When Michael Litt’s company was first starting out, he spent a lot of time on the phone.
In 2011 Vidyard, the Kitchener-based video marketing platform Litt co-founded the previous year, was enrolled in Silicon Valley startup incubator Y-Combinator. “We had this four-month window to build as much traction as we could, and then we’d stand the company in front of investors and try to raise money,” he recalls. To get to a single potential customer who might pay for the product, Litt had to have a lot of unsuccessful conversations. “I set myself a benchmark of doing a hundred calls a day,” he explains. “I would sit there for like eight hours and try to find people.”
Canada’s thriving startup scene is producing plenty of creative ideas and innovative products. But here—as elsewhere in a tech sector that’s being driven by billions in less-than-discriminating venture capital dollars—revenue hasn’t necessarily followed. A lack of know-how, talent, or just simply interest leaves some companies facing a sales shortfall. To continue to grow, they’ll need to fix it.
Startups often focus on product development and engineering to the exclusion of revenue, says Steve McCartney, vice-president of startup services at Communitech. “The techier they are—and some of them are brilliant—the less inclined they are to go seeking clients that will give them money,” he observes. “They’re enchanted by the technology.” Young founders prefer to tinker with their product rather than do the tough work of knocking on doors to hawk their wares.
They often don’t appreciate how hard sales is, says Litt, who, in addition to being CEO of Vidyard, has backed more than 40 companies as an angel investor. “When you are an unknown entity with no product or brand awareness, it’s very difficult for people to find your services,” he says. “You have to do huge volumes of outbound outreach in order to captivate any audience whatsoever.” Hence the hundred calls a day: Litt says the challenge during that initial period was simply figuring out who to contact. Startups don’t just get handed a list of potential customers when they incorporate.
Prospecting is easier when you’re selling to a specific industry or niche. Take Bridgit, a Kitchener-based startup, which makes “punch list” software for construction sites. “We go after large, high-rise residential projects and big commercial buildings,” explains Lauren Lake, co-founder and Chief Revenue Officer. “We sell a monthly subscription to use our product on-site, and we’re selling it to that general contractor or developer.” Outbound sales consists of reaching out to a specific project management team to demonstrate what Bridgit’s software does, and how it can replace the paper and spreadsheet systems construction crews traditionally use. The company also gets a lot of referrals—once one of a developer’s sites is using the product, others within the organization and industry often follow. But when Bridgit enters new markets, such as its move into U.S. cities like New York, Seattle, Miami and Chicago, the early prospecting is crucial.
Lake and Litt were both one-person revenue departments for their respective companies at the beginning. Founders need to be dealing directly with customers during the startup stage, because the feedback they get out of those interactions typically leads to major product improvements. It also helps them develop an understanding of and appreciation for the sales process notes McCartney, who runs Communitech Rev, an incubator that helps product-ready startups build their sales and marketing strategies. Once you’ve got teams and managers reporting to you, you’ll need to know how to assess them. “You have to know how to [identify if you’re getting] snowed, because you’ll be out of business by the time you figure out they’re actually not selling very much,” he says.
Canada’s latest crop of tech startups is heavy on business-to-business software-as-a-service (SaaS) companies. These ventures need dedicated staff to sign up new clients and increase revenues. “You can almost tie the growth of your company to each extra salesperson you hire, especially in the early days,” says Litt. “It’s such a linear and proportional function: You hire one rep, and that rep is able to do $200,000 in sales, so ergo you hire 10 more, and you should be able to do $2 million in that year.”
At Bridgit, Lake now has a five-person salesforce working under her, representing almost a quarter of the total headcount. The company can’t afford to hire someone with decades of sales experience, so it recruits recent graduates who are eager, hungry, but need to be schooled in the skills of the discipline. “We have to start right from scratch in terms of training,” says Lake, noting that even most business programs don’t tend to have a strong sales component. “We like the eagerness of a lot of the young talent we’re bringing in, but they’re not coming with any knowledge of how sales works or what’s important to a sales team.”
Simply parachuting an experienced manager from a gigantic company into a newly-created executive slot rarely works says Litt. Salespeople at established organization are often handed warm leads on a daily basis, and their goals are oriented more towards taking orders from existing accounts rather than closing new business. “A Salesforce.com, for example, [is] hiring order-takers and training people that can really just hustle existing customers for more money,” he says. “Those type of people flounder in a business like ours, because we need them to get out there and hunt and be fresh.” In the early days, a company grows by simply repeating the call-and-close cycle. The more phone lines you have active, the bigger your revenues.
Vidyard now has 45 employees who are involved in the sales process in some capacity, out of a workforce of about 140, and counting. Litt says the company started to experience some growing pains once it hit the $5 million in annual recurring revenue mark. “That’s when you need to bring in an experience sales leader,” he says. “Someone who’s seen that stage before and can take this disparate effort of a bunch of salespeople [and turn it] into a repeatable, scaleable process.” Such talent is hard to find in Canada, which doesn’t have a long list of established business-to-business software-as-a-service (SaaS) names for startups to poach from.
It’ll be a few years before most of this startup cohort faces that sales talent shortfall. And they’ll first need to be convinced of the importance of building a revenue engine by angel investors like Litt and programs like Communitech Rev. With VCs getting choosier and the flow of funding starting to slow, startups would do well to fill up their order books says McCartney. “You come walking in the door and say, ‘I’ve got $10 million in contracted revenue with Class A Fortune 1000 companies,’ you’re gold.”