Ramping up of sales force in start-up companies

Vinutha Raju | October 10,2013 12:26 pm IST

In this age of technology products, selling is never easy. It’s not like the FMCG products can be sold by enticing the consumers with attractive advertisements or a tangible product which the customers see, touch, feel and buy it.


Most of the Indian start-up companies are technology Services Company. It could be an online retailer of lifestyle products, online travel booking, media and internet publishing companies, data analytic companies or mobile based technology companies where the target customers could be either end user customers or large businesses.


But sadly, the only section of technology companies which can use “attractive advertisement to attract” customers have chosen to attract through “who is the silliest of all” range of advertisements. (Of course, I am referring to the online lifestyle retailers)
 

The other technology companies, where advertisements are not the best options but are flush with infusion of venture capital use the next best option. Recruit a large sales force, increase burn rate and attack the market with their product/service.
 

Mak Leslie, a successful entrepreneur and Managing Director of investment company, Leslie Ventures, who also lectures at Stanford Graduate school of Business has along with his colleague Charles A Holloway published a paper in Harvard Business Review.
 

They elucidate that says in their 25 years of experience, it has been found that the entrepreneurs who have hired a large sales force too fast has just led to burning of cash and failure to achieve revenue expectations. They are of the opinion that “Before it can sell the product efficiently, the entire organization needs to learn how customers will acquire and use it, a process they call as sales learning curve”
 

The company should understand how the customers will acquire and use the product. For some of the customers, the product and service may not be possible to be used in the available form. It may need customisation. Launching a product or a service is not the same as achieving market fit. The user/customer may have other real issues which have to be addressed before the service is rolled out in full scale. The entrepreneur could have visualised the problem and or solution differently from that of market requirement.
 

There are lots of instances where the company could have strong sales in the first few months and then tapers off due to lack of market fit or a gap between the need and solution offered.
 

Hence the entrepreneurs need to spend time and energy to fine tune the product/service to achieve the right market fit. It could be dangerous to ramp up sales force in a hurry with the fresh Venture Capital funding and increase burn rate before the product/service/technology is tested extensively to include design change to satisfy the customers. This itself may take six months to year to get the best market fit of the product or service. This process is called as “sales learning curve” 

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Vinutha Raju has over 18 years of experience in investments, financial research & analysis and worked as Vice President-Investments with a mid-sized private equity fund. She was on the board of directors in the invested companies. She is a member of board of studies for setting  of syllabi for finanace courses in MBA colleges. She has a...