Startup companies must balance lead generation efforts to fill the buyer pipeline with the need to closely monitor the budget. This can be a difficult challenge — creating opportunities that will result in cash flow with limited cash on hand. Read on to learn how Scale conducted a test, what went into the decision-making process, and why the test led to $500,000 in revenue, a 20% teleprospecting connect rate and $5 million in venture capital funding within six months.
Scale Computing, bootstrapped by a group of entrepreneurs, met this challenge with a dual-track test with two lead gen vendors.
by David Kirkpatrick, Senior Reporter, Marketing Sherpa
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Startup companies can face dueling challenges. The need to begin generating leads to fill the buyer pipeline and turn those leads into cash flow for the new company is potentially offset by a lack of capital resources — in both personnel and budget.
Scale Computing faced just that issue as a fledgling company founded in 2007 by a group of entrepreneurs. The founders completely bootstrapped the development of the company, and immediately created a data storage product that they began selling to mid-market firms.
However, because the company had yet to seek venture capital funding, it had very little budget for expanding its operations with additional developers, salespeople and marketers.
Patrick Conte, Executive Vice President and General Manager, Scale Computing, said this situation led to two interrelated business issues. One, the company needed to obtain outside funding to expand the operation. Two, it simultaneously needed what he described as a “credible pipeline and funnel of opportunities” both to drive company growth and to present the company as a valid investment by venture capitalists.
To provide a boost to the lead generation efforts, Scale Computing decided to test outside lead gen vendors. This case study looks at that process, including an interesting method of funding lead gen on a tight budget, and how the eventual winner of the test provided $500,000 of the first $900,000 in revenue at Scale Computing.
The basis of the vendor test was teleprospecting lead generation.
Step #1. Enable the chosen vendors when you set up the test
Scale Computing chose two vendors to test. One company was a large analyst firm with an outsourced lead generation division. The other was a smaller, more specialized lead generation firm.
The test lasted one month, and each vendor was provided with scripted talking points.
Conte added, “We did training. We sat down with the teams that were going to actually be doing the dialing, and we looked at their call scripts, looked at their lists, and verified their vertical markets.”
Step #2. Determine target audience test parameters
An important element of the test was selecting the target audience for the teleprospecting. Instead of providing the vendors with specific targets, Scale Computing allowed each company to select its targets based on filtering conditions provided by the Scale team.
The starting parameters for ideal Scale Computing customers were based on its scale-out storage solution and customer size based on the company’s ability to deliver a certain amount of storage.
Both vendors received the same target parameters:
Company size and class
Conte said the corporate size Scale sought was in the 50-500 employee range, but with a small IT staff.
“Five or less IT professionals, and no specialists — no storage specialists,” he explained.
Scale Computing outlined multiple regions across the United States.
- Local government, such as county and city
- Banking, credit unions, and savings and loans
- Steel manufacturers, auto parts manufacturers, and small electronics manufacturers
- Community healthcare, including local hospitals
- Professional services, such as accounting and law firms
Step #3. Analyze results of the test
Scale Computing looked at several metrics in the test: touches, connection rate and revenue generated.
Despite the tested lead generation efforts being based on teleprospecting, for the purposes of the test, Scale Computing considered a “first touch” not only a connected phone call or a voice message left from a call, but also an email sent to a prospect.
Over the month-long test, the smaller lead gen specialist achieved:
- 4,200 touches
- 11% connection rate
And, the larger analyst firm with a lead gen division achieved:
- 3,100 touches
- 9% connection rate
Conte stated the connection rate was significant, because the higher rate represented a better data set created by the smaller specialist company. This was based on Scale Computing’s management having previous experience with outsourcing lead generation efforts.
Regarding the bottom line, Conte said the smaller company not only produce more touches and a better connection rate, but those connections turned into about $50,000 in business over the month.
The larger firm closed $8,000 in business.
Step #4. Take vendor cost into account
The month-long, dual-track test produced definitive results from a lead generation and revenue perspective, but the final element involved looking at the overall cost of engaging each vendor over the long term.
This last decision-making process also produced a clear choice for Scale Computing.
Cost was a primary issue because of the startup nature of Scale Computing at the time of the test. The company needed to effectively fill its pipeline, but in a manner budget-wise that allowed the company’s balance sheet to be attractive for venture capital funding.
Conte said the larger firm required a paid-for contract for the month-long test, as well as for any further engagement with Scale Computing after the test. A difficult position for a company looking to preserve its cash while filling the buyer pipeline.
The smaller specialist company was willing to take equity in Scale Computing in lieu of payment for the test and for at least an initial engagement as Scale’s lead generation vendor.
The equity arrangement combined with the actual results of the test left the smaller lead generation specialist as the clear winner of the test.
Conte said, “(The smaller company) ended up being superior in the quality of dials and data, and also it was a big help that they were willing to take equity in the early stages.”
Conte added that the equity arrangement made the two company’s relationship more a partnership than cash-basis vendor contract, and thought that fact might have provided some motivation for the smaller vendor’s success.
Step #5. Begin adding additional programs and a service-level agreement
With the lead gen vendor chosen, Scale Computing began seeing a level of success that led the company to begin expanding the role of the vendor.
“For example, a couple of things we have done with them is (revisiting) leads and opportunities that have gotten stale for one reason or another,” Conte said.
He continued, “We put a campaign together, and asked them to do dial downs on those (opportunities) and go back to them with new information and find out if those opportunities are still in place.”
He added these campaigns involve hundreds of prospects and multiple potential dials to those prospects, so Scale Computing wanted to see some positive results before extending the teleprospecting program.
He added the relationship is ongoing with the vendor, with regular training and changing of the call messaging based on particular marketing campaigns and product releases or promotions.
Another element added to the outsourced lead gen effort was a service-level agreement (SLA) based on dials with the vendor.
Conte said, “You cannot mandate connect rates. You can mandate the dials, the touches.”
He explained, “We use their activity to gauge connect rates, conversion rates, appointments set, and can get some data on which types work best. This is one area that activity is most important, not results, because each campaign is a test of sorts to see what works.”
The key result for Scale Computing from the process was finding a successful lead generation vendor.
Over the first year, the vendor built a $2 million sales pipeline, and Conte said the vendor contributed $500,000 of the first $900,000 in sales at Scale Computing.
The vendor’s KPIs include:
- Connect rates as high as 20%
- Conversion to opportunity of 11%, and close rate of 6% during the month-long test
- 50% six-month close rate on opportunities from the test
Conte explained, “It took us six months to close those, but the leads stayed warm, and we worked our way through them. I think it showed the quality of the effort (from the vendor) and the quality of the data.”
One final result: because of the strong pipeline built by the new vendor, Scale Computing was able secure a $5 million initial investment within six months.
With this funding, the company moved the new vendor from the equity-based deal to a cash payment contract.