I’ve seen it happen way too many times: cleantech startups that miss their revenue forecasts, but not because they’re losing sales opportunities to other vendors. Instead, it’s just because it takes longer to get opportunities in the pipeline to a “yes.”
It’s understandable how this happens. The cleantech startup will have an offering that’s an economic no-brainer for the potential customer from a payback period standpoint, and the potential customer makes all the right noise about being interested. But day to day, energy spending simply isn’t a priority for most of these potential customers, so their decision-making slips. And then it’s compounded by the fact that the customer feels like, even if this offering has great economics, they still will need to research all the recent proliferation of other available such offerings to make sure they’re not missing out on an even better opportunity. So sales expected to close this quarter slip into next quarter — and quite often, the quarter after that.
Great insight from Rob Day over at Greentech Media with respect to issues of the sales cycle for clean-tech startups.
The broader lessons apply for evaluating any business selling into the enterprise, specifically:
- Does your product cut costs or increase revenue?
Increasing revenue is a good place to be because top line is easy to track and people love to be the hero.
If cutting costs, how large of a percentage of total costs is the problem? If you’re less than 25% of the total cost structure of the business, it’ll be harder to get businesses to move quickly.
- Who is the end user of your product? Who is the economic buyer of your product?
For many products that feature cost savings, the economic buyer ends up being the CFO.
The CFO / Controller is the hardest sales target in any company – specifically because their job is to mitigate risk – and in almost all cases would prefer inaction to change.
Similarly, is this product core to your end users job? Or is this one facet of what they work on?
If the latter, even if it feels like an easy sell, many people would prefer to continue down the path of least resistance rather than spin cycles creating a better solution.
- Does you end user have perverse incentives to not use your product?
Even if the product cuts costs or makes the company more effective – is your end user aligned with those incentives?
One specific example for clarity:
- Finance product that gives the Head of Finance more visibility into where cash is across bank accounts and geographies.
This is traditional controlled by the controller and done in Excel and to get the information – the CFO would have to directly ask the Controller. Though the product would make the company more effective – your end user has perverse incentives to avoid using your product (because it increases oversight and should reduce headcount under the controller)
Trying to control for these externalities (either by selling to a different end user or changing messaging) is an unique challenge in the enterprise.