The Right (Sales) Stuff

Most startup companies are born out of a clever idea and gobs of sweat equity in turning that concept into a product or service. The biggest decision you face at that point is how to market your product, draw in investors and reach your exit strategy. Unfortunately, product development skills don't always translate into sales savvy, so many founders must look to bring in leaders to grow their sales orgs.

Traditionally, the path to fast money and showing the "hockey stick" growth curve to boards has led companies to gravitate towards sales executives with backgrounds transactional sales models where quantity is the key driving metric. Initially, this method produces "revenue" numbers that prompts investors to throw tons of cash into the expansion of the company, which increases the operational overhead. However, when the incentive for the department is aligned with speed and quantity, shortcuts are usually taken, which manifests itself in escalating churn and more resistance to repeat purchases.

The boiler room environment is best suited for very simple transactions that focus primarily on a fixed, predictable cost to result relationship. For example, "X number of dollars buys you Y number of leads, which results in a Z increase in sales... how many leads would you like to buy?" However, if your product requires a better understanding of the client before the pricing can be prepared, like a media campaign or consulting services, the transactional sales org is most likely going to try and find a way to convert that into their model. This usually produces something along the lines of, "Our service will cost you less and produce X results for your business, so you should buy from us." The expectation set is that of a fixed result. The customer may believe this the first time, but if the results don't match the expectations, they will probably cancel and be unlikely to renew. That churn not only takes projected revenues off the table, but will also make it harder to course correct down the road due to the negative experiences accumulating in the market space about your company. Meanwhile, the accelerated growth will have left you with a tremendous overhead and with the inevitable sagging sales figures, your burn rate will go through the roof.

An alternative method known as the complex or consultative approach is based on the notion that the customer's needs must be understood in order to make their experience with the product or service more successful. This usually results in a longer ramp time and sales cycle, but provides solid revenues by minimizing churn and building a reliable book of business. The sales leaders that are most appropriate for this kind of role will come from a space where sales and account management are somewhat blurred. For example, consultative salespeople are often in regular contact with their clients, managing their expectations and reinforcing the value statement. This type of sales org is evaluated on metrics like activity, quality and retention. Opting to go this route may not generate as much of a funding frenzy, but will probably result in a much lower burn rate since the infrastructure will never get ahead of the pipeline. That means you'll be operating in the black and less affected by fluctuations in the mood of the funding community. It also creates real value in your company, whether your exit strategy is to sell or to IPO.

No comments:

Post a Comment