Brent Thomson’s Startup Lessons, Part II
This article is the second in a series by serial entrepreneur and Blip Co-founder, Brent Thomson. It is also the conclusion to his original article, "Brent Thomson’s Startup Lessons - Part I," in which Thomson posits: 1) There is a right number of founders for each startup and that number is two; 2) As a founder, you should own either almost all or almost none of the company; and 3) You need to decide whether you’re building a product company or a sales company.
In this article guest author Thomson explores the third point, the distinction between a sales company and a product company.
Is the distinction between a sales company and a product company important?
There is no shame or honor in being either a sales company or a product company. However, a company which fails to align their strategy with their identity will effectively be playing out of position. The organization will sacrifice some of the advantage it could have in either sales or product, without realizing the full benefit of the other. If you coached a basketball team, would you ask your point guard to guard your opponent’s center? Would you ask your center to guard your opponent’s point guard? Neither matchup would turn out very well for the defender.
Company leaders should choose their company orientation (sales vs product) based on the skills and propensities of the people at the company. This will allow the group to leverage their collective strengths and amplify their relative advantage over time. If those leaders choose to pursue the wrong organizational identity, they’ll have to continuously exert effort to keep the company pointed in their desired direction. Aligning the strategy of the company with the way the senior leadership sees the world is akin to collecting compound interest, while lack of alignment resembles paying monthly late fees. Alignment makes operations and decision making easier and less expensive over time. Misalignment never gets better than it is today, and gets harder and more expensive as the company grows.
What determines whether [company name] is a product or sales company?
I struggled to pin down the difference between product and sales companies for many years. I saw consistent differences in behavior between various companies and tried various classification schemes. I identified several characteristics that didn’t definitively push a company in one camp or the other:
Characteristics that don’t determine company orientation:
- A good sales process and team
- A good product process and team
- Good product marketing
- Number of sales people vs engineers
- Fast or slow growth
- Funding sources: Venture-backed vs bootstrapped
- Lifespan prior to exit (acquisition, IPO, etc.)
I did, however, identify one organizational characteristic that correlated very strongly with sales vs product companies: the background and attitudes of the founder(s) and “alpha” employees. These individuals define the culture and reinforce management trends within the organization. Importantly, this group dominates the strategic decision-making process. The rest of the organization naturally emulates the types of choices these leaders make.
Every decision we make considers a specific timeline, whether we realize it or not. For example, if you’re faced with the choice of whether to fill your plate with vegetables vs deep fried candy bars, you’re also choosing whether to optimize for a ten minute time horizon (eat the candy bars!!!) or a time horizon measured in months/years (veggies, please). This simplistic example also demonstrates another fact about decision-making: every decision is a choice between alternatives. Think about it—choosing whether to buy a bicycle isn’t a decision between a something (a bike) and a nothing (no bike). It’s a choice between a bike and walking, or between a new bike and your current bike, or between spending money on a bike and saving the money. You get the picture.
Recapping these concepts:
Every decision is a choice between alternatives
Every alternative optimizes for a particular time horizon
So, back to the question of how to determine the orientation of a company. Imagine if you could compile all the decisions the company’s managers make during a year of operation. Some decisions target long-term outcomes: develop a novel gadget, start building a channel program. Other decisions pursue short-term objectives: give a customer a promotion to close the deal this week, pull an all-nighter to deliver the report on time. Add all the implicit (or explicit) time horizons and divide by the number of decisions made. This result is the average time horizon the company’s leadership has consciously or subconsciously chosen to optimize for.
With me so far? OK, good. This average time horizon is not what determines whether the organization is a sales company or a product company. What determines the company’s orientation is the direction in which the average optimization time horizon shifts over time. If the combined average expands over time, you’ve got a product company. If it shrinks, you’ve got a sales company.
A simple way to think about shrinking/expanding an organization’s average optimization horizon is to look at how it chooses to reinvest profits. Each reinvestment targets a particular window of time, and each decision contributes to the new value of the updated average time horizon for the company. If the reinvestment targets a timeline longer than the company’s previous average, the average increases. The opposite is also true—shorter-than-average optimization decisions shrink the company’s overall average. Observing the decisions made by leadership during a reasonable time period—say, a year—will tell us whether the company is oriented toward sales or product.
What have we learned?
- By my definition, every company is either a sales company or a product company.
- The change in timeline over which leadership optimizes determines the sales-product orientation of a company.
- Companies will be more successful if they embrace their identity and amplify their strengths, rather than attempting to masquerade as something they’re not.
- Future topic to explore: The same factors that influence the orientation of individual companies also push entire ecosystems in one direction or another. Is my geography a tech (product) ecosystem or a sales ecosystem?
Brent Thomson is the Co-founder and CEO of Blip. Blip is not Brent's first venture; in 2006 he created Jive Communications and served as its CEO for 5 years while Jive became a leader in hosted telephony. In 2018, Jive Communications sold to LogMeIn for $357 million. After leaving Jive, traveling, and playing for a few years, Brent found an opportunity to change the OOH (Out of Home) industry with Blip.
Brent also serves on the board of the Community Foundation of Utah. The foundation focuses on local philanthropy and helps philanthropists manage their charitable activities. He is also an avid mountain biker and is fond of Vans t-shirts.