How to Scale a Tech Startup: Growth and Sales with Edward Golod and Al West
This article is based on a SpeedCast by Edward Golod from Revenue Accelerators with his guest, Al West, builder of the ninth unicorn, partner, and associate.
In this article, they explore how to scale a self-funded tech startup in a recession by giving sales tips and actionable advice from real-life experiences of growing their own companies and doing business with executives.
What’s a Unicorn Builder?
A unicorn builder is someone who builds unicorns. Back in the day, a unicorn was a rare thing. Nowadays there are 50 unicorns out there. From a definition standpoint, a unicorn is a company with a billion-dollar valuation, meaning building a unicorn isn’t an easy task, but is a very gratifying and profitable experience.
In 2023, and with the state of the market, experts believe the next recession is going to be easier. However, this can affect the growth of self-funded tech startups, how can these companies succeed with everything that’s happening now?
What should tech startups consider before scaling?
Firstly, It’s crucial to distinguish between scaling and growing. They are interchangeable, however there is a slight difference between them.
Growth is when your company’s revenue increases in direct proportion to the addition of additional resources, including assets, technology, personnel, and product features. Imagine a company that doubles the number of employees in its contact center to keep up with the rising demand for its goods.
Expansion in the form of scaling is growth without the extra flourishes. Businesses “scale” when their income increases dramatically without them having to spend a lot of money on adding new resources, which increases profit margins while lowering costs. (As a result, startups in particular have a propensity for being productivity-obsessed. The objective should be to increase output while keeping input negligible.)
How Can a Self-Funded Tech Startup Get Rapid Growth in a Downturn?
2023 is going to continue to be an interesting time. Midway through 2022, there are three factors that are conveying to make this a unique situation.
#1. This Is the 12th Recession Since 1990
As 2023 is about to start and looking back, this is the 12th recession since 1990. A recession worsens the pain and affects a lot of industries. This leads to the second factor.
#2. Inflation Forces
Another challenge that’s making 4x harder to grow is inflation forces that haven’t been seen in 40 years. That’s tied to the recession, and it greatly impacts the supply chain. It’s compacting the whole recessionary aspect.
#3. Can’t Get People to Work
The fact that people don’t want to work is very well imagined.
Looking at all those factors and what they mean for the growth of companies, it means these factors are converging to stymie growth. Growth is difficult and often delayed. So, it’s 4x harder to grow than it was ever before.
But that’s exactly what makes it interesting. When something is harder, it means companies must find a new way.
Conventional Marketing Strategies Don’t Work Anymore
In order to grow during a recession, tech start-ups can’t use conventional marketing strategies anymore. Having SDRs (Sales Development Representative), BDRs (Business Development Representative), and ABM (account-based marketing) in place while getting leads or deals to sell their services isn’t going to save them during a recession.
Right now, companies need something that’s extremely compelling.
Al West, builder of the ninth unicorn, tells the story of how he came up with a compelling selling proposition in Y2K (Year 2000) when all the IT budgets were used to solve this Y2K issue in particular and he had nothing to offer for that aspect:
“In 1988 or 1999, I wasn’t selling anything to help with Y2K. All IT budgets were used for buying something that could solve their Y2K problems. Everything was based on Y2K and the money was directed to that. If I didn’t have something to solve Y2K, they would say sorry and move on. So, I took a step back and realized this product I was selling, which usually would benefit IT, could benefit the CFO’s office too. According to that, I started selling to the CFO by helping him solve some of his most critical issues and having a compelling value proposition”
That’s another way of selling, by solving a critical issue with an extremely compelling value proposition. That’s what people are going to have to get back to. To the blocking and tackling of solving critical business issues for executives.
Right now, with what’s happening with the gas prices and Russia, money is the optic. If companies can’t explain how they’re going to make money for their clients in today’s market, they’re lost.
How to Eliminate Unproductive Sales in the Marketing Machinery and Still Sell?
With the three factors mentioned above, startups aren’t at their best, it’s practically a mess. But being a startup that, i.e., has four reps, is trying to go further in the US, and wants to go from a vertical to another. While having investors evaluating every step because they might think a startup is a 10x then a 6x.
The answer to the question: how to eliminate non-productive sales in the marketing machinery and yet still sell in the market? Is that those startups can do those things individually. They can eliminate non-productive sales and increase the ones that matter to get the growth potential they’re looking for.
Sometimes, these things are diametrically opposed. Companies can’t do one without the other, both have to be considered. It’s like pruning a tree. When pruning a tree, cutting back too much can damage the tree and affect its production. So, getting to the optimal point of just trimming the branches, so they’re not scarring each other, and producing the maximum quantity of fruit is the goal.
But what happens when the founder of a startup company doesn’t know how to prune or optimize sales?
Why Should Startups Keep Optimizing Sales?
Pruning or optimizing sales to get more growth isn’t a science and it never will be. But it’s necessary that startups keep pruning. A lot of companies take the bottom 10% that isn’t performing well, meaning a branch, and prune it, meaning getting rid of it, unless there’s some extraordinary circumstance involved. The thing is tech startups should always be pruning.
Also, at some point, companies have to look at their capacity, more specifically their sales capacity, to deliver the results they need. That has to be balanced. And there’s a numerical equation where companies can anticipate somewhere between 65% and 75% of quota attainment. That’s where startups should be from an operational standpoint.
Startups should always plan their sales capacity.
Edward Golod, the founder of Revenue Accelerators, makes a point on how important it is to have a good sales plan:
“The base of clients that I spend my time with has two has, two or three sales representatives, but you Al West, come from a world where companies have 50, 100, and all the way to 400 sales representatives. You’re right, 10% isn’t a big number, but you have to prune. If founders don’t have the optics, they’ll have to find a way to get them. I had a call with an AI company today doing Wall Street work, predicting earnings per share. And they have no salespeople…”
Then Edward emphasizes the fact that not having a sales plan means no revenue to any tech startup by saying:
“When I found out this AI startup didn’t have any sales representatives, I asked them: well, why don’t you fire one of your partners instead? And they didn’t want to hear that. But the truth is that they’re not doing any revenue”
Not having a plan for sales could mean a tech startup doesn’t know how to generate revenue. And the company can have a great solution for its target audience in place, but not having a compelling proposition or offering won’t help them generate sales and revenue.
How Can a Startup Unify Their Sales Machinery and Growth in an Apparently Non-Profitable Niche?
The market is out of control, tech startups have to prune, and founders need the optics. That’s something the founder can either buy or have. But when a company of 10 or 30 sales representatives sells in a sector where no one is spending money or there aren’t enough sales meetings, the sales machinery has to be well-oiled.
Just like a vehicle, all the different cylinders have to be firing in order for the sales machine to run optimally. If a spark plug isn’t working properly, all that it takes is that one spark plug for the whole thing to misfire.
For the sales machine, it all starts with having a product where there is demand. If a startup is solving a problem that nobody cares about, then that’s a fundamental problem from a business standpoint. But assuming a company has a product that solves a critical business issue for an executive, there should be no reason they’re not making sales.
Who Should Be the Potential Customers for a Startup?
Startups shouldn’t be selling to directors and managers. Companies can scratch their itch, but that’s not going to pay the bills. What’s important to solve is an executive critical business and it better be critical, otherwise, the startup won’t be able to handle this client.
Edward Golod expands more about what Al West thinks would be a critical business issue for an executive by being more specific:
“Critical means it’s either in the 10K, 10Q, it’s known, or you did your homework and found out that they’re doing this change, i.e. digital transformation? Now if it started two years ago or in the third year, you’re not going to sell to an executive. So, what you mean by critical is something that they better sit at that board meeting and say: whatever we do, this has to be successful, is that correct?”
Al West answers that question along with valuable tips:
“That’s correct. It doesn’t always have to be in the 10K, or the 10Q. And here’s what I mean by that. You can make some general assumptions and throw them at the dartboard of any public company. There are some unspoken and unwritten things in there. If they can reduce DSO (days sales outstanding) that moves their stock. And the analysts that cover them will take notice. You can save these companies money by making these assumptions and quantifying their revenue leakage”
With general assumptions like that, the founder of a startup company can see critical issues for other public companies and save them money by quantifying things like revenue leakage. If startups can save these big public companies 3% of their bottom line, they’re plugging revenue leakage. And that’s critical business from any executive point of view.
Furthermore, when your business is just getting started, acquiring additional consumers is a no-brainer, but as you grow, your attention should be on customer retention.
Customer retention makes sense since it increases revenue while lowering acquisition expenses. Additionally, retention fosters client loyalty and aids in the creation of a reliable revenue stream.
For instance, if you’re a startup in the SaaS (software as a service), subscription-based sector, enhancing subscription renewal would aid in compounding your growth.
But how can you increase consumer satisfaction? When your business is expanding, it’s important to monitor customer support requests and comments made about your brand.
How to Sell to the C-Suite?
Selling to the c-suite and executives is something most founders hear early on when growing their startup companies. Edward Golod makes a remark about the knowledge that’s required to do that:
“Selling to an executive: all the stuff that I see on LinkedIn and on the internet is repeatedly saying to sell to the c-suite. That’s what makes influencers, and that’s what makes people listen to them because everyone wants that. But what we’ve been talking about here are the practical tips that sell to the c-suite. And without those tools and knowledge, you can’t handle a meeting with Elon Musk, CEO of Tesla, so he buys your software. This isn’t just about ROI and then out the door you go”
It’s easy to talk about selling to executives or the c-suite, but doing it is something different, even if you’re already solving a critical issue. Al West, tells the story of how he came to directly talk to the CFO of a company to close a deal of 4.4 million annual contract value for three years.
“I was solving the executive’s critical problem from day one, but I didn’t meet him until later in the sales cycle. This company wanted a POC (proof of concept), they wanted to see the software live. But I was selling an enterprise solution and the implementation of that solution wasn’t free. So, I negotiated a meeting with the CFO for the implementation of the solution and I got it. I had 20 minutes with the CFO and that’s what I needed to close one of my biggest deals”
At the beginning of any sales cycle, founders might not meet with executives. That’s why first solving their critical issues is important and, second, having great negotiation skills can lead you to success. In this last thing (negotiation) techniques like the old quid pro quo, meaning doing a favor in return for something else, can be a good strategy like it was for Al West.
In Conclusion
Scaling a tech startup sometimes means you have to break the mold. When they begin to experience strong product traction, most tech businesses scale. This article presents the key points to understand when scaling: when your current procedures begin to seem inadequate, when your clients demand more of you, and when you notice fresh opportunities in the distance.
The key to scaling a technological firm is to get rid of your outdated, restrictive processes and look for new growth opportunities.
When you recognize that you can no longer ignore the growth opportunities in front of you, use the advice provided above to successfully scale your software firm.