Guard Against Down Quarters: Why Managing Sales Pipelines Is Critical For Tech Services Founders

At Vixul, we understand the challenges faced by rapidly growing technology services companies. Running lean on cash because the money is reinvested into the business, growing delivery capability in lockstep with demand, making payroll that exceeds your net worth - it can be a harrowing experience. An unexpected bad quarter can cripple your business. Our aim is to equip you with the tools to guard against this. In this article, we talk about the fundamental issues unique to technology services. With this improved understanding we will understand the demands a healthy sales pipeline places on your business. In a followup article we will build upon the foundation of learning we created by talking about the metrics and data you need to use to ensure your sales pipeline is healthy.

Challenges Of Tech Services Sales

We want to start by looking at the challenges unique to selling tech services. Understanding these challenges will drive us to a better understanding of why we want certain behaviors in sales.

Perishable Supply

The primary issue with tech services is their perishability. They are comparable to hotels and airplanes in this regard. If the seller fails to secure a customer for a room or a seat, that booking for the night or flight is forever lost. The same is true in any services business. Any time a consultant is sitting on the bench is forever lost. This is different than say retail where if we don't sell a candy dar today, we can make up for the deficit the next day by selling two candy bars.

This also explains why a down quarter is particularly harmful for a services company. The costs remain constant, but the money doesn't flow in. While this risk can be somewhat mitigated using flex capacity, there is a limit to its effectiveness. Hence, due to the highly perishable nature of the supply a tech services company has to maintain a high utilization. This necessitates consistency and predictability in your sales.

Difficult To Prove Value And Differentiate

Tech services sales face the unique challenge of demonstrating value before a transaction takes place. In contrast to products or SaaS tools that often provide trials or returns, services are more abstract and complex. While certain high-ticket items like houses and cars don’t usually offer return policies, they benefit from industries that facilitate understanding and comparisons. Tech services lack this level of standardization, and therefore, offering clear understanding before delivering the service becomes difficult.

Strategies such as leveraging client testimonials, case studies, strategic partnerships, and industry awards can help provide some assurance of your competency, the problem remains. Some issues like architecture, and code quality aren't recognizable for years. In the end, the buyer commits to a service with more unknowns than most other purchases. This inherent characteristic of service sales tends to extend the sales process, requiring more time spent in proving value and reassuring potential clients. All of this difficulty in sales makes it hard to predict when a deal will close.

High Ticket Items

Services are generally high ticket purchases. You are selling human time and human time is the most valuable resource we have. Given the nature of tech services as highly skilled labor tech services are especially expensive. Furthermore unlike a house cleaning, or a computer repair service that has very very discrete easily defined transactions the amount of time needed to perform meaningful work is at least in the weeks. So a sale of technology services will inevitably be larger deals. This adds to the sales cycle, requiring higher approvals, and consequently increases uncertainty.

How Does This Affect Sales

The constraints imposed by the nature of selling services creates two pressures on the sales motion

1. Increase Predictability: Any bench time is forever lost. So you need to be able to time the closing of deals to availability of the capacity. This can be done in multiple ways. Longer contracts, support or manages services work can really help with increasing predictability.
2. Bigger Sales: Your cost and duration of sales are going to be high anyway. So selling small deals without a plan for follow up business is not worth it for the business. Bigger sales will increase the sales cycle but the increase is sub-linear. So it is still worth it.

High Growth, Highly Specialized

The problem becomes even worse once you consider a high growth and highly specialized company. A high growth company has to continuously bring in new business which is by definition unknown and hence higher uncertainty. You have to prove your value to parties that you haven't worked with before. Similarly a highly specialized technology services company creates constraints on delivery. You may not have talent readily available and have to grow your own talent through training. Which means delivering to your standards requires hiring well in advance. So a failure by the sales organization to grow will result in many people sitting on the bench.

Operational Discipline In Pipeline Management

There are numerous strategies that founders of tech services companies can employ to alleviate these pain points - better credentials and marketing, improved packaging of solutions, recurring revenue, etc. All of these are helpful in reducing the pain. However, one fundamental truth remains for the founder of a tech services company: you must have excellent operational discipline in managing your sales pipeline.

To maintain your growth rate, you will need to operate close to the edge. You will need to ensure deals close just in time as the capacity is made available, no more no less. Deals will take a long time to close because of the size of the deals, making accurate predictions challenging. Sales will need to make commitments to the rest of the business in particular delivery, which will need to assume fixed costs today under the expectation that deals will close tomorrow. No matter how good every other aspect of the business is, if you lack good operational discipline in managing your sales pipeline, you will have catastrophic disasters.

This operational discipline is achieved through building a data-driven sales culture. You have to be looking at the right metrics that tell yo uwhat you should do today to make sure this quarter hits, the next quarter hits, and the quarter after that hits. New week we will continue this discussion, delving into the key metrics to monitor to ensure your pipeline is healthy. Follow us to make sure you don't miss the next post