* Note: this is a backdated post from something I took notes on in the past
No company lasts long without selling something, yet companies still make errors in ramping up a sales team. Mark Leslie and Charles Holloway wrote an influential paper in 2006 about the sales learning curve. It has become a widely popularised concept since, and my notes on it are below:
hiring a full sales force too fast just leads the company to burn through cash and fail to meet revenue expectations. Before it can sell the product efficiently, the entire organization needs to learn how customers will acquire and use it, a process we call the sales learning curve.
The keyword here is organisation, as they go on to elaborate below
The sales learning curve we are describing is separate from, and independent of, the individual learning curve and more comprehensive, involving all customer-facing parts of the organization: marketing, sales, product support, and product development. The improvements in sales yield that result from this organizational learning process affect all of the sales representatives, both new and experienced.
Everyone in the organisation will have to learn as they go as to what matters for sales
number of challenges involved in creating markets for unfamiliar products: the time required to educate customers about the offering and learn how they will use it, the inevitable design modifications needed to deliver a robust product that will fully satisfy customers, the identification and resolution of service issues, the development of a repeatable sales model, the selection of appropriate market positioning, and the design of effective sales incentives.
If you’re introducing an unknown product, you’ll likely have to spend on marketing to educate the customer, regardless of whether you are B2B or B2C. Many major consumer trend shifts were due to marketing helping raise awareness over time, e.g. shift to online travel, online food delivery, online dating. There is a reason the ad industry exists, despite everyone (myself included) believing that “I’m never affected by advertising”. Importantly, the time that this step takes is nearly independent of your company’s efforts, and hiring more sales or marketing people may not help you ramp quicker.
Reps were compensated for sales of the new product but not enough to make up for the extra time and effort required. In addition, the new bundled offering was seen as a potential threat to the company’s traditional hardware partners like Sun Microsystems, making them less likely to cooperate with Veritas at the field sales level.
Systems are complex, and sometimes problems cannot be predicted till a full run is done. Sometimes it’s hard to realise and correct situations that may have incentive disalignment until the entire system has run its course. Hence why we do trial runs, war gaming, or rehearsals.
This process cannot be short-circuited by sending out an army of salespeople in an effort to gather more feedback more quickly: Many problems are discovered sequentially, revealing themselves only after some preceding issue has been discovered and addressed. Eventually, the company learns enough to reach a level of steady sales.
If you’ve ever fixed something, only to have another unexpected error come up in something completely unrelated.
“Sales yield” is defined as the average annual sales revenue per full-time, fully trained and effective sales representative. Typically, sales yield for a new product starts out slowly, accelerates for a while, and then flattens out as the product matures, in a classic S-shape curve.
S curves everywhere.
three distinct phases—the initiation phase, the transition phase, and the execution phase [..]. Each phase requires a different size—and kind—of sales force, and represents a different stage in your production, marketing, and sales strategies. The gateways from one stage to the next correspond to two markers of profitability level—the break-even point and some targeted level of steady sales, which we call the “traction point.”
They go on to describe the three different types of sales reps required for each phase, who have their own strengths best matched for the tasks required at each stage of exploring, transforming, and steady state.
Companies measure manufacturing success in terms of how long it takes to achieve scale production volumes, and they typically tie engineering to this metric as well. To move along the learning curve faster, though, companies need instead to focus engineering, as well as marketing and sales, on the time it takes to reach the break-even and then sustainable profitable levels of sales yield. In addition, engineers who stay involved throughout the entire learning process need to be rewarded by an assignment to another big project.
Again, knowing and using the right incentives to keep people motivated.
Mark answered some brief questions here in 2015 as a follow up. One of his answers was a good elaboration on when to be marketing heavy vs when to be sales heavy:
Question: Inbound marketing has taken on much more prominence. How much more of an emphasis should sales teams be placing on inbound marketing vs outbound sales efforts versus what they were doing in 2006?
Answer: Completely depends on the product and strategy of the company. As an example, if you’re building a product that’s going to be sold B2B, that’s expensive, a long-term solution, and complicated, and you’re selling into a market that’s very competitive with a smaller number of potential customers, you have high touch sale that’s going to require outbound and require an end-user sales model. An extreme example of that would be General Electric selling jet engines to airplane manufacturers, which it can only sell to a 100 companies in the world and hits all of the above.
An example of the other extreme, on the B2B end, would be Proctor and Gamble selling toothpaste. Many users, B2C, very low cost, very simple sale, et cetera. So the Proctor and Gamble is all Proctor all marketing and no sale, and the General Electric example is the opposite. An as you look at your product, questions like how complicated is it, how much does it cost, how difficult is the sale, how many users am I trying to reach, how long is my sales cycle – that all informs you where you belong in this model.