John Nugent and Tony Baudanza, founders of $38-million Spectrum Associates, in Woburn, Mass., share a fixation with variable costs that borders on obsession. Their biggest phobia: the cost of sales.
Yet when the partners started Spectrum, seven years ago, they knew that to make their imprint on the software industry they'd need a lot of "feet on the street." Here's how they assembled a sizable sales force on a shoestring:
Step one. Initially, they asked other software companies to peddle Spectrum's products and services alongside their own. "We would go to a larger application-software company and say, 'Doesn't it make sense to sell our products, too? We'll give you 20% of sales," explains Nugent. The software vendors liked it, their salespeople cottoned to the extra money, and it was less risky for Spectrum than building a sales force on its own.
Step two. Then Nugent and Baudanza set out to expand their borrowed sales force. Two years ago, with 200 customers, and sales climbing toward $3.5 million, the partners persuaded six top-rated salespeople from other software companies (including several of their selling partners) to form their own rep firm. Spectrum software would be the rep group's sole line.
The reps forked over their own money to cover rent, demo gear, and salaries. Spectrum put down nothing but agreed to help out in a cash crunch. The reps won an exclusive territory, fat commissions (50% of gross sales) -- and control. "We provided good sales forecasts that showed how they could have a $6-million business in a few years," adds Nugent.
Step three. Next Nugent and Baudanza went on to "inspire" the creation of seven more rep firms around the country, taking a minority interest in several. Each time, reps kicked in $10,000 to $40,000 apiece. Customers contract directly with Spectrum; otherwise, the rep groups operate like a traditional direct sales force.
To be sure, not all the rep firms have fared as well as the first; only some can keep pace with Spectrum's hypergrowth. Spectrum's sales have increased more than 10-fold since the company launched its first rep group. Thanks to that channel, Spectrum's selling costs are 25% of sales, compared with competitors' 50% to 60%.