Channel Management: Beware the Dead Zones
go-to-market strategies to scale to €100m
How to design your sales strategy and team(s) to match the value of your customers
Avoid common channel management traps encountered by startups
As you prepare to scale up your sales activity, you need a sales strategy, often also called go-to-market plan. By now you have a good understanding of who your clients are and what problem you solve for them.
B2B clients differ in their revenue opportunity. While there can be different reasons for such variations depending in your solution, the most common cause has to do with differences in company size (measured for example in # of employees, revenue, or assets). The vast majority (almost 99%) of businesses are small, there are many medium size businesses and very few large corporations. Based on these differences in value, numbers and organisational structures it makes sense to treat each ‘channel’ differently:
Self-Service means you basically don’t sell to clients. Marketing drives clients to sign-up themselves and growth measures ensure successful onboarding, activation and retention. If there are issues, a support team will assist reactively with troubleshooting and other questions. Clients pay standard listed prices with their credit cards.
Insides Sales means typically engaging prospects with a combination of phone calls, emails/messages and Online meetings. There are multiple interactions between real people, but generally all remote. Usually contracts are standardised, but prices can be negotiated and clients can pay with delay after they were sent an invoice.
Enterprise sales is the most intensive form of selling. Large corporations tend to have many decision makers that need to get involved and have specific requirements for products, support and contract / payment terms. Selling to enterprise includes face-to-face meetings with clients, which means sales teams need to travel. The sales cycle can be very long and sometimes disrupted (e.g. by management changes, budget cuts etc.) which can cause trouble to startups who were expecting to close a significant deal. The close interaction with these clients can generate valuable insight about their needs, which can be very useful for product development. Signing a well known enterprise can also send a positive signal to smaller customers.
Common challenges and mistakes
1. Treat all clients the same. This frequently happens when the sales strategy is not yet articulated and knowledge about customers and market is limited. There are some problems with this approach:
Sales reps tend to pivot to the biggest opportunities, but underestimate the length of the sales cycle. In some quarters they end up with no new business at all. It also leads to forgone opportunities when small or mid-market clients are left unserved.
Small clients are not profitable (if considering full sales cost).
Distorted sales KPIs when aggregating extremely different clients makes it hard to assess productivity and performance. Standardisation, required for process optimisation for better productivity, is challenging when clients are vastly different.
2. Lack of scalability. There needs to be possible scenario where the value per clients (average revenue) multiplied with # of clients who can be realistically acquired by a rep in a given period of time results into a high enough number that the business can become profitable over time.
When enterprise clients are very big (potentially), the main issue becomes signing them in a reasonable timeframe. Almost all B2B startups I work with underestimated at some stage the lengths of the sales cycle and had to adjust their time frames and the number of acquired enterprise accounts.
On the smaller (and medium) account side, startups regularly underestimate the number of accounts that is required to achieve a revenue target. As a result, sales processes need to be very efficient (= fast) and there needs to be a very high volume of leads. Here planning and monitoring is key.
3. Dead zones. This is the most challenging issue: left and right of the mid market channel, there are groups of clients that are in between the clearly defined small - medium - enterprise categories in terms of revenue potential. The problem with them is that the more limited opportunity can’t be matched with a more limited, more efficient sales approach. In detail:
Between self-service and mid market: these are clients with a potential between €1,000 and under €10,000 value. As still relatively small business, a few thousand Euro investment is significant for them and they expect to talk to a sales rep, rather than relying completely on self service. That puts them in the same inside sales approach, but with a much more limited outcome. If lead acquisition cost or conversion rate were better than the full value mid market accounts this could work, but in most cases they are not. As a result, many clients would end up unprofitable.
The conclusion is to ‘push’ these accounts into self-service, with the risk of losing a fair number. Many sales reps, especially when incentivised on revenue (and not profit) targets, tend to cling to these clients, overestimating their potential and/or easiness to close.On the larger side, between inside sales and enterprise, the picture is similar. In my experience, some larger mid market accounts require even more effort and lead time than the really big enterprise customers, as they tend to be less technically developed and sometimes risk averse, which further slows them down.
If you find that many of your prospects fall into these dead zones, i.e. are hard to close with a sales approach that is proportional in value, you need to reevaluate your go-to-market strategy. One (but not the only) possibility is to increase pricing for these segments, so that they either opt-out or become profitable (a variation is not to increase the base price, but take a service charge for sales related activities such as onboarding or support).
Further Resources:
Based on Jerry Chen’s Units deck https://news.greylock.com/unit-of-value-a-framework-for-scaling-42c092fba887
Handover from Founder to Head of Sales: What Could go Wrong?
Martin Casado (a16z) on YouTube