When you are building a b2b startup company, a key question is when and how to scale sales. The first rule is “Don’t do it yet”. It is always easier to scale a spreadsheet than a real business.
Most CEOs are optimists and startup boards eager to see growth. This is why startups tend to start scaling sales operations too early, burning cash and propelling immature sales models.
You should scale only when you can see clear patterns of repeatability and scalability and you are able to build an effective and efficient sales machine. To get there, you must first understand your customer’s situation on a concrete and deep level.
Before you scale
SALES FIRST. Hire a full-time sales person before you hire a full-time marketing person. If you can’t convince a few customers to buy, you don’t have a marketing problem; you have a product problem that no amount of marketing will fix. You will learn more in face-to-face meetings with prospects than you can from web visitors. It’s important that the first sales rep is of the creative and inquisitive type who needs no marketing support or structure in order to close deals.
PATTERNS. In the early days, exposure to customers enables you to identify patterns of their behavior. Sales, Marketing and especially Product Managers need to get face to face with customers to understand their reality: not what they think the market needs but what the actual customers need. Customers are good at diagnosing this, but they are not usually good about deciding what is good for a market in general. That’s where you want to look for patterns.
LEADS. As you build out the sales team, expand only as you have enough sales leads. If you need more leads, invest in more content marketing, demand generation, SEO and PR. You need to know how many leads it takes to close deals, what your close rate is, how much a typical deal brings in and what a good quota is.
GEOGRAPHY. Only expand geographically as you see actual demand in the territory. This is true whether you are thinking of expanding domestically or internationally. It is cheaper to experiment with lead generation or events in a specific region than to hire sales people and build out an international presence.
PRODUCT KNOWLEDGE. Your early sales people will need to be skilled in the product and understand the technical needs of customers. They need not be as technical as those who wrote the software, but they should be able to do a 1st level demo and understand the customer’s problem. Selling in early days requires in-depth product knowledge.
SOLUTIONS. You will want to invest early in Systems Engineers (also called Solution Engineers) who can work closely with customers, do proof-of-concept work or integrations for customers. This is a specialized skill that can be hugely important, especially if you have a technical product.
Look for repeatability and scalability
“A startup company is a temporary organization designed to search for a repeatable and scalable business model.” Steve Blank.
TIMING. You should not start scaling sales before you have a repeatable and scalable business model for a product that satisfies a core need of the customer. When a business model is repeatable, even a junior salesperson can sell the offering to more customers every day. When a business model is scalable, it means that for each new sales person you hire, you will be certain to have a corresponding increase in sales in a given time, and your expenses from servicing the customer are growing slower than revenues. If you have all of that, go ahead and scale sales. But if you do not, you should wait.
FOCUS. Before scaling sales, focus on just one or a few narrow target segments, sell just one product or one variation of the product. Use a single sales channel and one sales method. Sell where you have a high win rate over competitors. Sell where the average sale value is the highest. Sell to customers who already love your product or service and are ready to make a decision quickly. Don’t evangelize.
Look for patterns that suggest ability to scale. What are the common threads across your buyers? What are the problems they have in common? What backgrounds are common? What is same in their existing infrastructure? What is common across their buying process? What is common about their priorities, evaluation criteria, pain, needs and budgets? If every customer is different across every dimension then you may not be able to scale or you may not be seeing the pattern yet.
SEGMENTING. As you grow, you may want to segment your sales teams to different markets. For example, you may hire experienced enterprise field reps to work on large complex deals, versus less-experienced inside sales reps for smaller mid-market deals which are hopefully less complicated. With growth you may also specialize sales efforts around “new business” versus expansion of the existing customers, sometimes called hunters versus farmers.
HIRING. There is always pressure to hire more sales people to meet the annual plan. Remember that it’s much easier to scale a spreadsheet than a real business. While it is tempting to hire a dozen sales reps to make sure you hit your number, if you can’t make six sales reps productive, you will never succeed at getting 12. The pressure of unrealistic plans has consequences, from increasing your burn rate to demoralizing the team.
CONSISTENCY. Ideally you want 80% or more of your sales team to be consistently hitting their numbers. If the figure is higher, you will be happy to pay the sales commissions to that superstar team. If it is much lower, you are not ready to scale. You might have the wrong skills in sales, or your messaging is not exactly right. Most likely, it means the product does not yet fit the needs of the market. That means you need to do more product experimentation before expanding sales.
LEARN FAST. Most businesses hire too fast and fire too slow. Your business will scale better if you do the opposite.
Building the sales machine
As you are getting ready to scale sales, you need to build a go-to-market machine – a set of practices and operations that can feed sales in an automated manner as it grows and scales. That machine has the following parts:
TARGET MARKET AND SEGMENTATION. You must be clear on what the target market is. Say “yes” to certain markets and “no” to others. Within the target market you must identify the best segments and know in which order to you will target and conquer them.
VALUE PROP. When you know your product and target market, you can be completely clear on the value proposition. You can describe and demonstrate both internally and to your prospective customers the benefits of the offering. Usually a value prop is a combination of Cheaper, Faster and Better. Your offering may save money for the customer, it may deliver the results faster than other solutions, or it may simply be a better way of solving the problem. Your customer has a job that needs to get done, and your offering will get them there.
POSITIONING. In your target market there are other vendors who are fulfilling the same or similar customer needs. With powerful positioning, you can make it instantly clear to customers why you are worth their attention. You can be the best, fastest, nicest, most complete, or the most reliable. What is vital is that you stand out for something where you are unquestionably the best. Most positioning statements are positive – they highlight a positive aspect of your offering. Sometimes a negative one makes sense. Think of how Salesforce came out saying “No Software!”. Their unique advantage was that their offering was a service, not a software product. They chose to express it by pointing out how antiquated an on-premise software solution is.
LEAD QUALIFICATION. Based on your target market and value proposition, you need to know how to qualify leads. There are many sales leads in the world, and most of them are useless to you. Just like a car engine needs the purest possible fuel, your sales engine needs the purest possible lead flow. Learn to qualify out the leads that will not turn into customers. Equally important is to filter out the ones which will not be profitable for you.
DEMAND GENERATION. To feed the sales machine, you need predictable demand generation. Here is an example of how you could calculate this.
If your target is 1,000 customers in a given year, and 20% of your qualified leads can be closed, you need 5,000 leads to reach your sales target. These must be produced early enough to allow for the sales cycle to happen in the given timeframe. Producing these cost-effectively on a predictable timetable requires creativity and solid marketing execution. If your average selling price is $10k and you are spending 20% of this on marketing, it means a yearly marketing budget of $2m. Perhaps $1.5m of this is needed for salaries and general marketing and $500k can be spent on leads. 20,000 leads might have to be distilled to get 5,000 qualified leads. With these parameters, your cost per unqualified lead must not be higher than $25. Conclusion: trade shows are too expensive and you must figure out smart ways to produce leads online at volume. An added benefit of online is that it scales. If you get another $500k to spend on lead generation, it is possible to repeat what you are doing to get more leads. But if your initial program was one of attending trade shows, it will be difficult to find more of these.
SALES METHOD. The sales reps of the early days are masters of innovation. Deals typically get closed one by one in a variety of creative ways. But when you start scaling sales, you will need predefined methods to sell and close deals. You will know exactly what job position in the customer organization to sell to, the proportion of top-down to C-level executives and bottoms-up to engineers and domain experts. You will have standardized presentations and white papers, a set standard prices and contract templates which are not modified case-by-case. Experts in your organization are employed at exactly the right moment to move the customer forward. This sales method should be standardized and documented. You can then hire and train new sales staff quickly.
OBJECTION HANDLING. In early days of selling, objection handling is an improvisation art. When you scale sales, this must be turned into a precise science. Make a concrete list of all and every sales objection you can imagine encountering, and write down the best responses to the objections. Make sure that your sales reps know this list by heart.
SALES CYCLE. One of the most impactful parameters is the sales cycle duration. It is better to cut the sales cycle in half than double the pricing. Every improvement in cycle speed is beneficial. You may think that you are not spending much time on customers who are moving slowly through the sales cycle, but this is not true. As long as customers are in the cycle, they always require attention, and at volume it gets costly. Time also kills deals. For every minute of delay in closing a deal, the risk increases that the customer may change their plans.
CONTRACT TEXT SIMPLICITY. The less time and effort you spend negotiating contract details with your customer, the happier both of you will be. For this reason, make sure you have a standard contract text that is fair and reasonable for both the customer and you.
CUSTOMER ON-BOARDING. When you move customers rapidly through the sales cycle, a powerful on-boarding mechanism is needed. You will want to take good care of customers once the deal has been closed. If customers are not made successful quickly, renewals will be challenged, and you lose important champions of your company. As with the other components of scaling sales, figure out the few standard ways of on-boarding various types of customers. Document and codify this process so that anyone can handle it. Think through feedback loops. The customer on-boarding team or customer success team will see the problems that customers encounter. These observations should be channeled to the product team for enhancements and to sales and marketing teams for improving the sales process and objection handling.
Strengthen the Sales organization
When you prepare to scale sales, the organization needs to be strengthened and structured. Up until now, you relied on highly capable and creative sales people who don’t need structure or instructions. They close deals no matter what. But when you scale, you will need a new model that values consistency, repeatability, and perfection.
TEAMS. You may need to create separate teams for inside and field sales. Within field sales you may separate new customer acquisition (“hunters”) from renewals (“farmers”). You may have a person or team in charge of indirect channel and partner sales – but remember that you cannot teach partners how to sell and implement your stuff if you can’t do it yourself. You will probably have a dedicated team of sales engineers and you will closely track the ratio of sales engineers to sales reps. More generally, you will need to specify what skills your sales reps should have. Depending on your business, they need to understand the technology, industry or target market. Or perhaps they should be social and extroverted people who are good at selling by phone and email.
SALES OPERATIONS should be established latest at this stage. The codification of your sales machine needs constant attention by people who love operations and have attention to detail. They will govern the use of various sales and marketing tools (which are now mostly SaaS offerings). They will produce analytics and reporting, oversee contract signing procedures and participate in the scrubbing of lead and sales data. They track sales targets and commissions and train sales people. Overall, they set a cadence for the sales work. Some actions happen hourly and others are daily, weekly or monthly. Without precise and dependable sales operations support, deal closing will be hampered.
HUBS. Create hubs for Sales Development, Inside Sales and Renewal teams instead of distributing such roles in regional or country teams. This high volume/ high activity skill set is best managed in hubs – typically 1-2 in North America, one in EMEA and eventually one in APAC. Limit direct reporting relationships to first level sales managers to 4 or 5. First level sales managers cannot make joint sales calls, interview new candidates and perform necessary training and ramping activities in a high growth environment if they have too many direct reports.
The best value creation happens when business is growing at a high rate. Many new CEOs and CFOs don’t set the bar high enough. Set the goal high in the year of first commercial launch.
The second year should be a revenue multiple of the first – 3-5X is excellent. In the third year, business should keep multiplying (around 2-4X). It’s outstanding if you can keep up the growth rate in the fourth year. For many, growth in the fourth year drops to 2X or less (50-100% annual growth). Note that these numbers are indicative only. Every business has its own ups and downs. You may see slower growth some year, and faster growth some other year.
Scaling Sales in summary
- Don’t do it until the time is right.
- Keep it simple. Stay focused. Document and codify. Standardize, but be flexible enough to allow for exceptions that make customers more successful.
- Rely on analytics. At this stage, sales is a science and not an art.
- Pay attention to cycle times. Slowly moving elements are bad both for the customers and for you. Stay agile. Cut down on wait times.
- Look around the corner for the next bottleneck or challenge. When you scale sales, you will not have time to remedy the problem if you start fixing only when it happens. You must prepare for the problems and build a readiness to handle them swiftly.
- Do not start scaling sales until you know that you have a sales model that is both repeatable and scalable, with a product that customers love.
Scaling Sales is an act of precise execution. There are many things to get right, but when you do so, the market is yours.
Marten Mickos, with valuable contribution from former MySQL executives Mark Burton and Zack Urlocker
P.S. Quora: What do the top 1% of sales people (software/SaaS) do that the other 99% don’t?
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Insightful post, beautifully digested!