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How Shareholders Benefit from Disruption Selling

disruption selling for shareholders as growth strategy execution driving company valuation
Image by Gerd Altmann from Pixabay

Should shareholders care about Disruption Selling? Yes, as it boosts a venture’s valuation!

Let's look at how Disruption Selling drives company valuation in highly innovative industries using SaaS providers as an example.

The Rule of X

For years, The Rule of 40 (said to be popularized by Bessemer Venture Partners in the 2000s) was a commonly accepted combination of metrics driving the valuation of SaaS companies. The rule defines the sum of revenue growth percentage and profit margin percentage to be at least 40 as the key metric executives of SaaS providers must aim for.

Most recently Bessemer Venture Partners introduced The Rule of X where the growth rate is amplified by the factor X as a better metric for defining the valuation of a venture, reflecting the compounding effect of growth.

The Rule of X
Source: The Rule of X, Bessemer Venture Partners

Growth Inhibitors

At its very core Disruption Selling focuses on revenue hypergrowth as this is what a Disruptor must achieve over years to displace Incumbents during the limited window of opportunity before these can catch up. Once a disruptive innovation crossed the chasm into mainstream, the opportunity size explodes as the number of customers ready for making a purchase multiplies. By the time of entering the mainstream market the Disruptor’s growth potential is not limited for many years to come.

Except by themselves.

As organizations rapidly expand, the distance between the executive and the operational level becomes wider with every day. To maintain control over the business, organizations start to establish and refine control mechanisms. Unfortunately, they tend to develop control by functions, not by customers.

After a while, the venture is organized in functional silos (e.g., development, production, sales, aftersales) and these silos start to optimize themselves. Often by erecting walls around them with a limited number of doors other functions must use in order to get something out of the silo.

Over time, growth slows and profit margin increases, so the venture still meets The Rule of 40. But it becomes harder every day to meet The Rule of X.

Fast forward 5+ years and we find an organization neatly organized in deep silos. The corporate growth strategy is split into targets by function already on executive level. The functions break these targets down within their silos and on an operational level individuals focus on the functional goals they receive from their management. In isolation and with substantial friction whenever they must collaborate with other functions.

Disruption Selling and the Rule of X

In Disruption Selling we always work backwards from the customer. As a consequence we break down the revenue growth target across Target Market Segments and associated Sales Campaigns BEFORE we assign goals to the individual functions required to produce the desired outcome. This way we ensure that functions will closely collaborate on an operational level to deliver results. And this way we can monitor its execution holistically across all involved functions.

The application of Disruption Selling drives effective execution of growth strategy resulting in higher valuations

As we have established a consistent breakdown of the corporate growth strategy all the way down to individual Sales Campaigns, we now can directly see whether and how our strategy works in the market and take corrective action quickly. Reacting quickly delivers faster Product and Go-to-Market Fit resulting in higher win rates and lower discounts. Better resonating Value Propositions increase Total Contract Values, Revenue per Employee and thus margin. So, applying Disruption Selling directly improves the metrics constituting The Rule of X.

Though there is another parameter not covered by The Rule of X we deem of significant valuation impact and which we describe as Market Power.

Market Power is the risk/reward perception the market associates with a brand. It is driven by the vendor’s image as an innovator, their organizational maturity, the ecosystem they command, and the relative strength versus their competition. The higher the reward customers associate with a brand and the lower its perceived risk, the lower the discounts, and the better conversion and retention rates.

Disruption Selling provides a clear path for building Market Power via achieving higher and higher Disruption Selling Maturity Levels for both the offering and the organization in a predictable and scalable continuous improvement process.

Disruption Selling Maturity Model

Leveraging Disruption Selling for Shareholders

So how do shareholders benefit from Disruption Selling? By familiarizing themselves with the mechanisms driving the adoption of innovations, by reviewing the venture’s growth strategy for completeness and consistency, and by diving deep on the breakdown of the strategy into Target Market Segments and even into Sales Campaigns as part of Quarterly Business Reviews rather than just looking into the rear mirror via highly aggregated reports.

If you are or represent a shareholder and want to learn more about how Disruption Selling will drive the valuation of your ventures, request a free Discovery Call here!

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