Staffing Sales for growth

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.

The analogy, a Sales Learning Curve similar to the well known Manufacturing Learning Curve, doesn't quite work for me as there are more exceptions than commonality in the two process orientations. And transactions between humans are far more varied and quixotic than tweaking some CNC machine for optimal tolerances over a production run. Those caveats in place, the conclusions are sound. Mark Leslie, former Veritas CEO and current El Dorado Ventures partner opines about The Sales Learning Curve over on alwayson-network.com. He is correct in his assessment that too many newer organizations leap into building sales staff immediately upon product introduction. It is wiser to wait until there is a reasonable understanding of the process, lead times, market space and customer acceptance before staffing for some anticipated level of sales activity.

Once the process is established, the organization needs a metric that will tell them that it is time to ramp up sales staffing to capture market share. Two times marginal contribution per sales rep, as suggested in the article, is a good bogey for certain markets and classes of products. The actual metric and the hurdle will be determined by industry characteristics, sales cycles and other criteria particular to the market. The important point being that until the sales cycle and customer acceptance are well understood, it is counterproductive to staff sales organizations rapidly.

The other benefit, and often overlooked by founders or early stage executives, is that by waiting and getting the information required for selling that particular product to that market segment, you are able to develop a much better set of metrics that are unique to your business. Too often, the volatile growth of staffs cause the organization to rely exclusively on easily gathered financial data, standard measures and statistics, never taking the time to develop meaningful metrics that characterize the business, the market, the sales cycles or meeting customer expectations. Reporting requirements for shareholders and tax preparation can often obscure the important numbers that characterize nascent operations. By taking the time to understand and develop metrics which really characterize the business, the founders and executives can focus their attention on the numbers that matter. Those numbers are rarely revenues or profits. Revenues and profits are the results when the real indicators or core metrics of the business are monitored and managed.

Comments

[David Foster]

Important concept--very good post. A couple of points I would add:

1)Hiring a good sales force takes time. If you start with 10 high-level sales people, with the intention of expanding to 50-100 once things get running smoothly..you'd better start developing the hiring pipeline early. Don't wait until you're ready to pull the trigger to call up a recruiter.

2)Consider alternatives to the traditional field force organization. A telesales (inside sales) approach has many advantages--everyone is in one place, so training, information dissemination about product changes, etc, are much, much easier. Telesales, combined with executive visits, can be applicable to high-prices and complex products and services, not just low-end stuff.

Also, there is a whole different set of dynamics that comes into play when we're talking about a new venture *within* an existing company. The obvious thing to do is to sell the new product through the existing sales force...and that's often the exact wrong thing to do.