The Sales Debt and how to avoid it
A blueprint for delivering your numbers to VCs while finding scalable PMF
When they have raised funds from investors, start-up founders face a typical challenge: they have to show sizeable growth (preferably in revenue, but also in popularity), whatever their Product-Market Fit (PMF) stage.
Any new customer or follower growth will do.
Unfortunately, those customers or followers are seldom the types the start-up should aim to acquire. They probably don’t know yet who their Ideal Customer is, or they take any vaguely consistent customer group as their ICP.
For the record, an ideal customer profile (ICP) describes the type of company (B2B) or individual (B2C) that would realize the most value from your product or solution.
In the following, I will use ICP and PMF without distinction. The two concepts are deeply connected, and I will explore this connection in an upcoming post.
They should focus on searching for their ideal customers and refrain from prospecting or selling to customers that do not qualify as potential ideal customers.
But as a founder, you can’t refuse revenue when it is close at hand:
Your investors are expecting revenue growth
Your burning rate will explode if you don’t create a revenue stream asap
So your strategy is mainly driven by whoever your sales (or marketing) team can come across and sell to! Hopefully, they are smart enough to corral good enough customers, and you’ll have healthy growth, leaving more time to find an even better PMF.
The Sales Debt
Sometimes those first customers will create a Sales Debt. Like Technical Debt, which refers to suboptimal technology choices that lead to complexity and entropy, sales debt represents the ramifications of poor sales and marketing choices (aka weak PMF), leading to stalled business development.
Examples of Sales Debt components:
Pricing: Your pricing strategy was OK for a specific type of customer, but it doesn’t represent the value of your offer anymore. Issue: your sales team and existing customers are used to the current price scheme and are reluctant to change.
Sales Cycle: Your sales team is used to short sales cycles, whereas your newly-defined ICP requires a longer purchase cycle (replacing existing products instead of selling an add-on, for instance). Issue: will they be able to handle it? How about changing their commission plan?
Sales Rep Profile: Your inside sales team chased start-ups with decision-makers in their twenties. Now you understand that your ICP are Fortune 500 companies with decision-makers in their fifties, favoring high-touch, solution-selling senior sales. How much time will it take to fix the mismatch?
Product-led growth: Your freemium product has a great UX, low price, and excellent upgrade options. Now your buyer persona is not the user but the IT director, favoring security, compliance, and integrations with Oracle’s product lines.
Go to market strategy: You realize that you won’t hit your development targets unless you go indirect. How will you manage the internal and external competition between your direct and indirect teams?
Marketing material: Your website and marketing collaterals are designed to appeal to French banks. Now your ICP points to US fintech start-ups. How cool will you look?
Customer Success: Your customer success team thrived on being creative at resolving various customer situations. Now that you nailed your ICP, you want them to industrialize everything. Ouch!
Location: You chose your home country as the HQ. After a few years, you realize that selling to US customers was much more scalable. What will you do with your local team? How much time will you lose managing legacy customers?
You may think: those problems are fixable, so what is the real issue with Sales Debt?
Like Technical Debt, it slows you down and compounds with time.
Every single habit your company has got into will take ages to change.
It means that instead of changing course in a few months, it will force you to pivot after a few years. And what will happen within those years may decide the life or death of your company.
Need evidence? Let me illustrate.
First, what is the difference between a weak and a strong PMF?
Christoph Janz posted the following graph for freemium SaaS:
A week PMF creates sales friction, while a strong PMF is a prerequisite for scalability.
Strong PMF also means that your sales efforts do not depend on individualities, that your sales are repeatable, and that your sales enablement team can instruct your sales process.
Let’s look at those two graphs showing revenue (in M€) over time (in quarters).
In this first graph, everyone thinks the company is doing OK until growth stalls (“Weak PMF”). It may take several years to get there. Then you as a founder have to react quickly and firmly. This strong action will be a pivot to a new product or market most of the time. As we already explained here
pivots are tricky; they take time and energy.
If successful, you end up finding a better market fit (the “Strong PMF”) and growth resumes. What is the outcome on the graph: after five years/ 20 quarters, you reach a revenue of 14m€.
Let’s look at the second graph, where Sales Debt was avoided.
In this case, the start-up founder has tackled the “Weak PMF” problem early on and jumped quickly on the “Strong PMF” bandwagon. The result after five years: 32 m€, or 18 m€ more than in the first scenario.
A very different story for this start-up fundraising motion and valuation!
Is there any way to avoid it?
Of course, the best way to avoid it is to nail your PMF and ICP from the very start. But, unfortunately, unless you’re awfully lucky or thoroughly research your market years before launching, there is little chance this will happen.
So we are coming back to this point: you need to raise money to run the business, but you are aware Sales Debt is around the corner since you didn’t nail your ICP and PMF yet. So what can you do about it?
Take your time and continue searching for the optimal PMF: either your investor will get anxious that you don’t deploy their money, or your run rate will explode if you hire a sales team but keep searching for your ICP instead of closing deals.
Focus on growth and forget about the Sales Debt; you’ll take care of it later on: well, the whole point of this post is to do something now!
Incentivize your sales team to find the ICP (i.e., offering super bonuses for uncovering potential candidates): an interesting idea but probably creating confusion in your sales rep’s mind. For example, should they close quick-win deals or spend time understanding new needs?
Separate your sales team; one team is dedicated to finding your ICP while the other closes deals as usual: a better version of the previous, but creating confusion as to which team is your favorite; complexity for hiring, compensation, and retention; competition between the two groups.
Create a specific role whose mission is to find the ICP and optimize PMF: I think that’s the best approach, recognizing there is a problem and you’re doing something to fix it while still moving ahead with growth and revenue.
What do you suggest?
The Head of “Sales Scalability” role
Let’s double-click on the fifth option.
We are looking for someone whose main task will be to explore a variety of ICP and find the best one. Alternatively, this role can also challenge the product core features to allow for a better PMF once the best ICP is found.
At the very start, it can be you - the founder - or one of your co-founders that will take this role. Exploring different verticals and use-cases is a great way to find what clings best. You’ll probably discover some reasonably good customer profiles and allow your sales team to work from there.
This is not scalable as this founder role will bear too many hats. So you will have to hire someone that will take this role.
How shall we name it?
I suggest “Head of Sales Scalability” as an interim designation.
Why? Because finding the optimal ICP and thus the optimal PMF is a prerequisite for repeat sales and scalability.
What would be the tasks of this role?
Prospect new types of customers
Challenge sales motion status quo
Explore new GTM routes
Incentivize the sales team to give him feedback on unusual customer demands
Discuss with a lot of potential partners in the ecosystem
Interview won/lost customers to unveil hidden rationales
Analyze customers’ job to be done
Understand compelling reasons to buy
Work with research agencies and study the market
Find success patterns and design repeatable processes for sales enablement
Present findings to the execs/board and establish a new focus
Help the team transition to the new ICP/PMF couple
What is the expected outcome? The Head of Sales Scalability should find your finest ICP and most profitable PMF as soon as possible! So you can redirect your sales team efforts and achieve ultimate scalability!
Suddenly, your growth trajectory will look very different!
I am keen to hear your stories; how did you overcome Sales Debt and speed up the process to find the best ICP and a strong PMF?