Building an Enduring New Business Pipeline
by Jim Cantrell, President & CEO, SSD

Inevitably, we receive several phones calls a year from prospective clients looking to find new business in a relatively (and often unrealistic) short period of time. Universally, these individuals are hoping for some sort of miracle to revive a depleted new business pipeline.  While it might be possible in theory to find new revenues in a short period of time, measured in months, experience dictates that this would not be a typical result.

As we have discussed in earlier newsletters, new business often requires months or years to develop depending on the size of the revenue sought.  Some general rules are that million dollar class contracts generally have an incubation period of about a year. Contracts 100 times this size might require five or ten years to develop. Thus, if the potential client on the other end of the phone is a large company, they are probably relying on larger contracts and thus their problem is quite severe and may not have a solution. Smaller companies do manage to survive such situations through a combination of layoffs and a focus on more small short time-to-sale contracts - primarily of a consulting nature.

This whole scenario, whether it be for a large or a small company, begs the question of “how did we get here?” and “how could it be avoided?”  Let’s take the first question as the starting point of this discussion. There are five primary causes of a depleted pipeline:

1. A non-existent business development effort or group. This cause is most common for small companies that have a single owner closely held ownership structures.  This kind of situation can also exist in a relatively young company that experienced strong initial successes and “got busy” with getting product out the door only to find that at the end of the project there was a lack of revenue. I call this latter effect “success myopia”.
2. A poorly performing business development function. Plain and simple, not all business development groups and efforts are effective. In fact some of them are just plain worthless. Typically, this results from a lack of accountability and upper management-level attention. Thus, a depleted new revenue pipeline will result from such non-performance and it might be too late by the time you notice it.
3. A focus on short-term objectives and business opportunities. This is common to new businesses that do not experience a lot of initial success and they find that they are “scratching around like a chicken for a living”. This is more of a character flaw, but if leaders in these situations understand that it is their short-term perspectives that are reinforcing this intolerable situation, they are able to slowly depart from this situation and generate an enduring new business pipeline.
4. A single customer focus. This is a surprisingly common situation where a business finds itself with a “patron” within the customer community but once that person or their funding goes away, so does the long-term new business. The tragedy of companies in this situation is like animals that never learn to hunt; these businesses have no clue how to competitively go after new business. This is a slow emergence situation and will take a long-term commitment to correct the inherent risk of this position. Unfortunately, most companies in this situation do not seek to fix the inherent risk in this position but rather focus on finding another patron saint.
5. A strategic blunder. Often a strategic blunder will cause otherwise good companies to abandon a good and strong traditional market in favor of “growth opportunities”. If this drastic move proves to be unsupported, it may be too late to save the company as they will no doubt have abandoned the old market and competitors will have consumed their old market share.

These discussions also provide the necessary insight into how one can avoid these blunders and build an enduring new business pipeline. The first obvious lesson is to have a proactive business development effort that is managed by competent individuals with sound strategic judgement and not rely on a single customer. This is the “80% solution”. Once you have a sound foundation, the rest of the solution is to simply have and manage an adequate volume of new business leads. 

I like to divide new business leads into three categories: short-term, medium-term, and long-term. Short-term opportunities are generally comprise less than 20% of the corporate revenue and would be expected to close out in less than 6 months. This is often walk-in business and should close at very high rates (more than 90%). The medium-term opportunities generally close in a timeframe of less than 2 years and comprise roughly 35% of the corporate revenues. The long-term opportunities will drive growth within the company and comprise 50% or less of the overall company revenue.

Every situation is different but there are some general guidelines for developing a healthy set of leads in different categories. Based on your company’s revenue model and how much of the revenue comes from the different categories, you should decide how much revenue is needed in each category. Once you have those numbers, your leads for short-term leads should be 1.5 times the annual dollar volume of short-term lead revenue.  For medium-term revenue, this number jumps to 2.5 to 5.0 times the revenue need. For long-term leads, you will need a whopping ten times the annually operating revenue requirements.

If your business development efforts are managed and leads volumes kept up, you should continue to have a healthy future in revenues. The leads volume multipliers result from our years of experience in this area and are a good guide for your efforts. In the end, a healthy revenue pipeline means more profits, less hair pulling and happier employees who are most productive under these conditions.