You built your MVP, got it launched to the delight of some paying customers and just raised some seed funding to move to the next phase of your company’s evolution. You and your co-founder have been doing all of the selling (closing deals) but neither of you has real experience as a sales professional, so you decide it’s time to hire one. Easy, right? Well, maybe not as easy as you think. Forget the recruiting process for a moment and take a step back. Should you first hire a sales rep or a sales executive? How will you compensate them? How will you know if they are performing well? Let’s explore further.
Setting the Stage
Every startup is different, which means the ideal approach to hiring and managing your first sales professional can’t be blindly prescribed but rather is greatly influenced by factors such as the following:
- What sales model is ideal for your company? (ie – direct or indirect? inside or field sales?)
- Are any of the company founders experienced at sales or sales management, even if that won’t be their primary role?
- How much funding do you have and how much are you prepared to spend on this role?
- How mature is your marketing function? Specifically demand generation.
What Role Should You Hire First?
Before describing three different approaches you can take, I have to point out something that many founders don’t realize. After closing enough deals themselves in order to get to this point of raising money and being able to hire a sales professional, they might be thinking they’re pretty good “at this sales thing”. Not so quick. What they often don’t realize is they have magical powers that can redirect any and all company resources or commission any needed product changes in order to win a deal. The sales professional you hire won’t have those magical powers and shouldn’t. You’re hiring them to define and implement a repeatable sales process and methodology that will allow the company to rapidly grow. Your prior focus was on closing a deal while their focus will be on closing many deals.
To understand this phenomenon better, read my article titled “You’re Not as Good at Sales as You Think“
The “Lean” Approach
At the moment you think you’re ready to hire your first sales professional, there is probably still a lot to be learned and validated regarding your ideal sales model. You might get lucky and have a particular business type that always calls for a specific sales model, but for startups that are innovating/disrupting existing markets or creating new ones, that will not be the case. Below are a few things that you’re still probably trying to figure out:
- What is our average deal size?
- What is our typical sales cycle?
- How complex is our value proposition?
- How much hand-holding will be needed during customer trials?
- Which buyer persona(s) should we target?
- How much competition will we encounter and from whom?
- Is our pricing correct?
For all of these you must have a starting theory that you can test and hopefully validate. But before doing so, do you really want to spend a lot of your newly raised funds on a sales executive or even a high dollar sales rep? Maybe not. The “lean” approach calls for you as a founder to keep closing the deals but to insert one or more entry-level sales and sales support functions to assist with continued validation. Then, once you can answer more of the questions above, continue with whatever sales-related hiring best supports your findings.
What do I mean by “lean approach”? This might be an example:
- Hire a Web Chat Rep
Web chat is a fabulous utility for early learning. Think about it for a second. Interested prospects somehow find your website and start consuming your messaging and content. Either prompted or unprompted, they engage in a web chat with your rep. That engagement reveals common questions, objections and misunderstandings. In fact, your web chat rep should specifically be trained to gather this information and identify patterns they can pass on to you and the rest of the team. Web chat reps are typically the lowest compensated of any type of sales professional and can even start them off in a part-time role until your web traffic justifies something full-time.
- Add Lead Development Responsibilities or Possibly Hire a Dedicated Lead Development Rep (LDR)
The decision to hire a second position versus simply add responsibilities to the Web Chat Rep is partly driven by workload and partly by available budget. A LDR is more proactive in their approach to identifying and engaging prospects for your offering. They conduct a mix of outbound activities (sending emails or making phone calls against a list) and inbound activities (responding to contact requests made through your website or from a trade show you attended). The LDR function requires more actual selling skills than a Web Chat Rep but still offers great opportunities for validated learning and that should be clear in their job assignment. LDR’s are more expensive than Web Chat Reps but considerably less expensive than a quota-carrying sales rep or sales manager.
- Hire a Sales Professional or Sales Executive
The trade-off between these two options is discussed below. The main argument I’m making in The Lean Approach is that a seasoned professional/executive shouldn’t be hired until you actually know what type to get (level, experience, needed skills, etc). That comes from validated learning, which was the purpose of starting with steps #1 and #2 above.
Adding to the Executive Team First
Hiring a seasoned sales executive could actually be the right first move for your company. The most common reason for this is when the other founders are first-time entrepreneurs and they and/or their investors strongly desire a seasoned executive to join the team. That executive doesn’t have to represent the sales function but it’s certainly a possibility to consider. In fact, in the early startup days, all executives wear multiple hats. So this sales executive is also probably responsible for marketing, HR, filling the refrigerator and taking out the trash. The main point is that they serve as an experienced executive on the management team.
The second most common reason to hire a sales executive first is when the average deal size is large ($100K or more), the product offering is at least somewhat complex and the primary target market is large enterprises. The sales model for such a company is almost certainly direct sales with sales reps in the field. Hiring a seasoned sales executive first allows them to immediately put focus on establishing a sales process (stages and flow) and a sales methodology (how your sales team manages and influences the sales cycle). This will lead to implementing sales support tools and sales-related metrics and KPI’s. You could argue the same benefits for a company with an inside sales model but I find mistakes easier to identify and overcome with inside sales rather than enterprise field sales.
For more insights into the nuances of selling to large enterprises, read my article titled “Intro to Enterprise Sales“
Side note: If there’s great value from having a seasoned sales executive on the team but you absolutely can’t afford it, consider instead bringing on an Advisor with lots of experience in sales. Specifically the type of sales you envision for your sales model (ie – direct vs indirect and/or inside versus field). For equity-only compensation they won’t be able to do a lot of productive work but they can at least help you shape the right sales model, hire the best talent and double-check your proposed sales compensation, tools and processes.
If you do hire the sales executive first, it should be clear that they also wear the hat of the only sales rep. In other words, you as a founder are no longer primarily responsible for closing deals – they are. That doesn’t mean you don’t go on sales calls anymore. My main point is that you can’t afford to hire a sales executive that doesn’t also close deals and everything else sales-related. They are effectively the “sales department” and need to understand that from the beginning – especially if they’ve never worked for a startup.
Hiring a Trained Killer First
Hiring an experienced quota-carrying sales rep first is a middle-of-the-road approach compared to the previous approach and compared to hiring a less expensive and lightly-experienced salesperson. They will know how to close deals and will have enough close engagement with prospects and customers to engage in early learning and validation, which can be passed on to the rest of the company. But they won’t have the time or skills to implement a sound sales process and methodology. They’ll just start selling and trying to make money, which can be great if you’ve already identified opportunities to keep them busy. But if you don’t support them with continued marketing activities (demand generation, sales tools, etc), they will end up struggling and if they aren’t making money they won’t stay very long.
What About Sales Compensation?
Most startup founders have not held a sales or sales management position and don’t even know where to start when it comes to setting a sales compensation plan. For more advice and tools to help with this, see my related article titled “5 Golden Rules for Setting Sales Compensation Plans” and “Documenting Your Sales Compensation Plan“. But the concepts described in the aforementioned articles don’t address the challenges of early stage startups that don’t have much cash to use for sales compensation and instead want to use equity to offset a “below market” cash offer.
The biggest challenge I find with offering sales professionals (LDR, inside sales, field sales, sales manager) a “below market” cash compensation in exchange for extra equity is that the best sales professionals are money hungry in a near-term and immediate way. Their personality is optimized for killing the prey and eating what they kill. They don’t usually like deferred compensation or iffy chances of making a lot of money. They want to do ABC and know they will get XYZ in return. I’m not suggesting you give up on the idea to compensate your first sales professional in a similar manner as you do your other very early employees (less cash, more equity), just be aware of this issue going into it. See my related article titled “Compensating Your First Employees When You Are Cash Poor” for more insights and advice.
Also notice that I didn’t include the sales executive in the list. That’s because there’s at least some chance you’ll find a seasoned executive that is ready to “swing for the fence” with a bunch of equity. Maybe it’s because they’ve already made some money from an exit or maybe they had some great earnings years in sales and are ready to take “below market” cash compensation in exchange for something potentially really big in the end.
If you only have one sales professional, how do you know they are performing well? I’m not referring to a Web Chat Rep or LDR but rather some form of quota-carrying sales rep or sales manager. Let’s say they achieved less than 70% of their target the last two sales periods in a row. Is it because they are ineffective in their sales skills or is it because of one or more of the following reasons:
- Not enough leads to pursue or poor quality leads
- The product is unstable or is missing critical features needed to close deals
- The pricing is wrong
- The competition is much stronger than expected
One thing is certain. Your sales professional will be giving you these reasons whether they are true or not. How do you know? With just one sales professional, it will be very hard to determine the root cause of their poor performance. My friend and Capital Factory colleague, Mikey Trafton, has learned that having 2 or 3 sales professionals from the beginning makes a huge difference in this regard. Assuming you’re at least half decent at hiring sales professionals, if both/all of them are underperforming versus the targets that were set, either the targets are simply too aggressive or (more likely) something from the list above is causing the problem. If, instead, one of the sales reps is performing well and the other(s) aren’t, then it is easier to conclude the other sales rep(s) aren’t of the caliber needed.
I realize hiring 2 or 3 sales professionals means double/triple the cost but at least be aware of the dilemma of only having one when it comes to assessing their performance.
The penalties for hiring the wrong first sales professional can be very damaging and distracting. This relates to hiring the wrong role, skill, level or timing/sequence. Your revenue engine depends on getting this at least mostly right from the beginning. If it doesn’t seem to be working, don’t convince yourself that trying harder or waiting longer is going to fix it. It rarely does and your cash is burning every week. Also remember that the “fixing” might not lie with the sales function but rather elsewhere.