Dispatch

Gabe
The Most Important Startup Phase You’ve Never Heard Of

You know the process of evolution for most new companies: they incubate, where they discover what they are and who they’re for (which may not be the same as what they thought); then they accelerate, which is where they validate their reason for being through actual customer feedback; and then if all goes well in these two phases, they’re ready to scale, or grow, and reap the fruits of their labor and maybe eventually get acquired. But there’s another crucial phase that occurs in which you build upon the knowledge you’ve already gained from incubating and accelerating—but before you actually scale—and we call it:  the Upshift Phase.

The Upshift phase comes down to one essential factor that’s crucial to get right: customer creation. Without customers, you can’t build anything. When you figure out what it takes to get customers then you can figure out how to get more of them. Only then, can you scale your business. This phase can take companies 12-18 months, and cost between $750,000 and $1.5 million, before they “figure it out.”  It takes a lot of trial and error, but it’s worth the time and money spent if you want to have a viable enterprise. However, with proper guidance and support, the time frame of the Upshift phase can be condensed considerably.

How do you know if you’re ready to enter the Upshift Phase?

The benchmarks we use to determine if a company is ready for the Upshift phase are:

  • The founder has been doing most of the selling and has been able to acquire 10 + paying customers thus far.
  •  The founder recognizes there is still work to be done and estimates a minimum of 6-8 months “runway” time to ramp up sales efforts before scaling.
  • The company’s current lead gen efforts are bringing in a minimum of 20+ inbound requests per month.

What defines the Upshift phase?

There are several important markers a company should achieve during the Upshift phase. It all comes down to systems and processes including:

  1. A repeatable lead generation process

In my post on the 80/20 rule, I talk about how to identify your best customers by narrowing down the ones that are the most profitable, and that get the most value out of what you are trying to sell. Model those customers and figure out how to get more of them using different sales tactics – try some of the ones I’ve outlined in my post, Stop Pitching.

  1. Objective and measurable sales process

In my post on the sales cycle, I talk about persistence and creativity as key to getting more customers that are similar to those you’ve identified as the best. But you have to test and quantify the results of every tactic you use to find out which are most successful. You can’t shoot in the dark and hope to win each time. Take the time to be methodical about it and gradually you’ll see some trends start to develop.

  1. Ability to onboard and get sales people to trend towards quota

Once you figure out what tactics work for enticing new customers, you need to implement a process for training your team to implement that process. This can involve written manuals, phone or webinar training, or offsite functions that focus on nothing but your sales process. Give them what they need to do the best job for you.

  1. Refined messaging

Building a business takes constant evolution. You are never done learning, refining and improving. As you bring new sales people on, constantly monitor and refine your sales messages. Stay current with the times, the marketplace and with changes in your technology or how you evolve your brand or product. See what your competitors are doing and adjust accordingly. Make updates to your product whenever necessary and make sure your messaging reflects these.

  1. Lifetime value equal to or greater than 2x the cost of acquiring a customer

Many startup companies make the mistake of taking on any and all customers. This can be a mistake as sometimes a customer is just not worth the effort. You need to make sure your customers bring a positive lifetime value, not just immediate gain or numbers. There is an actual formula I use to test which customers will make the cut – they need to have a projected LTV of two times the cost of acquiring them. Otherwise you are just wasting your money.

  1. Payback period relative to cost of acquiring

While LTV is important, you shouldn’t have to wait a lifetime to realize value from your customers. Companies move fast and they die fast, so you need to have a realistic payback period in which to see the returns from your customers, usually within 12 months of acquiring them. If you have any customers who are costing you more in time, complaint management, refunds or make goods, you might be better off firing them. There are other forms of payback that should be considered if financial benefit is not readily apparent. Ask your customers if they would refer you to their colleagues or supply testimonials to use on your website or in your sales materials. If they help you get new customers, they may be worth hanging on to and keeping happy.

Okay, now I’m ready to Upshift. How can I ensure my sales process is up to snuff?

Upshifting is about being prepared to scale so the question now is, what do you need to have in place in order to scale properly? There are two options companies usually take to accomplish this.

Option 1:  Hire a VP of Sales

This is usually the fall-back position for many startups who are ready to upshift. Personally, I went through four Sales VP’s until I found the right fit. So it’s not as easy a solution as it sounds.  This article  by Jason Lemkin breaks down the types of sales people you may come across during the hiring process and how to make sure you find the right one for your company based on their personality type, and also if they have the right skills for your particular kind of product.

Option 2Do it Yourself

This option could potentially be worse than hiring the wrong Sales VP in that a) you couldn’t figure it out in time and missed opportunities, or b) neglected the operations part of your business and something went terribly wrong, or c) you scaled prematurely.

In this Forbes article, Nathan Furr defines premature scaling as “spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit.” He cautions against “spending money scaling the business before you have really nailed what customers want and how to reach them.”

This is the biggest failure zone for startups because you only have a limited amount of time in which to create a repeatable process and without a roadmap or guidance, many companies make these common mistakes. This is why the Upshift phase is so important and why I’ve turned my professional pursuits to making sure you succeed by avoiding them.

Here are some metrics we recommend SasS businesses meet in order to know they’re ready to scale. Until then, they need to focus on building a repeatable and measurable model for sales success.

  • Half of their sales reps are meeting their quota
  • Their SaaS reps are trending towards $300,000k in ARR (annual recurring revenue). This can be scaled up or down dependent on the average monthly recurring value of each customer.
  • They can onboard 2-4 sales people at one time with relative ease and measure their results.

What happens after the Upshift Phase?

You scale. Now that you have the tools, knowledge, confidence and support that you were lacking prior to the Upshift phase, you can build your company. You’ve figured out the recipe for your business and are ready to hire more people to cook it.

We created Upshift Partners to help accelerate the trial and error and preparation it takes to get to this point, and we expedite the process so that it takes 12 weeks instead of 12 months. To find out if you’re ready to Upshift, learn more at our website or send us an email.

Please add your comments or questions about the Upshift phase for me below, I’ll do my best to answer them here or in a future blog post.