Extend the Runway: Why Founders Are Flocking to Outsourced Sales Teams for a Higher ROI
Do you know how many new startups become profitable?
So, what separates the 40% of successful startups from the failures?
Focusing on ROI.
Every successful startup founder asks themselves this question almost every day: what’s the return on investment?
Whether it’s looking at investing in a new business division, contemplating a marketing campaign, or introducing a new product—ROI is everything.
One simple miscalculation and a founder could be out millions of dollars, if not the company as a whole.
One of the most challenging aspects of optimizing ROI is looking at staffing.
Many founders have already made some tough staffing decisions in an effort to increase their return on investment. Sales outsourcing has proven to be a way for startups to sustain lead generation and customer acquisition processes while weathering the information recession as well as the storm to come.
There are five main factors that justify the shift to a leaner sales team with external support from an outsourced sales partner that will most likely continue for the foreseeable future.
The US Economy is Shrinking into a Recession
The US economy is shrinking into recession.
In fact, we’re technically already in the recession according to one of the most common definitions: when Gross Domestic Product (GDP) is negative for two consecutive quarters.
The reality is that the US economy has been shrinking back for quite some time. As of the end of the second quarter, it seems we’re finally due for a full-blown recession.
So, why are we lucky enough to go through a recession now?
Simply put—the entire global economy is slowing down. And—American exports are freefalling as a result.
In other words, US businesses as a whole are rapidly losing money and they’re not able to compensate in other areas of their business to keep things afloat.
So, what does this mean?
Unemployment is on the rise. We’re currently sitting at 3.7% unemployment. In fact, it just increased for the first month of the year from July (3.5%) to August (3.7%).
While this is nowhere near the unemployment rate of nearly 15% in April 2020, we can be near certain that it will continue to rise further in the coming months.
On top of unemployment rising, we’ll also see consumer spending continue to decline. Many people who once considered themselves to be middle class may find themselves struggling to survive as their socio-economic status declines.
If you’re worried for your own financial security or of someone you love, you should hold onto your seat as the ship enters the heart of the storm.
Startup Valuation Indices Are Sharply Declining
Launching a startup comes with incredible risk.
However, the risk may be higher or lower depending on when you launch.
For instance, if you founded a startup at the start of 2008, you would have just launched before the greatest economic downturn since the great depression.
Your odds of survival would have been drastically lower than if you launched in 2011, after the peak of the recession was over.
One of the best ways to track the overall risk and health of startups is by looking at the startup valuation index.
This is a statistic that measures the overall market value of all startups.
These indices are used to help investors and venture capitalists with their decision-making when it comes to investing or buying startups.
There are two common startup valuation indices: venture capital-backed and self-funded.
Self-funded indices gather data from company owners or employees, while venture capital-backed indices gather data from venture capitalists.
Since 2016, indices from both types of startups have been rapidly declining.
In 2022, startup valuation indices are dropping even more. The BVP Nasdaq Emerging Cloud Index is down nearly 50%.
Venture Capitalists Are Cutting Investments
Because of the sharp decline in startup valuations, capitalists have begun cutting their investments further.
Instead of planting money into new startups, many VCs and other investors are choosing instead to invest more into their existing portfolios to ensure they have plenty of runway.
According to an exclusive email from Y Combinator to company founders, they stated, “If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.”
So, why aren’t investors planting their money into new portfolio companies?
Well, if you knew that the company you put your money into would have a lower valuation in 6 months, would you invest in it?
The same holds true for most investors. They’d rather wait till the recession comes to a close as they don’t want to lose money—even in the short term.
Startup Survival Rates Are Dropping
Now that startup valuations are dropping and investors are putting their money elsewhere, it only creates a deeper downward spiral.
The result is that startup company survival rates will drop.
The average startup company’s survival rate after 6 years is 35%.
However, without proper funding—among many other factors—many of these startups simply won’t make it. This could mean a 30% or even 20% survival rate until the recession is over.
The startup survival rates are dropping, and this is a worrying trend for founders.
Fear of Arriving Default Dead
In the coming months, many startup founders and CEOs will be forced to make incredibly difficult decisions based on their weakening cash flow.
The main question will be: will they become profitable before their cash runway dries up?
Simply put—will they arrive default alive or default dead?
The truth is that many startup founders fear coming in default dead simply because they couldn’t get funding through the right investor.
And, while securing funding may seem like the perfect life reserve during the storm, that’s all it really is—a life reserve.
If you’re stuck out at sea in a storm, a life jacket may keep you alive for a little longer, but without a proper boat, your time will be cut short.
Rather than looking for short-term safety, founders should be looking for alternative solutions by looking at the root of their problems.
For many, it’s not being able to generate enough consumer interest quickly enough—aka lead generation and customer acquisition.
One idea is to hire an outsourced sales team. This is one of the best ways a startup can zero in on lead generation without having to give up a ton of time, money, or resources.
Sales outsourcing is especially effective in down markets. It’s a high-ROI strategy for founders to weather the economic storm by improving lead generation and customer acquisition while keeping costs low.
Rather than just grasping at a life jacket of funding, you may be better off hopping onboard an outsourced sales team lifeboat to keep you afloat during the storm.
B2B Sales Outsourcing is Trending in Startup Sectors
In order to buy themselves a runway for takeoff, startup founders are laying off inflated sales teams. To replace them, they’re looking to hire external lead generation and sales partners like Martal.
This is effective for companies of all sizes—as we’re seeing this trend across the board, from small startups to enterprise companies.
The main reason startup founders are looking to B2B sales outsourcing teams is that they’re able to save up to 65% in sales costs.
So, what exactly is sales outsourcing?
Simply put, it’s the process of hiring a third-party sales team to manage and execute sales activities for a company.
Overall, sales outsourcing can be a highly effective way for startups to increase their leads, customer acquisition, and overall sales volume.
It not only saves you money, but it also saves you time since you don’t need to actively manage an in-house sales team and all the costs associated with running one.
Is Sales Outsourcing Sustainable Through a Recession?
Not only is sales outsourcing sustainable through a recession… but it’s oftentimes the main factor sustaining a startup during a recession.
In fact, lead generation and sales as a service businesses are forecasted to flourish through this entire recession and beyond.
According to an article by The Sports Forward, the industry is set to grow to $3.7 billion by the year 2028.
This is a 32% increase from 2021’s market size of $2.84 billion (4.0% compound annual growth rate).
One of the best ways sales outsourcing can be sustained through a recession is by ensuring the vendor adheres to specific guidelines.
The key to a successful partnership with a sales outsourcing agency is to maintain transparency and accountability between both parties.
During a recession, outsourcing sales can be beneficial for startups since it allows founders to focus on other areas of their business while still generating revenue. Additionally, by outsourcing sales, startup founders and CEOs can free up resources so that the company can better focus on its core competencies.
Recession Cutbacks Lead to Lower ROI in the Long Run
The reality is that every startup founder wants to save money.
During a recession, this desire becomes even more apparent.
However, there are times when you need to invest more in order to generate a real return on your money.
If you’ve ever heard the term “penny-wise and pound foolish,” you know just how important it is to draw the line between a smart investment and a poor one in business.
This saying applies to sales outsourcing. One way to sustain the uncertainties and market fluctuations of a recession is by leaning on an outsourced sales team. Oftentimes, they’re able to provide additional sales while keeping costs lower than an in-house team.
On the other hand, many startups will look to cut back in every way possible. One of the biggest mistakes during a downturn is to cut parts of your business that will sustain you.
Lead generation and customer acquisition are areas you don’t want to reduce.
When a recession hits, founders often focus too much on cutting expenses that they lose sight of their long-term goals. Measuring your ROI is a long game, especially when it comes to generating new leads and growing your sales volume.
If you choose to cut back on your sales team budget during a recession, it could be the very thing to come back and bite you, leaving you to throw in the towel for your startup.
4 Startup Companies That Survived a Recession by Outsourcing
Outsourcing always seems like a risky idea at first.
The most common objection is that the outsourced vendor just won’t be as invested in your company as you or your in-house employees are.
While that may be true for some outsourcing companies, it certainly isn’t the case for all.
In fact, during a recession, hiring an outsourced division for your company might be the best business decision of the entire downturn.
In 2008, many startups closed down shop. In fact, nearly 1.8 million small businesses went under.
But, there were some winners. Some of the biggest companies in the world today actually survived the recession in part by outsourcing.
Here are a few startup companies that got ahead during a past recession by outsourcing a part of their business:
1. Apple (1975)
Apple is currently the most valuable company in the world, with a market cap of $2.5 trillion dollars.
However, they, unfortunately, launched at the height of the 1973-1975 recession.
Apple is well known for its outsourcing strategies. In fact, they outsource nearly their entire manufacturing to China. Nearly one in three Apple engineers are outsourced.
It’s no surprise that outsourcing is one of the primary reasons for their success.
Tim Cook—Apple’s CEO—even believes the company became stronger during previous economic downturns like the 2008 recession.
2. Microsoft (1975)
Another child of the 1973-1975 recession, Microsoft is known for its massive outsourced workforce.
Microsoft’s Chief Procurement Officer—Michael Simms—stated that their outsourced vendors are the best experts in their industry.
Due to their outsourcing strategy, they were able to remain one of the major tech companies through the peak of the 1973-1975 recession.
Through the current recession, Microsoft continues to contract part of its operations to sales companies in the U.S.
3. Slack (2009)
Slack is one of the biggest players in workplace communication services. Not only were they founded during the Great Recession—but they actually came out ahead.
As one of the most widely used remote team software, Slack outsourced their logo creation, app design, and even marketing efforts to establish themselves early on.
Slack’s put all their chips in with outsourcing, as a major part of their strategy is hiring global talent to build and refine their organization’s structure.
4. IBM (1911)
Believe it or not, IBM was also once a startup—over 100 years ago. IBM utilized outsourcing as a part of its strategy to grow during the “Panic of 1910-1911”.
They’ve created a major impact on the tech industry for over a century. While IBM is known for offering outsourcing services themselves, they’ve been extremely successful in outsourcing several areas of their business to vendors.
6 Ways Outsourced Sales Teams Cut Costs & Increase ROI
If you want to keep your startup afloat during the recession, then you should seriously consider outsourcing part of your company to outside vendors.
This is especially impactful when you hire outsourced sales teams.
There are several reasons why a startup CEO may want to outsource their sales. Some reasons are to increase sales volume quickly, reduce costs, or create more time to focus on other aspects of your business.
Here are 6 reasons outsourcing sales can cut costs and increase ROI:
1. Lowers Cost to Generate Sales
Whether times are tough, or they’re good, it’s almost always in a startup founder’s best interest to reduce costs in some form or another to get to profitability.
While many startup founders think outsourcing a division as important as sales will be extremely risky and costly, it’s almost always one of the best ways to cut costs.
The reality is that in-house sales teams are often more expensive than outsourced sales teams. With an outsourced sales team, there are major costs that disappear like employee training, office real estate, office equipment, employee benefits, and more.
Outsourcing is a great way to slash overhead costs while still running an impactful sales team.
2. Increase Revenue & Profits by Leveraging Data
When a company chooses to hire an outsourced sales team, they’re not just acquiring an expert sales team. They’re acquiring new sales data and expertise.
Sales vendors only do one thing: generate sales. That means hiring an effective sales outsourcing team means you’ll be working with top-notch sales teams, strategies, and technology that you wouldn’t have had access to otherwise.
Outsourced sales vendors typically have top-tier technology and customer insights that other companies don’t have.
Outsourced sales teams can maximize their sales opportunities and increase revenue with sophisticated technology that gives insight into deeper customer data points.
3. Sales Outsourcing Helps You Reach New Markets
Whether you’re a small, medium, or enterprise business, you typically have major gaps in your sales force to reach certain territories and industries.
Plus, even with dozens of business leads in different industries, most companies are unable to pursue the majority of them due to time and resource constraints.
An outsourced sales agency can help you reach these new industries as they typically have the time, resources, and expertise to tap into new markets.
4. Greater Performance
As mentioned above, outsourced sales teams often have access to industry expertise and advanced technology that most in-house sales teams just don’t have.
Thanks to these additional sales-specific resources, outsourced sales vendors offer greater opportunities to optimize performance on all levels.
This includes optimized lead generation, customer acquisition, customer data, and, of course, sales volume.
Another reason performance often increases through an outsourced sales team partnership is that the vendors have access to millions of data points from their different clients. They’re able to gather cross-industry sales insights in blind spots from one company to the next.
5. Optimize Product Launches
One major advantage startups have in outsourcing sales is due to the rapidly changing product offering environment.
Startups typically go through several stages of product launches in the first few years. Many times, these product launches can be critical to the company’s current and future success.
Sales outsourcing companies offer a great opportunity to test out new campaigns and promotions.
For instance, startups can utilize outsourced sales vendors to gather initial feedback on new products they’re testing. From sales vendors’ results, startups can choose to take the product to market or iterate on it before officially launching.
6. Break Free From Technology Constraints
One of the reasons certain companies survived the last recession is due to reliance on advanced technology.
In any age of transition, it’s the startups who are using outdated strategies and technology that oftentimes are left behind.
Hiring an outsourced sales team is a perfect way to fast-track your startup’s technology. Rather than investing tens of thousands of dollars into top-of-the-line sales technology, you can gain access to the best tech by simply hiring a top-tier sales team.
But, that’s not all. Even more important than the technology itself is the ability to understand and operate it. An outsourced sales team can offer up-to-date sales and lead generation technology that they know how to use effectively to take your business to the next level.
The ROI Runway for Startups Is Getting Shorter
As we creep further into the heart of the recession, it’s getting harder for startups to survive.
The shrinking economy is squeezing the life out of startups regardless of their mission.
If founders are to weather the storm ahead, they’re going to need to realign their efforts into the highest ROI activities.
Generating new leads isn’t something startups should cut back on. Thankfully, when you find an effective sales outsourcing partner, you can have your cake and eat it too. The right sales outsourcing vendor can help you cut costs all while increasing new leads—even during a down market.