Today I’ve had the pleasure to have a coffee with Alina Georgescu, Investment Manager at Catalyst Romania , one of the most reputable growth VCs in Eastern Europe, to validate my new gig “Sales Process Optimization (SPO)” Program for VC back startups that are looking to scale sales operations.
Alina was great and provided me with excellent insights and blunt but valuable feedback – which inspired me to draft this article.
Among others, we discussed about why VC backed startups sometimes fail to scale their sales operations after their first serious investment round with a VC. The simple truth is that the journey from a venture capital-funded startup to a scalable SaaS enterprise is full of challenges. While securing VC backing is a milestone, it’s the subsequent scale-up of sales operations that truly tests a startup’s mettle. So, I’ve tried to summarize here some of the points we’ve touched in our discussion and add some others I thought about after the meeting.
So, let’s get to it – here you have the 10 reasons WHY SaaS startups fail to scale their sales operations, despite the availability of financial resources from their investors:
1. Unrealistic Pre-investment Expectations (Get Funded at Any Cost)
It all starts from the unrealistic expectations pre-investment. Startups often set aggressive growth targets to secure VC funding, but these can become counterproductive when they dictate post-investment operations. The mismatch between ambitious financial projections and the realistic pace of market traction can lead to misallocated resources and strategies that aren’t sustainable, impeding the company’s ability to scale sales effectively.
2. The Pressure of Rapid Hiring (and Looking Good in the Board Room)
Under the pressure to meet VC-driven revenue targets, startups may rush the hiring process, leading to two significant missteps: the recruitment of underqualified sales reps and the engagement of overpriced talent. These errors not only deplete resources but also fail to build a foundation for sustainable growth. A measured approach to hiring, emphasizing cultural fit and long-term potential, is crucial. The VC expectation to grow revenue is completely misunderstood and misinterpreted, as if the VC is just expecting this to happen immediately. VCs have seen this story many times and they know better than the Startup how long it really takes to scale. On the other hand, Founders rarely ask for help to their VCs resolve this “rapid” growth dilemma, and feel more like they have to deliver results quickly, than to focus on delivering high quality progress that will bring the expected results, but maybe in little more realistic timeframe.
3. “Still Unclear” Ideal Customer Profile (ICP)
Before getting their VC money, many startups have their products validated with several customers. But it is also quite common that many of the clients already won fall in various buckets which create a struggle with pinpointing the true ICP. The allure of broad market capture can divert focus from honing in on the most viable customer segments, leading to diluted efforts and wasted resources. Leveraging analytics and customer feedback to continuously refine the ICP is essential for focused and effective sales strategies.
4. Scaling Systems and Processes
As startups transition from founder-led sales to larger sales teams, the lack of scalable systems and processes can become a significant barrier to scale sales. The intricacies of onboarding, training, and integrating new reps require structured, repeatable systems to ensure consistency and efficiency in scaling efforts. And this is not only about having a CRM in place or a sequencing automation platform, but implementing your sales playbook (if you have one) and sales process best practices suited for your kind of product/solution into systems. Also, to avoid developping silos working, to connect these systems in order to scale. In a startup, resources are limited.. any investment in saving time and making the existing team more effective is a great investment. It is true, this must not become the purpose of the company – having perfect processes and no customers..
5. Founders’ Knowledge Transfer Bottlenecks
Because it is their baby, becuase they know WHY they’ve created the product/solution, Founders possess deep, intuitive knowledge of their product and market. My observation so far has been that distilling and transferring this knowledge to new sales team members can be challenging. Without this transfer, sales reps may struggle to convey the product’s value proposition compellingly, hindering sales effectiveness and so, the Founders find themselves still in the sales trenches, still being the ONLY real sales rep of the company, the rest of the team being in a more supportive position. It is not bad for the Founders to keep selling and lead the company from the field – it is actually recommended to do so – , but at the same time they must “clone” themselves by transfering all the use cases/ customer stories and pains/experiences to their sales teams and not only.. (product, support, marketing)
6. Underestimating Sales Cycle Lengths
This is one of my favorites.. because I’ve seen its impact in forecasting and budgeting so many times. The B2B sales cycle can be lengthy, a fact that startups often overlook. Misjudging the time it takes to close deals can lead to unrealistic revenue projections and financial strain. Most of the time startups count the average sales cycle from Opportunity/Sales Qualified Stage to Closing, saying it takes 45 to 60 days to close a deal for SMB or 60 to 180 days for Enteprise, but they rarely count the time it takes from Lead to Opportunity (or the lead nurturing time). Acknowledging and planning for extended sales cycles is key to managing cash flow and growth expectations.
7. Neglecting Customer Success
In the quest for new customer acquisition, the importance of customer success can be underestimated. High churn rates can significantly counteract new sales, making customer retention and success critical components of a sustainable growth strategy. Besides, existing clients are the best way, and/or probably the fastest way, to increase revenue by up-selling/cross-selling or to shorten your sales cycle by getting referrals for new business. Again, this is one of the most “popular” neglected strategies to grow revenue.. easier.. faster.
8. Overreliance on a Single Sales Channel
Diversifying sales channels mitigates the risk associated with dependency on a singular avenue for customer acquisition. Startups should explore and invest in multiple channels to ensure a resilient and adaptive sales strategy. At the same time, being a startup you won’t be able to spread your resources thin on too many channels. It is important to pick two or maximum 3 channels to start with, focus, optimize and then experiment on another channel – but they must be around your ICP. To know when to add a new for channel for experimentation you’d need to know when your success metrics of your existing channels have gone above average benchmarks.
9. Insufficient Competitive Differentiation
In a crowded marketplace, clearly differentiating your SaaS solution is paramount. Startups must articulate a unique value proposition to stand out and avoid commoditization, which can erode pricing power and market position. The key here is to ask your customers to help you spell out your differentiators if you’re not able to do so. The differentiators are also built in your ICP definition, as they are the reason WHY you have picked that ICP and not another one.
10. Inadequate Sales Training and Enablement
Ongoing investment in sales training and enablement is crucial for maintaining the effectiveness of the sales team. As the product and market evolve, so too must the skills and knowledge of the sales force.
Scaling sales in a B2B SaaS environment post-VC investment presents a complex array of challenges. From strategic hiring and ICP refinement to systematizing processes and ensuring product-market fit, each obstacle requires thoughtful consideration and strategic action. By addressing these challenges head-on, SaaS startups can navigate the treacherous waters of scaling, transforming potential pitfalls into opportunities for sustained growth and success.
VC-Money / Smart Money sometimes can help resolve some of these challenges, if Founders just ask for help. Other times, it is good to acknoledge and agree with their VCs that they need to go through some fundamental steps first before they can really scale sales.
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