Your startup as a formula
Growth is the common cure for many startups’ ails, and hiring salespeople is the most frequent antidote founders prescribe. The problem is most founders fail to explore the entire medicine cabinet for other remedies and, frankly, hiring salespeople is hard. Let’s explore the levers beyond hiring that accelerate growth.
Your revenue is a formula that considers more variables than the “number of salespeople.” This post will discuss a few of these variables and actions that founders can take to influence them and accelerate growth. These examples are based on a hypothetical sales organization with five salespeople each closing two deals per month with an average deal size of $25k and a sales cycle of 60 days.
Sales cycle duration
One way to accelerate revenue is to improve throughput. Don’t overlook the duration of sales cycles because lingering pipeline drains your sales reps’ attention faster than water in a net.
In our hypothetical sales organization, shrinking the sales cycles from 60 days to 45 days would imply each sales rep could close four deals every 1.5 months instead of every 2 months. Across our five sales reps, this increase in throughput corresponds to a 33% increase in revenue ($4M in annual revenue vs. the $3M baseline). I recognize this analysis assumes a fixed number of deals that a rep can manage at a given time and that pipeline production keeps up, but the point is still salient.
So, how can you shorten the sales cycle duration?
Consider how long opportunities linger at each stage of the sales cycle. To keep it simple, let’s assume that your sales funnel has five stages:
- Sales qualified lead
- Discovery
- Solution validation
- Proposal & negotiation
- Finalizing & close
By analyzing the average duration of opportunities at each stage, you can discover ways to tighten your sales process and move deals through the funnel faster. For example, you could accelerate “solution validation” by demonstrating proof of value more quickly. If you’re currently offering 30-day proof-of-concepts (POC), consider shortening or eliminating POCs altogether by using social proof to gain trust: This is the value we were able to demonstrate with your peers. You could also identify ways to estimate value creation, cost reduction, or risk avoidance without doing a POC. Consider a few value propositions:
- Time-saved: How many people do this task today, what are their wages, and by what percentage can you reduce the time spent on an activity?
- Build vs. buy: What would it take to build this product from scratch considering the wages of those involved, the costs to maintain an internally built solution, and the infrastructure needed to produce a home-grown solution?
- Process automation: What inputs to this process might be eliminated and what are the costs of those inputs in the current process?
- Risk avoidance: What is the financial impact to the organization if the risk becomes realized?
It’s hard to generalize with these examples, so I recommend working backward from the business impact of the prospective customer not choosing your product. Then, consider the costs of substitutes. If you can identify the variables that constitute business impact, you can model the value of your product without entering a POC.
If deals regularly get stuck in the “proposal and negotiation” phase, engage key stakeholders earlier in the sales process. Many buyers require lengthy security and contract review processes (“contract” refers to master service agreements that differ from pricing terms). In these situations, try to complete the legal review alongside other parts of the sales process.
The most qualified customers tend to move through the sales cycle most quickly. If your prospects are stuck in “discovery,” it’s likely that these prospects weren’t well qualified to begin with. Regularly scrutinize your qualification criteria and ensure it is being rigorously applied by your sales team. In the early stages, it’s safe to assume that there are more qualified prospects for your product than your sales team has the ability to address. Spending time on poorly qualified prospects yields a poor return on time and results in your team not spending time with the better-qualified customers whom they haven’t met yet.
Ramp faster
Don’t overlook sales enablement as a revenue lever. Salespeople must undergo training before they can successfully sell your product. This training includes deeply understanding the product and positioning, learning about your ecosystem and buyer persona, assimilating the sales methodology and process, familiarizing themselves with your available tools and software, discovering their sales territories, studying the inherited pipeline, and more.
Depending on the complexity of the market and existing knowledge about the landscape, a good rule of thumb is a sales rep can be fully productive in the time it takes to onboard + three months + the average sales cycle length. With our hypothetical 60-day sales cycle, this implies a six-month ramping period assuming it takes roughly a month to onboard. What if you could shrink this time by one month? If we add two salespeople during the front half of the year, cutting ramp time by one month would contribute an extra $100k to revenue (2 people x $25k/deal x 2 deals)!
The lesson? Invest in sales enablement.
Design a structured curriculum that addresses the areas mentioned above, set daily milestones for completing this curriculum, and analyze the activities of your top performers (even if that’s you as the founder). Then try to institutionalize those activities as part of the sales process, have your team shadow sales meetings as frequently as possible, and offer regular opportunities for them to demonstrate their readiness to sell with activities like mock sales meetings. The best sales organizations certify their sales reps, which implies they have a precise view of what it takes to sell successfully. With a clear understanding of what good looks like, you can push your sales reps more precisely toward that benchmark.
Increase your average contract value (ACV)
Price as a way to increase revenue seems obvious since the price is typically a focal point in every sales negotiation, but I seldom see founders look for opportunities to increase the prices of their products. Peter Reinhardt, co-founder and CEO of Segment, tells a story about how their first sales advisor indicated he’d quit if Peter didn’t increase the price of Segment by 1,000x — instead of $120/yr, the advisor suggested charging $120,000/yr. The deal that prompted the discussion settled at $18,000/yr, an 85% “discount” to the list price and a 150x increase over the previous price point.
While you should regularly increase prices as a mechanism for value discovery, the best way to command a higher price is to demonstrate more value. A salesperson’s primary objective is to fully quantify the value of your product to a buyer so that they establish an anchor for price. Revisiting what we previously outlined, the sales process should reveal the measurable revenue impact, cost savings, process improvement, and/or risk avoidance by implementing your product. The stronger case you can make for how your product improves in any of these areas, the more pricing power you’ll be able to command in the market. There are other factors to consider like the cost of substitutes and the competitive environment, but the value is a good starting point.
Your revenue model is a function of multiple variables. Make sure you are achieving the maximum leverage across all of the variables.
