The Primary Learning Curve for Growth Companies: Sales Cycle

In the 1960s, a then much lesser known management consulting firm called Boston Consulting Group made a name for itself on a relatively small set of powerful business ideas. Perhaps the shining example is the BCG Growth Share Matrix. However, BCG also received notoriety for the popularization of the strategic impact of the "learning curve" or the "experience curve." You can learn more here. While the notion of economies of scale has been around for a long time, BCG did a great job of giving an explanation for one major cause of economies of scale--learning or experience.

Typically BCG related their thinking to manufacturing or product creation processes. Their basic hypothesis was that the more product you make, the better you get at making it efficiently. This means that the production cost for each unit of product goes down as the company sells more product.

I have been thinking about tweaking this model to relate it to the major area of learning for most startups: sales. I have seen in my own entrepreneurial endeavours that there is a striking similarity between the learning curve effect on production to a similar effect for many growth companies on sales cycles. Specifically, that the more product you sell, the quicker your sales cycle. I bet that you could actually track this for a startup. The y-axis of the graph would be sales cycle (measured in units of time) and the x-axis would be cumulative units sold. I would be that for most startups the curve would slope down according to the familiar BCG experience curve.

What are the implications of this. Not totally sure at this point. I sometimes wonder if there is a chicken-egg issue with this whole line of thinking. Put another way, does the sales cycle start to fall because the management team manages it down (by removing bottlenecks, figuring out efficiencies, etc.) or does the fact that a company is selling more cause the sales cycle to fall, or some combination of both.

On a practical note, it does seem like getting the sales cycle down is one of the central challenges of growing a company. Obviously there are lots of things you can do to try to manage the cycle down including:

• Getting more leads so that your sales team can focus only on higher quality leads
• Qualifying your leads better so that you focus only on higher quality leads
• Hiring more sales people
• Etc.