Dispatch

Gabe
Sales Hacking Bootstrappers Guide: Deep Dive #1 – The “80/20” Rule

Back in April, I posted here about my experiences hustling, eh building, my online directory software company from $2,000 to $2,000,000 in sales in just four months. I knew it would be a challenge—distilling all of my hard-earned wisdom into just a few hundred (okay, thousand!) words—not building the company—although that was a challenge too, but of an entirely different sort. So I broke down my process into easily digestible steps that anyone can follow when it comes to selling just about anything. And you responded. So I thought it would be helpful to hone in on some of the steps I covered in my last post, based on your questions, comments, and just stalking me in the street to find out more. This post will cover the 80/20 rule; my next post will cover sales pitches (and why you should never do them). To summarize:

  1. Selling is bad. Educating is good.
  2. Figure out who your best customers are and then find more of them.
  3. Be prepared to do a lot of research, or hire someone to do it for you.
  4. Be persistent, not just in your vision but in your tactics. There’s a difference.
  5. Knock on doors—literally and figuratively—to make the sale.
  6. Get used to doors being slammed in your face—congratulations, now you’re an entrepreneur!

So to dig a little deeper into your questions and concerns, I’ve selected some representative comments here. It helps a lot if you read my first post, but I’ll try not to make too many references that seem out of left field. Oh go ahead, read my first post. I’ll wait…

 1.   I like your breakdown of the 80/20 rule, but it seems my 20 in each category is a tough nut to crack. Is it really that important to identify the 20% of your business that’s working? Is it really that scientific? Yes, it’s scientific. Yes, it’s important. But it doesn’t necessarily have to be an 80/20 ratio. In every company that I’ve run or worked with, there’s always been a minority percentage that accounts for biggest impact on revenue and I believe the 80/20 rule applies across all types of companies, generally speaking. It could be 90/10, it could be 70/30 but the idea is essentially the same. In a sales organization, for example, it’s likely that 20% of the team produces 80% of the sales. The same holds true for marketing, where 20% of your marketing brings in 80% of your new customers. The learning here is: don’t always focus on everything, but on the most important things. It may not be 80/20 every time, but the practice of going through and evaluating what you’re doing can help you to realize where you should be spending your energy. Find that 20% that’s working.

2. Okay, once you identify your 20%, how can you replicate them? It all comes down to attributes. Taking a broad view, if 20 % of your sales target is performing the best, there is likely a group of characteristics—like how old they are, where they’re from, what school they went to—all this can prove predictive of the next group with these attributes being successful. It works the same for customers. Find the percentage, whether it’s 10, 20 or 30, that account for your lion’s share of revenue, then look at the attributes of those people. It may sound simple, but many businesses typically don’t do it. I’ll say it again: find the ones that account for the most revenue; then figure out the attributes they have in common.

3. What if you’re just starting out and you don’t have enough for a representative sample of 20% success? Take your best guess. Ask yourself

  • Who are the people most likely to need my product?
  • What is the biggest problem they have?
  • Where are they spending the most money to fill a need?

Try testing different things to find out what or who are your best performers. For example, if you sell HR software, ask yourself what companies have the biggest problems that your software addresses? Who are the companies with the highest turnover or who are hiring the most people?  Then ask yourself, how old are these companies? It may be that the more up and coming businesses need what you offer. Take your best guess and try to narrow your focus. You may start out going after everyone, but eventually you’ll need to look at your numbers to make concrete decisions as to what’s working the best.

4. No, I mean we’re really starting out. We’d be happy to have 20 customers, let alone the figure out who the best 20 are. If you are hell bent on an idea for a company, then you have something you feel people want.  And you must have some idea of who it’s for; you had to cover that in your business plan. My advice to you is, be careful as you expand. Taking on everyone who says “yes” to your product might not be the smartest strategy in the long term. After the seed phase, you need to go back and refocus before putting any more money into growing your company. You may have signed up only15 customers but if 10 of them aren’t good leads, you’re better off finding more of the 5 who are. Identify what makes the 5 good, and set out to find more of them. Even if it means you have to fire a customer. This is especially true for early stage companies, when you are moving really quickly. If a customer just turns out to be a big drain and isn’t giving you good feedback, move on. Just like in life relationships!

5. Do you have to have your 80/20 strategy in place along with production and operations from the outset? In the beginning, of course, you have to build the product you think people want but you also have to find the people who want it, who are willing to give you their money and who you’d like to keep as customers. These are the two components I see a lot of new entrepreneurs not putting enough focus on and it could be the deciding factor of what could makes or breaks your company. I hope this answers your questions about the 80/20 rule discussed in my last post, but if you still have anything that’s eating at you, leave a comment below. And please, shoot me some ideas for what else you’d like to see me address in coming posts, I’m here for you!