Building a Reliable New Business Pipeline

Inevitably I receive multiple phones calls a year from companies looking to find new business in a relatively (and often unrealistic) short period of time. Universally, these individuals and organizations are hoping for some sort of miracle to revive a depleted new business pipeline. While it might be possible in theory to find new revenues in a short period of time, measured in months, experience dictates that this would not a be a normal result. As experience dictates, new business often requires a number of months or years to develop depending on the size of the revenue sought. In the government aerospace sectors, some general rules are that million dollar class contracts generally have an incubation period of about a year. Contracts 100 times this size might require five or ten years to develop. Thus, if the revenue depletion problem is with a large company, they are probably relying on larger contracts and thus their problem will be very severe and may defy solution. Smaller companies do manage to survive such situations through a combination of layoffs and focusing on lots of smaller short time to sale contracts - primarily of a consulting nature.

This whole scenario, whether it be a large or a small company, begs the question of “how did it arise ?” and “how could it be avoided ?”. There are five primary causes of a depleted pipeline:

1. A non existent sales or business development effort or group. This cause is most common for small company and companies that have single owner closely held ownership structures. This kind of situation can also exist in a relatively young company that experienced strong initial successes and “got busy” with getting product out the door only to find that at the end of the project was a lack of revenue. I call this latter effect to be “success myopia”.
2. A poorly performing business development function. Plain and simple, not all business development groups and efforts are effective and in fact some of them are just plain worthless. Typically this results from a lack of accountability and upper management level attention. Thus a strong new revenue pipeline will result from such non-performance and it might be too late by the time you notice it.
3. A focus on short term objectives and business opportunities. This is common to new businesses that do not experience a lot of initial success and they find that there life is best described by the phrase “scratching around like a chicken for a living”. This is more of a character flaw but often if leaders in these situations understand that it is their short term perspectives that are reinforcing their intolerable situation, they are able to slowly exit from this situation and usually dire new business pipeline.
4. A single customer focus. This is a surprisingly common situation where a business finds itself with a “patron” within the customer community but once that person or their funding goes away, so does the long term new business. The tragedy of companies in this situation is that like animals that never learn to hunt, these businesses have no clue how to competitively go after new business. This is a slow emergence situation and will take a long term commitment to change to fix the inherent risk of this position. Unfortunately, most companies in this situation do not seek to fix the inherent risk in this position but rather focus on finding another patron saint.
5. A strategic blunder. Often a strategic blunder will cause otherwise good companies to abandon a good and strong traditional market in favor of “growth opportunities”. If this drastic move proves to be unsupported, it may be too late to save the company as they will no doubt have abandoned the old market and competitors will have consumed their old market share.

Recognizing the source of new revenue depletion also provides the necessary insight into how one builds an enduring new business pipeline. The first obvious lesson is to have a proactive business development effort that is managed by competent individuals with sound strategic judgement and not relying on a single customer. This is, as they say, the “80% solution”. Once you have a solid foundation as we outline here, the rest of the problem solution is to simply have and manage an adequate volume of new business leads.

I like to divide new business leads into three categories: short term, medium term, and long term. Short term opportunities are generally comprise less than 20% of the corporate revenue and would be expected to close out in less than 6 months. This is often walk in business and should close at very high rates (more than 90%). The medium term opportunities generally close in a time frame of less than 2 years and comprise roughly 35% of the corporate revenues. The long term opportunities will drive growth within the company and comprise 50% or less of the overall company revenue.

Every situation is different but there are some general guidelines for developing a healthy set of leads in different categories. Based on your company’s revenue model and how much of the revenue comes from the different categories, you should decide how much revenue is needed in each category. Once you have those numbers, your leads for short term leads should be 1.5 times the annual dollar volume of short term lead revenue. For medium term revenue, this number jumps to 2.5 to 5.0 times the revenue need. For long term leads, you will need a whopping ten times the annual operating revenue requirements.

If your business development efforts are managed and leads volumes kept up, you should continue to have a healthy future revenues. The leads volume multipliers "rules of thumb" have resulted from my first hand experience with over 86 companies that I have helped in this area and are a good guide for your efforts. In the end, a healthy revenue pipeline means more profits, less hair pulling nd happier and well adjusted employees who are most productive under these conditions.