I’ve spent the better part of the last 15 years either working for a B2B start-up / small company or speaking to others who were doing the same. In my humble opinion, there are a few key mistakes I see these companies make related to sales planning and modeling (I’m not immune to these mistakes myself).
They are recoverable if addressed in time, but often if they aren’t addressed the problems cascade into bigger issues that can impact the ultimate success of your company.
As a service to my peers; here are the 3 bigger mistakes that start-up b2b firms make related to sales planning I’ve seen; simplified for your consideration.
You’ve overestimated your target market
Young companies often struggle to define their target market and set their sights too broadly. By assuming your target universe is larger than it really is typically drives you to have a larger than you need sales force (and associated infrastructure and marketing costs) and unrealistic penetration expectations. Your business will grow at a faster and more sustainable rate if you put a realistic filter on which are the true “more likely” customers and put a hyper focus on penetrating this smaller universe.
For some reason, start-up companies and entrepreneurs are uncomfortable narrowing their definition of runway for fear of tempering growth potential and I suppose ultimate perceived valuation. No one wants to put a self-imposed limit on how their idea is going to change the world; but you need realism. The danger of not accurately defining your runway of potential customers is a greater distraction and detriment to growth and valuation. If you are not “right sizing” your prospect universe, I can guarantee that you are:
- Diffusing your efforts through pursuit of all potential prospects, agnostic to propensity.
- You are absolutely spending a large amount of sales & marketing resource, effort and time against a very unproductive class of prospect and likely discounting way more than you need to in order to penetrate them.
- Your focus, attention and effort against unproductive prospects will influence your development of lower end products in an attempt to increase penetration as opposed to focusing on higher-end products for those clients who have higher propensity to buy.
You aren’t segmenting your message and approach
If you have “right sized” your universe as suggested above; it’s highly likely that certain market or industry segments stood out in that propensity modeling. If those markets are “self-referencing” (meaning they pay attention to each other); you have an opportunity to drive productivity and pricing power at the same time through a disciplined segmented sales & marketing approach.
Identify the top 3-5 markets (if they can be differentiated enough) and move people and accounts to make them wholly focused on those markets and align the right kind of marketing support so you can establish industry leader perception and market beachheads. It’s all or nothing into the markets you choose to start with.
I can’t stress it enough – it can’t be half-assed. You need to give people enough of a tight focus, don’t be fearful of reassigning accounts. The more aggressive you are in targeting the right segment of the market, the less money, resources and time you’ll waste on people who simply aren’t interested.
Let’s say Consumer Goods stands out as a market; build a team to focus only on that vertical; move all associated prospect and client accounts to that team, get them using “vertical” collateral, websites, targeted / vertical messaging, client references etc. so when they are calling on the market – they stand out as truly knowing and specializing within that market; that gives you leadership perception and thus pricing power and ,more than likely improved productivity.
Establishing Unsupported Individual Activity & Productivity Expectations
You likely have a revenue goal that back solves to a productivity expectation by account executive headcount.
- Does your new right sized prospect universe worked out above and current sales cycle knowledge still support those headcount model assumptions?
- Do you have enough “quality” prospects to keep your current sales force productive enough to attain your goal numbers and thus, retain high performers?
I know this seems obvious and basic; but I’ve seen it all too often when there are productivity expectations that seem believable; only to have them come into question once a true prospect universe analysis is done in conjunction with knowledge and facts of a realistic sales cycle.
For example; let’s say your redefined prospect universe is 100,000 potential B2B customers. To attack this market; you’ve modeled a headcount of 50 sales reps. As a result, each rep has 2000 accounts and you expect an account executive to close 4 new customers a month out of this pool; or 48 a year or a 2.4% penetration. That number, without knowing anything else, seems believable on the surface but let’s dig deeper.
What is your current conversion rate of pipeline accounts (“opportunities”) to wins?
In this example, let’s say it’s 20%. Based on this, to secure 48 new accounts; you need 240 opportunities per year (20% of 240 = 48). 240 opportunities require 20 a month; or roughly 5 new opportunities per week. I don’t know your business – but is this still believable to you? Perhaps – after all what solid account executive can’t add 1 new opportunity per day to their pipeline?
How many prospect dialogs / engagements turn into opportunities?
If you don’t know this number, you owe it to yourself to find out; but let’s SWAG it and say 1 out of every 2 “engagement dialogs” turn to opportunities. Based on this simple math, you need 480 engagements out of the 2000 assigned accounts to net 48 new customers; or each AE needs to engage with 24% of their assigned accounts per year to net 48 new customers. Is the expectation still believable? I mean why can’t an AE engage with 480 accounts per year? That’s only 40 per month; or 10 a week…2 a work day…I mean come on; what are the AE’s doing all day anyway?
Before we replace our AE’s who can’t do this; let’s dig a little deeper. How many individual accounts (prospects) do your AE’s need to attempt to connect with before an account engages? Is it 1 in 2, 3 or 4 or more etc?
At 1 in 4; they need to attempt to engage with all 2000 in a year to get 480 engagements to convert to 240 opportunities to net 48 new customers…this model is feeling a little shaky at this point as it has no margin.
My proposed rule of thumb is that if you are expecting an AE to engage with more than 20% of their assigned accounts per year in order to hit productivity expectations; you owe it yourself to validate whether that is realistic based on any data you currently have on your sales cycle. This rule of thumb is fraught with issues that come with any rule of thumb; for it to be realistic; you need to know the realities of your sales cycle.
- How many prospecting calls or appointments do your top sales representative makes in a week and how many of those engage and turn into opportunities or proposals?
- How many does the lowest-performing salesperson make?
I can guarantee you that if you do this exercise you will either be surprised or greatly disappointed. I suspect the levels are lower than you expect and you are going to get upset at yourself or your leaders for not paying more attention but the answers to those questions will help you model your true sales cycle.
If you find your model is off – what can you do to rectify it and make it more believable?
- Can you improve the conversion of opportunities to wins?
- Can you improve the engagement rate of suspects and prospects?
- Do you need to reduce the number of sales people you have?
I suspect that you can answer some of the above through segmentation (mistake #2 above) via sales and marketing messaging & training supported through tighter integration of marketing lead generation / nurturing. I’m also going to guess you probably have more sales people than you really need; a smaller sales force isn’t a bad thing,
The truth is in the details of your specific business; but you owe it to yourself to go through the exercise and uncover the mistakes you might be making now while it’s still early.