The 4 stages of the sales learning curve for young companies

About once a week, I hear an entrepreneur during a financing presentation tell me that the product is almost ready for General Availability. They say, “Now all we need to do is hire a sales guy.”

It’s a little bit of an overstatement to say that the meeting ends at that point, but suffice it to say that I know I am dealing with someone who doesn’t have any idea what to do next – and as a result, we are very unlikely to invest.

Enterprise-focused software companies need to take a learning approach to build a capital efficient and scalable sales and marketing process. The next stage of a startup, the sales learning curve (SLC), can be thrilling and terrifying. And even though getting the first product to market is less expensive than ever, it can create or destroy value at a high speed because the “go-to market” (sales and marketing) can still be extremely expensive for SaaS and other enterprise-focused companies.

Below are the four key stages of my version of the Sales Learning Curve built for early stage companies just shipping their initial product. However, this process can be used for any new product as well. I use the analogy of industrial development because it employs clear and basic principles like process standardization and scalability.

1. The Craft Economy — Founder-led selling

Sales in early stage companies shipping 1.0 products is too important to be left to sales people. Founders have several key advantages critical for early selling. They are involved in creating the product, so they know the product and market it serves deeply. Their charisma, brilliance, and Reality Distortion Field can help overcome the disadvantages of having a new product of a new company. They carry CEO/founder business cards, which opens doors and looks impressive (if they bother to wear closed toe shoes and long pants). And they sell at the white board, sometimes making up new products or committing to new features in a meeting. In addition, this is an essential way to get early product feedback while the company is honing in on Product Market Fit. Feature requests and rejections from potential customers are the fuel for the next phase of innovation. I find that founders and CEOs are uniquely good at interpreting this early product feedback and synthesizing what needs to be done to be productive.

* Sometimes early product managers or CTOs can play this role as well

2. The Sales Apprentice — Business Development as Sales

When the founder/CEO has successfully found a pattern of successful sales, it is tempting to say, “Now it is time to hire a traditional coin-operated sales person to scale up this process,” but that rarely works. I’ve seen companies hire a salesperson from a competitor or incumbent and not sell anything. Even worse, I’ve had the experience (as a board member) of hiring “exactly the right” VP of Sales (she worked previously in an adjacent company for a former colleague so I could reference closely), and she hired a team to scale up the process. It was a very expensive mistake, but it wasn’t the fault of the VP of Sales. The company had very few things a mature company has — like sales materials, a real price list, and leads. By contrast, the highly charismatic CEO could “sell ice cream to eskimos” and the handful of early (and big) sales was not an indication that a mere mortal could do the same.

In contrast, the most successful example I’ve seen was at Merced Systems, where I was fortunate to be the only venture investor. Founder and president Mark Selcow sold the first half dozen deals himself and then hired a young, smart and hungry sales apprentice. The apprentice learns from the founder but doesn’t assume he can simply replicate the process. He doesn’t have Malcolm Gladwell’s proverbial “10,000 hours” in the domain, the stature, or oftentimes the natural charisma. His job is to run experiments and see how he can map the founder’s successes onto his own pitch, skills, and process. The sales apprentice has to be smart and humble enough to learn from all this experimentation to find a process that can be scaled up successfully. Oftentimes, this person is a mid-level business development hire rather than a traditional coin-operated sales rep. Business development in more mature companies still involves investigation with potential partners, typically deeper product knowledge, and tends to attract people who want to create a new process rather than follow an existing one.  In the modern parlance, this might be a “sales ninja” (see Bloomreach CEO, Raj De Datta’s piece on this subject), but a sales ninja doesn’t tell you what to do before or next.

3. Light Manufacturing

At this stage, the company is ready to TRY to standardize the process with a few traditional sales people.  I emphasize “try” because even if the company has been through the first two stages, there is no guarantee of success and the focus is the learning curve.

Ideally, the first true sales people come from adjacent companies or segments. I differentiate “true sales people” from business development because they’ve been on quota all their life, and once they figure how to make a sale, they want to go as fast as they can. The first hires are often people who want to be early in a company’s life and have honed the skills to do so. The sales rep from Oracle who has been selling with that brand and machinery behind him is unlikely to be successful at this stage. Early stage sales people like learning a bit more about product and are comfortable iterating their own positioning, presentation, and scripts (for inside sales). They’re high energy and will make a lot of calls into different customer types and with different pitches. While the apprentice is focused on making the product (in this case, the sale) themselves, the first sales team is like the engineering team building the first factory. They are employing the method developed in stage two, beginning to standardize it, and continually tweaking, improving, and optimizing the process. Building from the first rep to the first team of reps (5-10 people) who are closing business and hitting their quotas is where you start to see the unit economics of sales and marketing. Once you have them dialed in, you are ready for the final stage, heavy manufacturing.

4. Heavy Manufacturing

Once the company is consistently hitting sales goals and understands the unit economics of the sales/marketing and what levers are available to influence them, they are ready to “step on the gas.” In fact, the company is ready for the bigger equity round that gives you the resources to do so.

This final stage is where the company moves into the process of optimization and scaling at an even higher velocity — developing a hiring profile and a training and onboarding program and standardizing the sales process to carefully track deals by milestones for forecasting accuracy. This is where the team is increasingly fed leads by marketing and the sales development team, which qualifies inbound leads and does outbound prospecting. This final stage also requires significant development of all the adjacent functions. Sales operations becomes a real job. Arguably the first job of marketing is sales enablement and getting the sales team “selling on PDF” where the sales materials are completely standardized so the company can deliver consistently and efficiently.

A learning approach is like building a solid foundation before you build the house — it’s safer and more capital efficient. Do it right, and the entrepreneur can build a very big company — and one that the founding team owns much more of than they would if they took the “go big or go home” approach. Even if “go big” is the orientation, knowing where a company is on the sales learning curve will help an entrepreneur make better decisions and grow more efficiently. And I assure you, venture capitalists will highly value a company’s knowledge of and approach to building the sales machinery. Growth equity investors, who typically pay higher prices than early stage investors, love nothing more than a “just add water” company where the go-to-market process has good unit economics and is well defined. After, investing capital can lead to faster growth with high confidence. This is the way to increase the value of your next round.

Mark Leslie’s Sales Learning Curve in the Harvard Business Review uses a different nomenclature and is a much more detailed article based on his experience building Veritas Software and as a Silicon Valley board member. I highly recommend it for further reading.

Greg Sands is founder and managing partner at Costanoa Venture Capital, an early stage investor in cloud-based services leveraging data and analytics to serve real problems for businesses and consumers. Prior to starting Costanoa Venture Capital, Sands was a successful investor at Sutter Hills for 13 years, where he was an early investor in such companies as Merced Systems, QuinStreet, Feedburner, AllBusiness, Return Path, and Youku. Sands was the first Product Manager at Netscape Communications, where he coined the name Netscape and wrote the initial business plan.