The Sales Learning Curve

Last week I attended a VC hosted dinner with a presentation by Mark Leslie on the Sales Learning Curve. Mark took just $6M in invesment and turned it into the 5th largest software company in the world, Veritas. He has been teaching at Stanford GSB and is now with one of my favorite firms, El Dorado Ventures. Turns out much of the talk is covered in a blog post by Mark on AO (thanks for the link, Jeff).

Every manager should get their arms around this:

This method of establishing a sales force is called the sales learning curve (SLC). It's a concept adapted from the manufacturing learning curve (MLC), which is widely accepted in the manufacturing sector. The MLC states that the cost to produce the early units of a new product normally is high, but over time, as the production team learns how to optimize manufacturing and wring-out costs, volume increases and per-unit product costs decline sharply.

When we apply the MLC to sales, we come to the following conclusion: The time it takes to achieve cash flow breakeven is reasonably independent of sales force staffing. It is, instead, entirely dependent on how well and how quickly the entire organization learns what it takes to sell the product or service while incorporating customer feedback into the product itself. Because the entire organization has to come up to speed, hiring a large initial sales staff does not speed up the time to breakeven, it simply consumes cash more quickly...

Rather than starting with a large sales force, a company using the SLC is better served by hiring a small team of sales execs with the analytical skills and patience to lead the company through an iterative learning process that includes the continuous discovery and solution of small but crucial problems...

By adhering to the sales learning curve model of sales force staffing, you can safely toss out that old adage we started with. It doesn't have to take longer and cost more than you planned.

What I like about Mark's model is it centers on organizational learning, what I believe to be the real first mover advantage. Its more than just being first, but having lightweight processes the drive iteration with customers. She who iterates early and often wins.

Sales hires are perhaps the most dangerous calls and executive can make. The SLC model provides a rationale for pulling the trigger, for both hiring and firing. Its tempting to throw people at a problem, especially when each could be a profit center in their own right and overhiring can be downright deadly for a startup. There is an addage, particularly with VCs, that the best approach is to hire slowly and fire quickly -- with the latter ruthlessly applied to salespeople. But its the job of the CEO to ensure that enough organizational learning has taken place and been applied to justify this action.

One approach we have found effective is the use of a Sales Blog shared with the entire company where customer interactions are noted. Contributing to it can be as easy as sending or forwarding an email. When we engage our agile planning process, sometimes directly with customers, we can draw upon these interactions and insights with ease. We have also taken the agile methodology to task, iterating in small monthly cycles with continous requirements gathering, planning, testing and analysis. And our customers seem to like it that way.

Comments

[phil jones]

I notice the word "agile" and I wonder if there's a connection with agile / extreme development methods. These follow a "curve" approach of do a little bit, then a bit more, then a bit more. As you refactor your code to be more general each step of the way you are, in fact increasing the size of a working application (as opposed to just adding more modules to an unfinished application.)

[russell davis]

Thanks for the Sales Learning Curve posting. We're an outsource sales company, and the sales learning curve concept definitely resonates withiin our client base and validates the outsourcing sales model.

[Steve Shu]

Ross,

Great post. One of my favorite posts on the web. I also like the following text from the original article:

"If the company had applied the SLC, it would have staffed sales at a much lower and cheaper level, in anticipation of a slower initial sales ramp. This would allow the company to fine-tune the product or service (feature set, ease of use, integration needs, and so on), to hone its sales and marketing processes and to learn from customers about positioning, promotion and pricing, all before deploying a large and expensive sales force. "

I have been in a number of business and process incubation activities in companies. The ability to hone processes and really listen to the market should not be underestimated.

Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

[Dave Chase]

Mark Leslie's aforementioned Sales Learning Curve presentation can be found at http://altusalliance.com/ceoInfo.html. He was the headline speaker at an event we held that had over 100 Seattle-area startup CEOs and VC's. Typical of the feedback Mark's presentation received was the following quote from the CEO of MessageGate: "I thought that the talk was nothing short of excellent. Often those things are lame-o and I will tell you that this was top 1%. "