Aligning Your Sales Strategy
Choosing and refining your sales strategy has both short and long-term implications.
I was in a startup that sold to a large market. The TAM included 7 top tier companies that represented significant market share and land/expand potential, a mid-tier of dozens of companies with moderate expansion opportunities and a very large lower tier with limited expansion potential.
If you could land one or more of the top tier firms, the idea was that the larger effort/longer sales cycle to land the first deal would pay off with a lower cost of sales and shorter time required to land the follow on deals.
We had to make a choice:
Double down on pursuing the 7 leaders, with the promise of huge additional business
Focus on the mid-tier
Pursue the lower tier with the largest TAM
Focus on expansion within the tentpole account
A Combination - Focus on Tier 1s and expansion
Other considerations
To land the first deal at the Tier 1, there was a high cost of sales, modest initial revenue per deal, long sales cycle and no guarantee of expansion within the account. Each expansion deal could benefit from an internal reference but would have to be sold separately, and would potentially offer a lower cost of sale.
For the mid-tier, the TAM was in the hundreds, similar revenue per deal, the cost of sale could be similar, and a smaller expansion opportunity.
For the low-end tier, The TAM was in the low thousands, lower revenue per deal and limited to zero no expansion opportunity.
We had a experienced but very small sales team
We had built significant name recognition in the industry, earned a key innovation award and had built a significant pipeline of leads as result of conference, speaking, and webinar activities (in expectation of pursuing the mid-tier at least).
The Decision
Having won the first Tier 1 tentpole deal with a highly enthusiastic customer that provided huge name recognition, the decision was taken to put the majority of our sales and business development efforts towards landing additional Tier 1 accounts and expanding on the first deal.
The Result
While the decision seemed reasonable at the time, the first tentpole account didn’t extend to additional deals for more than 18 months. Landing additional Tier 1 accounts also took over a year.
The Implications
Without actively working the larger pool/traditional pipeline model of mid-tier and low-end tier deals, we did not make our growth targets and this caused a delay in additional rounds of funding.
Looking Back
In retrospect, the team was enamored and excited about winning that first deal with a name brand client. Too much weight was placed on the brand name client rather than building a more traditional pipeline model that was not dependent upon a single point of failure from the Tier 1 accounts.