The founders of Showpad, a growing startup company, are considering implementing some changes to achieve growth. These changes include those in the line of products, its prices, and sales management practices.
Frank V. Cespedes
Harvard Business Review (817006-PDF-ENG)
August 31, 2016
Case questions answered:
- Prioritize the option being considered for growing Showpad as a business. What should the priority be and why?
- Consider the product, sales management, and pricing options outlined in the case. Analyze each of these areas and provide recommendations for growth. What are your recommendations for each of these areas?
- Pay attention to the tables and exhibits in your analyses. These will inform your analyses.
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Showpad Case Answers
This case solution includes an Excel file with calculations.
Prioritize the option being considered for growing Showpad as a business. What should the priority be and why?
Showpad could grow by increasing sales training functionality as a market of learning management systems was estimated to have a CAGR of 12% till 2020 (p2, pg10). I think Showpad should develop itself as a platform where they and others could provide tools for training, data analytics, and marketing activities.
This will provide them the leverage of hyper-scaling, and their value would increase by the square of the number of licensees in their system. They would have to do an MVP of the product to see if the platform is compatible with other tools in the market.
Since 59% of ARR comes from the healthcare, manufacturing & technology industries (e8), they can focus only on the customization of those industries.
This will help them in solving problems of the industry with higher margins and quick cash turnover as opposed to chemicals with lower margins and construction with delayed payment of cash). Showpad charged a licensing fee for each sales rep ($35/user/month), and they were well below their competitors ($65/user/month).
So, I think they can increase the prices because their customers are making a huge profit of ($10,496/month) (T3) in comparison to the licensing fee. The ability to customize and provide payback within 6 months, low churn rate, and customer satisfaction above the industry’s average suggest the high stickiness of their sales enablement interface.
The founders also thought of a freemium strategy and charged for features to lower their customer acquisition cost, minimize selling costs and selling cycles, and optimize their growth in a crowded sales enablement market (pg10, 11).
I do not think this is a good idea as their net income is still in the negative even after 15x growth in revenue (T2). They could easily use the value of service instead of price as a differentiator in the crowded market to acquire new customers.
There is a big difference in the forecasted and actual numbers in the SAL funnel (Table 1), which suggests that the work of SAL is not done properly. I would suggest they need to screen sales accepted in coordination with marketing in order for them to have a successful conversion cycle.
The marketing is able to generate excess QLs, but the sales that form the bottom of the sales funnel are not able to convert them. The conversion cycle is long on the sales side (e6). If the marketing team conducts background research, it will help in clearing the backlog of qualified leads.
Showpad investigated and found that sales results are concentrated amongst a few experienced AEs. Showpad needs to form small teams with experienced and new sales AEs, which will help new sales AEs learn quickly and be successful with their individual assignments as well.
Their analysis also showed that there was variance in the sales forecasts in both the US and EMEA on a weekly basis and that growth in EMEA was sluggish (T4), which was concluded because of a lack of sales forecasting infrastructure, which can also be seen from their bigger deal sizes (2x) in the US as compared to EMEA.
The ARR growth in EMEA declined more and was lower than 20% in 2015 as compared to the US market. So, they need to focus more on the US market. It seems that enterprise and mid-market are contributing 77% of the income (e8).
Showpad should focus on these two company sizes as they have more employees, so there is a potential for upscaling. This will also enable them to provide more time to the enterprise as well as work on their improvements and bring down the cost of marketing, which has become 2.3x between FY14 & FY15 (T2) as it would be focused only on 2 segments.
This will bring the income to be positive. Income is negative presently, even though the revenue in FY15 has become 15x of the revenue in FY12 (T2). The expenses in FY15 have also become 24x of expenses in FY12, which has made the losses 47x in FY15 as compared to FY12.
Their balance sheet also reveals they are short of cash, as it decreased by 59% between FY14 and FY15 (T1). Although their trade receivables increased 104%, the loans increased by a huge amount of 1762%, which means they need to take their payments upfront.
Showpad is not following a lean strategy where people take up two or more roles. Instead, Showpad has 4 sales directors, which could be combined into two, which saves their G&A expenses that have become 1.7x between FY14 & FY15 (T2). Reduction in expenses will put income on an increasing trend, unlike the present scenario.
References
Cespedes, Frank. Showpad. Harvard Business Review Pub., 2016.
Glossary
e: Exhibit
T: Tables in Excel sheet
p: paragraph
pg: page
Table 1: Table 1 of the Showpad case
Additional File:
Excel Spreadsheet. Download here.
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