Time hurts all deals. — Anonymous
A key reason innovations fail is that inventors neglect to correctly assess how long it takes to sell something truly new, and while they figure this out they usually run out of capital. I came to believe this because from about 1995-1998 I had the great good fortune of directing a “field studies course” when I was an Associate Professor at the Harvard Business School. In a this course students were free to designed new businesses, or solutions for major parts of existing businesses. For example, back in 1995, Tim Brady was a student and he crafted the early marketing plan for Yahoo!. Tim has been a roommate of Yahoo! founders Jerry Yang and David Filo while at Stanford. You can imagine how fascinating it was to see the passion and brilliance of all these young people across a wide variety of topics.
Warp Speed Conception Courtesy of How Stuff Works
In this role, I discovered that every business plan had a “high”, “medium” and “low” sales projection — but none had a fast, medium, and slow sales cycle. When I told students to redo their spreadsheets assuming the first sales would take 2, 3, or 5 times as long as they had assumed the character of their analysis changed radically. Here’s at least five things they did:
- Became much clearer on their exact target audience — beyond the generic title, down to the types of buyers within target accounts;
- Focused much more on getting the first real sale with a referenceable account — not just with a friendly audience;
- Hoarded cash just in case it might take a lot longer to get new cash in;
- Crafted creative ways to see if their assumptions about the benefits of their product were real and valued by the target buyer;
- Came to the realization that sales speed is critical to reducing risk.
So, in your innovation efforts do you only deal with high/medium/low, or do you realize the real trick is slow/medium/fast? I’d love to hear your stories.
Related and/or Recent Links:
- Close Encounters of the Four Kinds: Managing customers in a rapidly changing environment, by Ben Shapiro
- Sales Reinvention: Why the iPad is a person to person innovation
- How to Take Advantage of the Web for Customer Connection
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{ 2 comments… read them below or add one }
John, Glad nothing has changed after 20 years when I wrote High Tech Ventures for Startups… you can pick it up as a pdf from my web site or buy it.
Stage IVa is the market califbration phase seee page 257. On 246, I wrote.
The Selling Plan and Selling Model
Because sales costs determine whether the product is feasible at the price level, they therefore directly determine whether the venture itself is really feasible. Thus, sales is responsible for providing a realistic sales model for each of the customer groups identified by the marketing organization. The following parameters must be determined in order to make both a sales plan and the business plan for the company:
• Time and cost to hire and train sales and sales-support personnel
• Sales-cost profile, including the complete cost of making a sale versus time
• Order-gestation time, from first contact to final sale
• Sales productivity (sales/year), including the learning curve of the company’s salespeople
More on IVa
The three substages of the market development stage, mentioned briefly above,
include:
• Substage IVa: market calibration (3-[6]-9 months): This substage is entered with the
initial shipment of the product to customers and is the first time every line item of
the business plan is finally tested. During this product/market calibration, or
market-beta-testing, phase, which lasts an average of six months, the product is
introduced into the market and the product, market, pricing, and sales plans are
modified as needed until a refined plan for profitability is arrived at. The company
adjusts its fixed spending in engineering, marketing, manufacturing, and adnninistration
to meet the unit variable product and sales costs, so it can move toward the
“break-even” point. The major purpose of the market calibration phase is to
determine the product’s average selling price and its cost of sales, together with the
order-gestation time.
Gordon, you are so right. This market calibration phase is vital. My question is in your experience is this vital dimension of time often overlooked? I think it is, and the way financial modeling is taught, often misses this vital point. But, that may be one of the reasons you don’t like MBAs
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