The Physics of High GrowthPhysics tells us that changing the course or direction of a business takes far more than what most companies are prepared to invest.
What it takes to send a Rocket to the Moon
Imagine what it would take to safely send three astronauts to the moon and back. There is the weight of the astronauts, their life support system, instrumentation, the capsule they are in, and some way to land on the moon and explore. That comes to around 22,550 lbs. total.
What it takes to get that payload to the moon and back is something totally different. It turns out that the total weight of the rocket that is needed is about 6.5 million lbs.
In other words, 99.65% of the total weight is required to take that net payload of 22.5K lbs. to and back from earth. As crazy as that sounds, NASA actually came up with an ingenious design to reduce the total weight to that. The Saturn V rocket has three stages, with each stage focused on accomplishing one thing, and then basically being discarded to reduce the remaining payload. Here are some fascinating numbers:
- Weight: 5.1 million lbs. or 78% of the total weight
- Approximately 72% of the fuel and 78% of the total weight was to carry the payload 5% of the distance.
- Weight: 1.06 million lbs. or 16% of the total weight
- Approximately 22% of the total fuel is used in this stage to take the remaining payload 19% of the way
- Weight: .262 million lbs. or 4% of the total weight
- Approximately 6% of the total fuel is used in this stage to take the remaining payload 75% of the way
Think about this for a minute:
- 94% of the entire fuel is used up to take the astronauts only 25% of the way. That’s what it takes to overcome inertia and achieve the necessary escape velocity so as to actually reach the target.
- But once escape velocity is reached, only 6% of fuel is needed to make 75% of the journey!
What we saw in the example of the rocket ship is Newton’s first law of motion at work:
“An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”
In the case of an existing business that is growing at a certain pace a year, it will continue to grow at that pace unless something different happens—“ an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”
The First Law of Motion tells that it will take a significant amount of effort to change speed and direction of a business. An “unbalanced force” is necessary to change that. Let’s see how much of new force we need.
The Funnel Math of High Growth
The principle behind the launching of a rocket ship holds true for growing revenue. The calculations are however, different. And fortunately, they are simpler.
SOMAmetrics uses a Four Funnels approach to define the marketing, prospecting, and sales efforts needed to achieve a new level of sales. Some assumptions are made to illustrate the funnel math calculation:
|Current Revenue ($)||10,000,000|
|Targeted Revenue ($)||12,000,000|
|Net growth needed ($)||2,000,000|
|Average Deal Size ($)||50,000|
|Avg. No. Won deals needed||40||40 wins @ $50,000 average = $2million net new|
|Avg. closing ratio||20.0%|
|Sales Opportunities needed||200||Opportunities needed to close 40 deals|
|Prospecting conversion ratio||10.0%||Number of opportunities converted from calling efforts|
|Marketing conversion ratio||2.0%||Number of opportunities from|
|Blended conversion ratio||6.0%||Average conversion ratio of marketing and calling|
|Marketing/Prospecting Leads needed||3,333||Total prospects needed to reach target|
|Avg. touches per prospect||20||Calls and emails per|
|Total touches needed||66,667||Total touches needed to reach target|
The above chart tells us the effort required to generate $2million in net new revenue.
- We will need about 40 closed deals, each an average size of about $50,000.
- At an average closing ratio of 20%, we will need 200 sales opportunities.
- In order to get those 200 sales opportunities, we will need to touch around 3,333 prospects each about 20 times, or a total of 66,667 touches in a year. That’s a lot of emails and calls.
As in the case of the Saturn V rocket, we need a lot of effort (66,667 calls and emails) to get to some result (produce 200 sales opportunities for the sales team).
However, once we get things going (achieve escape velocity), it takes less effort to gain more revenue. These 40 customers may end up spending $500,000 or more each over their lifetime. They may give us other referrals, and that will come at lower cost and effort than going after a new customer from scratch, and their testimonials and case studies would make it easier to get new customers.
Yes, once we achieve escape velocity, it will take a disproportionately small amount of effort to get larger amounts of revenue (6% of fuel to go the rest of the 75% of the journey).
The big question is—where do we get the resources to achieve that escape velocity? Where will the 94% of fuel come to get us started on our cruising speed?
You can acquire a number of automation tools, not to mention hire a dozen new expert and mangers for them. In other words, build your own spacecraft to go to the moon.
Or, you can focus on your core business and leave the rest to a partner that already has made the necessary investments. Buy a ticket for a ride in a rocket moon.
After all, what you really want is to make sure that your sales reps have a full pipeline of high quality leads so they can focus on closing as many as possible. By working with a partner that has already made the investment, you can make your limited resources count for more and begin realizing results much sooner than you would if you had to setup the whole thing yourself.
Please contact me if you have question.