Fortune.com research points out that nine out of ten startups fail with “lack of a market need for the product” being the top reason. And, “running out of cash” being a close second. While the first one is really dependent on the tech founders marrying their passion with what is needed out there, the second reason demands a lot more tactical cure. However, both of these reasons have ‘sales’ and how founders view it as a lifeline as an underlying factor for failure.
Before we begin analyzing, let’s put some assumptions in place. Of course, in the case of B2B tech startup, the product-market fit has been validated by a first few wins or “projects” as tech founders would call it. In fact, the success of the startup has been measured, not by cash earned, but list of features validated by the pilot customer for development roadmap over next 12 months.
And that’s the when the predicament hits the startup founder – should I invest more time in product development to appeal to the larger market before I go out and ask for money. Or should I spend time and learn how to sell what I have?
In fact, at this stage lot of tech founders re-adjust the definition of the minimal viable product (MVP).
It is at this juncture, the foundation of success to seed round or drying out of cash is laid. Of course, there is no right choice between the two. Authors of Traction- Gabriel Weinberg and Justin Mares talk about doing sales and product iteration concurrently to succeed. But I would tend to clarify things on ‘figuring’ out sales side because that’s what I know.
At this juncture, the tech founders begin to ask – Are we ready to sell full-steam? Or should we develop till the product is closer to “perfection”.
This is where a 4:40:400 principle of sales comes in effect. The term that I borrowed from my friend who is a chief strategy officer and a highly successful sales leader at a APAC based startup. As per this principle, sales DNA required to acquire your first 4 customers is very different from acquiring your first 40 customers which in turn is very different from acquiring your first 400 customers.
At each stage of change, the organization requires a revised sales plan; sales methodology and tools & tactics. It’s not just the planning & processes but level of maturity in sales behavior and thinking varies drastically, especially between the first handful of customers versus first 40.
The way you sell a longboard is different than how you sell a bike.
First four customers can be acquired easily and through relationships, however for the next forty customers the strategy may be to handpick a few star performers with a track record, identifying your successful verticals; identifying the geography or the product strength etc. For 400 customers, companies may need to have a partner strategy; geographical segmentation and teams alignment; sales processes and tools like CRM etc
To highlight this difference more explicitly: For the first forty customers, it is critical as a tech founder to keep your feet on the ground, and ears close to your customers in order to get valuable feedback to iterate product development (and of course reference selling). However, as you hone the art of customer feedback, you should be getting ready for hiring sales leader who can turn around feedback driven product development into the value proposition that sells to the next 40 customers. As you hit this 40 new logos stage, the focus should shift on how to hire someone who can hire and scale, rather than be a “killer salesman” for next 400 customers.
Here are some suggestions to tech startup founders, in order to avoid running out of cash:
- Kickstart sales early. It will generate much solid customer feedback and buying process insight on features that sell. Without organized sales plan even at initial customer stage, you could try selling improved chassis when some of them only need a board with wheels.
- While you are motivated by anyone interested in using your product and providing feedback, sales leader is thinking about finding a sweet spot and creating a messaging that sticks with customers at large. Their goal is to use the least resistance method to get sales. This ability to generate initial cash flow is paramount for startup success.
- Sales are about cadence & diligence. And it takes time. It is creating a hypothesis about product – market fit, testing it consistently at scale with a standard messaging and getting feedback on what sticks (and what does not). It is about diligently following up with stakeholders or aggressively going after an industry. It takes someone full time to get engaged. It is certainly not a side-occupation to pick up the phone and dial cold for a couple of hours on a Friday afternoon.
- Hire to scale against hire to sell. The sales leader or partner that you bring in at the stage of 4-40 customers should have expertise in scaling rather than selling. He/she should be able to develop sales processes, establish sales playbook, hire effectively and fast when the time arises and create a plan to scale team. In fact, a tech startup, that is just getting picking steam, should hire a failed sales entrepreneur rather than a successful sales rep working for enterprises.Of course, this changes unless you operate in an industry of few multi-million dollars sales a year. Then better get someone with a good Rolodex.
We wrote another piece on 10 tell-tale signs of a great CSO for a startup, if you want to know what he should focus on.
- Sales Execution tops planning. Though short term sales strategies do require a definite plan, there is a point of failure at every step. A sales leader, who is not grounded up, does not understand customer behavior and has a limited view of sales processes is bound to fail. It requires sales leader to be as agile as you’d like your products team to be.
The sales methods at each stage of growth from 4 to 40 to 400 customers are different. The sales playbook differs drastically. However, the cadence to test the sales playbook at learning stage is paramount. What will get you deals for first few customers will not scale for next 40. Make generating cash as a top priority and justify it by offloading it to someone who is a pro. It takes time and diligence to create the sales process, hire and execute. Let that not be a part-time engagement if you want to be that 1 startup out of 10 that does not fail.
This article has be co-written by Pradeep Agarwal & Deepanker Dua.