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.