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Sales Cycle & Go-To-Market Strategy

The term “Sales Cycle” refers to the steps a customer undertakes before he or she
decides to buy a product. In its simplest form, sales cycle has two sequential steps.
First, the customer evaluates if the product is necessary and second, decides whether
to buy the product. In its ultimate form, a sales cycle constitutes a number of
sequential steps, which can include, but is not limited to, evaluating the product’s
underlying technology, its compatibility with the customer’s existing infrastructure,
its reliability under different situations, etc., before the customer decides to
make a purchase.

The sales cycle for each product can be associated with the time that elapses between
the customer evaluating the product and deciding to purchase the product. A long
sales cycle is when a customer needs to go through several steps, thereby taking
more time, before deciding to make a purchase. Similarly, a short sales cycle refers
to a customer taking fewer steps (one step in an ideal case), and less time, before
deciding to make a purchase.

Selling a simple application, such as Microsoft Word, has a short sales cycle. In
this case, the customer simply decides to purchase a license if s/he finds the need
to create professional documents. On the other hand, selling a company is associated
with a long sales cycle, since buyers (customers) need to evaluate a number of things
before deciding to purchase a company.

Sales cycles dramatically impact startups. The sales process can be excruciating
for a typical startup, and the time between the initial calls to signed contracts
can take weeks, months, even years. In the meantime, these startups burn up substantial
investment to just keep the operations going.

In general, a typical startup starts off with a small investment and no revenue.
This investment is usually sufficient to run operations for a short period of time.
The idea behind a startup is that it should sell products or services and generate
revenue quickly before the firm runs out of its limited money. Under such situations,
a shorter sales cycle can generate revenues quickly, thereby ensuring that the startup
does not go bankrupt. Therefore, startups should initially focus on products or
services that have shorter sales cycles.

Although a startup can generate its much-needed revenue through products or services
that have short sales cycles, the biggest money in sales is made on complex sales,
which involve long sales cycle and multiple decision-makers. Therefore, startups
should start with products or services that have short sales cycles, generate revenue,
stay afloat and eventually move towards marketing products that have long sales
cycles. To successfully market products or services that have a long sales cycle,
companies should be prepared with an expensive approach that is designed to engage
several prospective customers over the long haul. Successful companies recognize
this and gradually move towards more sophisticated selling.

Given the intricacies of sales cycles, a startup’s go-to-market strategy has to
be in the following way. Its management team should first identify a serious market
need and focus on a simple product or service (beta version) that has a short sales
cycle and that solves the target market problem. The team should be able to launch
this beta as quickly as possible; otherwise the company might run out of money.
It does not matter if the beta version is buggy. Getting the beta out into the market
creates market awareness, which is something that startups desperately strive for.
Once the beta is out there, potential customers start playing with the beta version,
thereby evaluating their need for the product. Customers are not particularly averse
to software bugs or other inconsistencies initially. The management team need not
focus on absolute perfection for the very first beta version. Customers who test
the beta version might not be ready for a purchase order, but will be more than
willing to talk to the management team about their needs.

Once the beta is out, the management team should engage potential customers while
simultaneously developing an industry-quality version of its product or service,
the first version. Although the first version need not contain the complete set
of features that customers want, it should contain the basic set of features that
solve the target customers’ problems. The management team should then focus on getting
purchase orders from potential customers. Short sales cycles under these scenarios
can reduce the wait time for purchase orders and bring in revenue. Once a startup
has revenue, it gets the leverage to experiment with complex sales that generate
huge revenues.

Most investors would love to see this sort of go-to-market strategy in the companies
they invest. As a matter of fact, most venture capitalists encourage their portfolio
companies to come up with this sort of short sales cycle based go-to-market strategy
initially and eventually move to high return complex sales that have long sales
cycles. Generating revenue during the initial stages is very important for a startup.
Therefore startups should first focus on products and services that have short sales
cycles before they focus on complex orders that have long sales cycles.

Written By
Pradeep Tumati (Principle, go4funding.com)

Source

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