4 Reasons Why Startups Struggle in B2B Sales
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In a recent article titled “3 reasons why startups fail at sales”, Jean-Luc Scherer touches upon the lacking sales and selling skills of founders and entrepreneurs as well as the fact that the business accelerators, which are supposed to help startups grow, often fail to accelerate sales. In another article titled “Minimum Viable Product vs Product Market Fit”, it is mentioned that Andreesen Horowitz stated that market matters over everything else.
Four other challenges innovative startups face in B2B sales, which established businesses don't have are:
The product is so new that prospective customers can’t categorize and understand it
The product is still changing by the day
Lack of a repeatable effective sales process and tools
Poor lead generation more than anything else is hindering sales acceleration
1) The product is so new, the customers can’t categorize & understand it
This means that customers do not really know what your product does and what's in it for them. They cannot compare your offering to others', they cannot ask reference customers for advice - as they do not exist yet. This together with the small size and young age of a startup, result in a high risk purchase, requiring non-traditional decision makers, which are usually found higher in the hierarchy: someone who is open for innovations, is willing to take measured risks if the return on investment is promising and who can create or reallocate budgets for this unexpected investment.
Here startups encounter a dillema: they need to find and persuade risk taking decision makers and budget allocators (top-down), but in parallel they need to get the easier to acheive minimal risk buy-in from individual contributors to test your innovation through trials (bottom-up).
The 5 common factors influencing the adoption and diffusion of innovation are:
Relative advantage (perceived value of the new product to the old or any alternative)
Compatibility (with existing systems and with acceptable behavior, norms and values)
Simplicity (ease-of-use, intuitive, lack of complexity)
Trialability (degree of being able to trial the product before purchase)
Obervability (ease of observing, understanding & communicating the benefits)
Improving these product factors, will have a positive impact on sales.
In his best-seller book “Crossing the Chasm”, Geoffrey A. Moore argues that there is a chasm (unsurmountable gap) between the few early adopters of the product (the technology enthusiasts and visionaries) and the early majority (the pragmatists) of the mainstream mass market, which can only be surmounted using the following FOCUS strategy:
Focus first on a single potential market segment (like Healthcare) or niche (like Plastic Surgery) and win your first early adopters as reference customers. You will need them to persuade the pragmatic early “majoritarians” as word-of-mouth only spreads within specific market segments and not across segments. It is this spark that you need to cross the chasm.
Make your offering more complete by adding complementing own or 3rd party products and services. This is needed because the pragmatic early-majority are more demanding than the enthusiastic early-adopters. Partnering with other vendors does not only help you complete your product offering, but also helps you to strategically join forces in the go-to-market approach. This is a welcome synergetic lever startups should take advantage of!
2) The product is still changing by the day
Products of startups are unstable and immature. I don’t necessarily mean the technical instability of the product mechanics, hardware, software or service, but the fact that in this early stage the product follows (and adapts to) the customers' early needs. What I mean by this, is that there is a learning curve from the early selling and getting real-life (not prototype or Beta) feedback to your product from real paying customers, which permits you to pivot and tweak your product, price, packaging, service, channel, revenue model and customer segment strategies to better meet the customer needs and maximize your win probability.
This dynamic optimization phase makes it difficult for traditional sales people to sell your product as they need to be updated on a quasi-daily basis. I experience this artefact with many of my Startup clients. When selling technology, salespeople must also have some technology affinity and knowledge as they need to understand the customer’s requirements and implications on the product and confidently relay that information to the product owner (product management and R&D). Sometimes these salespeople are a great source of secondary innovations to your product (improvements, extensions, etc…).
The better you followed the design thinking & lean startup process by starting with a customer problem before designing anything, by fast prototyping & testing early enough in your product development cycle and by iterating your design and approach several times; the less such problems of ever changing product you and your salesforce will face.
3) Lack of repeatable and effective sales process and tools
Because of the necessity to have direct contact with end-customers in the early stages - for the sake of quick and effective feedback - B2B startups do heavily rely on direct sales in early stages. It cannot be expected that startups have established comprehensive sales processes and tools such as a sales methodology, sales playbook, sales funnel and a CRM system. But it is exactly these processes and tools which are needed for effective and efficient sales in the later stages of scaling and accelerating growth (recruiting, enabling and managing a sales force). You don’t want your new sales recruits to reinvent the wheel and experiment each time.
4) Poor lead generation more than anything else is hindering sales acceleration
When scaling a startup and accelerating its business, the key metric to measure and enhance is the sales velocity (V).
What is the sales velocity?
It tells you theoretically how much sales revenue per month you can generate. It consists of 4 parameters, which can be optimized independently and is defined by the following simple formula:
V = (# x $ x %) / L
V… Velocity ($ revenues / month)
#... Number of simultaneous leads you are working on is sales (size of your sales funnel)
$... Average deal size. Either one-off revenue or expected annual recurring revenue (ARR)
%... Your win rate (how many sales leads do you convert/close during a typical sales cycle)
L… Your average sales cycle length from first contact to closing the deal (in months)
Let’s assume you are working on 10 leads at a time, your average deal size is 10,000$ and have an average win rate of 20% (1 in 5) and an average sales cycle of 2 months. Your sales velocity in that case would be 10 x 10,000 x 20% / 2 = 10,000$/month or if you can sustain this velocity over 12 months, then you can achieve an annual revenue of 120,000$
So how can you increase your sales velocity?
By moderately enhancing each single parameter of your sales velocity. If you enhance all 4 parameters simultaneously by only 18% you can double your sales velocity! Yes you heard correctly 2x, the mathematics don’t fool: 1.18 x 1.18 x 1.18 / 0.82 = 2.0!
But still, how can you improve not only the number of leads, but all parameters? One way is Social Selling combined with Content Marketing, but this is a topic for a future blog article or white paper…
Sales processes and tools can help you moderately reduce your sales cycle length L and increase your win rate %, but the big acceleration for early-stage startups is expected from enhancing the number of sales leads #. With a good demand & lead generation program (Inbound Marketing Automation) you can easily increase # 10-fold yielding in our previous example some 100 new sales leads every 2 months or 50 new leads/month. This would increase your sales velocity 10-fold to 100,000$ a month or 1,200,000$ per year!
If a single sales person can only tackle 10 leads simultaneously, you will now be confronted with 100 sales leads. You need to automate part of the process and outsource the selling to an external sales force (sales consultants, agents or indirect sales channels) in order to tackle the increased number of inflowing leads, so that you as the founder can focus on the high value customer relationship with key early key accounts, on product enhancements and on managing your company financially.
Most startups have one key challenge, which is taking-off (generating enough recurring revenues to break-even and even be able to fund future growth through own positive cash flow).
Figure: The different roles of a startup
Founders are great idea generators (Crazy Angels, CA) and technical specialists (Doers, DO), but not necessarily great born entrepreneurs (Business & Sales Managers, BM). In the later stages of a startup (finding customers and generating profits) sales people are indispensable for the success.
Figure: Roles & stages needed for a startup to take-off
We at Regenmaker® Consulting specialize in thinking BIG: Business Development, Innovation & Globalization, which are 3 constituants to accelerate sales growth for SMBs and Startups.