There are several reasons startup companies struggle to meet the revenue goals promised to Series A investors. Let’s talk about the most important one: failing to transition from individual high-touch sales to scalable and sustainable business development and sales processes. This often involves failing to develop a scalable process to test product-market fit and not knowing when to divert resources strategically to areas yielding the most results. Without a process to test multiple hypotheses about which industries to engage first, which companies to prioritize, and how to speak the customers’ language with pain points and solutions they understand, a startup will struggle to transition into a high-growth business.
Technical Founder: “We’ve been burned by high-priced BD Professionals.”
To meet promised revenue goals, startup companies with technical founders often begin to tackle BD by hiring one or two business development professionals. Flush with capital, they seek professionals with the best pedigrees and hope the new hires will magically transform the sales side of the business. But these hires rarely pay off.
Why is this? Let us explore a common scenario.
Technical founders without a background in business development or in sales invest their time where they are comfortable. In tech. Almost without fail, they overinvest in the tech team. Fresh off months of burn-out development sessions, an infusion of capital is often deployed to expand the development team. As the product development team grows, several technical development initiatives that could not be pursued are now possible. Further, the increase in staffing almost mandates the development and launch of new products. As the number of new features and products soar, attention naturally turns to sales. Or rather the lack thereof.
While the spend on product development is occurring, a business development professional is hired. The business development professional often has extensive experience in sales and business development. Their experience is generally tied to a high-growth cycle at a previous employer, often accompanied by a wealth of company resources such as a sales funnel, prospect lists, a robust web presence, case studies with satisfied customers, and substantial marketing insights to transition interested prospects to pleased clients. Since precious few startup founders have this experience, few startups develop the business development resources required to scale. Lacking these tools, the newly hired business development professional relies extensively on their Rolodex to find customers and close deals.
The business development professional starts off with a bang. Weekly or bi-weekly sales discussions are filled with tales of outreach to an impressive roster of contracted companies. Customer feedback is reported as largely positive. Several follow-up calls are planned with each contact. As weeks turn into months, precious few sales materialize.
When sales do materialize, a lack of focus on what is being offered and large amounts of customization may jeopardize the opportunity to turn the client into a raving fan. Each small scale is a snowflake, with different customers finding different bespoke solutions appealing. As new features are rolled out, the BD professional presents all options to find fit. Yet no unified product and scalable process emerge.
The Business Development professional becomes more desperate to close something. By month six, leadership in the startup often inserts themselves in discussions, often convinced they can do a better job in front of prospective customers. Even when deals are closed, revenues fall far short of delivering an impressive return on investment. For many startups, a highly credentialed BD professional rarely brings in sales that surpass their employment expense.
By month 12, the company has burned through a significant amount of investment capital, there is little in the way of product-market fit to excite investors or the market. They have little clarity in the company’s future direction, and a Series B investment is far from guaranteed. As the startup’s funds draw down to zero, it becomes clear that an investment in a scalable process that ANY BD professional could be successful in is needed. Unfortunately, these processes take 3 to 6 months to pay significant dividends. These startups rarely have the remaining runway to engage in such a process. A bridge round is required, but while the capital is raised, the draw on investment capital brings the startup to the brink of insolvency.
This scenario is all too common.
Early business development efforts are often self-defeating for two reasons:
- Startup companies routinely fail to invest enough in sales resources. Post-Series A companies must find product market fit. Once product market fit has been found, the business must scale customer outreach. The scaling must be paired with a scaling of sales resources like customer lists, company brand, marketing materials, a go-to-market strategy, and a well-defined sales and customer experience journey. To achieve scale, a company must shift the character and DNA of the company from a technology-focused business to a high-growth focused business. Without crucial sales resources, a company cannot hope to achieve the types of sales that are required to reach exponential growth rates. Without process, no business development person can achieve the sales and network effects required to scale the business.
- In addition to lacking process, startup founders without significant business development experience are ill-prepared to hire the right business development person. Startup founders tend to be impressed by business development professionals who have achieved meteoric sales in either well-established brands or other high-growth companies. While the contributions of these business development professionals are meaningful, most of these business development professionals benefit from a well-known brand and a proven outreach process. In other words, these business development professionals are aided by the abundant sales resources of their former employer.
Sales resources like marketing collateral published thought pieces, and a web page with embedded monitoring of Key Performance Indicators (KPIs), are some of the ingredients needed to transition to scalable sales. Once the product-market fit is established, marketing approaches like network effects can be implemented to achieve exponential growth. It is only when product-market fit has been established that an organization can shift to scaling sales.
Moving towards product-market fit
Startups rarely have more than their first-hand experiences and gut instinct to guide them towards finding their ideal customer. For many technology companies with business-to-business, or B2B offerings, leadership and investors may have multiple industries that should be a good fit. The key questions startups must address are:
- How do you choose from among multiple good market options for an initial push?
- How do you tell your story in a way that resonates with that market?
- How do you go from a large theoretical market to a concrete plan to reach the right people in that market?
In answering these questions, startups must develop the intellectual property to achieve the following objectives:
- Move fast!
- Get into the market with a testable business development strategy in 30 days or less.
- Have a simple, easy-to-understand message.
- The value proposition must be immediately apparent.
- Be repeatable.
- Existing employees and new hires must be successful in implementing your strategy.
- Include Key Performance Indicators (KPIs).
- Test and measure must be the mantra of the entire business.
Understanding the upside
