Sales Cycles & Business Failure
Talking with a former student of mine yesterday who is involved with a startup got me thinking: can something as simple as a sales cycle cause failure for a startup?
For some B-to-B firms, it can take a long time to not only get a customer but get paid. There are hoops to jump through, budget cycles to match up with, and multiple decision-makers and influencers. All the while, the company must continue its operations, hence, burn cash. For established firms, this is no surprise.
But for startups, this can be a make-or-break. Why?
Most startups grossly underestimate cash outflows and grossly overestimate cash inflows from revenue. That creates a gap from the start which only widens as time goes on, and creates a situation which is impossible to catch up with. What’s the solution?
- Keep startup costs ridiculously low, including founder salaries
- Raise 2-3 times the money you think you need, and don’t go into business until you have it
- Find markets with shorter sales cycles
- Sell smaller contracts (companies often have simpler practices for purchases less than $5,000)
- Scrap the whole idea and go B-to-C