The Importance of a Short Sales Cycle

Background

I have now had the privilege of working at a Venture Capital firm for more 7 years. A lot of people ask me for “words of advice”, or “what my biggest takeaway has been”, or “something that I have observed that I didn’t learn in Business School”. For me, that is simple, having a short sales cycle is extremely important!

Why is a short sales cycle important?

• It allows the company to scale — aka — the point of a Venture Capital investment.
• It builds team moral — closing deals makes people happy and validates what they are doing each day.
• It can enable a company to become a market leader — which adds value and makes them more attractive for an acquirer

How to establish a short sales cycle

• Solve a real customer pain — if you are thinking about starting a business or have a startup, go talk to 20 customers NOW, they will help you refine your sales process, product, and tell you what you need to do to gain traction in the market. There is no better way to learn that talking to your potential customers.
• Have a low cost of adoption — lots of businesses solve a pain, but because of their price they need approval of the entire C-Suite to get a deal done. This takes forever. Figure out a way to make the initial cost low and then make up for it over the relationship with each customer.
• Consider their workflow — If you have the best product ever, but it requires a complete re-work of the clients’ workflow then you will have a long sales cycle. Ensure that one of your tenants of the sales process is explaining how this fits with their current process and how it can be implemented quickly without pushback from the employees it impacts.
• Move the needle — You may be able to solve a real customer pain, but if it is not high enough on the potential customer’s priority list then it doesn’t matter. I.e if you figure out how to save a company $1M a year, that will move the needle if the company’s expenses are less than $20M a year, but if they are say $100M a year then that is only 1% and may not be the best use of their time.

Business Models that have a short sales cycle

• SaaS — Software as a Service — these businesses typically have a low cost of adoption and are very quickly implemented because they are all online. They also have a high lifetime customer value and in-turn trade at approximately a 5X Enterprise Value/Revenue Multiple which is a premium to most other industries and makes them attractive Venture Capital Investments.
• Freemium — Let people try your company’s product for free before they buy it. If your product proves to be valuable they will likely upgrade to the “premium” version and start paying. This enables companies to be very hands off in the sales cycle and scale rapidly. DropBox or Evernote are great examples.
• Shared Savings — Approach a company and go “at-risk” until you can show that you provide them value. This will enable them to view the deal as a “no-lose” situation and say yes or no quickly. Just be sure that you have adequate cash as this may make cashflow a problem.
• Someone Else Pays the Bill — Can you sell a customer a benefit that some other stakeholder pays for. I.e. could you provide a nursing home a new service that is fully reimbursed by insurance making it a benefit with no out-of-pocket expense to them.

Principles to Shorten your Sales Cycle

• Lean Business Development — If you can provide a service that has an much higher return for your customer than your service costs it quickly becomes an easy decision. I.e. this is best used on the revenue generation side. If you could do a business development deal and generate them more revenue by selling their service into your customer base it will likely get a “Yes” in a short time-frame. Another principle of this approach is to start with a small partnership and then let it grow overtime. I.e. partner for 6 months and then schedule a time to negotiate from then on. This will subvert getting stuck in legal for months at a time.
• Get as much Press as Possible — Whether your goal is to land a huge deal or to land VC investment getting press is important. Deep down everyone likes to get recognition for their work and seeing a company they just dealt with in the paper is a great way to get it. Also, having articles in industry publications is a great way to generate in-bound leads which are guaranteed to have short sales cycle.
• Have an Unfair Advantage — VC’s love to invest in a company that has an unfair advantage, which might include the people or the technology behind the company. I.e. if you are a serial entrepreneur that is coming off of a non-compete and successfully built, partnered with others, and then sold a company in an industry you have a huge unfair advantage. You could start the company and then re-connect with your old business development partners enabling you to scale quickly. Relationships are the quickest way to shorten a sales cycle and can give a company a huge “unfair advantage” over any competitor!

Entrepreneurs and Investors — What do you think? Did I miss anything? Agree or Disagree? I would love to hear your opinions in the comments below!

- Andrew