The Most Common Mistake In SaaS Sales Strategies

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This XSeed blog was written by Venture Partner, Jeff Thermond, and originally appeared on Forbes.

Life is good: You’ve got an enterprise SaaS startup that is getting a lot of buzz. You have scores of customers, and some of them look ripe for upgrades which could deliver a 100% increase in bookings. Your VP of Sales comes to you asking for three new heads on her sales team. You agree and tell her that her primary focus for the new hires needs to be on those upgrades. After all, aren’t they low hanging fruit?

You’ve just made a serious mistake. If you don’t correct it quickly, it may kill your ability to raise your next round of capital.

What is that mistake? How do you fix it?

You told your sales people to focus on the existing customers and not acquiring new ones. Although using sales people to bring in more dollars, and ‘easy ones’ at that may seem logical, it runs the risk of being a disastrous move.

Successful SaaS companies, like almost any other startup, must grow quickly in order to secure future rounds of financing. In many respects, regardless of what services your startup delivers, what you’re selling to investors is rapid top line growth. Study after study has shown that is what venture investors will pay up for.

And that’s why winning enterprise SaaS companies focus their sales teams on new customer acquisition. Usually around the $2-3 million dollar mark in bookings, they’ll create a small group focused on customer success. The smart ones not only use that team for bringing new customers on board, but also for renewing existing customers whose contract has run out, including up sells.

There are three very good reasons for directing your sales team purely at new customer acquisition and delegating renewals and up sells to your customer success group.

First, new customer acquisition is the toughest task a sales team faces. Your most skilled sales people need to be directed at the most challenging prospects. They’re challenging because the customers may never had heard of you, they didn’t know a service like yours existed, or they are using a competitive cross-substitute whose budget you need to wrest away. These sales cycles are generally your longest and the hardest to forecast accurately because your firm has a limited track record. Why wouldn’t you want to send your very best team in to convert these most difficult prospects?

The second reason to assign new customer acquisition to the sales team and renewals and upgrades to the customer success team is that the customer success team should know the existing customer base better than the sales team. They should know if the customer has had problems, is really insistent on the development of a key new feature, and whether your internal champion is still in place or has moved on. They should be far better equipped than your sales force to know if an account is in danger and whether it is the type of customer who makes you money.

The final reason to focus sales exclusively on new customer acquisition is that as you get bigger, the problem of churn becomes a bigger and bigger problem. When you have a hundred accounts, 5% annual churn is five customers. It’s pretty easy to expect to show strong top line growth even if you lose five customers per year. At one thousand or ten thousand customers, making up a loss of 50 customers or 500 per year AND showing strong top line growth is a whole different proposition.

Therefore, focusing your best sales people on new account growth and your customer success team on existing customers aligns the best resources on your team with the two very different types of prospect/customer activity. And, as you grow, it helps you focus the right resources on customer churn, which is a problem which gets more serious the larger you grow. Dividing and specializing your resources is the only way I know to keep your fast growing SaaS startup a leading candidate for your next investor’s money.

The genesis of this column came from a well-considered point made by Roy Martin in a recent board meeting we both attended. Thanks to Roy for a very useful observation.