Compressing the Learning Curve for Scaling
Scale invests in technology companies that have established product market fit and are just starting to scale. When we invest, revenue is often in the low single digit millions, and the go to market team consists of a couple of newly hired sales reps, and a CEO who is doing double duty as the company's best sales person. That CEO is looking to quadruple, triple and then double the company, year on year, to get to $100 MM as quickly as possible. What we want to do is help.
What we have seen is that, while every technology product is different, the challenges of scaling an enterprise software company are remarkably consistent across companies.
Growth requires distribution & distribution requires money
For a software company, once product market fit is established, the vast majority of the additional investment dollars and headcount go into sales and marketing. A great distribution deal can change this dynamic (example Microsoft and the IBM deal) but for the most part software growth is about distribution and distribution is expensive. This is even more the case, in the SaaS/subscription era, where the costs still come up front but the revenue only comes slowly over time.
Smaller businesses and departments are early adopters and are willing to buy online or via telesales. A typical Scale investment will start with a simple predictable sales model based on some variation of web visits, conversions to leads and a "same quarter" pipeline close rate. It's simple math. Large customers have much bigger budgets but require in person meetings, and extensive and expensive sales cycles. No one spends $1.0M by credit card. Unless the company wants to remain SMB focused, scaling usually involves taking this simple proven go to market model and making it more complex and thus harder to predict over time.
Call it what you like, choreography, or logistics, but growth is all about getting all the details right such that all parts of the company show up at the same time ready to dance and sing in unison. A software company doing $50 MM in revenue and looking to double this year faces some or all of the following issues, all of which have to be resolved and executed in year.
How do we double sales capacity while maintaining efficiency?
Do we start to "sell high" or keep doing what we are doing? If we start to sell to larger enterprises does our product really fill the need?
Is this the year for international? How do you decide and if international, where ?
$50 MM in new revenue means $150 MM in new pipeline assuming a 33% close ratio. With a conversation rate of 10% this means we need $1.5BN of raw interest. Is that level of demand even out there?
This is a list of four, I could make it a list of twenty but you get the point. The challenge is not making each individual decision but in ensuring that the sum of all the decisions adds up to a coherent overall plan.
When we look across our portfolio companies we see the same set of go to market questions being asked over and over again with an almost insatiable need for CEO's to know "what have other companies like us done". Answering these questions is what a partner should bring to the table and we all do this as board members. However there are limits to this approach.
Bring in the market expertise
Therefore, we decided to hire an executive who was experienced both in 1) go to market execution, knowing what works and 2) consulting, knowing how to assess each companies needs and explain what works. Dale Chang comes to us from the Alexander Group, the premier independent consulting group on sales execution in the valley, and has worked on many of our portfolio companies including Box and DocuSign as well as other great companies like New Relic and LinkedIn. He has already helped many of our companies scale and we look forward to having him drive this systemically across the portfolio.
He will focus on delivering answers to the most asked questions around go to market execution leveraging blinded data from our portfolio. We want to be able to tell a CEO this is what equivalent companies have done that works, and this is what has failed. We are realistic about what this will achieve. It will not create product market fit, and it will not make a bad business good. What it can do is allow CEOs to judge their Go To Market effectiveness against a realistic benchmark of the possible, based on peer companies.
Beyond this, we hope to compress the sales learning curve and more broadly the whole scaling process in our portfolio.
Welcome Dale to the Scale family, we are delighted to have him on board.
Originally published January 27, 2015.