Decorative

March 12, 2021

What Founders Think Investors Want to Hear Part 1: "No Historic Sales & Marketing"

Insights

This blog is part our recurring series “Friday’s on Recur” featuring Co-Founder of ASG Jake Brodsky, covering what’s happening in the market and common Founder questions about growing, selling and leading a SaaS business.

I have talked to roughly 3,000 business owners over the last few years and have learned a few things about Founders telling me things that they think I want to hear as an investor.  One of the most popular ones to pop up is that “the next buyer has a tremendous opportunity to grow the business if they just invested in sales & marketing, something the company has never done historically.”  A lot of times, that means the business has never had any sales or marketing professionals.

On the surface, that makes total sense, right? Founders (especially bootstrapped) are light on capital to invest in the business, and Sales and Marketing require both a team to run it and marketing dollars to spend. As an investor, I have capital.  We can use our investment in your business to pay sales and marketing professionals.  Generally, sales and marketing brings in more revenue, which grows the business.  We like growing businesses.  So where is the fault in that?

We are not gamblers.  We’re investors. 

Yes, there can undoubtedly be opportunities where we take risk to implement operational changes to a business to increase growth rate, which can sometimes mean implementing a sales and marketing playbook to unlock growth.  But if you asked 100 investors if they’d want to buy a company that has never proven its ability to do proactive sales and marketing or one that has already demonstrated an ability to do this, which do you think they choose? The one that just needs some gasoline poured on the fire, not the one that has two sticks to rub together to create an ember. 

Hearing that there is already a sales engine in place allows us to look at underwriting improvements and scaling, two things that get investors excited about wanting to own a company.  Those are generally changes that can be made more quickly than starting from scratch.  In some industries, the lag time of creating infrastructure around sales and marketing means you don’t see the return on that investment for months or years.

Return on investment is something we measure at every facet of the process, which has its biggest impact on the calculation of valuation.  If we know the sales engine is proven and it requires $1 in to create $3 out, we can measure and underwrite the scaling of that.  When we have to create strategy and teams from scratch, our return is unknown. 

Like I said, we’re not gambling.  We want to invest, or bet, on things that we know are going to work.  While we can have as much confidence in the world that “we’ve done it before we can do it again”, there are a ton of things that can and often do go wrong in these situations.  We would take a lower variance return, meaning we know we’re going to make 3-5x our money, versus taking a flier on a 1-10x return of capital.

Sometimes, you don’t have the option to present a scenario of having a fully proven sales and marketing funnel, and that is ok! 

Instead of saying “we’ve never done sales and marketing”, think more about what might constitute as sales and marketing activities that you can bring up that have either worked or not.  Have you gone to a trade show or conference? Did anything come out of it?  Did you redo your website or start bidding on keywords on review websites? 

Feel free to share that investing in sales and marketing hasn’t been a priority, but think through and share the instances where you have dipped your toe in the pool.  It will help!

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