Category: Startups

Startup Guidelines for Building Sales Teams

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Overview

As founder of two market-leading tech startups, and now a third company that is well on its way to be, I have a lot of experience in building sales teams. One thing that I’ve picked up along the way is that you have to be extremely aware of your company’s stage to determine the best time for adding to the team. Below are three stages typically experienced, and the strategies implemented based on where we were at as a company. This is my personal account of what we did and why.

Early Stage

It was important for me as founder to stay close to customer opportunities, find out the right market segmentation, customer needs and eventually the beginning of the sales model. In all of my companies, I knew the role of the person I was selling to, and would spend hundreds of hours interviewing other people in similar roles within that markeplace. This front-row seat in the sales process made me the best possible product manager and salesperson for initial early development customers. I tapped into my personal network and also into the networks of my advisors. At this stage it was crucial that I listened to potential customers and relayed their needs to our engineering team. It was a way of figuring out what needed to go into the product, as well as winning and keeping the trust of customers.

Once enough customers were acquired through product trials, I focused on messaging by experimenting with the initial marketing awareness and thought-leader program. After building a great team of engineers, I learned that my first hire should be a marketing executioner to help me with awareness and thought leader programs. During this phase I leveraged my advisors in thought leadership. It was important to get all of this going prior to hiring my first sales rep. Just before the first rep was hired, I borrowed a model from the book “Predictable Revenue” by Aaron Ross and created the sales development team.

During this stage, it’s important to have everyone on “pioneer mode.” Instead of setting heavy quotas right away, learn what works and what doesn’t to improve the strategy. We were focused on sales process discovery, messaging, value offering, product features and who we sell to. The types of selling skills needed in this phase are different than subsequent phases as the company matures.

During the early stage the sales team needs to be small and made up of self-starters who can operate in an environment where every day is an experiment. It’s common for reps to create their own collateral at this stage. It is also common for them to experience heightened listening and communication skills. Customers need to trust the sales reps, and the reps need to be able to present the vision, a valuable skill at this stage of the company. This is another reason to have the founder involved in as many deals as possible at this stage.

Acceleration Stage

At this stage, the sales start to take off as the product and market fit begin taking shape. This is the point when customers find the value offer compelling enough to pay a transaction price that is easily justified with the promised return on investment. Fine-tuning the product and market fit is an ongoing process, but at this stage the company is close enough to feel confident that you have a real business.

At this point, the marketing, sales development and sales model are close to being repeatable. Prior to adding the next sales rep, lead generation is increased and sales development activity have increased, in that order. At the acceleration stage, sale reps are added cautiously, but continuously to match growth based on the model. The pace of hiring increases as the marketing, sales development and sales model become more mature.

Sales reps will eventually transition from learning “Pioneer” mode to refinement “Execution” mode, utilizing a near repeatable model and knowing what content is compelling to what person in the buying process. At this point, playbooks on deals based on stage and opportunity type are created. Everything and everyone is moving faster now and accountability toward quota is much more important. It is important at this point to study the ratio of Sales Development to Account Management employees so to prepare for sustainability mode.

Metrics are very important at this stage. The most important being numbers focused on the conversion rates of opportunities and closes. The company must track qualified opportunities and sales process milestones that occur in the funnel. The subject of sales metrics in itself is worth a separate article – which is forthcoming.

Once you have four or five reps you should consider adding a vice president of sales to drive the team. The founder should have enough information on the product and sales model at this point, making it the right time to find a dedicated person to put in charge. It’s a challenge to find the right VP at this stage though. For most startups of this size, it’s too soon to attract a seasoned sales executive with decades of experience, which could prove detrimental. It’s better to find a hard-charging sales leader who is on the way up, possibly someone who has built a small sales team from scratch recently and brought it to the next level. This VP will have to live by the sales metrics and transition at each stage of the company. You want to make sure their leadership scales for such pivots.

Deal cycle times and transaction size should also be under scrutiny. In all three of my companies, we implemented an enterprise sales group and SMB (small to medium sized business) group. By doing so we we able to carefully analye the contribution margin of each market.

Sustainability

At the sustainability stage, you are now officially at a place where your product and market fit are in balance. The instrumentation is synchronized by marketing, sales development and direct sales. The company has a blueprint for hiring sales reps and incentivizing behavior to hit quotas and to focus on the market within the company’s wheelhouse. Content is mature, the market is segmented and processes are very well defined. The VP Sales role must transition to scaling the reps and processes for breakaway velocity. The VP must act as a coach, making sure the team adheres to the culture with the appropriate training and new hires.

Sales team size
Adding to the team is based on the actual contribution margin per rep and the growth velocity of each stage. This has to take into account the sales model’s evolution at each stage. It is important to be closely tracking sales yields and to execute careful sales planning based on assumptions at each stage.

Obviously, quotas have to be very conservative early on with productivity gains happening as the company matures. Figuring out the right team size while at each stage can drastically reduce burn, further confirming that you have to be at product/market fit before you add most of your sales reps. For example, at the sustainability stage, you might only require 15 reps for “break even” but if you calculated the break even point at an early stage it could require more sales reps based on relative contribution.

Once you get your marketing, sales development and sales model metrics right you can set yourself up for growth and have better conversations with investors.

Jim Eberlin is the founder and CEO of TopOPPS. Previously to TopOPPS, Jim was founder and CEO of Host Analytics and JBara (now Gainsight), two market leading tech companies located in Silicon Valley that have raised over $100 million in venture capital. He currently serves on the board of these companies in addition to Juristat, another exciting tech startup. Jim has several years experience in executive management within the software industry and he serves the tech entrepreneurial community with strategic advisement from early through growth stage.

The Key Sales and Marketing Statistics for a Startup

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As our Founder and CEO, Jim Eberlin, wrote in his blog post ‘Start-Up Guidelines for Building Sales Teams’, “Metrics are very important at this (sustainability) stage. The most important metrics being numbers focused on conversion rates of opportunities and closes. The company must track qualified opportunities and sales process milestones that occur in the funnel”. So what exactly are these important metrics?

Defining and refining the sales and marketing processes of any organization is a daunting task. Failure to move nimbly in a new direction when your company fails to gain traction or loses momentum in the sales and marketing engine is a costly mistake. Many times marketing will answer objections with statements like: “We haven’t given the campaign enough time!”, “We don’t have enough money to create the leads!”, “You haven’t given my team enough tools to be successful!”, or “My dog ate my hard-drive!”.

Similarly, sales will have responses to slow sales growth: “We are missing feature/functionality X!”, “Once we get X, they will buy!”, “The product isn’t fully baked!”, “I’m not getting qualified leads!”, “Potential customer X doesn’t have budget this year, but they are buying in January!”, or “I’m focused on my Fantasy Football team, I don’t have time to close deals!”.

Why talk about marketing though, when sales sustainability is the focus? Because without a rock solid marketing process generating truly qualified leads, sales will quickly turn into a chaotic hunting trip. All companies are looking for a sniper-like targeted approach to sales with a true roadmap for your team to follow. Sure every team has its renegade, a unique individual who gets it closed going against the grain. However, no organization can count on or project sales forecasts without a proven process. For our marketing process, we adhere to Aaron Ross’s Predictable Revenue. This is a tried and true methodology for our marketing machine (sure we have a few tweaks, but mostly based on Aaron’s book).

So what’s the process? TopOPPS (yes, an obvious plug for us) can help you with your process and we can also help guide you to the true sales metrics for your firm. That being said, there are definable global metrics which should be looked at for each industry. We will focus on start-ups in this instance though. As a side note, in the next four blog posts I will define the measurements below in greater detail, as well as give acceptable ranges for each. So, don’t get caught up in the formulas.

Marketing for the Sales Qualified Lead (SQL)

How will marketing turn dollars into SQLs, or more importantly, how is your company measuring its cost per SQL? I will suggest one way to measure this and, while your company may have its own measurement, the goal of all metrics are the same: meaningful information to make informed decisions. The formula that I find most useful to calculate your cost per SQL is:

((Total Marketing Dollars Number of Campaigns) + Allocated Marketing Overhead SDRs or the equivalent should not be included) Sales Qualified Leads.

This will give you your cost per SQL, per campaign. For example, if you spend $300k of your marketing budget on 10 campaigns and partner events with an overhead of 92k, and end up with 35 SQLs then your equation will break out to:

(($300k 10) + 92k)/ 35 = $3,485.71 per SQL

So is your marketing cost efficient? How does it stack up compared to projections? How many SQLs convert to Sales Accepted Lead (SAL)? You cannot know how effective marketing and marketing campaigns are without understanding your SQL cost. I would liken this to buying a subscription to a magazine: You will get something in the future in which you don’t know the true value.

SDRing (Sales Development Rep) for the SAL

Yes, our SDRs (even though we don’t call them SDRs anymore) are the easiest group to measure. Not only can I tell you the number of SALs per SDR, but I can also tell you the cost per SAL, per rep, the commission rate paid per rep, and the close rate per SAL, per rep. You may say, “no kidding, genius!?”. It’s true that there’s no real trick to this, but can you tell me these metrics for all of your SDRs? Can you tell me the trendline and efficiency rate that make a great SDR, or which measure is most meaningful?

SAL to Close

This metric is easily measured and defined. Conversion efficiency is key, so are days to close, days in the pipeline and days in each stage. You should be asking yourself, “Are we measuring this?”, “Can we measure this easily without starting another custom project?” We do it by eating our own dogfood.

The Magic Number or CAC Ratio?

By now, mostly everyone has heard about the magic number. Is it really better than Customer Acquisition Cost (CAC) or CAC ratio though? Is there any difference between the two? There have been great debates in board rooms over these measures and their significance. In the fifth blog in this series, I will tackle this issue and give you my thoughts on meaning and importance of both.

The key take away for your two minutes of reading: There are successful tools and metrics to measure your sales and marketing spending, and they’re not made up of guesses or black magic. First, answer questions in order to define the problem. Then use the proper instruments to fix the problem. Finally, take the additional necessary steps to avoid similar problems moving forward.