Startup Sales: Part I Evaluation

(This is the first part of a four part article on running sales at a startup. The second part is here. The third part is here.)

Let’s say you’re running sales at B2B SaaS startup, either as the CEO or as the sales manager. Your company has 20-60 customers and you’re wondering what to do next.

This is a framework for figuring it out. Your task is poorly defined and your days are filled with emergencies. You need a structure.

There are four steps: Evaluation, Strategy, Operations, and Tactics. Each builds upon the ones that come before.

I.  Evaluation

Evaluation means defining your key challenge, determining your goals, and deciding what resources you need. You can’t get anything else right if you don’t get evaluation right.

A.  Challenges

Are you discovering your growth model or scaling it? You don’t have time to do both at once: Day to day demands like closing customers and running your company are too pressing.

If you quadrupled your sales activity, would you quadruple your sales without a change in strategy? If so, you’re ready to scale. But having some customers doesn’t make the answer yes.

So ask yourself: Have you demonstrated the ability to sell to unaffiliated customers? Are your mechanisms for generating interest from prospective customers scalable or finite?

1.  Unaffiliated Customers

Unaffiliated customers are those who have no connection to your company, not your friends and family.

Do 50% of your customer count and ARR come from unaffiliated customers? If not, you’re not ready to scale. Affiliated customers start out interested in your company and give your product the benefit of the doubt. The rest of the world couldn’t care less about your company and is looking for a reason to say no.

If you’ve reached 50%, determine whether you have a scalable source of leads.

2.  Scalable Sources of Leads

Interested companies that fit your product are called leads. Do at least 50% of your leads come from scalable sources rather than finite ones?

Create a list of all the leads you’ve generated over the past three months and divide them by source: (1) outbound outreach like calls and e-mails, (2) inbound sources like website signups and content downloads, and (3) referrals from current customers and employees.

Outbound outreach is likely to be scalable. Get more names to call, generate more outbound activity, and run some A/B tests to optimize and your odds of scaling lead flow are high.

Inbound leads are likely to be scalable if you’ve been doing something to attract them. For example, if you’ve generated useful content that has gotten people to sign up on your website, it’s probably scalable. Generate more content and watch the leads come in. If you put up a website and people just started writing in, that’s awesome, but you haven’t identified a lever you can pull to get more leads.

Referrals usually aren’t scalable. Happy customers who are inclined to do so refer their contacts without being asked. Asking for referrals might get you a one time bounce, but that’s it. Employee referrals only go so far: Once everyone has gone through their LinkedIn profiles and reached out, you’ve gotten what you’re going to get.

If you can close unaffiliated customers and you get leads from scalable sources, you’re at the scaling stage. Otherwise, you’re at the discovery stage. If you’re unsure, err on the side of discovery.

B.  Goals

The purpose of goals is to motivate the right actions. They should be ambitious enough to get you your next round but not so ambitious that you take stupid risks.

You’ll only get your next round if you demonstrate that you have a chance to grow at a compounding rate. That’s why your company is worth investing in despite the 90% chance that it will fail. You need something like 10-15% month over month (MoM) growth to show that you can grow at a compounding rate.

But it’s easy to get carried away setting goals. If you start with 20 customers and set a goal of 10% MoM growth, you need to get to 60 customers at the end of the year. At 15%, it’s 100. At 30% it’s 450.

Unreasonable targets lead you to take unreasonable risks. If your target is 30% MoM growth, all ten of your outstanding problems need to be fixed immediately because you need numbers right now. Forget focusing on one issue at a time and running rational experiments, you guess and hope for the best. When things don’t work, you won’t even learn from your mistakes.

Excessive targets can lead to you to scale before you’ve discovered your model. Your targets three months out look extreme so you start hiring now to prepare. Hiring takes 500% more time than expected and crowds out efforts to discover your growth model. Pretty soon, you have a big team and a massive burn rate but no idea what you’re doing.

Excessive targets can also lead you to waste effort pursuing the wrong sorts of customers because you start to get desperate and desperate people stop thinking straight. You might devote a ton of effort to signing a customer who is too big in an effort to hit your goal all in one sale. Big companies like to do business with vendors who they know will be around in two years. If you’re pursuing one out of desperation, that’s not you. You might start pursuing any lead that comes your way. Your colleague’s sister’s cousin’s former co-worker starts looking like a legit lead if you’re behind on your numbers for the week. But those leads aren’t repeatable even if they sign and they probably won’t.

Just because some other company hit 30% MoM growth doesn’t mean that should be your goal. Rational risks lead to rewards.

C.  Resources

You need to assemble the right amount and type of resources. In some cases, your needs depend on whether you’re at the discovery stage or the scaling stage; in others they don’t.

1.  Stage Dependent Resource Decisions

Discovery stage companies need to quickly run a large number of binary tests to determine where to focus their efforts. If a method works, optimize, if not, move on. Competence is vital but perfection doesn’t matter. The skills you need to run one test may be very different from the skills you need to run the next.

So consider outsourcing. Outsourcing can get you a critical mass of any type of activity very quickly. Quality might suffer because you don’t have the control you’d have over an employee. But you don’t care if you’re a discovery stage company running a binary test, just get it out there and see if it works. Above all, don’t try to be a one man army and run every test on your own. Burnout is death.

Scaling stage companies need the control that comes with having activity in house. Optimizing means determining if A works 10% better than B. To do that, you need a large volume of activity that follows your exact criteria. So hire.

Your team might grow in a flash, from a discovery team of two or three people to a scaling team of eight. Get the timing right; too early and you crowd out discovery efforts, too late and you burn yourself out just when you need to take a breath and refocus yourself on scaling.

Your CEO needs to stay involved in growth even after you hire a few salespeople, but the type of involvement depends on your company’s stage. At the discovery stage, your CEO needs to spend at least 33% of his time on measureable growth activities like closing customers and running experiments, not brand presence activities like networking events and sitting on panels. Your CEO is irreplaceable at the discovery stage: He has a prestigious title, knows the product and the market, and is likely to have great natural sales skills. You’re also likely to be short handed. The marginal return to additional brand presence activities is low. You don’t even know who you should be building your brand with. So don’t let brand presence activities crowd out the 33% of your CEO’s time that needs to be spent on measureable growth activities.

At the scaling stage, the equation changes. You can replace your CEO’s measurable growth efforts by hiring more people because you have a model to scale. You need to get more leads into your sales process. Brand presence activities, if they’re laser targeted at your ideal customers, can help. So skip the cool tech conference panel and get on the panel at an industry conference that your buyers attend.

2.  Stage Independent Resource Decisions

Other resource decisions don’t depend on whether you’re discovering or scaling.

You need to focus. Your company won’t survive unless you: (1) build a single sellable core product, (2) discover a growth model, (3) scale it. People will come up with a lot of cool ideas that will distract you from these three things; say “no thanks.” Even with focus, you often won’t have the resources you need for discovering and scaling.

So your colleagues need to help. They might write blog posts, build a product widget to generate leads, or review resumes for basic qualifications. Be persistent in asking for help and grateful when you get it.

You will need customer relationship management (CRM) software to coordinate your contacts  with potential customers. Regardless of your stage, I suggest that you go with Salesforce, the industry standard, rather than a fashionable upstart CRM.

If you’re at the scaling stage, there is no decision to make. Only Salesforce will give you good enough analytics to tell whether one strategy is working 10% better than another. Salesforce is a beast to set up, so spend $10-15,000 to have a consultant build it for you. This is mission critical infrastructure that multiplies the effectiveness of everyone on your team. Open your wallet. Otherwise you’ll waste half your time tracking 15 different metrics in Google Sheets. That’s an expensive mistake.

If you’re at the discovery stage, I still suggest Salesforce. Upstart CRMs often don’t have strong enough analytics to correctly calculate conversion rates, like the rate at which calls convert to demos or the rate at which demos convert to customers over a given span of time. Even if an upstart CRM will work for your needs right now, you’ll quickly need to replace it if you advance to the scaling stage.

Finally, you need a high quality source of names for outbound outreach. These names need to have accurate contact information and fit your exact criteria. Discovery stage companies need to test different types of names to see which work, so they need to know they’re getting the type of names they asked for. Scaling stage companies don’t have time to waste on low quality names. In neither case can you afford to buy a list with 10,000 random names from goodness only knows where. Pay for good names.