The Power of Sales

Founders and startup leaders, never lose sight of the power of commercial sales (a.k.a. revenue) to solve many of your problems. There are good reasons why investors are eager to jump on board a scaling commercial startup while moving cautiously on those still pre-revenue. Let’s explore why by unpacking the magic of sales.

Sales Answers Many Investor Questions

An endless frustration for startup founders is how investors always seem to be seeking sales when the founders are just trying to get the capital required to develop their product to a commercial-ready point, invest in pilots, studies, and other body of evidence development, and begin some marketing. This seeming investor fixation on sales shows up on their websites, where they describe their focus on “commercial stage,” “growth stage,” “$1M+ in revenue,” and so on for potential investments. Even those who claim they are “early-stage” will ask when your product will be ready for launch, how fast your sales are growing, and how diversified your customer base is. 

First-time entrepreneurs are often baffled by investors’ focus on sales because isn’t the point of investment to build something valuable that will deliver a great investment return? How are you supposed to have sales if they will not invest the money to allow you to create the next great thing? While there certainly are some idea and pre-seed investors out there, the focus on sales makes much more sense when you understand that investors are trying to de-risk potential investments to increase their chances of finding winners. For investors, “significant” sales demonstrates startup characteristics associated with reduced risk by answering critical questions like:

• Does the technology actually work? If someone can buy and use it that indicates the technology has been developed to at least a minimum level of functionality. Investors will not need as many technical experts to opine whether this idea will work if customers are already using it to do what it is supposed to do.
  
  
• Does the product deliver value that customers are willing to pay for? Paying customers are saying something about the value of the innovative product and the price they are willing to pay for it. Giving away free pilots or deep discounts is dangerous because it undermines the value-proof point you are trying to showcase.
   
• How many customers have you secured, and are they turning into repeat buyers? An anchor customer is a significant milestone, yet the focus immediately shifts to a diversified customer base. The more customers buying, the more compelling the value must be. Repeat buyers demonstrate enough satisfaction that they return for more, which hints at a durable market opportunity and competitive advantages.
  
  
• What does the sales growth curve look like? Fast-growing sales (like 100%, 200%, etc.) signal value, market understanding, and the emergence of a repeatable sales process.
  
  
• How much revenue? Practically, the definition of a big business is substantial revenue. High-potential startups are those that can secure a strong market position in a large, lucrative market. Substantial revenue indicates that the value, price point, and number of customers stars are aligning into a major market opportunity that can support a substantial business. A startup’s first $1M in annual sales is a major milestone, followed by the first $10M in sales, and so on. As a (true) example, a growth curve starting at a few hundred thousand in a partial year, growing to $3M the next year, then $12M the following year, and accelerating into a $20+ million run-rate for a highly innovative product with a strong strategic patent portfolio gets investors clamoring to be part of the next round.

Hopefully, this illustrates why investors are keen on sales and why the most successful entrepreneurial teams are constantly solving for how to get to durable, accelerating sales as fast as possible. Such a pattern is a hallmark of the very valuable startups that generate wealth for all and will attract eager, potentially competing investors.

Profitable Sales Enable Startups to Control Their Own Destinies

Beyond attracting investors and ultimately securing a sought-after exit at attractive valuations, another primary reason for startup leaders to focus on achieving sales and profitability is gaining control over their own destiny.

So long as a startup is dependent on raising additional money to continue growing, attracting investors becomes paramount. As conditions of their investment, investors can make demands (such as changing the CEO, focusing on this portion of the business, giving up these control rights, etc.). Then, the company leadership and existing investors may face difficult decisions, such as accepting much worse terms from different investors or failing to raise the needed capital and closing down the company.

Fast-growing sales and achieving profitability shift that power dynamic in favor of the company, its leaders, and its existing investors, which opens up appealing options such as:

• Attracting enough investors that there is competition to fund the company, which can be leveraged to get progressively more attractive terms. There is nothing like an auction to get the terms you want!
  
  
• Raising money only when you want to for particular purposes. If your back is not against a wall, you can choose when you want to raise and on what terms because you have the option of walking away if the terms do not suit.
  
  
• Building a substantial and profitable business that other companies would like to own, potentially leading to an auction to acquire the company at an attractive return on investment.

So long as you remain dependent on regular infusions of investment, you are at risk of someone else controlling your destiny. If you can achieve breakaway results with enthusiastic customers, you can make your own choices, invite your preferred partners, and control your destiny, including the terms and timing of your exit.

Conclusion

Many startups fail because they cannot figure out how to combine all the pieces to build a successful business (which implies substantial sales). The faster and more robustly a startup team can accomplish that, the better the outcome will be. Solid sales covers over a multitude of problems. Do not lose sight of that endgame.