If you want to dominate a market start by building a sales machine

I've never been fond of a team that relies on a star player to carry them forward. They may win a few games here or there, if they're lucky they'll make it to a championship but they'll never build a dynasty. The teams that become dynasties do not rely on a key person for performance. Dynasties are machines. They are driven by clear and focused processes, principles, and proven strategies to deliver success consistently and sustainably. People from the outside may think it's luck or try to simplify their success. "It's just because they did X" or "We'll it's really all just because they have Y on the team". The reality is what they've built is a machine that is greater than any one person and is carefully designed to engineer success.

Building a market-dominant, growth-oriented business is just the same. Nearly every business that has achieved this has been structured that way. Not one of them has a sales strategy that consists of "Oh we have this one sales guy who's just phenomenal". There's nothing wrong with good salespeople, but even the best of them are still operating with 24hour days. What happens if they leave tomorrow? Does you're success go with them?

I was on a call the other day with a leadership team talking about changing their approach to marketing and sales. To their credit they realized that just having a good brand and waiting for the phone to ring was not going to drive the growth they're looking for. The challenge was that their initial plan was to split the time of various division managers so they would spend half their time on sales and the other half running their divisions. So I shared with them the following org chart of a theoretical B2B SaaS company for contrast.

Devoting a portion of one person's time for all sales functions was not going to get them very far. In a B2B SaaS environment they actually dedicate not just a single person but entire departments to individuals stages in the sales funnel. Think about that in contrast... which company is better positioned for growth?

Now that's a bit of an extreme example and you might be saying "Well that's not us. We have sales team, we have a marketing department." Sure but that's not enough either. To truly scale a company, to drive an order of magnitude shift in growth, requires a totally new level of sophistication compared to just doing more of the same sales activities.

A sales machine operates just like any other machine. Machines have a well defined purpose and the most efficient ones have a single purpose. Machines have an engineered process that runs just the same no matter who the operator is. Machines are driven by predictable numbers; so many inputs results in so many outputs. You run the machine for X hours to get Y number of outputs. There's no guesswork, there's not serendipity, there's total control over your outcomes. That is what we strive for in a sales and marketing organization if you want to truly drive growth and market dominance. You can essentially reduce all of the people and activities down to a mathematical model and show how investments in those resources results in revenue increases over predictable time periods.

Navigating the Funding Wars

I think people sometimes forget that the flip side of only 1 out of 100 companies getting funded is that as an investor that means 99% of your job is saying "no". As you might expect, I find that there are a lot of reasons to say "no". Some reasons make the decision super easy like "I'm pretty sure this person is a legitimate con-artist". In other circumstances the decision can be much more difficult but deep down I know it's the right call. One of the hardest for me is when I come across a founding team that's checking all of the right boxes but it then becomes apparent they're heading for a funding war.

“I personally know founders that have sold their companies for $300MM+ but still need to keep a day job because the company was caught in a funding war and they ended up with a nearly worthless position upon exit.”

One of the things we pride ourselves on is that, as early investors, we want to align our incentives with the founder so that if our fund is successful, they're successful too. That basically means that during an exit, the value of each of our pieces of the pie is a really big number. By contrast, a funding war is perhaps the most common way for both of us to get screwed even if the company turns out to be incredibly successful.

A funding war is basically a way of saying whoever raises the most amount of capital the fastest wins the market. Sometimes this is the unavoidable fate of a particular market. This usually happens when you have a widespread market problem, that's easily solved by software, that becomes a very obvious opportunity to people in Silicon Valley including those that don't have direct experience in the industry. The competitive barriers to entry are low, the potential reward is very large, and in the beginning it just looks like an open field to run.

As new entrants begin to join, founders can find themselves in a position where they have quickly built a great product, sales are growing organically 20%+ each month, and then over night the big VC floodgates open and you start to see competitors raise $100MM+ financings. The natural inclination of founders in this position is to fight fire with fire and try to outgun everyone. If you're the company with the biggest war-chest that's great but for everyone else that's a loosing proposition. It's the reason I say "no" in these situations. I can see that the founder is heading down a path where it'll require us to invest a huge amount of money only for both us and the founder to get screwed on returns at the end of the day.

My advice if you find yourself in this situation is to instead find a corner of the market that you can own; where you have a natural competitive advantage over the other guys raising big dollars. If the overall market is big enough then even a small corner could be in the $100MM's. If you can grow in that space capital efficiently, then whenever the big guy emerges from the funding war victorious, they will naturally be inclined to buy you out at a decent return to you to expand their share of the market.