The Guessing Game

26 October 2005

How widely did you miss the mark with your first set of sales projections?  And how meaningful are your performance metrics?  Stephen Standring lifts the lid on life at a London-based tech company Open Business Exchange.

Stephen Standring talks to David Longworth of Webster Buchanan Research

Stephen Standring was brought into a start-up, Open Business Exchange, as global sales director just under three years ago. The London-based company had started rolling out OB10, an electronic invoice delivery network, the previous year and was looking to ramp up sales. It now has offices in several European countries and on the West Coast of the United States, and closed a $10m Series D round of financing last summer.

Standring had previously been a director of Work Inc, a US-based procurement and payment service, and also set up European sales for Tivoli before it went through IPO and was subsequently purchased by IBM.

How accurate did your initial business plan turn out to be - and looking back, what would you have done differently?

In a small start-up, your first projections are always wrong. The trouble is, you don't know what people don't know. In our case, the sales cycle was very difficult to predict - first we had to find out what people knew (and specifically who knew the costs of invoice processing), and then what the impact of that knowledge would be. Ours is also a complex organisational sale, with IT, procurement, finance and others involved. Essentially, you're guessing what your performance should be - and until you have one year of performance to look at, you don't have many meaningful figures.

Looking back, we perhaps could have put together a business plan that allowed us to model more accurately what the business did. We know how many invoices our customers receive and we know that eventually we'll enrol the majority of their suppliers. Operationally, we've always been very strong on ensuring people deliver what they have promised. But you can never know exactly what the sales cycle will be, and we could perhaps have had a business plan that put a framework around it. So if sales were not what we hoped, we could have seen what dropped out of the pipe, month on month.

So how did you justify that to the board?

You need to manage their expectations. For a start, you need to collect the right data, then put in the right Key Performance Indicators (KPIs) and monitor them to ensure they reflect what the business is doing. A lot of companies collect the wrong information, but we've got an incredibly strong Chief Operating Officer and executive chairman who have a gift for looking at the KPIs and understanding what's going on. If you've got a KPI or stat that means they ask you hard questions, then you've got the right measure.

You've had some interesting names invest in the company from day one. Your first round in 2001 included a co-founder of Computacenter, the IT services company, an ex-deputy chairman of Credit Suisse First Boston and a former board member of NatWest Group. How have you kept these diverse interests from interfering in the day-to-day running of the company?

They've always left the running of the company up to us. Generally speaking boards in young companies tend to be financial police - investors or partners policing how their money is spent. But that's not been the case with us. You need non-execs who are recognised industry leaders who will work with you and add value. Start-ups need to set up their board so there's some flexibility in how you grow in the future, and that starts very early: it's important in how you write your articles and administer your shareholding. You can fix it later but only by being very aggressive.

You now receive invoices from 68 countries, count organisations such HP and Procter & Gamble among your customers, yet you still only have around 50 employees. What makes these large companies confident enough to buy?

You can expand opportunistically, or tactically, and we've gone tactically. We went for the US because it was a market that was worth setting up in. But our business model helps in that if we secure a couple of worldwide clients, we have a supplier base there and we can set up a support network on the back of that.

We've never had a client look at our size because it's not mission critical software. When I was at Tivoli, even after IPO, we still couldn't sell to a retail bank. But here, it's so demonstrably working and our client list and referenceability is as good as it gets. I think we always had that referenceability - it may even have been there when I arrived - but we just hadn't qualified it. Naturally, the first thing we did was go for the low-hanging fruit. But after that, it was quite a ballsy strategy for such a tiddly company: we went straight to the FTSE500 and it worked.

How did you manage your growth through that period?

There are two ways as head of sales you can grow. You can either say 'In order to exist and make a certain amount of money, we need a certain number of salespeople' and then drive them to perform. But that's naïve and also presupposes there's a market of infinite size. We took a more sophisticated approach, ensuring our messaging and packaging was as slick as possible. The important thing is to make sure everything is aligned with your [sales] process. I liken it to an arrow - you want the tip to be as sharp as possible, so you have to hire the right people. Then everything else has to be supporting that. In a young company, you cannot lower the bar - and you can't have a big company person in a small company.

You're getting to a certain size now where your investors must be making noises about a return on their investment. What's your exit strategy?

We've invested significantly in the US and we have some investment in France and Germany which we'll build on in the next 12-18 months. The reason we've picked on those four countries is so that we're seen as a company that dominates this market in Western Europe and the US. There are a number of different exits we could have - in three years time, we'll be of a size and profitability where we could execute an IPO, for example.