There is nothing more magical and mystifying than the fine art of pipeline management in a start-up. In many cases, a monkey throwing darts at a dart board would have more accuracy than the company's sales team (hmmm...might have an idea there). The problem is that accurate revenue visibility drives activity across the entire company ranging from hiring/firing, infrastructure investments and fundraising. However, it is a slippery black box. CEO's go through the annual process of setting plan and then grind through monthly reforecasting as the year goes on. While this is an imperfect art at best, here are some best practices from our portfolio companies.
1) Pipeline Monitoring: this sounds basic, but it is essential to get the right tools in place to monitor and drive your sales team. This includes tools like Salesforce.com, SugarCRM or even Excel. More importantly, it is the processes and disciplines that you put on top of these tools that are critical. I am a firm believer of not just showing the handicap bucketed sales candidates by month (90%, 75%, etc) but also using color coding and such show a) upward and downward revisions (by customer) in dollar amount and b) delays or accelerations in timing of closes. Most firms just pump out the static shot of their pipeline. More valuable is the movement in this snapshot from the previous month for trends.
2) Gap Analysis: compare your monthly, handicapped forecast to your plan. I suggest using only leads that are ranked about 70% in the calculation since having $10m worth of potential leads at a 25% probability is not really a likely $2.5m month. However, $3m worth of 90%'s are. Too much fluff low down as sales folks just throw down names they are talking to. Attached is a sample pipeline that a number of our companies use (Download pipeline_tracker_sample.xls ) . As a rule of thumb, you want to have a 3 to 1 ratio of handicapped prospects to budget for any given month.
3) Realism: too many pipelines are simply wish lists with limited connection to reality. Look at historical experience on customers regarding time to contact, time to pilot, time to full deployment and assume that this will remain constant. Flag the key indicators (sending out RFP's, have identified funding source/budget, have champion, etc) and determine which are your best predictors (and which sales methodology works best for you). Assume the law of 2...twice as long and 1/2 the amount. I am a fan of looking at the pipeline from 6 months earlier. How many of the deals closed as expected in terms of time and amount? One quarter of your 25% deals and half of your 50% deals should have closed. If not, redress your forecasting or, see if individual salesmen are off and work with them.
4) Accountability: evaluate the accuracy of estimates/handicaps by salesman. Is the issue impacting across the company (change methodologies, tracking variables. etc) or is it specific to a handful of reps (work with them individually, involve other salesmen,etc). If they continue to mispredict and underperform, prune quickly.
5) Reduce the friction/cycle: the longer and more complex your sales cycle, the more difficult it is going to be accurately predict the future. Accuracy decays exponentially with time. Find ways to get "light" versions of your product/service into customers' hands, including pilots. Strip down the implementation process to be as rapid as possible. Address key delay factors in your product that keep holding up sales or pilots.
While pipeline forecasts will never be easy nor accurate, there are a lot of things you can do to greatly improve your process. Too many firms assume that it is a blackbox and take misses to plan too easily/lightly. Monitor, add accountability, analyze and adjust constantly. Either that or pay up for some quality dart throwing monkeys...