The Sales Learning Curve

Because new-product launches often take longer and cost more than expected, many promising offerings are prematurely aborted. Smart companies give themselves time and money enough to climb the sales learning curve before ramping up the sales force.

by

Mark Leslie

and

Charles A. Holloway

by

Mark Leslie

and

Charles A. Holloway

From the Magazine (July–August 2006)

Summary.

Reprint: R0607J

When a company launches a new product into a new market, the temptation is to immediately ramp up sales force capacity to gain customers as quickly as possible. But hiring a full sales force too early just causes the firm to burn through cash and fail to meet revenue expectations. Before it can sell an innovative product efficiently, the entire organization needs to learn how customers will acquire and use it, a process the authors call the sales learning curve.

The concept of a learning curve is well understood in manufacturing. Employees transfer knowledge and experience back and forth between the production line and purchasing, manufacturing, engineering, planning, and operations. The sales learning curve unfolds similarly through the give-and-take between the company—marketing, sales, product support, and product development—and its customers. As customers adopt the product, the firm modifies both the offering and the processes associated with making and selling it.

Progress along the manufacturing curve is measured by tracking cost per unit: The more a firm learns about the manufacturing process, the more efficient it becomes, and the lower the unit cost goes. Progress along the sales learning curve is measured in an analogous way: The more a company learns about the sales process, the more efficient it becomes at selling, and the higher the sales yield.

As the sales yield increases, the sales learning process unfolds in three distinct phases—initiation, transition, and execution. Each phase requires a different size—and kind—of sales force and represents a different stage in a company’s production, marketing, and sales strategies. Adjusting those strategies as the firm progresses along the sales learning curve allows managers to plan resource allocation more accurately, set appropriate expectations, avoid disastrous cash shortfalls, and reduce both the time and money required to turn a profit.

The Idea in Brief

When your company launches a new product, do you rush to beef up your sales force capacity? If so, consider the dangers of this impulse: most new products aren’t quite ready for prime time, because they don’t have the features consumers want—or they don’t yet work the way they should. So selling them becomes an uphill battle: you burn through cash only to generate disappointing revenues.

How to avoid this scenario? Give your company time to climb the sales learning curve—finding out how early customers acquire and use your new offering and then modifying your product and sales tactics based on what you’ve learned.

In particular, Leslie and Holloway recommend matching your sales force’s size and skills to where you’re situated on the sales learning curve. For example, after beta-testing the product, assign just a few salespeople to learn as much as they can about customers’ response to your product. Use these insights to perfect the offering and your go-to-market strategy. Expand your sales force only after you see sales accelerate.

By taking time to climb the sales learning curve, you start generating profits on your new offering sooner—and you sweeten the odds of scoring a success in the marketplace.

The Idea in Practice

To climb the sales learning curve, the authors suggest these steps:

Understand New-Product Sales Challenges

In launching any new offering, you’ll face numerous challenges—including identifying and resolving service issues and developing a repeatable sales model. Adding sales capacity too early in the launch prevents you from addressing these challenges. Example:

Software maker Scalix developed a Linux-based e-mail system that initially garnered enthusiastic responses from CIOs. Scalix expanded its sales force quickly and moved to sell directly to CIOs at large companies. But it encountered several problems. CIOs weren’t the primary decision makers on e-mail systems. IT department managers were—and they didn’t want the headache of switching to Linux. Moreover, the product needed further trials with customers to function properly. Scalix revised its sales approach—but wasted scarce resources in the meantime.

Adjust Your Sales Strategy as You Learn

The sales learning process unfolds in three phases—each requiring a different size sales force with different skills:

1. Initiation: You’ve beta-tested the product and have few potential customers. Hire three to four salespeople to learn how customers will use the product and to support other parts of the company in refining the offering as well as marketing and selling strategies. Look for salespeople who:

Communicate well with teams from other functions

Tolerate ambiguity

Have a deep interest in product technology

Can bring customers together with various functional teams in your firm

Can develop their own sales models and collateral materials

Example:

Scalix’s overhauled sales strategy involved hitting the Linux evangelist and early adopter community first, with particular emphasis on smaller targets in the higher education and public sectors (where Linux acceptance was strongest). It hired two in-house telesales reps to drum up leads. With lower-priced salespeople and a compressed sales cycle, the new model offered much better economics than the original approach. And in 2004 and 2005, Scalix was named one of Red Herring’s 100 top private companies of North America.

2. Transition: You’ve acquired a critical mass of customers, and sales are accelerating. Keep your initial sales team focused on learning. Add sales reps who can operate effectively within an evolving sales model but who don’t necessarily have the analytical and communication skills the initial team required.

3. Execution: You’ve developed your formula for success and put your sales force’s support requirements in place. Now bring in traditional salespeople—and arm them with a territory, sales plan, price book, and marketing materials to take orders.

When a company launches a new product, the temptation is to immediately ramp up sales force capacity to acquire customers as quickly as possible. Yet in our 25 years of experience with start-ups and new-product introductions, we’ve found that hiring a full sales force too fast just leads the company to burn through cash and fail to meet revenue expectations. Before it can sell the product efficiently, the entire organization needs to learn how customers will acquire and use it, a process we call the sales learning curve.

A version of this article appeared in the July–August 2006 issue of Harvard Business Review.

ML

Mark Leslie (mleslie@leslieventures.com) is the managing director of the private investment company Leslie Ventures; a lecturer at Stanford Graduate School of Business and Stanford’s Graduate School of Engineering; and the retired founder, chairman, and CEO of Veritas Software. He is based in Portola Valley, California.
CH

Charles A. Holloway (holloway_chuck@gsb.stanford.edu) is the Kleiner Perkins Caufield & Byers Professor of Management, Emeritus at Stanford Graduate School of Business in California.

The Sales Learning Curve

The Idea in Brief

Understand New-Product Sales Challenges

Adjust Your Sales Strategy as You Learn

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