One thing that can be annoying about Internet startup people is the way some of them act as though they themselves invented the whole idea of using metrics to improve their business. These people seem to extend Dave McClure’s well-known AARRR model all the way to AARRRGH (“Acquisition – Activation – Retention – Referral – Revenue… Grandeur… Hubris“), which I’m sure wasn’t Dave’s intention at all. Well… mostly, anyway.
Putting a historical perspective on it, even today few companies are as raving metric-mad as the British catering company J. Lyons & Co. was in the first half of the 20th century. Rapid feedback was so central to its business mission that it not only extensively promoted the idea of decimal currency (from 1928 onwards, its back offices converted £ s d to decimal to get maximum use from their mechanical calculators) but also designed and built the world’s first business computer just after the second world war (in fact, here’s a short paper I wrote on LEO-1 back in 2002). Now that’s what I call an obsession with real-time metrics!
Anyhoo, I was chewing the
fat lean with my developer friend Martin a few days ago when he suddenly began regaling me with recession sales stories from many years ago. What was a little unusual was that the company he worked for back then kept a particularly close eye on sales metrics, and so was able to compare almost every aspect of its business before and during that long-ago (but now oddly resonant) recession period.
What my friend learned from these comparisons was a little unexpected, and yet somewhat depressing: that there would appear to be a recession sales formula, and it looks like this:-
“2 x 2 x 2 = 8″
What this means is that, during a recession…
- It is twice as hard to get a good quality sales lead;
- It is twice as hard to close any individual sale; and
- You typically end up working for half the margins.
That is, their comparative figures suggested that selling during a recession is roughly eight times harder than normal. Moreover, it was clear that if you hand over any of the individual sales stages (i.e. opening, negotiating, closing) to people who aren’t absolute sales monsters, pretty much nothing gets through at all, leading your overall pipeline to empty within a matter of days.
As far as startups go, the biggest single early sale most entrepreneurs have to make is (of course) equity to angels. So perhaps the current entrepreneurial world of pain here in the UK (where everything to do with startup finance seems ~10x harder than you’d expect) is just a straightforward expression of this same recession sales formula. After all, raising equity is just a sale like any other, right? And you are a sales monster, right?
(Well… strictly speaking, it’s not quite the same. Here in the UK, my understanding of the Financial Services Marketing Act (2000) is [*] that entrepreneurs aren’t allowed to promote any single investment proposal to more than 99 sophisticated investors (etc) at a time: yet I suspect that they now probably need to pitch to 200+ in order to stand a statistically reasonable chance of closing a round. Just so you know that both the odds and the law are against you right now!)
[*] I’m not a lawyer, none of this is legal advice, so make your own judgment call on this, etc.