Sales has become a cost center

That is actually not an attention grabbing title. But it something that somehow becomes self-evident when you look at how start-ups nowadays function.

There are two key principles you have to understand to understand why sales became a cost center. (1) The concept of sales as a process, and (2) the concept of product market fit.

A start-up typically starts with a vision and some more or less defined concepts around possible exit opportunities which are typically tied to decent revenue growth and some magic margin development prior to the exit. That is basic. Ignoring the IPO crowd out there, which might require a different treatment, the concept is simply. Create a product, fine a working sales process, establish product-market fit, milk the market and sell the company.

The magic here is combining product-market fit and process. The only way you will establish product-market fit is by tapping into a potential market. Sized and segmented well, addressing their clear needs, and finding a way to sell the product into the budgets in the market. That is the entire search for product market fit. Once you start getting traction in a segment, you use it to understand why you obtained the traction. If you are successful, you formalize a process around developing new leads in this segment, and getting your foot into the sales door. If that process is efficient and transferable to other segments, the process is already taking over. Next you repeat the process to unlock product-market fit around as many segments as possible and use that revenue to finance faster sales development to show growth. If you segmentation is done well, you know a possible maximum capacity of your market and if it is small and you have no idea how to extend it, you rush for an exit.

But with this process forming, the humans performing the actual sales transaction become secondary. The segment and lead generation and qualification becomes the core driver of predictable revenue and the uncertainty form your ROI on hiring sales personnel will become smaller. If you have a decent hiring strategy that fits your geo strategy in opening sales offices and supplying them with equivalent quality sales personnel, you process should continue to work.

But the reality here is that these people really are just factory or assembly line workers that exist for one single reason: because the fully automated and non-human sales process is either not flexible enough (thinking bots), or it is considered inhuman by the buyers. And chances are, it is more due to the second reason: buyers not liking being sold by robots. And of course on top of that, buyers not liking to outsource purchase processes that comprise input and qualification by several departments to robots. Although that might in fact soon be the more efficient strategy and likely that is going to happen.

The ultimate insight here is that if the product is fit for market and the sales process is defined and working, humans are completely replacable and any monkey human could be trained in executing the process. Which is why the driver of sales is in the end the process and the product-market fit of the product. And not the human.

But if a human only serves the process, he is a cost center. The profit center is the process and product. Simple? Yes.

What is yet a bit more human is to orchestrate product development and testing and adapting sales processes to new segments and markets around new product portfolios. And that is still – at the moment – part of the profit center discussion. But not part of sales process.

In that context, we see massive deteriorations of compensation packages for MDRs/BDRs in the SaaS POD model. And the only reason account executives or “closers” are still decently paid is the human aspect of the closing process. But it’s an illusion to think it is the sales manageror account executive that is actually causing the sale. It is more likely the process and material assembled supporting him. He is not selling. He is really just closing the sale. By shaking a hand.

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