Expenses Climb Faster than Revenue

Overview-A Challenging Environment

A Challenging Environment

 

Young software companies today face an extremely challenging market. Against the backdrop of significantly reduced IT spending in a recessionary economy they face the additional obstacles of-

Limited Capital-venture capital is a scarce resource since the Dot.com bust, and is doled out sparingly to new companies.

Limited Sales/Marketing Resources-a consequence of limited capital.

Limited Visibility in the Market-even though a well-planned launch can create initial “buzz” in the market, it fades quickly because of the number of companies clamoring for mindshare in a limited buying audience.

Limited Competitive Strength-unless a product offering is distinctly unique, young companies face large incumbent competitors having an overwhelming mind and dollars share of  prospective customers.

Limited Time-probably the most difficult obstacle to overcome, i.e. how quickly can a young company reach critical mass and “staying power” before running out of money?

A typical scenario found in today’s young company environment is one characterized by a sales expense curve that is rising exponentially faster than the corresponding revenue curve.

The chart at right  illustrates this dilemma using common assumptions

1. adding 1 headcount per quarter for 3 quarters

2. typical sales representative productivity emerges 2 quarters beyond a hire date and sales territory assignment.

This is a very traditional staffing model, which unfortunately is outdated.