While 2009 was a tough year, I must say that it was nice to see a number of our portfolio companies have blow out 4th quarters for bookings and growth. Despite that, I am still taking a cautiously optimistic approach to 2010. There are still conflicting reports on the growth of the economy and it is unclear whether Q4 was the release of some pent-up demand of if it will be more indicative of sustainable new spending on technology.
Either way, I would like to caution those start-ups out there who are looking to aggressively ramp up their sales based on a great quarter (more on this from a post in 2006 on when to hire a vp of sales). Yes, it is imperative to keep the momentum building but before you get too aggressive with your growth plans make sure you can answer all of these questions about your go-to-market strategy:
1. Do we have a clear value proposition and know which market we are selling into and who we are selling to in the organization?
2. Do we have the right product and are our customers satisfied? – selling is one thing but if the product has serious issues in production then ramping up sales could put a severe strain on the business moving forward
3. Are our sales repeatable or one-offs which means lots of customization of our product on every deal?
4. Is our quarter based on one or two lucky huge deals or based on a broader swath of customers? Do we have a continually growing sales pipeline or did we run it dry for a big Q4?
5. Do we have a solid understanding of the full sales cycle from lead generation from marketing to the closing of the sale – it is important to get good metrics here to make sure that marketing is spending wisely and targeting the right areas of the market to build the pipeline. You need to feel confident that if you spend more on marketing, you will get more leads which will lead to more sales.
6. How can we build a more leveraged sales model through resellers, partners, or OEM relationships – you can't do this without answering #1 above. If you are solely reliant on direct sales then think long and hard about how to add more leverage to the model
In short, if you can answer these questions and the data and anecdotal evidence from the field points you in the right direction, then by all means ramp up your growth. If you can't answer all of these questions in a highly positive light, then cautiously ramp your sales. Too many times I have seen portfolio companies get overexcited about their growth prospects and then realize the product is not ready for primetime or that the pipeline has run dry and subsequently the startup overspends and needs to go through a layoff. Overhiring and then cutting back can be quite negative for morale and can also be a huge cash drain and distraction for management. Just remember to take a step back and do some analysis before you bet the company's future based on a good quarter or two.