The Sales Learning Curve
When a startup feels the market pull for its product, it’s a moment of great excitement. Sensing product/market fit has been achieved, the sales channel is ramped up. But this can lead to a crash-and-burn scenario for founders that do not appreciate that the entire organisation must achieve product/market fit, before real expansion begins.
Often fuelled by a Series A funding round, this early scaling phase — typically associated with the beachhead market — is still a period of learning. Uncertainty surrounds decisions on the number and timing of resources to deploy and the resulting time and cost it will take to make it through this stage. Founders must navigate a complex set of variables to achieve scalable growth in this first slice of the mainstream market.
Moving too quickly can be risky. Premature scaling, often referred to as the greatest startup killer, can quickly ensue. Costs surge but revenues lag. To avoid this, experienced founders manage the shift from the ‘chasm’ to the ‘beachhead market’ as a transition, not a sudden step-change.
This is a learning curve for the entire organisation, led by sales.
3 phases of learning
The “Enterprise Sales Learning Curve” concept emerged in 2006, the result of a collaboration between entrepreneur and venture capitalist Mark Leslie and Stanford professor Charles A. Holloway. HBR wrote an excellent feature article on this at the time.
Leslie, renowned as the founding Chairman and CEO of Veritas Software, joined forces with Holloway to craft this indispensable framework, which continues to guide startups in optimising their sales strategy.
Importantly, the curve doesn’t focus on an individual sales person’s learning trajectory. Instead, it charts the collective journey of the entire organisation to learn and master the customer journey from acquisition, to support, to repeat orders.
The sales learning curve has 3 phases. In mainstream venture markets, these map perfectly with the journey across the ‘chasm’ and through the ‘beachhead’.
Phase 1. Initiation
Here the startup is traversing the chasm. The priority is to find the beachhead market. The emphasis is on architecting the circumstances to guarantee overwhelming product superiority for this particular user cohort.
The startup’s operational model is still in a state of flux. In B2B businesses, the sales strategy is still primarily founder-led. In some cases, where the early adopters are either numerous, sophisticated, or both, a Business Development (BD) lead may also be supporting the founder. This could be the co-founder if they have the necessary commercial skills.
In this phase, the founder or BD lead is dynamically progressing each opportunity, shaping the offering, flexing deal terms, and making all the important decisions, often in real time. This necessitates a ‘command and control’ approach to ensure absolute team focus. This process identifies vital metrics and insights that guide the journey to closing the next opportunity.
‘Initiation’ is also a phase that established businesses, not just startups, go though. In this case, Leslie says the key metric is to reach a break-even point where the sales-generated revenue equals or surpasses the total sales-related costs.
But in the startup, it is usually too early to employ this metric. Instead, the key measure of success in this phase is product/market fit.
Phase 2. Transition
In the belief that product/market fit has been found, the early growth strategy is now underway in the beachhead. The sales model, go to market plan, and the business model are all now being put to the test in the mainstream market — for the first time.
In enterprise markets we are now moving from founder-led sales to sales team-led sales. The sales team, along with the rest of the organisation is being expanded to drive growth. Revenues are starting to build on the back of a repeatable sales model.
‘Transition’ is also a phase that established businesses go though. As they exit the transition phase, sales yield per sales person is now at least 2x fully loaded cost.
Phase 3: Execution
Now the startup has significant traction. It has proved itself in the beachhead and is ready for expansion. Scalable sales processes have been established. The sales team is scaling up. There is very high confidence that each new sales person will deliver their quota.
People are being hired as rapidly as the company’s management and financial constraints will allow. Adjacent markets are being explored and, if not already initiated, an international expansion plan will likely be underway.
Importance of transition phase
In this phase, many things are happening at the same time:
- The startup is stress testing and revalidating all the assumptions around Product/Market fit, the Go to Market plan, and the Business Model. Rarely do all 3 survive first contact with the mainstream market. Issues that weren’t obvious in the ‘chasm’ — with the more forgiving early adopters — are suddenly slowing everything down.
- The team is being scaled up. This involves all customer-facing parts of the organisation: marketing, sales, application support, product support, customer service, and so on. All these teams are learning in parallel. This is more challenging than expected as customers are more demanding than their early adopter counterparts. They expect the product/service to be perfect.
- The startup’s business processes are also being developed. A more structured approach is required, right across the organisation. For example, customer responsiveness quickly becomes crucial. If leads start backing up and sales processes get bottlenecked, customers will get frustrated. If they have issues using the product and can’t get these resolved quickly, frustration will grow further. Even for companies with great products, it’s easy to wreck your brand before you’ve even started.
Doing all these things in parallel is highly complex. It requires time and patience.
Before the transition phase, when crossing the chasm, the emphasis was on speed. Now, when traversing the beachhead, speed kills.
2021/22 legacy
In the heady days of 2021/22, when investors were almost forcing money on founders, many outsize growth rounds were done. This included some huge Series A deals. But instead of increasing the ability to scale, they often hindered it.
Founders were under pressure to spend money faster than ever before. New teams were quickly hired across multiple geographies. Some startups seemed to jump straight from servicing early adopters to addressing multiple segments within the mainstream market.
They skipped the transition phase.
And as many markets receded post-pandemic, costs peaked whilst revenues fell away. Product/market fit had — at best — only been temporary. So many of these companies have since been forced to pivot, restructure, close, or be sold on the cheap.
Execute the transition with great intent
The transition phase involves educating both the expanding organisation and the growing customer base at the same time. This requires great intent, careful planning, and diligent execution. Above all, this is where people with the right stage-specific experience are invaluable.
To manage a growing sales team you will need an experienced sales leader. This may not yet be the big VP Sales that knows how to manage a $100M+ revenue business, but someone who understands this crucial transitional phase. Someone who can orchestrate all the customer-facing roles.
Other key roles will be needed to ensure the organisation develops quickly. In complex solution businesses, especially those involved in manufacturing, this will likely include a head of operations. And to drive recruitment and organisational rigour, a head of HR.
But regulating the expansion of the sales team and other supporting functions is crucial. Until the sales model, the go to market plan, and the business model are re-validated in the beachhead market, founders should proceed with caution.
Weekly Briefing Note for Founders is a newsletter published by Duet Partners every Thursday. Back issues can be found on our website here where you can also subscribe for free.
