If you read this column regularly, you know I'm a bit obsessed with this question: Why do many startups in the cleantech sector see much slower-than-expected sales traction after successfully bringing solutions to market?
On the surface, it should be simple. If you bring to the market a solution that offers a compelling economic proposition, given how big the energy markets (etc.) are we should expect to see revenues skyrocket after commercialization. And yet that doesn't often happen. I often mention the company I saw that recently offered a customer a six-month payback period with a proven solution, and it took the customer nine months to say yes.
There are several reasons for the underwhelming post-commercialization revenues growth, of course. In many cases, the products aren't yet ready -- lacking proven reliability, or just being a component and not the full-fledged solution customers need to see before they will readily adopt. And there are market-driven barriers as well, including (but not limited to): The underlying low incumbent energy costs; misinformation in the marketplace; customer risk aversion; mis-designed incentives; etc., etc., etc.
But one other pattern I've seen is a sales approach by the startup that is itself a limitation to rapid growth. It is a "conversion-oriented" sales approach that involves relatively small volume, heavily-vetted pipelines, with sales teams working very hard to close each sale. The sale is heavily education / consultative in nature, and very hands-on.
This is necessary in some situations, but has the inherent limitation that it leads to long sales cycles. And delays in closing deals is the same as losing deals, because of the opportunity cost.
Cleantech startups (aside from those selling to utilities or building large chemical plants, etc.) should consider shifting to a sales process that is more "harvesting-oriented". Shoveling lots of relatively unqualified pipeline into a self-selection sales process. Putting in a lot less conversion effort per customer, and grabbing easy wins and moving on.
This is because of the nature of these markets. Whether it's residential solar installations, or industrial energy efficiency, or any number of other "distributed" cleantech plays, we can all point to inspiringly huge TAMs. Especially once a compelling solution has been developed, the natural assumption is that customers will make the economically rational decision and purchase the offering, once they get a chance to learn about it.
The problem is that most buyers aren't really motivated, often aren't authorized to make unilateral decisions, and certainly are not focused on educating themselves (or even getting educated, for that matter). This means that even when all questions about the startup and their offering have obvious answers (e.g., it's been installed a hundred times, with no reliability issues, reliable economic benefits, and a compelling payback or ROI), the buyers still take months to say yes. I hear it again and again in board rooms, "We're not really losing the deal, it's not competitive, it just didn't close this quarter." Perhaps they needed to do more research on alternative solutions. Perhaps they needed to go to their CFO to get approval. Whatever. The net result is big delays for the startup's revenue growth, as this scenario plays out again and again.
But too often this is presented as an inherent problem that occurs with all customers in these sectors, because of the low urgency of fixing what isn't broken. Instead, I offer that even if only 10% of potential customers already have budget and authorization and motivation to make a decision, these markets are often so large that it's a much better strategy to spread a wide net to catch and harvest those 10%, rather than try to work with the 90% to convert them to a decision.
What this means is that you need 10X the sales pipeline you have. And you need a very low-touch and inexpensive way to both build that pipeline, and quickly harvest as much out of that pipeline as possible. And then move on.
This sounds obvious, motherhood and apple pie. But I see it coming up again and again in these markets, among very smart management teams. It's understandable. Sales at the commercialization stage, when you're first bringing product to market, are always necessarily hands-on as you need to convince the first few customers to take a risk with you. And it's tough to make a hard pivot away from that sales approach. Also, because you're offering a smart solution, customers always sound favorable and motivated; not many people are pitched an obviously smart thing and want to say no to it. But that positive reaction is easily misconstrued as activation, and can fool salespeople into devoting time and energy into a no-win effort, in ways that are hard to qualify until you've already spent a lot of time on it. And certainly, it's tough to wrest salespeople away from trying to convert those high-priority targets at the end of the quarter as they try to hit their targets, rather than go off on another fishing expedition. I've seen this recently at one of our portfolio companies, where the decision to move away from a consultative direct sales approach has been made, and it makes everyone nervous. It's a big shift, after all. But it's a necessary one.
So while it sounds obvious, I just don't see it happening out there like it should. If this sounds like you, if you're falling into a Conversion Sales Trap, consider the following shifts of emphasis:
1. Put even more emphasis on inside sales than you do today, even at the expense of outside sales. Inside sales can cover a lot more ground more quickly. In many cases they can't be the ones to push the ball across the line themselves, but they can often carry it down to the 1 yard line and work with a closing-team of outside sales and sales engineers to punch it in.
2. Focus your outside sales teams on more bizdev-type activities. National accounts and other big wins that are worth the conversion effort.
3. Create a "quick kills" culture that forces time discipline: Only spend time on the easy wins (aside from the bizdev activities described in point #2).
4. Develop and offer free tools that customers find valuable, but that when they use the tools it also flags your inside sales team that the customer is motivated to do something. This is the principle that got us excited to partner with the team at Noesis, for instance, that they were going to roll such offerings out for just this purpose.
5. If the nature of your offering is that a consultative sales approach seems unavoidable, work like heck to simplify the offering, even if it means not being able to serve as much of a TAM. Don't subject your customers to the Tyranny of Choice, it just slows things down. You can expand via other offerings over time.
6. If the nature of your offering still requires a very hands-on sale, you're going to need to put a lot more emphasis on sales via channel partners if you're ever able to rapidly scale. And unfortunately, your channel partners are unlikely to be any better at rapid customer conversions than you are. So you'll need to enlist and manage a whole lot of channel partners for the math to work out.
7. Develop direct marketing programs that are designed to ping high-potential customer pools (e.g., certain types of customers in a certain geography) two or three times very quickly, drive them to action, and then move on having harvested the easy wins. This requires highly targeted and efficient marketing, to keep costs down.
The net result from where I've seen this type of approach (sometimes on purpose, sometimes by accident) is sales cycles that drop from six to eighteen months, down to two to three months. That's huge.
This is not a universal fit, of course, nor is it a black-and-white differentiation of approaches. But I've seen the relevance of this different sales emphasis across many different cleantech subsectors, across both B2C and B2B, across hardware and software.
Here's the good news: Even if you do only harvest 10% of a potential customer pool, that's not your limit, you haven't left money on the table. Because you can go back to them. You go back to the same pool a year or two later, and in the meantime a completely different set of buyers have gotten budget and motivation. And this time they've already heard of you. This approach lends itself well to building self-propelling sales momentum over time, because it also lends itself well to clustering effects such as now are being identified in many of these markets.
I talked with a proven CEO recently who's extended this approach even to a B2B market that requires OEMing a highly technical embedded solution into products with long design cycles -- the classic example of a consultative sales process. "I talk with everyone," he told me. "I talk with anyone who'll talk with me. I quickly figure out if they have a real serious need, and I offer them a solution to that. I don't try to convince them to buy what I've got, I solve their immediate pain. And if they don't have a real serious pain point I can solve quickly, I move on." He's been highly successful with this approach, which is all about opportunistically building momentum while simultaneously taking on longer, strategic projects. "Even if there isn't a way for us to work together today, they'll be there the next time I come through. And sooner or later they'll be at the right place for them to want to buy from me, because no one else can offer them what my company offers. No sales meeting is every really wasted."
Stop trying to convince the customers who nod their heads when you describe your offering but don't move quickly. Start touching a lot more potential customers. Move quickly to harvest the customers who already want to say yes, and move on. And then come back and harvest other customers from the same pool next year as well.
If you want to scale revenues quickly, you're going to have to consider leaving some customers behind.