Soaring on Ridgelift: Ramping Sales…

The most challenging phase in the life of an early company is ramping sales. It's the time where the rubber meets the road – will the prospects hand over the money and become customers?

Get into a sales model with high friction and you can burn through a lot of capital in short order.

I find myself concentrating more and more on the issues of sales friction – it's the largest determinant of how much capital it's going to take to ramp sales for a company. The more capital you need into a company, the larger the exit has to be in order to make all shareholders happy – VC investors and the management/employees of the company.

So what is SALES FRICTION?

Sales friction is anything that increases the time and effort it takes to convert a prospect into a paying customer. Here are some examples;

Selling to a wire-line or wire-less service provider. The scale of these companies forces them to be very conservative about buying any new product – even from their existing large suppliers. The sales cycle is very long, requires field trials, complex contract negotiations – only to find that the service provider flat out won't buy from a startup.
Selling to large enterprise accounts. IT has become mission critical in almost every company regardless of size. IT professionals get fired for making decisions to buy things that don't deliver or where the company they bought from goes out of business. It's safer to wait and buy from established suppliers when they (eventually) deliver the same thing.
Solutions that require integration with other systems within the prospects environment.
Solutions that are "in-line" – if they fail, they bring down the application/system/users – harder to sell than solutions that are not in-line.
Solutions that require extensive training or process changes in how the prospect does their own business.
…

Ramping sales takes time even with a product or service that is unique and solves major headaches for the customer. The higher the price point, the higher the sales friction.

Historically, early stage companies had little choice in determining how to sell their products. Consider the alternatives:

OEM – selling to a larger corporation who already has a sales force and distribution channel. It's harder to make decent margins as two companies have to make a profit on the sale – you and your OEM customer. As a rule, companies OEM to fill holes in their offering and cancel you out in a New York minute when they no longer need what you offer.

Channel Distribution – not really an option. Channel distribution is a fulfillment mechanism to satisfy demand. No demand, no sales – you have to create the demand! Channel sales are rarely a match for new products unless there is an established set of value added resellers who see how they can greatly benefit from working with you AND there's a huge need for what you do.

Direct – hire a set of experienced sales executives who are good at breaking into new markets. These folks cope well with a missionary sell and are adept at helping the company match the product/service to what the prospect needs. Even a modest sized sales force will burn through $1.5-2M a year. This gets very painful when the revenue ramps slowly (it always ramps slower than you want!).

Unfortunately, even direct sales runs into higher friction than it did even 5 years ago. You can see some of the reasons in the examples above – Enterprise IT buyers are much (much!) more conservative than they were 5-7 years ago… plus, as we head into a likely recession, IT budgets will be one of the first victims of corporate budget tightening. You can already see this demonstrated in the financial reports of public companies and the guidance they have begun to offer.

Building a direct sales force is also harder and more expensive than it was in the past. One of the experienced CEOs I work with was commenting on the challenges of hiring direct sales professionals:

It's very hard to find young, up-and-coming sales people in their late 20's or early 30's. Why? Because the classic training grounds for those kinds of people were IBM, HP, Cisco etc. who have all become primarily distribution sales models.
As a result, you find sales people who have been doing the same job for a long time. They don't do well with missionary sales and many just aren't that hungry.
Typical compensation packages for the experienced people you CAN get are much higher – probably by a factor of two from 5-7 years ago.

The cost of ramping sales puts an imperative on finding ways to reduce sales friction. Enter the Internet. The Internet through search engines, blogs, online publications etc. offers a low cost way of reaching potential prospects. This isn't about advertising, this is about getting the word out about what you do and the benefits you offer.

This helps reduce marketing costs but you can extend it to reducing sales friction as well.

Offer a free (limited function) version of the product/service that can be downloaded or provisioned over the web.
Open source your product – let prospects download it and try it out for free and then provide them the opportunity to buy support, on-going enhancements etc.
For hardware products, can you offer a free software version of your product that prospects can download and try out as a sales lead generator for hardware sales?

Be creative – think about ways in which you can engage the prospects without having to have direct touch or telesales call on them. Ideally, find a way to market, sell and support your product completely on-line.

If you want some more inputs to help you think through this process, grab a copy of Seth Godin's latest book – MeatBall Sundae. It's a quick read and will make you think about how to apply the Internet to Sales & Marketing.

Bottom line – lowering sales friction will help you ramp revenue on less capital.

Comments

Stu,

This is a great article. I'm upset I didn't find it until now! I've been working sales in start-ups for my entire career. Its true that the breeding ground for great salespeople used to be the traditional workforce places, but with great coaching you can turn anyone with an entrepreneurial mind-set into a great salesperson. And...if win-win sales is in your blood, an environment like we have now - where cash is hard - will bring it out in you. I believe that a lot of young, hungry, talented salespeople will come out of this recession.

The tightening of the budget will help put the salespersons focus in the pitch in the right place too. VALUE. I blogged a few months ago about a software company where I worked that didn't let salespeople log into their software (http://www.quotacrush.com/index.php/2008/07/31/the-genius-behind-never-logging-into-the-software-i-was-selling/) - and the focus that put on the value sale.

Great post.

Posted by: Mark LaRosa | November 24, 2008 at 05:15 PM

Marketing and sales processes can be some of the most challenging for computer consultants. I think one of the best ways to improve your sales as a small business computer consultant especially (the realm in which I personally work) is by choosing a specialty and a niche and identifying major problems well in advance of starting to target your prospects. When you have a really targeted plan for seeking out potential customers, you tend to get more qualified prospects that will be more likely to say “Yes” to your proposals.

There is obviously a lot more involved in the sales process and with marketing plans, but I think a lot of people selling solutions to problems get that first thing wrong and it compromises them greatly moving forward. Thanks for your detailed article!

Posted by: Joshua Feinberg's Blog | January 30, 2008 at 09:08 AM

Uday,

Regardless of whether there is a full blown recession or not, its clear from recent earnings announcements (eg VMware) that corporate spending is being tightened.

Tighter spending in the Enterprise will lead to deferred purchases or even longer sales cycles. In other words, increased sales friction.

This places even more of an imperative on being able to reach the prospect inexpensively and be able to demonstrate high value using the Internet for sales and marketing.

Whether its a hosted solution, an entry level free product, open source free download etc., you have to have some way to help lower the sales friction.

This is the beginning of a list of ways to reduce friction - feel free to add more thoughts on expanding this list.

Stu

Posted by: Stu Phillips | January 29, 2008 at 11:50 AM