Why startups lose deals

Posted by kdow on Mar 12, 2018 10:44:38 AM

One of the projects I undertook last year was to build out an analysis model for deciding what factors go into a business losing deals. The company I’m analysing is big, complex and has hundreds of reps and over a decade of operationalising itself. When I recently spoke to some startup founders, I re-framed the same thought process for them. This post is that conversation, distilled.

There are four discrete areas to look at when analysing why your company loses deals:

  1. Talent & acumen
  2. Opportunity management
  3. Go to market strategy
  4. Methodology

Talent & acumen

The first step in deal win rate analysis is to dig into who is actually winning those deals, and how are they approaching them.

In a typical startup that has a decent product offering in a competitive space, assuming there is some marketing activity feeding a number of sales reps, then we can start to assume there’s some deal/opportunity velocity in place. Imagine you have 2 marketers feeding 5 sales reps (that ratio might not work for all companies, depending on market, product, funding stage, etc.). Vector those 5 sales reps against ~100 deals in the funnel (20 each), then we can start to break out our likelihood of win rates.

Likelihood of win rates is a metric that seems rare in a startup. Normally because the founders are too busy to operationalise at that level. But a good startup needs to measure as much as they can. Getting a sense check from the sales business of what’s in play to predict success can make or break the business’ ability to raise capital. Normally, this win rate is called a “forecast”. Getting reps on a monthly sales target cadence to predict their number based off their targets helps the org course correct (for good or bad reasons).

Sample business featuring Bayern Munich players

Knowing where the potential money is coming from is a huge deal for any company, especially a small one. Every deal counts. So, having reps who can effectively predict their ability to fill their quotas is important. It also helps a manager/founder to have a “helicopter view” of the sales org so they can see where gaps exist.

In the example above, we know that Arjen has a lot of pipeline in play. Not all of that will close this month (the table doesn’t show where those deals are in the process — more on that next) but he is forecasting to be slightly above his number. Luckily, no one is forecasting below their number, but Arjen’s buffer — if he closes it all — will help if another rep has a deal slip to next month or loses entirely. The reason some reps have lower targets, by the way, is that I’m assuming we have reps on ramp who are reasonably new to the business.

Take it up a level and you can see, based on all of the opportunities created, there’s going to be a huge disparity between won/lost deals:

Won/lost deals view

The reason for this disparity is twofold: your reps are clearing out deals they feel they can’t win aggressively and your marketing team is generating more deals that can’t be closed than can be closed. This is fine, and normal.

Where true business acumen comes into play is when you can get your reps to input to their CRM (or anywhere!) why they’re marking deals as lost. This lets you dig deeper to figure out if there are problems to solve or jobs to be done to address your lost deals.

Closed lost reasons

Knowing why opportunities are marked as lost is a huge value. In a startup where every euro/dollar counts, it’s vital to have this kind of visibility. It’s also clear a lot of founders don’t have this institutional knowledge to dig into their businesses, so having these levers can be a huge advantage when approaching future funding rounds, etc.

The biggest lever here, though, isn’t the numbers. It’s an open & honest sales culture where reps are being tasked with administrative work from day 1. Yes, their primary job is to close deals, but if you don’t institutionalise the business with reps who are happy to input data to help marketing and operations figure out better ways to seed leads to sales, then you’ll struggle to shift that later.

Opportunity management

When a rep has a target to hit, being able to manage their pipeline becomes the difference between hitting and not hitting. Or even better, it can become the difference between excelling at the job and earning additional bonus money and not. Larger companies tend to overspend on pipeline management by offering kickers/bonuses/rewards to reps that do well here. As an early stage company, your opportunity is to build that culture of good administrative performance.

The first step to having that culture is demonstrating that it works. If reps feel the way they’re being asked to work isn’t actually helping them perform, they won’t buy into it.

The way to make it work, though, starts with marketing targeting the right leads and getting them to the right spot in their cycle so that they can be sold to. I’ve written about this in the past. Then, the sales cycle kicks in!

And your sales cycle needs as much analysis as the rest. Knowing what stage a prospect is in can be vital to a forecast as well as the rep so they can plan their day more effectively. Typically, there are between 4 & 6 sales stages. Sample below:

  1. Connect: Once a lead is passed to the sales person, it’s their job to call that lead to get an initial connection with them. This phase is critical to building a relationship. It can also very quickly determine whether this is a good fit prospect, if the lead is the person with buying power, etc.
  2. Assessment: Before a demo, it’s a good idea to have sales reps offer some form of assessment. This depends on the product and prospect type, but the idea is that the rep can offer early stage value to the prospect by sharing industry knowledge, tips & advice.
  3. Demo: This is the main product roadshow. As the sales org grows and the product gets more sophistocated, you may bring in Sales Engineers, who tend to be a more technically savvy sales-orientated person (for what it’s worth, 1 SE for every 10 reps has been a good ratio I’ve noticed in SaaS).
  4. Follow-up: A good rep will always have some follow-up post-demo. This might be supporting materials, additional conversations (sometimes technical; which, if they keep appearing, may determine your need to hire a Sales Engineer) and what-not. The goal here is to wrap up the value prop of the product.
  5. Close: The key sales piece — closing off the deal & negotiating price, etc. Sometimes (or often!) this is where the rep will use their access to the founders to help get deals over the line.
  6. Handoff: Depending on the product, there may be some handoff to services, support or even just an opportunity to maintain relationship (especially if the product will have cross/upsell opportunities in future).

If you have 6 stages to every deal as above, then your rep will need to manage that pipeline carefully. How many are at demo this month? Because those are the ones most likely to close in the next 30 days or so (again, depending on the product — I’m associating that to typical SaaS products).

This also sets up a calendar of “jobs to be done” by the rep. It can also provide a helicopter view to the founders of what’s going on in the marketing & sales pipe. Again, hugely advantageous when running a business, but also when presenting the business health to investors.

In the context of why deals are lost, knowing what stage they were in before being marked as lost can tell you a lot. If there’s a trend that suggests that deals are being lost with “no value seen” during a demo stage, either the product isn’t finding it’s market fit, marketing aren’t finding the right fits or the reps aren’t equipped to sell the value of the product. But moreover, if you lose deals at a demo stage, you’ve spent a lot of money getting deals to that stage only to lose them. You’re driving the CAC (cost of acquiring customers) way up!

Photo by LinkedIn Sales Navigator on  Unsplash

Go to market strategy

The GTM effectively describes the companies ability to tell the story of it’s product. Why would someone bother going through a buying cycle with you, when there’s likely some competitor that can do the same/similar as you? Moreover, what kind of prospects/leads are you attracting into the funnel in the first place?

As I mentioned above, depending on your data sets, you could find gaps in your GTM based on the deals being lost in the funnel. Using a different example, if budget is a concern when people don’t buy your product, it’s an obvious fix. But if budget keeps cropping up as the reason why people don’t buy your product at a negotiation stage, then maybe your GTM isn’t attracting the right prospects, or the value isn’t being shown throughout the process, or you’re not being transparent enough about pricing beforehand.

Having a well-defined strategy for attracting leads and selling to them is critical. And the lost deals are going to tell you a lot about it. As the company matures, the data will also reveal specifics about the product that aren’t working, or aren’t being communicated effectively enough. This isn’t the opposite-effect of Steve Jobs’ infamous “don’t let sales run the company” ideology. Instead, it’s meshing both worlds. Let sales & marketing inform product, and vice-versa.

Methodology

A good marketing and sales methodology can help define a process by which a lead is passed through the funnel & deal stages. For example, if a lead is generated and the rep is thinking specifically about the ways & means of passing the lead through the funnel, then the process becomes more methodical, reps are easier to coach (as a manager) and each lead has a similar enough experience that the data is more informed.

One sales methodology I like is MEDDIC. Metrics, Economic Buyer, Decision criteria, Decision process, Identify the pain, Champion. This allows a disciplined approach to each deal by a rep. Which, as I mentioned above, builds a culture within the org as it grows. As a startup, that culture is going to be critical to help drive the business forward in future.


I hope this helps teams figure out the early stages of using data in sales to define better processes and dig into gaps they have. If you have any thoughts or questions, feel free to drop me an email or tweet.