Part 2: Why Isn’t Our Sales Working?!
Before reaching out to customers, startups should create a business strategy. Could you briefly explain how?
A clear goal needs to be set, for example: "I want to have a 5-million annual turnover", and a strategy to achieve that goal needs to be created. As a salesman, I need to know what type of customers I will reach out to, how many such customers are on the market, how much I can earn on an average deal, how long a business cycle lasts, and how many deals I need to close to get to the amount of 5 million.
Then I need to test customer segments and see what works and fine-tune it. When I realize that the average length of a business cycle is 9 months and now it's January, I have to see if I can handle it alone. If I don't have people, I need to hire them, which takes about two months, and train them, which takes three more months. And all this must be written in the business strategy.
What is an action plan and how does it look like?
The action plan must describe in detail what I have to do every day and week to reach the target of 5 million. In other words, how many customers I have to contact. It must mention who is responsible for what. For example, marketing must deliver x leads to salesmen every week, salesmen have to do x meetings, move the exact number of deals in the pipeline, send the exact number of bids, etc.
The business strategy consists of concrete steps towards the goal. This whole business process must be constantly tuned and monitored. It often happens that salesmen make potential customers interested in a product, but they send the offer a month later, significantly reducing the chances of successfully closing the deal. All of this must be under control and clearly set and evaluated.
How many deals do startups need to open for negotiation to reach 5 million revenue target?
The probability of closing a deal is somewhere between 15–25%. It is based on setting up a business process, adhering to it and working with a sales team. In order to earn 5 million, the pipeline should have a value of at least about 25–30 million in a year. A lot of startups think that when their pipeline is worth 4 million and their target is 3 million, they're safe, but that's a naive idea.
So what should a salesman do to earn those 5 million?
Every month, he/she should do the same thing – reach x leads, work on them, and close deals. He/she should focus all the attention on customers who seem to be interested in the product and try to close the deal with them. This activity should be organized either by the founder of the startup or by the sales director. They should know how salesmen are doing and should take action if salesmen are not fulfilling KPIs.
What should happen after a deal is closed?
A lot of salesmen think that closing a deal means end of the sales process, but that's not the case. It is important to ensure a smooth implementation of the product so that customers are satisfied. When you acquire customers after a few months, you need to take care of them and encourage them to buy more from you because the acquisition costs are expensive. This is called "upselling".
At what stage of the business cycle do startups make the most mistakes?
It often happens that what is promised in the meeting is not delivered on time, or product implementation fails. What also happens in the negotiation is that startups cannot negotiate well and eventually end up doing things for free or at a bad price. They are annoyed that they are losing time and money and that is reflected on behavior to the customer. I think that everyone's work is worthwhile, and therefore startups should not be servile and try to sell at any cost. I personally am not in favor of unpaid pilot projects and discounts.
So what do you advise to startups if they want to agree on a contract after all?
Negotiate. If you see that the customer is interested, it would be a shame not to try it. However, it needs to be done carefully. When the startup has gone so far that a potential customer wants to negotiate, there is no reason to sell the product far below its value.
How can one learn to negotiate?
By trying. Even though many books are written about negotiation, many of which are worth reading, there is no clear guidance. The most important part is preparation though. Everyone knows it, but nobody does it. It is necessary to know why I am going to the meeting, what the aim of the negotiation is (for example, determining price, signing a contract or arranging an appointment with a senior manager), and then aiming at this goal by preparing for what the counterparty will tell me and preparing arguments. It is a good idea to role play an important meeting in the team before it happens.
Do you think it is better to hire a senior salesman who costs a lot of money or a junior salesman who will gradually learn?
I would be looking for a salesman who already knows something about commerce, because it will be more tedious and harder to train an inexperienced person. I would be extra careful to choose a good salesman. Founders often make the mistake of letting salesmen attend meetings without knowing what's going on in there. After some time, they discover that the salesman has no results and must fire him, thus losing several months. Fortunately, there are startups like SENS and Spaceflow, which give a lot of attention to recruiting salesmen and it definitely pays off for them.
What would you recommend to startups in sales?
Have a well-designed business strategy that includes a marketing strategy - that's the cornerstone. Then go into its realization. If you see that the strategy is not working and the assumptions on which it was based were wrong, change it.
Want to know more about business strategy? Look at:
Blog & News
Český start-up Spaceflow zaujal i na náročném americkém trhu a má globální vizi. Rozhovor s CEO startupu Davidem Balíkem moderuje Petr Šimůnek.