For the bulk of my portfolio companies, this is the time of year that I brace myself for a dip in financial performance. While the reasons differ, the effect in Q1 is similar.
In the web and mobile companies whose products follow consumer buying patterns, the short month of February translates directly into fewer days of consumption, and thus an inevitable dip in revenues. For the enterprise software companies, advertising models, or generally those focused on a B2B offering, the dip often manifests itself straight away in January. Since this latter category represents the majority of our current portfolio, I am more sensitive to it and thus have been giving it a fair amount of thought.
One obvious explanation is that January arrives on the heels of fiscal year-end for most companies. This is of course a time of year that business prospects allocate their final remaining budgets for the waning year, or more often make decisions on their purchasing for the next one. Indeed, one of the knocks on the enterprise software license business model (before the recurring SaaS model became so in vogue) was that a software vendor wouldn’t know if they had a good year until late December, when the flurry of seasonal decision-making final arrived.
Yet from my observations across a portfolio over the years is that there is another phenomenon at play here, and it has to do with salespeople.
I’m fascinated by good salespeople. Part of it is personal. I once thought that I was a good salesperson… until I met a real one. One salesman in particular practically singlehandedly turned a company I founded in the 90s into a success. Another individual that strikes me as an amazing salesperson as I discover his story through his recent notoriety in the press is John McAfee. Here’s a guy that convinced people to pay shipping and handling fees for a “free” magazine subscription, and later applied similar creativity to shrewdly crafting a business model out of giving away free antivirus software.
Incredible salespeople like this are a rare breed, yet are often the lifeblood of any startup. Which brings me to my second hypothesis about the common Q1 revenue dip in startups. For this is also the time of year that companies update their sales remuneration structures. It feels like salespeople disappear for two weeks to run advanced Excel Solver models to determine the optimal mix of product and market segments they should target in order to maximize their new bonus plans.
That’s the beauty of strong salespeople. Properly align their incentive structures with company goals, and you have a powerful machine.
When I look across our portfolio, I notice that the most effective CEOs have figured out how to motivate their salespeople. I’m not sure that there’s any magic formula either. I recall how one of the winningest coaches in basketball, Phil Jackson, used to operate. Jackson figured out how to treat a collection of exceptionally talented athletes each in a distinctively individual way in order to maximize their motivation levels and subsequent performance.
Similar with salespeople. Even talented salespeople people have different personality characteristics. Sometimes they need a shoulder to cry on, in which the CEO may show empathy by offering to accompany the salesperson on a visit to a prospect to hear feedback directly from the market on how hard it is out there. Sometimes the cold shoulder is a more effective tool. I know one CEO of a company with a considerable sales force who made it a matter of principle to fire the lowest relative performing salesperson every year, regardless of his or her absolute performance, just to keep the others on their toes.
The topic of building and motivating an effective sales force is vital for many startups, and it’s one I intend to explore further in this column. I also welcome any wisdom or anecdotes on the subject.