The Sales Learning Curve
As I reflect on the SugarCon conference I realize that one of the most interesting presentations of the week was by Mark Leslie of the Standford Graduate School of Business.Leslie was the founding CEO of Veritas Software. During his tenure as CEO, the company grew from $95,000 in annual revenue to $1.5 billion in annual revenue, making it the 10th largest independent software company in 2000. Since retiring, Leslie has lectured at the Stanford Graduate School of Business and serves on the boards of several Silicon Valley technology companies, including SugarCRM.
Leslie's presentation focused on research he has completed a concept he calls the "Sales Learning Curve" or SLC. The SLC explains why so many companies fail when they try to ramp up a sales organization quickly as a means of gaining market share. The concept is akin to the Manufacturing Learning Curve, which explains the economic dynamics of scaling a manufacturing operation. Leslie published this work in the Harvard Business Review in 2006. Reprints of his article can be obtained from Harvard Business Publishing or from Amazon.
Leslie shows through his observations, experience, and research, what should be intuitively obvious but isn't. Hiring and training more sales reps is not the key to growing as quickly and efficiently as possible. Instead, the entire organization, including sales, marketing, product development, and support must learn through early stage sales how to adapt the sales process and the product offering to make sales more efficiently.
Leslie breaks the learning curve into three phases based on the sales knowledge the organization has developed in the market. Each phase requires a different size and type of sales force to be successful. It is here that I found the most valuable implications of the sales learning curve.
All too often, companies hire too many sales reps too early before the marketing and support infrastructure is in place that allows sales reps to be successful. Early reps fail in large numbers, leading to very expensive hiring and training expenditures. Instead, organizations should do three things in their first phase of sales growth:
- Hire fewer sales reps initially.
- Hire sales reps that are independent and capable of operating with little infrastructure and support.
- Invest in marketing and support programs to gain as much knowledge as possible during early sales transactions.
By realizing that fewer, more independent sales reps are better in the early stages than a large force that cannot be adequately supported, companies are able to redeploy resources from direct sales into marketing and support programs that achieve the primary goal of the early stage of sales growth: learning how to interact efficiently and profitably with the customer.
After the initial learning stage, companies can deploy more resources into the direct sales channel and hire additional reps.At this stage, the type of sales rep required will likely change as the independent "missionary" sales reps who were able to make the initial sales without help or support are replaced by sales reps better suited to the structure and increased efficiency of an integrated sales, marketing, and support organization. Leslie notes that managers should not expect early sales reps to be able to make this transition to an intermediate phase company. Some, but by no means all, reps will be able to make this adjustment.
As we move through the current recession, I see many of UpCurve Cloud's customers focusing on growing sales through investments in more sales reps and tools to improve sales efficiency. As companies are considering the best strategy for growing their sales capabilities, Mark Leslie's lessons should be required reading.