My co-founder and I put together a business plan. We hired an accounting firm to help tweak it. The sales numbers at the end of year 3 looked impressive! My uncle looked impressed – you guys will be cash flow positive at the end of year 1 and then it’ll be pure profits he said. We bought it. Too bad.
At first, our sales forecast called for selling units less than 5 in the first month. C’mon now you think – how hard is it to sell 5 of anything? not much right? Wrong again.
Not if the base price is $1000 and the business model is founded on selling to consumers. Not if we factor a bulk of profits from subscription revenues not inclusive of the base price. Not if both of the co-founders have no experience in selling or worse, setting up sales operations to hire someone.
If you did hire someone, what will you pay him/her? Cash, Stock? mix of both? commission only? or base+? What is the plan that keeps sales reps rich but hungry? how do you build a generous offer but still make your numbers?
We interviewed a smart sales guy, let’s call him J. J has sold everything in his past life from mobile phones to mortgages. He’s not afraid of rejection and he would “dial for dollars”. But what if this is more complex than mobile phones? What if this is a startup that needs the first few sales guys to understand the product better since its not “baked” yet?
Few weeks passed. We the co-founders agreed that “sales is important”, but we need to build the product first. But when is a product truly ever finished? Just one more enhancement please… every prospect we spoke promised to buy the product only if you had the one feature.. of course that one feature would take us weeks of development time… costly development time since we were paying $85 an hour. Cash.
Weeks turned to months. No revenues. Beta customers who refused to sign up. The cash situation was becoming dangerous. My co-founder had quit his full time job. I was working two jobs – one that paid the mortgage, the other one that was this venture taking up my nights and weekends. Pressure was on.
We started to fight. Argued about minor expenses. Insisted on approval on each other’s spend. My co-founder insisted on funding more money. I refused. Let customers fund future development, I said. Plus, I couldn’t afford it.
No sales. And oh that sales forecast – we kept changing the month in the header from Sep to Oct to Nov to Dec… looking for the first month to make the first sale of 5 widgets.