The enterprise sales learning curve

“It always takes longer and costs more,” laments Don Valentine of Sequoia Capital, one of the most successful and  respected venture capitalists today. This is consistent with our own extensive involvement in entrepreneurial companies over the past twenty-five years where it is the truly rare company that meets or exceeds its initial plans. The large majority miss the timing of their revenue ramp and require more capital than originally planned to achieve cash flow breakeven operations. When established companies release their first product in a new category (for them), they often face the same challenges.

Twenty-five years ago the principal risk in creating a new company (or for an established company launching a new product initiative) was in the feasibility of the new technology. Underlying this was the belief that “if we build it, they will come.” Today, with much more robust development tools and many more sub-components available, the development of most new products is reasonably predictable. In a much more competitive world the risk has moved instead to the go-to-market stage, which typically begins upon the completion of the beta version of the product. The old assertion has become the new question: “When we build it, will anyone come?” 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. It usually results in an overinvestment in sales, disappointing revenues and excessive consumption of cash.

When companies introduce new products they experience broad-based learning in the areas of product definition, market definition, and sales process. The Enterprise Sales Learning Curve (ESLC) relates this learning to the productivity of a fully effective, trained sales person, and describes how yields increase as learning occurs. This is illustrated in Figure 1 below. The ESLC provides a framework that can help managers and investors develop thoughtful strategies, plan more accurately, set more appropriate expectations and reduce the investment in time and money required to achieve profitable operations. Like all learning curves it captures the fact that processes and functions become more efficient over time. Failure to understand and take advantage of this can cost companies money, time and perhaps their existence. The problems companies face when the ESLC is not understood is that they have a revenue gap illustrated by the area between the assumed curve and the actual curve...

Download full article