EP103: What Do You Do With an Addressable Market?

Market Dominance Guys

Is the goal of each member of your sales team to dominate your company’s market? Or is their goal to make their sales quotas? According to our Market Dominance Guy, Chris Beall, it should be “Dominate or die!” This week, Chris shares with our podcast audience a Selling Power webinar he calls “How to Achieve Market Dominance,” in which he details the steps necessary to do just that: dominate your market! In this first part of a three-part series, Chris defines the terms “market” and “addressable market,” and then goes on to explain precisely what information you need to obtain from your addressable market prospects when you have a conversation with them. Using a clear and organized approach, Chris will lead you to an understanding of this week’s Market Dominance Guys’ topic, “What Do You Do With an Addressable Market?” As usual, you’ll walk away from this how-to guide with insights and strategies to help your company on its way to dominating its market.

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Here is the transcript to the full episode:

Gerhard Gschwandtner (01:27):

Hi. My name is Gerhard Gschwandtner, I'm the founder and publisher of Selling Power magazine. I want to welcome you to our webinar. With me is Chris Beall, he's the CEO of ConnectAndSell. Hi, Chris.

Chris Beall (01:39):

Hey. Hi, Gerhard, it's great to be with you back from Italy.

Gerhard Gschwandtner (01:43):

Well, I'm glad you took some time off and recharged and feel like a Renaissance man, right?

Chris Beall (01:49):

I'm fired up to broaden my scope of understanding and appreciation.

Gerhard Gschwandtner (01:55):

And you have a fresh perspective on how to achieve market dominance. And before we dive in, Chris, can we do a quick poll with the audience? I want to welcome everybody to think about when you want to ask question, type him in, then we're going to pick him up on the fly. We also have about 10 minutes at the end for a Q and A, so let's show the audience poll in the beginning.

Who on your team is responsible for creating and maintaining prospecting target lists? Is it marketing? Is it sales development reps, sales leadership, or a research team? Think about those four questions and check the box. Chris and I will look at the results and share them with you. Right now, I'm seeing this in the real-time. Marketing and sales development reps are in the lead, sales leadership is third, and the research team does not exist at this point, doesn't have a showing.

Chris Beall (03:01):

I don't know if that horse didn't even show up for the race.

Gerhard Gschwandtner (03:04):

Didn't that horse didn't come? It didn't come in.

Chris Beall (03:09):

If this were the race in Sienna, the horse is still in the church being blessed.

Gerhard Gschwandtner (03:15):

So, is it true that they ride horses in the middle of those small towns?

Chris Beall (03:19):

In that one in Sienna, they have a horse race with 10 horses each year. Right in the square in town, they bring in dirt and put mattresses up to keep people from dying and they ride bareback.

Gerhard Gschwandtner (03:31):

Amazing.

Chris Beall (03:32):

Yeah.

Gerhard Gschwandtner (03:33):

So, the leading horse is marketing. The second horse is sales development reps and sales leadership. And there's no research team among our audience today. What do you make of that?

Chris Beall (03:44):

Well, it's interesting. It actually speaks to the heart of what I want to talk about today, but it depends on how you think of the purpose of sales in the business. And there's a major change came about because of software as-a-Service. Primarily, software eating the world, as they say, in which the role of sales, the old role of sales was really to dispose of inventory at a gross profit in order to keep the lights on at the factory and maybe generate some net profit, which you could use to expand the business. So, this is what we called... I believe the term for is capitalism, and the idea is that you put capital to work. Most people think of that as money, but capital is actually plant and equipment and stuff like that. And you produce stuff, you make things and when you make things, of course, you've got to get rid of them.

And so, sales job was to get rid of the things you made and turn them back into dollars, so that you could pay to do stuff. The role of sales actually has fundamentally changed in the economy, and most people don't recognize it. And that's really the why behind this entire webinar, it's the why behind my podcast, it's called Market Dominance Guys. We're on episode 104, 105 or something like that. Apparently, either we're crazy or people are interested in this new role of sales, which is to dominate markets.

It doesn't seem like that's connected to making prospecting lists, right? Why would they even be connected? Who really cares? Isn't a market just like, "Oh, we're going to go and do something. I know we're going to be the leader of..." And then, a bunch of pretty words. And if we take it down one level, we say, "Well, that's for companies going to sell the companies in this vertical and we're going to sell a solution to this problem." And that's our market as those companies that want that solution.

And I want to talk about market dominance with regard to the role of sales in actually doing the most important thing we do in business, so this is really for salespeople and sales leaders. This is a bit of an attempt at a wake-up call, which is you're being called to a new mission, which is to dominate markets not just make quota. Sales tends to think of itself as, "Hey, I got my territory, whatever it is. And my job is to make this quota number happen within the territory by hook or by crook. However I do it, that's good. If I make the number, it's good. If I beat the number, it's great. If I beat it by too much, that's bad." Because then, they're going to know that by a sandbagging and they're going to raise the number by a lot, right?

So, there's a whole game that's played around making the number. And from a CEO's perspective, from my perspective, I can act like I care that my reps make the number, but what I really care about is for our defined target market. Are we on our way to becoming the dominant player? Because the dominant player gets disproportionate rewards. How disproportionate? Roughly 10 to 20x, so if you want 10 to 20 times the valuation be Salesforce, don't be Zoho. Because as Salesforce, you get this huge multiple part of what for a valuation that is the value as a multiple of your revenue or multiple profits, however you want to look at it. You get this big, big multiple because the world, the stock market, everybody looks at you and goes, "Ooh, dominant players have lots of options in the future, including dominating other markets."

And the flip is, if you're not dominating at least one market, you are on your way to being put out a business at the leisure of the dominant player in that market, because they can play games you can't play. They can reduce their price if they want to. They can be more aggressive with regard the extra services they offer. They can do all sorts of things that you can't do as the number 2, 3, 4, 5 player.

So, this guy named Geoffrey Moore, and I don't know whether everybody watching this webinar today has read Crossing the Chasm. If you have not read Crossing the Chasm, it published in 1991. So, you are a hundred percent confident that guys like Gerhard and me who were actually also in business in 1991 and in 1981... In fact, I would suspect you would think that's obsolete just like Gerhard and Chris. Those guys are obsolete. Surely a book published in 1991 is obsolete. Trust me, it's still the bible.

When it comes to taking new things to market innovations, to market, he calls them technology, but anything new to market that bothers people. You got to go read that book and understand it, because what it basically says is, you are either going to cross the chasm to being sold primarily by reference from company to company to company, to solve a broken mission, critical business process that they have. And they hold their nose against the stench of buying something that's in a new category or whatever, in order to solve this problem. But then, once it starts to prove itself in a market, then it moves. It's actually kind of about virality at the company level where things you move virally.

And so, then, the question is, what is a market? And Geoffrey Moore, the guy who wrote Crossing the Chasm, he was one of my venture capitalists at one time many, many years ago. And I had the luxury of getting to occasionally sit with him. And once we were on a plane going somewhere and I said, "Geoff, what do all of us get wrong that drives you crazy, where you just roll your eyes and go, you idiots, can you never learn?" And he said, "Oh, that's simple, Chris. You guys always think that a market is a pretty description of something. Whereas, a market is always a list and it's a list of companies such that every company on that list has this quality. If they buy, it reduces your cost and risk of selling to every other company on that list without exception." A market is naturally bounded by when that list doesn't work anymore for referencing other customers. And he says, "It tends to be an industry, but it's a sub..." Maybe a geography and industry or whatever it is.

As a result, markets tend to be smaller than we think. And venture capitalists encourage us to describe total addressable markets as fantasies. Everybody, like I could do this with ConnectAndSell. Well, everybody needs to talk to 10 times more people, so all the salespeople in the world are addressable market. But in fact, at ConnectAndSell, this is our own company. We have exactly two markets and they're two lists. One is a list of large companies with strategic challenges that they need to address by talking to a lot more people. So, they have a go-to-market problem and they're hard to find, but that's it. We make a list of them. And the other is, funded startups because they all have the same problem in B2B funded startups. Those are our two markets and we just make a list, one and the other. And that's it.

Chris Beall (11:45):

And so, we're a little ambitious. We're going to go try to dominate two markets. I know that's a little crazy, but they're lists. And so, the biggest problem with market dominance fundamentally is that, well, one, most people don't know they need to do it. They don't know what's important. They don't know what's achievable. They're just out to make a number and hope they don't get fired. And what is the average tenure of a VP of sales at the point where they're dismissed nowadays? 17 Months?

I think you told me something like that. So, that's one goal. But the company's goal nowadays is not to ship widgets. They have infinite inventory. Everybody is selling software-like products has infinite inventory. Manufacture software by doing nothing. You make them at... There are no copies, right? It's in the cloud. How do you use that ability to service without having to make another widget? How do you do that and dominate markets, so you don't have the dominant player basically decide whether your business is going to succeed or not? [crosstalk 00:12:53]

Gerhard Gschwandtner (12:55):

Sorry for interrupting. Are you saying in the fact that, if you are not achieving marketing dominance, there are actually two reasons why. One is that, your list is not long enough? And two, that your calls are not frequent enough?

Chris Beall (13:15):

I would put it another way. One is, your list is not short enough.

Gerhard Gschwandtner (13:18):

Okay.

Chris Beall (13:19):

And the reason is that, it's really easy to dominate a market of one. You make a list of one, you go sell to them. And why is that a market? Because everybody in that market is more likely to buy from you because they bought from you. And so, one company's more likely to buy from you in the future, because they bought from you in the present. A small list is easy, but maybe not important enough. So, your list should be sized thus such that when you successfully dominate that market, you'll be operating profitably as a business. That's actually how you back into the size of the list. If the list needs to be a little bigger, because your unit price is small, then you have to make it a little bigger, but it's hard to make coherent lists that are bigger. Because the bigger they are, the less likely it is to be a market, and more likely it is to be a fantasy.

This is the tricky part about lists, and this is precisely why I opened with this poll. People who say marketing makes the list, it's not bad. Marketing's job could well be to define the market, that could well be. It could also be that the senior executives of the company have thought this through. They have a strategy and they have a research team that makes the list, because maybe it takes a little bit more than just going out and asking people to come and register on the website or do whatever it is they do, maybe you have a real market. The research team could have to dig in order to find the right companies and the right people to talk to.

The folks who should never make the list, if you want to dominate markets are sales reps. Because sales reps are going to make the list for the purpose of making a number, and making a number is not a step along the way to market dominance. It's coincidental. It could help. It's better than nothing, but you're basically turning over your strategy, your corporate strategy, the reason that you have investment in the company. However, you got that investment. That reason has been turned over to sales reps and even worse to sales development reps who are often relatively young, relatively inexperienced in business, and have no background nor motivation that would cause them to make a true market list. They're more likely to make a list of people they think they can get a hold of, or that might buy. So, market dominance, it's dominate or die. That's the nature of the business.

Nowadays, we see disruption happen right, left, and center. Everybody can be disrupted. It costs nothing to make new software products. If I just started thinking, I could probably name 200 companies that were relevant five years ago and are dead now because they didn't dominate a market. It's about making something a list of companies that if one buys, the other will buy, and then finding out what they really, really need. That's product-market fit, not product fantasy fit.

So, I've answered this question, what is an addressable market? And it comes down to this. An addressable market is a market. It's a list of companies. Within that list of companies, you have to say, I want them, they're coherent. I believe each one I sell to is going to make it cheaper and lower risk to sell to all the others. Now, how do I know it's addressable? Well, I got to go talk to them. Let's face it. If I don't talk to them, I actually don't know if I could even do business with them. It's kind of an old-fashioned notion, but in order to determine whether my market is an addressable market, that is I can actually successfully sell to them, I have to have a product they want or an offering that they want.

I need to talk to them to find out if the offering's interesting. Fortunately, that is easy. Everybody thinks this is hard, but it's easy. All you have to do is talk to a reasonable subset at the market. How many? Roughly speaking, and I apologize for the math, but roughly speaking, you need to have conversations with the right kind of people at about the square root of the number of folks in the market. Say your market is a hundred companies, that's your first market you want to dominate. You need to go have 10 conversations at random with folks, and the conversations need to explore this question. First, will you take a meeting with me to learn more about this? It's very objective. If somebody will take a meeting with you to learn more about the problem that you claim you solve and how you might solve it, that's a positive indication that you might have an addressable market. It's very objective.

This isn't like, they sound like they liked me. It's not that at all. It's like, I got to have meetings. At those meetings, I need to explore with them, whether there's resonance around one of three things. That is the problem that they have, and my proposed solution to that problem does that resonate with them, either economically. Does it address a time risk or money issue that they care enough about to change their ways and actually adopt this thing?

Emotionally and generally, this is the big driver. Does it address usually a question of frustration? Almost everybody is frustrated. Business leaders are always like this, even Satya Nadella who runs Microsoft. I would bet, if at the end of each day you said, "Satya, is anything bothering you about the business?" And he go, "Oh man, I'm frustrated." That then he would behave something. What is it? It's always the same, that they don't have the time, the resources, or the support. And I can assure you as a CEO, you need the support of your people more than anything to do their job as well as they hold themselves accountable for.

Everybody's frustrated, so addressing frustration is the most common emotion that you can address. And that's important because folks won't buy without an emotional trigger, emotional spur. And then, the other thing is what we call strategy. And what do I mean by strategy? I mean, everybody's trying to go somewhere. They're trying to take their business somewhere. They're trying to get from where they are to where they want to go. That's a strategy. A strategy is a list of steps that you believe will get you closer to your goal, and each step has the fun quality that if you achieve it, it makes the next step cheaper and lower risk. That's the definition of a strategy, and I don't know if everybody knows that, but that's what a strategy is. It's a list. Isn't it amazing that a market is a list and a strategy is a list. Holy moly, we got lists everywhere. A strategy is a list of steps, and the definition of a step and a strategy is... This is why it's different from a tactic.

The strategy is, if I get here, I increase the probability and lower the cost of getting here, which increases the probability and lowers the cost of getting here and so forth and so on. And my goals of it there. Well, everybody is blocked at some point in their strategy. So, if your offering can help to unblock them, you're solving a strategy problem for them. Does your description of what you do resonate with them sufficiently that they will take a concrete next step?

Now, you're determining if your market's addressable, because you are interacting with the folks in the market enough to get that feedback. Two things could happen. One, fantastic we guessed right. Right? We guessed right. We built the product right. It's for the right purpose. It's resonating like crazy on this emotional thing or whatever it is. And the people we talk to when we have meetings with them, 30% want to go to our next concrete step of doing something. By the way, meeting again is not a next concrete step, just for all your salespeople out there, I think having another meeting and another meeting and another meeting and another meeting is making progress towards something, it's not the case. You actually have to take a step where the other party makes an investment of something more than I showed up at a meeting, so make them do something.

In our company, what we do is we make them do something. We call in an intensive test drive. They bring people to an experience that's expensive. They don't have to pay us money, but they got to pay us by bringing the people, and bringing the list, and having the executive attention, and spending two hours actually using our product, and going out, and setting meetings, and talking to a bunch of people. Well-

Gerhard Gschwandtner (21:49):

And that's a Flight School.

Chris Beall (21:51):

Well, that's a Test Drive, and then Flight School is something we would sell them afterward. Say, "Oh, you suck." Isn't it great? We did the test drive. Now, we determined that there's room for improvement. We don't say you suck, there's room for improvement, so now you could choose to avail yourself of a next concrete step, which is this flight school. And then after that, you might want to go to this next step, which is a production deployment of some kind that has an integration to your CRM or whatever. Now, it's concrete, concrete, concrete.

But the real issue that we have in markets is, even knowing this market is addressable, is this list any good? So, thing number one is the dogs love the dog food. Thing number two is, our product doesn't quite resonate, and we start to have confirmation by us and take the lack of concrete next steps as symptom of something else. It's almost always a symptom of, they're not going crazy for your stuff. And you can tune the message, and once the message resonates, then you can go back and tune the product.

By the way, that's the right order in which to do it. Don't run back and fix the product and keep showing people products. That's expensive. Just tune the message. And when the message finally resonates and they want to take a next step, then go fix the product.