Optimising startup sales pipelines
When you are a startup with limited funds and runway and have a lot of things to prove to you, your team, customers and investors getting on top of sales is critical.
There are a myriad of tools, cheap and expensive, that help all sizes and manner of businesses to manage their sales process and strategy. Products like Hubspot, SugarCRM or even AirTable can be essential in helping startup founders maintain control of their sales pipeline.
My criticism of some of these platforms is that the sheer amount of data they report can overload founders and create over-reporting paralysis. To this end, this week’s article is about what I believe to be the most important set of metrics for an early stage company selling their wares.
The most valuable asset that you, as founders, can manage is time. Your own and your team’s time is precious and when you raise a seed round that will last you 18 months, every second counts.
One of the most important milestones for you to accomplish in this limited window of time is to generate meaningful sources of value (value = revenue in this case), which will hopefully recur each year. When you have limited amounts of time within which to accomplish some big revenue goals you need to focus on prospective customers who will close in a relatively short window. The model below factors in these two metrics and illustrates the opportunity cost of spending too long closing small deals that deliver little value and larger prospects who take forever to close. Equilibrium occurs in the green area where value and time are on an equal footing.
That being said, a number startup sales pipelines that I have seen look too much like this:
It is tempting to run a mass market sales campaign and then spend far too much time servicing inquiries from small opportunities in the orange box that will not push the needle on your sales and/or product market fit strategy.
At the purple end of the spectrum are the giant, multinational corporate clients who MIGHT generate significant levels of revenue for your company IF you can close them. The larger the prospect the more red tape and procurement processes exist for them to acquire new technology products. I have seen sales cycles for large customers extend into three years, which is nearly always beyond the runway for an early stage company. Yes, it would be cool to have Sony as a client logo on your pitch deck but is it worth the expense, time and effort to close them when you are a seed stage company?
With this in mind, this is how I like to see my startup portfolio companies structure their sales pipeline:
The three things to pull out from this version are:
- There is nothing wrong with having a handful of small clients as users but ensure that you monitor their cost of acquisition and the corresponding cost of managing their accounts. If you have an account management team, ensure that one person can handle many of these smaller clients at the same time.
- There is nothing egregious about including some aspirational, giant potential clients on the sales pipeline. Stranger things have happened for my portfolio companies and some have closed companies like Walmart and McDonalds as clients, however it is rare. Having ongoing conversations with these types of clients are also useful when you are approaching your next raise as these are data points that your next set of investors would probably want to review.
- The majority of your prospecting should be within companies that can deliver $100-$500k in ARR (annual recurring revenue) and close within 6-9 months. It is here where you place the majority of your sales and marketing budget. Actively seek out and covet these leads and do whatever it takes to close them.
Lastly, remember that a sales pipeline is a living document.
If it isn’t refreshed after lead attrition or customers that have closed then it becomes a waste of time. Make sure that you have a visible owner of this process and task them with its accuracy and usefulness in their balanced scorecard’s annual goals.
Best of luck