How healthy is your pipeline? Ask most early stage startups and the answers will generally result in a lot of hemming and hawing. Most will simply list a bunch of companies they are talking to. A few will have some revenue estimate attached. But very few will have a holistic view of how all these deals stack up, when they might close and how “real” each deal is.
Dear startups, I am here to tell you that you absolutely need to get a handle on your pipeline. If you do not know it inside and out, then you are setting yourself up for subpar sales results and lots of unpleasant surprises. All those fancy potential big name customers and big revenue numbers that you have listed may in fact be a mirage leading you into a false sense of security.
The only way to minimize unexpected surprises is to track everything methodically and diligently. Thus, a well-functioning sales team is one that measures everything. To that end, there are two main tools used to manage a sales team and evaluate results: the pipeline and the forecast. I will get to the forecast in a later post, but today is all about the pipeline.
The simplest way to describe a sales pipeline is that it tracks customer demand. It does this by viewing all deals across the sales process at discrete stages from an unqualified lead all the way to close. As deals progress along the sales process, invariably most of these “deals” will stall or disappear, meaning the number of deals one started with is eventually whittled down to a much smaller number of winning deals. Because of this, you may have heard the pipeline sometimes referred to as a sales funnel where leads are at the wide end and wins are at the narrow end.
A sales pipeline can take any number of forms, but the most effective approach is to mirror the sales process and the meaningful stages along the process. While you can certainly get as granular as you wish, it is best for startups to take a broader view and divide the stages as follows:
- Unqualified Leads. These are contacts that may have expressed interest or contacts from various sources that could be potentially interested. Interest in this case reflects some direct or indirect expression of potential need. Needless to say, most of these will NOT result in business; this is simply a starting point.
- Qualified Leads. At this point, direct communications with contacts have been initiated to confirm interest in the product. It is still early in the process, without necessarily understanding the appropriateness of the solution fit or urgency of need.
- Solution Presentation. This entails further discussions and meetings that develop and present the solution to the prospect, thereby determining the fit between the solution and the need. Depending on the complexity of the product or sales process, there may be many more steps in this stage.
- Solution Validation. This is the confirmation of the solution-need fit. Generally, this is where the strongest solutions providers get short-listed for further vetting. This may include deeper product/solution dives such as proof-of-concepts, customer visits and initial price negotiations.
- Negotiation. This is where price, solution composition, terms and conditions are discussed. In the case of complex products, discussion of the implementation plan will also need to be initiated. Note that negotiations with competitors may also be happening in parallel.
- Closed. Contracts have been signed and the deal is achieved.
This again is simply an illustrative example, but it is a good starting point when your sales process may still be evolving. That is to be expected for early stage startups as the sales team has little data to go on in terms of qualifying criteria, product-market fit, customer objections, competitive analysis, etc. Also, sales tend to be much more involved and highly consultative in nature since the solution itself is evolving rapidly to fit various customer needs. However, you still need to track progress as this will inform future sales planning to increase effectiveness and close rates.
Once you have determined the appropriate sales stage categories, you should implement a tool to keep track of the pipeline across the team. You can choose to rely on spreadsheets, a pipeline management tool or a full-fledged CRM application. Whatever you decide, it is important that all leads and deals are entered in the pipeline and that each deal has an expected revenue number, close date and status that reflect its current state. Again, in the early days, this will be more trial and error, but over time the team will become more accurate in their assessments.
The net result of your pipeline efforts is that you should know the health of your business. You should be able to answer what deals are in the works and have a rough idea of what revenue should be coming in, and when. But more importantly, when looked at holistically, it can highlight deficiencies in the sales process such as where deals are dropping out or stalling at a higher than usual rate, where there is a lack of deal volume/revenue at each stage and whether or not the sales plan itself might be flawed. Thus, the pipeline itself will require iterative refinement over time until the metrics reflect the reality of the sales process and revenue goals of the startup.
The pipeline is your friend. If you are meticulous about the process, you will be able to confidently show your management and investors that you have the clear pulse of the business. While surprises might be a wonderful thing during birthdays and holidays, in sales, it is better to know what’s going on, when it’s happening and how you are bringing home the bacon.
This article was originally published on Strong Opinions, a blog by Birch Ventures for the NYC tech startup community.
Image credit: CC by mmmavocado