With sales traction we mean sustainable sales growth. After all, there is only so long you can rely on family and friends, seed capital or count the number of prospects. Soon you need paying customers. The value creation difference is exponentially large between a yet to be proven idea, a revenue proven venture and a business with strong sales traction.
To understand why sales traction is important we need to discuss the broad concept of sales traction and value creation.
Many companies get stuck somewhere around the $2-4 million revenue mark. Up to this point you can scale a business by keep selling individual deliverables and onboarding more people. At that mark however, processes and systematic approaches starts to become important to continue to scale profitable.
At the $5-10 million mark management skills starts to be important. The staff is growing and needs attention and steering. At the $10+ million-mark business acumen gets important for the entrepreneur to avoid becoming the bottle neck. Beyond that, leadership skills become important to motivate and engage coworkers through a layer of middle managers.
The business has a reached sales traction when sales grow steadily and sustainable throughout multiple months or quarters. Showing sales traction indicates that you are on track regardless at what mark you are. The business idea is proven, customers like it and you operate the business successfully. That is why sales traction is important for value creation.
The common concept of assessing the value of a company is to compare earnings multiples from comparable businesses. We would also discount the estimated future cash flow to reach a financial valuation. Both originate from revenues. From sales.
- A proven, reliable and predictable sales is valuable. Deserves a high valuation multiple.
- The faster the company sales grow, the higher the value because it proves that customers like it and the business is properly operated.
- The larger the company the higher the value. The is a scale effect to valuation multiples. Scales indicate that processes, work methods, organization and leadership is in place.
Sales traction is momentum. Building a continues and un-interrupted sales growth proves the business model and the execution. To make sales growth sustainable meaning independent of key individuals or one-product exposures makes sales traction attractive.
Read more: Create value with consultative sales.
How sales traction and value creation goes hand in hand
Those few large success-orders or key accounts that we all talk about are great individual achievements. But to the company, to the entire organization and to value creation they tend to be risky and onerous. Sooner or later key customer dependency challenge the long-term, sustainable sales traction that propel a business though different growth milestones.
To gain sales traction for value creation, you shall:
- Ensure that offerings are scalable and semi-standardized.
- Make sure lead generation, prospecting and sales operate continuesly.
- Systemize the sales and marketing process.
- Scale the sales organization.
- Produce new key accounts to complement your most important accounts.
High-risk ventures and non-mature businesses have one thing in common: sales fluctuate. This cause concern to experienced entrepreneurs and investors, banks and boards. No-one likes uncertainties. Planning the future is difficult anyway. Everyone likes sales traction with a proven, reliable, predictable and continues sales growth.
There are two schools. Those who believe in measurable value creation and those that feel that something creates value. However, to build long-term value creation without sales traction is like building a bond without being present.