Start-Up Forecasting & Budgeting: Part 1 The premise of Sales & Marketing deliberative growth
Anyone who has actually tried, this knows that capital intensive start-up budgeting is the hardest kind there is.
Your problem is two-fold.
- Because it is capital intensive your cash burn is much higher and front loaded than anything you’ve tried before. Moreover, capital intensive means significant assets which often in turn means heavy operations costs.
- Because it is a start-up you have no numbers to use as a baseline. In fact your product portfolio is in constant flux as the founders review a number of possible approaches.
But, what I want to talk about is a basic lesson in all of this. That while the cash burn can seem very intense (it often is) and that this encourages you to fill the sales pipeline as quickly as possible to get the utilization rate of your core assets up as quickly as possible, you still need to be very much aware that product-market fit is your first priority.
There is no point bringing on a huge number of sales staff, or spending a large portion of your marketing budget UNTIL you know exactly what the customer wants and how they want it served up.
Too often people will look at the relative size of the S&M budget compared to the investment and operational cost of the core operations and decide that not investing in S&M will kill the overall business because of the operational cash burn.
To be clear, I agree you do have to spend on S&M. You also tend to have to spend pretty large, even though relative to the overall budget it may not be as much. However, before you do something you have to be very clear on what approach you’re taking to the market.
Constant iteration in the market in an awareness marketing approach creates conflicting signals and immediately damages the integrity of your brand. I need to be clear on this iteration is essential and is my core argument, but it needs to be done on a non-scale one-on-one basis. You need to be in full control of your offer, but then be able to measure and immediately respond to how customers take that offer.
The fundamental difference I’m trying to explain is that until the sales process becomes incredibly smooth, in that the customer is asking for exactly what you have on offer. You should shy away from scaling up the sales team or your marketing spend.
Final note, a lot of firms have a belief that they have hit this prod-market fit and are ready to go all out guns blazing. They foresee the demand and feel the bigger the splash the greater the buzz, the greater the overall momentum. I think this is a little more ego than I can personally stomach.
It is much rarer for a company to go bust because they grew by allowing demand to decide their growth, then for firms that believe they can persuade the market into loving their product. Even in the face of “first-mover” advantage, (which I personally think is over-rated in industries without network effects) I hold that controlled growth allows founders to be very careful and deliberate about the *way* in which they grow. Furthermore, that this way of growth can create much stronger moats then “first-mover advantage” brand recognition.