can be used to have another conversation. My skill is to get you to trust me enough in 30 seconds and be curious enough, that that curiosity will turn to commitment and the commitment will turn to the action of showing up to the meeting.

That's my job. I'm spinning in a little 32nd cycle. And when you try to catch me and stop me, I break free. That's my objection handling. And eventually I drill just far enough into your heart that you go, "Okay, I'll take the meeting." Because you like me a little bit and you're curious. And I believe in the value of the meeting and you hear that in my voice. That's my job. As an SDR, I need to repeat that little duty cycle, 30 times a day. And nothing else.

So people in the SDR world say often, "Oh, the SDR should be held accountable for the sale." How is that? Well, they should be picking the good ones. Oh, so that we don't actually have to make a list that's our market. We'll let the SDR make up the market. And that's another chapter, which is, are you letting your SDRs do your marketing, your market analysis? Because that's the standard. The standard is we don't really have a list that we believe is the market. We have this thing, we call an ICP, which we derive through argument, internal argument. We talk to each other endlessly. And then the ICP, our Ideal Customer Profile, we turn it into a list, or we turn it into search criteria or whatever. We do a bunch of stuff. This is the modern thing also, do everything because it might produce something. Swing at every pitch. Don't just use the bat, take your hand and wave it at it, reach back and take the catcher's mitt, and throw it at the pitcher, just do everything. Because something might work.

Speaker 5 (25:40):

Because of the pressure of the overhead. Because I have a warehouse full of good that I need to get out on the street, and I need to turn them into cash as quickly as possible.

Speaker 4 (25:48):

Yeah. And the irony is they're not proper inventory.

Speaker 5 (25:54):

Yeah.

Speaker 4 (25:55):

They're actually supposed units of future demand. It's business run backwards. Software is eating the world. Okay. So fine. Just recognize software's eating the world and we have to make one simple adjustment. We can't use territories as markets anymore. The Rolodex no longer means anything. We have to actually do the work upfront to make the list that is our potential market. And then with discipline, call into that list with zero qualification. We must not qualify otherwise we take the signal that would come up, the negative signal, which is these don't belong in the list and we would hide it from ourselves.

We need to know if our list is any good, but we don't need to be rigorous about making sure we don't talk to the wrong people. It's okay. Talk to the wrong people. It's a cost. You should talk to about 15% of the wrong people so that we know we're talking to all the right people, because we're trying to find the one who's desperate enough to buy early.

And if we fail to explore it all because we get all picky about it. Well, my AEs don't like talking to those people. It's a waste of their time. Well, sorry, but this is a market exploration machine that's going to turn into a market exploitation machine and it's not about you, Billy Bob. But we pay them like it is about them. When they bitch about this I just say, "Let me just remind you of something. Take a look at your paycheck and ask this question. How much of that is my base?" Because whatever chunk of that is your base, you owe the company that proportion of that work 100%.

Speaker 5 (27:30):

Yeah. I tried-

Speaker 4 (27:31):

That's my work. You're doing that for me.

Speaker 5 (27:34):

Certain things you get paid a base for, and there's certain things that you get commission for.

Speaker 4 (27:37):

And you don't get to go like, "Hey, no I'm paid on commission. I'm coin-operated." Really? Take zero salary. See if I'll take you on as a contract salesperson. I may or may not.

Speaker 5 (27:49):

Yeah.

Speaker 4 (27:50):

It's a new discussion.

Speaker 5 (27:55):

I like that.