It’s all about the sales

Every working day I receive business plans and summaries – not one a day, more than that, some days 3 or 4.

Most of them are companies seeking funding. Most of them are technology companies of one sort or another. I am careful not to narrow down my definition of technology, because innovation appears in some very unlikely companies – such as the bed company I met a few weeks ago. I understand the needs, fears and desires of these companies because I’ve been there myself. And by their very nature these tend to be pre-revenue companies with much to prove.

From an investment perspective, a good indicator about a company is having sales to “real” customers. The fact that someone in the target market has committed cash to purchase the product is an endorsement. Naturally there are caveats (did they actually use it, like it, keep it), but it is a defining moment for a company. It can make the difference between getting funding and not. Even an indication of sales, such as a letter of intent, or conditional order, is better than nothing.

So it surprises me that companies with a close to finished product don’t work on an initial sale. They generally will argue that the product isn’t perfect, the marketing material/branding/positioning isn’t ready or that the sales force is not yet hired – all things they are raising money for. The truth is that this is a critical step and anything (legal) you can do to get the first sale(s) will make an enormous difference.

I met a business yesterday which had initial sales and was using customer feedback to refine & hone the product to meet their needs. These sales were not huge, but were credible and sufficient to convince an investor that there were real paying customers around. And the company has tried its product in the field and learn from this. They have no sales force. They have no marketing team. Yet, they manage to close the sales and deliver product.

Equally important to an investor is the sales projection. For most new technology companies I have seen this tends to be a hockey stick – slow growth in the first few years followed by an enormous surge in sales in years 4 & 5. There are relatively few companies that actually achieve this, and there are significant implications to this time of growth. For instance, costs can grow at the same rate, and because costs to effect such a growth in sales often come before the sales themselves, cash flow issues arise. It is not unusual to see a very detailed financial plan with specific values for sales over a number of years, yet a hazy or incomplete sales strategy to explain the growth. I’m afraid the days of taking a very small percentage of a very large market just because your product is better are gone. You should be able to demon strate sales growth from the ground up.

Selling is something that most people need to be trained to do, and without sales you have no business. This is not something you can afford to neglect or “get by” on. That first sale however can be made to an early adopter (and if you haven’t read Crossing the Chasm by Geoffrey Moore, do so!),

 

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