Here is a problem that Salesforce, Workday, Docusign, and many other “pure-play” cloud companies do not have to worry about: their sales teams are already 100 percent focused on cloud offerings. With so much talk and focus on the cloud, it is easy to overlook the fact that most of the world’s largest software companies still sell a significant amount of software through traditional “on-premise” licenses. While these “hybrids” are focused on moving to the cloud, it is not necessarily that fast or very easy. You can count Autodesk, McAfee, Oracle and Symantec, among many others, in this crowd. For the time being and for several years to come, these companies must balance their focus and navigate between the old, on-premise world, and the new one in the cloud.
So how should hybrids structure their go-to-customer model in this bifurcated world of software and software-as-a-service? Over the past year, the Alexander Group has been approached by several hybrid companies asking the question, “Should we have a separate cloud sales team, an overlay, or one single sales force?” This article provides a brief overview of the pros and cons for each of these three options.
We recently surveyed a group of leading hybrid companies with cloud revenue ranging from less than 1 percent to 20 percent of their overall revenue. The majority of these companies deploy a single sales force responsible for all offerings and an “overlay” specialist focused on cloud offerings. Only 20 percent deploy a separate sales force focused on cloud.
What is the right organization structure for hybrids? As you may imagine, it depends on the nature of the offerings and the buyers. There are certainly a myriad of options. But based on our experience, there are standard considerations and options to evaluate. Figure 1 below lays out four typical organization structures for hybrid software companies:
Option 1: Single Sales Force. By far, this is the simplest option. This option may also be the least expensive. Each sales person carries all products in their bag, including on-premise and cloud offerings. There is a single point of contact to the customer, and ideally the customer is in a position to select their preferred solution: on-premise or cloud. The biggest challenge with this model is twofold. Either a) the sales person will spend all his or her time selling the legacy, on-premise solution, and not devote enough attention to the cloud offerings, which may be less familiar and come with smaller commission rewards; or b) the sales person devotes the majority of the attention to cloud, potentially cannibalizing the installed base of on-premise customers.
When is a single sales force appropriate? When the company strategy calls for a wholesale shift to cloud solutions and has little risk exposure for “walking away” from on-premise customers.
Option 2: Cloud Overlay Specialist. This is by far the most popular option among hybrids today. In this model the primary sales person serves as the face to the customer, the account manager and the “quarterback.” In some models the Cloud Specialist plays a “reactive” role and is called upon to represent the cloud offerings at the sales person’s request. In other models the Cloud Specialist is “proactive,” calling on target customers without waiting or asking permission from the account manager. Both models require clear rules of engagement to succeed.
When is the Cloud Sales Specialist appropriate? This is the best model when the legacy on-premise business is significant, and the transition of customers to the cloud is happening more gradually. The model is more expensive, but it can bring the expertise and the focus necessary to represent the cloud offering(s).
Option 3: Separate Teams by Segment. For some companies, the on-premise solution is geared toward enterprise customers and the cloud solution is geared toward SMB. Segmenting the sales force allows for a simple, cost effective model. Even if the sales teams can represent both on-premise and cloud offerings, a segmented approach allows for more agility and focus. A variation on this approach is to layer on a Cloud Specialist for the Enterprise segment.
Option 4: Separate Sales Teams. In some cases it makes sense to deploy completely separate teams. In particular, this works well when the buyers for the on-premise solution and cloud solution are completely different. Since this is not typically the case, this approach is also less common. In fact, if the buyers are at all the same, this approach is not only expensive but can be disruptive and only works well with distinct target customers for each group and clearly defined rules of engagement.
There are other considerations as well … hunter/farmer, pre-sales roles, renewal sales, and customer success. Often these coverage decisions will follow the decisions described above and will vary based on the size and maturity of the business.
For hybrid companies, the structure of the sales organization and roles employed is a more careful balancing act compared to pure-play competitors. Often the structure has to balance the risk of cannibalization, mix of revenue stream (e.g., perpetual, maintenance and cloud), and overall cost of sales goals. When thinking about org structure and role design, we recommend investigating the following action steps:
To learn more about how the Alexander Group has helped our clients evolve their hybrid sales organizations, please visit our cloud sales practice page.
Original author: Alan Chi