Are You Chasing The Right Type of Sale?
Proving to potential investors that your team can make a sale is great but it's immeasurably more important to demonstrate that you've found a repeatable sales process. There is often a natural urge for entrepreneurs to want to chase any sale from anyone for almost anything related to your business. Resist that urge. In a previous post I discussed how the role of a CEO is to do whatever is necessary to increase the value of your company as quickly as possible. If you aren't chasing the right type of sales then you aren't adding value to your business.
Entrepreneurs need to avoid one-off sales whenever possible. One-offs are when a customer is seeking a custom feature, solving a problem unique to their business, or is representative of a smaller market. That being said, I completely sympathize with the fact that start-ups are always cash strapped and sometimes that means you need to close sales simply to get cash in the bank. As long as the profit from the sale is worth the resource and opportunity cost to go after it, then by all means do it. The point here is to be able to distinguish between a sale that is simply meant to keep the lights on from one that can be repeated and ultimately be scaled.
An entrepreneur has discovered a repeatable sales process when they can predict with confidence that $X of marketing/sales spend results in $Y of revenue. That repeatable sales process can then be said to be scalable if spending $1000X on marketing/sales can result in at least $1000Y of revenue.
Investors will want verifiable evidence that your sales are both repeatable and scalable. That means entrepreneurs need to run tons of experiments and collect solid data to back up those claims when pitching. This also means that during every customer interaction, you should be questioning whether that sale could be repeatable and scalable, or whether it is simply a one-off.
To determine whether a one-off sale is worth the effort, here are a few questions to ask yourself:
- How quickly can I close this sale and how quickly will I get cash in the bank? (remember that not every customer pays immediately)
- How much of my time is going to be spent chasing this sale?
- How much profit (or ideally recurring profit) can I expect to gain from this sale?
- How much runway does that profit buy me?
- How pressing is the need for that extra cash right now?
- Is it worth the opportunity cost to chase this sale?
When you are focusing your efforts on trying to find repeatable sales, you have a completely different list of questions to answer:
- Do I have a clear understanding of the customer's problem or need?
- Do I have a clear understanding of my value proposition for this customer?
- For B2B: Are this customer's competitors likely to have this same problem or need?
- What are the important characteristics of this customer that made my value proposition relevant to them?
- Is there a massive market of other customers who have those same characteristics?
- How individualized was the sales process? Can it be standardized or automated?
- Do I see a way to close the next sale with less effort and less time required?
- Are there easy and effective ways to reach more of these customers?
Simply put, you will at best be able to keep your business alive and maintain a steady state chasing one-off sales. If you are looking for growth then you must keep your focus on finding a repeatable and ultimately scalable sales process.
Meet Coach Jim Boeheim at Demo Day 2018!
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