Everyone makes mistakes, but missteps in the selling process can have especially serious consequences. Not only do they deprive your business of revenue, but they can erode confidence in your company among members of your staff as well as potential customers. The following mistakes are particularly common among start-ups, but even the most seasoned entrepreneurs can fall victim to them. Here's how to identify them—and avoid them.
Neglecting to collect customer data. Every time you make a sale, it's an opportunity to make another sale down the road. Remember that your existing customers are your best source of revenue. But you can only tap them if you have a method for keeping track of them. Sonny Ahuja, the CEO of Grandperfumes.com, learned that the hard way. "Five years ago I had seven stores selling designer perfumes and colognes in all major malls of Wisconsin," he says. When he began losing customers to Amazon and eBay, Ahuja decided to close his stores and move his business online. But when he launched Grandperfumes.com, he had no money for online marketing. "That's when I realized that if only all my sales people had collected all the names and addresses of customers that came to my stores for the past eight years — imagine the power of that database! I could have been back in business in no time." Now, he's diligent about collecting and segmenting customer data on Grandperfumes.com.
Dig Deeper: 10 Ways to Get More Sales From Existing Customers
Relying too heavily on the Internet. So you've been exceptionally clever with your web strategy and your organic vegan dog food is at the tippity-top of the relevant search engine rankings. The stuff is practically selling itself. Good for you! Until, that is, Google gives you a nasty smack down. That's what happened to Christian Arno, founder Lingo24, an international translation company with offices in London; Aberdeen, Scotland; and New York City. "In 2006, our high Google rankings for key search terms suffered, probably because of Google changing its search algorithm," says Arno. "We suddenly dropped on Google search results for terms we'd always ranked highly for such as translation services and translation agencies. We didn't have any proactive sales strategy in place, so our revenue suffered." Since then, he's hired several outbound sales people who proactively identify potential clients. "And our Google rankings are back up too now, so we have two strong avenues for sales," says Arno.
Dig Deeper: How Google Cost Me $4 Million
Failing to qualify leads. "When I first started in sales, I was an eager beaver," recalls Jon Biedermann, vice president of DonorPerfect, a CRM fundraising software company in Horsham, Pennsylvania. "No lead went untouched or uncalled — I treated every opportunity as the sure fire next sale." Big mistake. Early in his career, Biedermann got a lead from a large university. He called to assess their needs, customized the software for them, and worked on personalizing the demonstration for days. "The day of the demo came, and I presented our software in front of 10 people from the university. We had everything they needed — it was perfect," he says. But when he asked about the decision-making timeframe, he was crushed. "Oh, we aren't going to switch software," they told him. "We were thinking about using this for our smaller satellite campus and we were hoping you would donate it to us." Biedermann realized his error instantly. "In my zeal to get the sale, I completely forgot to ask the one crucial question: Do you have the authority and money to make this decision?"
Dig Deeper: How to Qualify Sales Leads
Delaying sales until your product or service is ready for primetime. There's a lot to be said for doing market research for a new product or service by trying to sell it while it's still in development. That way, you'll find out exactly what customers want before you spend time perfecting your offering in a vacuum. "Entrepreneurs should hit the streets, and talk to 'friendlies' to sell your product or service even when its still just an idea, and ask people what they are willing to pay for it," says Kyle Hawke, co-founder of Whinot, a Charlottesville, Virginia-based virtual firm of independent consultants who work on small business marketing projects. Hawke learned that lesson after spending $5,000 on web features that he says "no one cared about." He now knows that he should have tested Whinot out on low-risk clients who were willing to sign on for a discounted price – or a free trial – while he and his partners worked out the kinks. "The best way to figure out how much something is worth is to get someone to pay for it," he says.
Dig Deeper: How to Build a Bootstrapping Culture
Accepting every sale. "No" is not a popular word among entrepreneurs, especially during the start-up phase, and most especially as it pertains to sales. But maybe it should be uttered more often, because the wrong kind of sale is ultimately worse than no sale at all. "It's a big challenge as a small company to say 'No, thanks, this isn't a good fit for us, please give your money to someone else,'" says Michael Buckingham, founder of Holy Cow Creative, a Midland, Michigan, design and marketing company that works with churches and ministries. "In the beginning I said yes to everyone; financially, it felt like I had to," he says. "Next thing I knew I was involved in a project that was not good for me or the client. We pushed through it, we met our objectives but our work is about more than projects and invoices. I learned that relationships are key to sales. It's why I now turn down nearly every RFP; it's void of relationship."
Dig Deeper: Getting to No
Offloading the sales function. When Tom Greenshaw first started Cashier Live in Chicago, he wanted to focus mainly on product development and support for the web-based point of sales software that he sells to independent retailers. So he built a sales channel with affiliates and partners, hoping to offload as much of the direct sales function as possible. "This seemed to be working well and we quickly signed up a number of partners that were interested in selling Cashier Live," he says. "But those partners weren't as well versed in the software as we were." Many of them over-promised customers regarding the capabilities of the software, or dragged Greenshaw's staff into the sales process, which confused customers and ate up company time and resources. "I learned a lot from this experience, and we've since been very successful with our own sales efforts," he says today. When he tries selling through channel partners again, he'll make sure to train them thoroughly on the company's software.
Dig Deeper: Sales: When Is it Safe to Hire?
Fixating on big fish. When Scott Gerber first founded Sizzle It!, a New York City-based video production company, he admits that he "used to be obsessed with only going after home-run clients—those that had big names and huge wallets." But selling to very large companies is time consuming and often frustrating since decision-making is slow and payments even slower. Sizzle It! ultimately landed big clients like Procter & Gamble, but closing sales would sometimes take six months or more. And frequently, Gerber's staff would put months of effort into sales that never materialized. "The pursuit of these titans often put us in cash flow crunches," says Gerber. "My biggest mistake in guiding Sizzle It!'s strategy in its earlier years was not going after more base-hit clients. Now, we have an even split of clients, which has not only helped us to spread the word about our company faster, but also helped us to maintain a healthy cash flow."
Dig Deeper: How to Cold Call a Big Customer
Chicago-based Groupon is certainly one heck of a startup. Like Zynga it sort of came out of nowhere in 2009. Even last December I was sort of only vaguely aware of how fast it was growing.
But it was clear by early 2010 to the whole world that Groupon was on a tear. First a round valuing it at $250 million. Then just a couple of months later it raised new money at a $1.35 billion valuation.
And then in the last few weeks Yahoo offered something even higher for the company – between $1.7 billion on the low side and probably $4 billion on the high side. And Groupon passed.
Revenues are in the $50 million per month range, and the company has roughly 50% gross margins. By some measures, Groupon is the fastest growing company, ever.
Groupon is often said to be the next eBay at Silicon Valley insider dinners and events. But Groupon isn’t going to have the same success eBay has had.
At first blush it seems like a valid comparison. Groupon’s revenues and profits blow the early Ebay results out of the water. When eBay was three years old and going public in 1998 it had revenues of just $4.7 million. Groupon does that much in revenue every three days or so right now.
Today eBay has revenues of a little over $2 billion every three months and is worth around $30 billion. It’s not at all unreasonable to think that Groupon could eventually grow its revenues way beyond $2 billion/quarter – the local products and services category would easily bear that kind of fruit.
But there’s a couple of problems with Groupon. The first is how it scales – it needs a lot of sales people for each market it handles and already probably has more than 2,000 of them on payroll. But the real problem is the complete lack of a network effect to protect its business.
Ebay is expensive. And it has a horrible user interface. Buying stuff is a pain compared with sites like Amazon that have put real effort into making buying painless. It’s also expensive. Everyone would love a better eBay, but after ten years of people trying to kill it, it just keeps going.
Why? Because everyone’s already on eBay. And every new buyer or seller makes eBay more valuable than it was before. Anyone competing with them has to find a way to counter that, and it’s nearly impossible. Even free listings from big companies like Amazon and Yahoo flailed dramatically.
In other words, eBay would have to really work at it to destroy its core business. And since it dominates the market it can continue to charge exorbitant fees and not worry about the user experience.
Groupon has none of that. When Groupon gets a new user that’s great. But that user will quickly leave to Living Social or One Kings Lane or any of thousands of other competing sites for better deals. And when Groupon gets a new “seller,” there’s no reason why that seller won’t also go try out the competitors, too.
There’s just no network effect in Groupon’s business model. Which means competitors can flourish and margins will get crushed.
At TechCrunch Disrupt, Benchmark Capital’s Matt Cohler said he wasn’t sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:
That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon’s brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.
What can Groupon do to avoid having their margins crushed by competitors? Establish generous revenue sharing relationships with distribution partners, fast. And that appears to be exactly what they’re doing. In the next several weeks the company will likely announce partnerships with Yahoo and CitySearch, we’ve learned.
Oh, and one more partner, too. And that partner will be…eBay.
Update: Great email comment from Alex Rampell:
I actually think Groupon is a “winner take most” market and not winner take all. Amazon has a plurality yet a distinct minority of ecommerce share ($25B in 2009 revenue out of WW ecommerce rev of $600B) yet has a market cap of $74B, 2.5X that of eBay. No barriers to entry.
There are no barriers to entry for online commerce companies — yet Amazon keeps decimating the competition. There are, however, economies of scale. I think Groupon can be the Amazon of Online2Offline commerce, and there’s no reason they can’t get to $25B in annualized revenue like Amazon, but at a much higher margin.
Whether they’ll command the same kind of earnings multiple as Amazon is another story.
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