The 7 Powers to Master, Why Commission-Only Sales Rarely Works - Tactician: #00115

I looked into those 7 Powers to Master. You know what they left out?

The power to find your car keys when you’re late. If you can master that, you’ve got all the power you need, trust me.

The 7 Powers to Master

• Why Read: 

  • Provides a strategic framework for developing durable competitive advantages from an early stage, which is crucial for long-term success.

• Featuring:

  • Lenny Rachitsky(@lennysan), Author at Lenny’s Newsletter interviews Hamilton Helmer(@hamiltonhelmer), Co-Founder and Chief Investment Officer at Strategy Capital

• Link: 

  • “Business strategy with Hamilton Helmer (author of 7 Powers)”

Key Concepts and Tactics:

• Develop potential sources of power from an early stage:

  • "You should always be thinking about strategy, even before product-market fit. This doesn't mean writing detailed plans about every element of your business. It means thinking about what your 'source of power' could be and how you'll establish it."

• Understand the 7 sources of power and aim to establish one or more:

  • "The 7 sources of power: 

    • Brand: Your unique brand identity attracts and retains a significant number of customers. 

    • Process power: You can produce something more efficiently than competitors, and the competitors can't easily copy the method. 

    • Cornered resource: You have exclusive access to a vital resource, such as the only rights to a patent. 

    • Counter-positioning: Your business model/strategy is so counter to that of incumbents that if they copied you, it would hurt their own business. 

    • Scale economies: You can produce something more cheaply than competitors, on a per-unit basis, because of the scale of your operation. 

    • Switching costs: Your customers can't switch to competitors without bearing a significant cost(s). 

    • Network economies: Your product or service provides more value because of how many other people are already using it."

• Ensure your power has both a benefit and a barrier:

  • "Power requires both a benefit (e.g. lower cost) and a barrier (e.g. switching costs) that prevents others from imitating or neutralizing that advantage. Beware of common delusions, like overestimating the power of branding, data scale effects, or operational excellence."

  • "Power is at the heart of any good strategy. It's something that gives you a material advantage over competitors that is impossible for them to mimic. It requires a benefit and a barrier. As Warren Buffett famously said, 'I look for economic castles [benefit] protected by unreachable moats [barrier].' It would be pointless having a moat around an insignificant shack. And it would be pointless having a castle with no moat or protection around it."

• Recognize the common sequence of powers for tech startups:

  • "For tech startups, it's common to move from (c) to (g) in chronological order. They start with counter-positioning in order to survive competition from incumbents with many more resources. Then they unlock cost/price advantages as a result of scaling. Eventually their customers face switching costs because of the way they've used and invested in the product. And finally, tech startups can establish network economies with a critical mass of users."

• Be aware that the first 3 sources of power are rare for tech startups:

  • "The first 3 sources of power are rare for tech companies. The company is usually too young to have built sufficient brand love or uniquely efficient processes, and cornered resources are uncommon unless operating in a highly regulated industry."

• Distinguish between network effects and network economies:

  • "Network effects refer to the increase in value or utility of a product or service as more people use it. Network economies go further by indicating whether these effects translate into significant financial advantages for the business."

Why Commission-Only Sales Rarely Works

Why Read:

• Highlights the challenges of motivating a commission-only sales team for a SaaS startup and advocates for providing at least a small base salary in addition to commission.

Featuring:

• Jason M. Lemkin (@jasonlk), Trusted Advisor at  SaaStr

Link: 

• “Dear SaaStr: How Do I Motivate a Sales Team Working Commission Only?”

Key Concepts and Tactics:

• Understanding the Difficulty of Motivating a Commission-Only Sales Team:

  • "It is really, really tough."

  • "While I am sure there are examples of '1099 reps' that have done extremely well, I haven't seen it work in SaaS."

• Providing a Base Salary with a Large Commission:

  • "Pay the reps at least a small base salary, with a large commission. It's what folks are used to."

  • "Otherwise, they sort of drift off when they don't get a big commission check the first week or two …"

• The Reality of Commission-Only Compensation:

  • "The reality is, almost anyone working 'commission only' basically tries a few times, and if it's too hard, gives up and moves on. They just don't see the money coming after that."

  • "If you've ever worked with a contingent recruiter, you'll see this. They'll get you 8-10 candidates fairly quickly. But if you don't want to hire any of them, they drift away."

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