| With billions of dollars of venture capital | | | | when they have a product that is out of beta |
| residing down the street on Sand Hill Road, | | | | testing. Having become intimately involved |
| two Stanford professors are attempting to | | | | with the SLC and Leslie and Holloway's |
| answer a fundamental question "why does it | | | | thinking, we are firmly convinced that is |
| always take longer and cost more to build a | | | | precisely what companies must do whether they |
| hi-tech company than anyone ever expects?" | | | | are a start up launching a brand new product |
| For all the intellect, experience and | | | | or an established company starting a new line |
| graduate degrees in the venture capital | | | | of business.When companies are pushing a |
| industry, the sad truth is that 80% of | | | | product out of beta, it is not unusual for a |
| venture capital investments do not pan out. | | | | startup to have a relatively poor handle on |
| While the reasons for this high attrition | | | | questions such as the following: |
| rate are too numerous to list here, a simple | | | | |
| fact defines every successful investment - | | | | - What is the true Customer ROI? |
| the company figures out how to bring in more | | | | |
| money than it spends. The secret to solving | | | | - Does the company have a clear segmentation |
| this fundamental equation these two | | | | and customer focus strategy? |
| professors believe lies in the Sales Learning | | | | |
| Curve.Mark Leslie, an entrepreneur turned | | | | - Has the Sales Model been clearly |
| Stanford lecturer who took a startup company, | | | | defined?Most management teams feel like they |
| Veritas, from nascent stages to over $1B in | | | | have a strong grip on these topics based on a |
| revenues and a recent $13.5B merger with | | | | few "high touch" initial sales, the feeling |
| Symantec, and Charles Holloway, the Kleiner | | | | that it is time to put the "pedal to the |
| Perkins Caufield & Byers Professor of | | | | metal." Typically, when "v1" is shipped, it |
| Management at the Stanford Graduate School of | | | | is a time of rising excitement, enthusiasm |
| Business have developed a framework, that | | | | and confidence within the organization. |
| goes a long way toward answering the question | | | | There is also an expectation from investors |
| "why it always takes longer and costs more?" | | | | that with rising expenses that management is |
| Leslie and Holloway call this framework the | | | | going to push to get to breakeven in the |
| Sales Learning Curve (SLC) and believe that | | | | shortest time period possible. Since revenue |
| it will prove as powerful a construct in the | | | | is only generated from sales activity which |
| high tech sector as the Manufacturing | | | | is directly related to the number of sales |
| Learning Curve (MLC) was to the manufacturing | | | | people in the field, there is a tremendous |
| sector in the early (date?). Today, | | | | amount of pressure to hire and deploy reps |
| manufacturers wouldn't think of running their | | | | ASAP.Unfortunately, these sales reps are |
| operation without tracking the MLC because of | | | | frequently deployed before the product is |
| the dramatic improvements in productivity | | | | grounded in market reality and an effective |
| that it offers. Similarly, Leslie and | | | | sales and marketing process has been |
| Holloway believe the SLC holds the potential | | | | developed. Consequently, these sales reps are |
| to fundamentally change how high tech | | | | unproductive, "sales activity" never turns |
| companies are managed and will lead to more | | | | into revenue, and precious cash is wasted at |
| high tech companies reaching the promised | | | | an alarming rate.What is the alternative? |
| land of "positive free cashflow." Increasing | | | | Our experience, which is echoed by the SLC, |
| the number of cashflow positive companies | | | | has shown that taking a much different |
| should lead to greater venture capital | | | | approach to sales when introducing a new |
| returns, more capital being allocated to the | | | | product into the market can result in far |
| sector by LPS, more early stage company | | | | more favorable out comes. At this stage, |
| formation, more innovation, more jobs, and | | | | management should focus on capturing market |
| increased productivity.So what is the Sales | | | | and customer feedback rather than strictly on |
| Learning Curve?[Note to Editor -- there are 2 | | | | generating near-term revenue. The rate at |
| graphics that were stripped out when I pasted | | | | which this customer feedback is acquired and |
| in the article into this form]As illustrated | | | | assimilated into the product is critical to a |
| above, the Sales Learning Curve tracks the | | | | company's ability to move up the SLC. |
| contribution margin per sales rep (Sales | | | | Defining sales success in terms of the |
| Yield) against the number of customer | | | | "amount of feedback collected from customers" |
| transactions. The shape of the curve will be | | | | influences the type of sales people hired at |
| different for every company and every sector | | | | this stage as well as how they are |
| but the central tenant of the SLC remains | | | | compensated.How does a company know the shape |
| constant - the "go-to-market" phase is when | | | | of its SLC and how to gauge its progress |
| companies should "Go Slow to Go Fast" (which | | | | along it? A number of primary drivers of the |
| is some advice from a Nordic skiing expert | | | | SLC exist: readiness of the product, sales |
| that I recently received when I asked for | | | | and marketing, product type, market structure |
| some tips on improving my performance prior | | | | and macro-economic conditions.In tandem with |
| to an upcoming race - Google the phrase and | | | | the Venture Dynamics Group, we have developed |
| you will find that triathletes, grade school | | | | a dynamic simulation model that estimates the |
| teachers, executive coaches, swimmers, and | | | | SLC under different scenarios. The model |
| karate instructors are all well aware of the | | | | helps entrepreneurs and investors model the |
| Go Slow to Go Fast benefits).Leslie and | | | | shape of the SLC given a certain set of |
| Holloway believe the "organizational | | | | assumptions and then see the resulting impact |
| learning" that occurs as sales reps interact | | | | on cash flow.There are several actions an |
| with customers to close initial sales is | | | | early stage business should take to apply the |
| crucial to the ultimate success of the | | | | SLC framework that my firm, as well as Leslie |
| organization. The classic "go-to-market" | | | | and Holloway, are espousing. The following |
| strategy involves hiring a VP of sales once | | | | are some highlights: |
| the beta product is complete and then hiring | | | | |
| as many reps as the balance sheet will allow | | | | - Identify and prioritize product, sales and |
| in order to "drive revenue and get to | | | | marketing factors impacting the SLC |
| breakeven." According to Leslie and | | | | |
| Holloway, this strategy is doomed to failure | | | | - Shore up gaps as well as exploit your |
| because the company has failed to take the | | | | strengths based on findings from broad |
| time to understand the shape of the SLC for | | | | customer contact and market experience. |
| its product in its market. Some reports | | | | |
| generated over the last two years by Fenwick | | | | - Engage in a regular process of analyzing |
| and West, a prominent Silicon Valley law | | | | how learning can be accelerated. |
| firm, bear out their assertion. There is a | | | | |
| consistent pattern of inflated B round | | | | - Mobilize entire organization to engage |
| valuations; the percentage of down rounds for | | | | with customers (engineering, product |
| C and later rounds is always greater than B | | | | marketing, sales and finance) |
| rounds. As Leslie and Holloway state, "One | | | | |
| inference from this is that both | | | | - Staff and operate at the appropriate |
| entrepreneurs and VC's underestimate the cost | | | | levels based on where you are on SLC.The |
| and time required to move up the SLC after | | | | management team can then mobilize their |
| completion of the Beta product. VCs and | | | | entire organization towards learning and |
| entrepreneurs often assume that the company | | | | accelerate their path up the SLC. While some |
| is ready to gain market traction at this | | | | of the management team may believe that this |
| stage when in fact the company is only ready | | | | process will slow the rate of revenue growth, |
| to begin the SLC learning process, which like | | | | it is important to remind them that this |
| product development stages has a somewhat | | | | process is intended to accelerate the process |
| indeterminate duration."When moving from beta | | | | by which companies reach the ultimate |
| release to first release, Leslie and Holloway | | | | corporate goal, cash flow positive.Though it |
| argue that only a few technically versant | | | | can seem counterintuitive to slow down the |
| sales reps should be hired. These sales reps | | | | go-go energy upon initial product delivery, a |
| should serve as a conduit between the initial | | | | well-grounded approach that keeps the SLC |
| customers and the engineering team and | | | | principles in mind will end up being the |
| compensated not on revenue targets but on the | | | | fastest path to rapid market penetration and |
| "organizational learnings" that are achieved. | | | | sales growth. This will ensure you avoid the |
| Only after enough of these "learnings" have | | | | old saying, "haste makes waste" while giving |
| been incorporated into subsequent releases of | | | | your team and investors the kind of financial |
| the product and the organization knows how to | | | | return you desire.If you would like to see a |
| sell the product (defined as the point at | | | | complete SLC presentation given by Mark |
| which each sales rep's contribution margin is | | | | Leslie at a recent event, go to Chase is a |
| twice their fully burdened cost) does it make | | | | partner with Altus Alliance, which |
| sense to aggressively hire additional sales | | | | specializes in driving revenue traction for |
| reps. Leslie and Holloway posit that the SLC | | | | emerging businesses. He publishes a blog |
| is immutable and can point to numerous | | | | entitled Chase Market Velocity that focuses |
| theoretical models and concrete examples that | | | | on how emerging businesses can gain market |
| indicate that until you have reached this | | | | traction via the Enterprise Sales Learning |
| pivotal point on the SLC, the capital | | | | Curve principles espoused by Mark Leslie. |
| invested in hiring additional sales reps is | | | | Before joining Altus Alliance, Chase spent |
| simply wasted.My firm's principals have | | | | nearly 20 years in the industry with over a |
| served as executives, investors, board | | | | dozen years at Microsoft in various senior |
| members, and consultants to nearly 50 early | | | | marketing and general management roles, |
| stage companies in the technology sector - | | | | including his role as MSN's managing director |
| some successful (Microsoft) - some not. We | | | | for industry marketing and relations. In that |
| have found consistently the go-to-market | | | | capacity, he was responsible for MSN taking a |
| stage (more so than product development or | | | | leadership role within the Interactive |
| market expansion) is where there is the | | | | Marketing industry to grow Online's share of |
| highest degree of uncertainty and the | | | | the overall ad market in concert with AOL, |
| greatest potential to burn through finite | | | | CNET, Yahoo!, Google and other market |
| cash resources typically through a | | | | leaders. Chase played leadership roles in |
| misallocation of sales & marketing resources. | | | | launching several new businesses within |
| Needless to say, once we were exposed to the | | | | Microsoft including Microsoft's entry into |
| SLC, we immediately began working to develop | | | | the enterprise software and server business |
| the tools and constructs needed to apply the | | | | which is now an $8B business. He was integral |
| theory behind the SLC to the day-to-day | | | | in Microsoft's entry into Internet businesses |
| operating reality of rapidly growing | | | | that achieved both critical and financial |
| companies.The last thing most CEOs and | | | | success. |
| venture investors want to hear is "Go Slow" | | | | |