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AUG 27, 2014 - NaN MIN

Don’t Hire a VP of Sales

  • Sales

Dave was Founding CEO and then Chairman of Jive, where his leadership grew them from an open source project to a $55M pre-IPO company. Prior to Jive, Hersh was the CFO at 4charity and a management consultant at VIA International.

  • Introduction
  • The Sales Learning Curve
    • Defining Company Needs
    • Your Working Model
    • Sales Learning Curve Overview
    • Initiation Phase
    • Execution Phase
    • Transition Phase
    • Types of Sales Approaches
    • The Jive Story
  • Q&A
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I want to do a presentation tonight on salespeople.

But, a little bit about me to kick things off. Tom gave you a little bit of my background. Just to give you a little bit more detail, if it's helpful. I started my career as a management consultant back in the early days helping big Lotus Notes implementations at large companies, which was really fun.

Then I came out herebecause I wanted to be entrepreneurial. After doing my own consulting fora while and realized I was still consultingand not actually starting a company, Idid a dotcom briefly with some friends. While I was at that dotcom,I met two guys named Matt and Billwho happened to be going outto New York City around the same time. They had developed an open sourceapplication and wanted to turn it intoa real company, so we started it in New York City.

It was called Jive Software. After bootstrapping it for five yearsand moving it to Portland, Oregon,we finally found our sweet spot of a market,raised money, continued to scale itand I took it to the point where wemade the decision to take it public. At that point I opted to be chairmanand not be a public company CEO.

Since that time, I have been doingall manner of things. I helped start companies,helped buy companies,started small venture funds,have worked at Andreessen Horowitzas a board partner, which is likea part-time partner. I got bored with all of the meta stuff and have decided to go backinto the startup world. So I'm startinga company again, but it's too early to talk about.

So what does that all mean?Nothing really.I have done sales wherever I've gone.It seems to be a role thatI attract in some way,and end up doing a lot of sales.I have seen it a lot.I have actually coached a lot ofdifferent startup companies ontheir own sales strategies. I've worked really well with engineeringtypes who have built out a gooddeveloper platform and then want totake it and turn it into more of arepeatable sales engine.

Tonight will be a little bit aboutthe learnings that I've had overthe years and what works wellfor sales when it comes to early stagecompanies, and how that changesas the company grows over time.

What I really want to accomplishwas these three points that are on this sheet. Essentially: How do you startthinking about sales and building it intothe DNA of your company? How does that role within your companychange over time? What aresome of the key terms andsales vernacular that you need tobe comfortable with?

It's not my normal topic by the way.I do lots of topics on a lot of differentthings, but this is one I feel reallypassionate about and one that I feel hasa huge potential to really shift theenergy of a company and turn itinto a great company.I think a lot of people out theredon't really understand sales or havemisperceptions about what it means.

I feel like when people really dostart to understand what sales meansand how to embrace it and how to injectit into the host organism that is yourcompany, and then grow it, greatthings can happen.

I wanted to start out and talka little bit about a subject or at leasta framework that is common in at leastthe VC world out there, one that I've come to know because we actually did a case study on Jive.The guys that wrote this originalarticle for Harvard Business Reviewback in 2006, I came to know, andwhen they were looking to refreshthe case studies that they usedin the articles, Jive became one oftheir case studies.

One of the great things aboutbecoming a case study is it meansthat you really screwed things up.Because good case studies are allabout mistakes.

We screwed upso much stuff that it was like thisreally juicy, great piece.So, it turned out well.I actually go into the Stanford MBAprogram every semester and they teacha sales management class there and Jiveis one of the first case studies thatthey talk about in the class.I sit there and listen to 100 MBAs,or however many it is, trash my companyand all the decisions I made as they'retalking about the case, and then I come onafterwards and own up to it.

It's a great frameworkand I think it's really helpful for a lotof people. It's helped a lot of the VCsspeak to their companies. But I would warnyou, what will happen is a lot of VCslove it so much they'll just send it to youand say, "Read it and go use it."But actually taking the lessons from itand applying them to what you'rereally going through at that pointin time turns out to be incredibly hard.

It's like crossing the chasm wheneverybody thinks, "Well you've crossed thechasm." But nobody really knows.Nobody really gets it.

It's a framework that's helpfulfor talking about sales and bringingit into an organization, but can alsobe equally confusing if peopledon't truly understand how it's playing outinside that company.

My understanding when I talked to Timand Tom about this is that a lot ofyou are developer focused companies. As a result there is a model thatstarts with really winning the heartsand minds of developers and capturingdeveloper mindshare. From there,going and being pulled into companiesin the early days through the developerchannel and then expanding it, and over time starting to figure out howyou can provide more and more strategic valuefor those companies.

The sales model or sales processwill evolve from self serve, easy up and on,open source, whatever you're doingall the way through big strategicrelationships with organizations.That may not apply to everybody,but it is, I think, a common practice.If you actually look at what I did at Jive,it was very similar. When we started out it was an open sourceapplication. We were bootstrapping the company.One of the first things I did wasturn it into a non open source applicationso that we could actually make moneyand eat.

We kept the developersreally happy.We continued to give them accessto the source code.We kept the price really cheap andhad an amazing group of engineerswho were part of our community, and theycontinue to be a part of us. They helped pull us into largeorganizations. Then we releasedanother big open source project later.

We were always about pleasing developersfrom the early days.Then over time we started getting pulled into largerenterprise deals and started buildingout an organization that became more enterprise focused.

Over timeI think we probably lost track of a lot of the earlydevelopers who were so great. That'skind of a story for another time, but Ithink the whole point is that this pathis one that a lot of companies have seen.I saw it first hand and I want to use itas the backdrop for talking aboutthe sales learning curve.

This is an image of what the saleslearning curve is.Essentially there are three distinctphases that it's talking about inthe development of a sales organization.The first stage, what they call theinitiation phase is really where you're learning.This is where you're collecting dataand learning about what works.What are we actually selling?What does the market look like?What does the competitive landscape look like?What are the messages that work?What are the product features that we need?It's the learning period.

Then you enter into what's calledthe transition phase where you've startedto get some early traction and the modelis starting to play out, but this iswhere you really need to figure outwell what's the sales infrastructure thatwe need to build?What are the types of people thatwe need on board?What is the marketinginfrastructure that we need?How do we need to supportthese salespeople? There's a lot of building outthe framework that you're going to useultimately to scale it, but you'restill going to make a lot of mistakes.It's a lot of stuff you haveto figure out, and that's whyit's transition.

It's a period of having enoughtraction, but you need to learn whatto do in order to build out the rightframework to get to scale.

The third phase is what they callthe execution phase and that's where youcan just start putting people and moneyinto the sales process.You've really figured it outat this point, and you know thatevery dollar you put in is goingto return a certain number of dollarsback out of the model.It takes a long time to get there,but that's ultimately the goal of progressingthrough this sales learning curve.

Ideally, what you want to do is shrinkthe sales learning curve right?You want the period of time for eachphase to be shorter so that you canget to the point where there is repeatabilitywhether it is sales traction such that youknow you can bring on new reps andthey'll be productive right out of the gate.

If you overlay the model I justtalked about on top of that, what you'rereally saying is: you've gone out,you've done the developer thingand you really are starting tobuild a community of developers.

They are starting to pull you intosome early deals.You're learning everything you canabout those early deals. Thenyou're starting to pull in inside salesteams, some of the first sales peopleyou hire, some of the first structuresthat you put in place for hiring sales people,and really starting to build out the frameworkof how this thing is ultimately going toscale.

By the time you get towhat's called enterprise sales,you either have strategic inside repswho are doing it or you have peoplewho are out in the field.At that point you really havefigured out the model. I'll talk about each stageand what each stage looks likein terms of the people that you hire next.

The first stage, the initiationphase on here, this is whatI see a lot of early stagecompanies screw up.What they do is they've gottena couple early deals.They got a few customers and theyrealize they're getting inbound calls,they're having conversationsabout partnerships and other peoplethat want to start using their productin production and they say, "This istoo much to handle.We need somebody to come in and do sales.We need to go hire a salespersonto go do this for us."

Even though that's a good reactionto think about bringing in somebodythat can make sense of i, often times what they do is theygo out to the market and they tryand find someone who can "do sales."The problem is that a lot of the peoplewho do sales, and by the way if youever interview a sales personthey're great. They're all great.They interview really well.It's what they do.

You're used to interviewing productpeople and engineers, but it's very different when you startinterviewing sales people.It's almost impossible because they all look great on paper,and they all do these great things.It's very, very hard to distinguish them.

Companies will bring on typicalsales people or sales people that havebeen in a larger organization early onand it's a disaster. They're not used to dealing withthe ambiguity that comes atthat stage of a company's development.Really what you need in this earlystage are athletes.You need people who are really smart,really passionate about the product,really capable of having conversationsabout where this whole thing could go.I mean really they should be motivatedby collecting data points that are about learning.

They should be motivated bybuilding the business and figuring outhow to build the business.If you bring on somebody who wantsto come in and just do dealsit's a disaster because what they'll want to dois they'll go sell some stupid dealwhich is going to gum up the worksof your engineering team for a long timeand they think they did a great job,but the reality is they messed upyour road map for a long period of timeand started writing checks thatultimately you can't cash.

What you need is a learner.You need somebody who is reallyflexible and capable of having aconversation with your product team,with the marketing folks, being in frontof customers.

It's a very well rounded whatthey call a Renaissance Rep who canwork in all these different environmentsand ultimately collect the right data pointsthey need in order to learn and ideally what theydo is they work themselves out of a job.

They do a great job at this.They figure it out and then you can gohire somebody who can build outthat initial structure in the transition phase. A lot of times these people maycome out of the marketing organization.They may have been marketingpeople beforehand.They may have been developersand product managers.They may be MBAs who have justgotten out of a program.

Whatever it is, you need somebodywho's out there doing those earlystage deals. Maybe you as CEOor founders have gone out and donea couple of deals and maybe the first 500Kis yours. But then this next phase,as you get to maybe $1 million or $2 millionin revenue, this is when you need somebodyor a couple of people who are capableof going out there, selling deals andnot being rewarded for how muchmoney they do. They're being rewardedfor how much they learn in the process andhow quickly they can work themselvesout of that job.

It's one of the hardest things to do, finding somebody who is capable of beingthat well rounded and a good DNA fit with the team.

The big warning here is don't justgo out and hire a salesperson to do thisbecause it's going to be really, reallychallenging for them.They're going to flail.They're not going to know what to do.They're not going to be as goodat really understanding the product, at communicating with customers andultimately taking all those learningsback to the product development teamand working with you to figure outwhat to build next.

What not to do, you really don't want to hire the traditionalpeople who have been in a traditionalsales role, or they worked at large companies.They're really not going to be used todealing with this level of early stagewhere they have to make up their ownmarketing materials, where they have tocreate their own presentations,where they have to sit in longproduct meetings and add valueto those meetings.

What I saw being successfulis that these early stage reps came froma multitude of different positionsin their history.They've come from a variety ofdifferent places and they really, really genuinely getpassionate about the productand they can speak about it veryintelligently.

Jumping to the other sideof the model over here whatwe call the execution phase.This is when you've figured stuff out.This is when you start hiring bigcompany people who know howto do this and you've got the systemsin place and the machinery in place.It takes an incredibly long timeto get there and this is what mostpeople overestimate.

They want to start hiring big companysales reps early on.They look really fancy.They look good on paper.They've got all these great deals,but the problem is these are guyswho are used to having all ofthe machinery in place already. There definitely has to beall the marketing, all the training,all the sales engineering support,all the field marketing support.All this stuff has to be there for themto go run a process. What they're really good at is running a process. To do that they have to have allof this foundation in place.

What you might get in thisstage are people who have workedat larger companies or similar sizedcompanies but they're used to workingin that systematic type of environment. They're very strategic, very process driven,but they're also cash comped.These are the people who are goingto come there and be paid in cash.

They're the ones who, it sounds awful, but they get thebig checks on the stage and thebig home run and they high five eachother a lot and bang the gongand all the other stuff. This is that group of people.

I think if they don't havea lot of that infrastructure in placethey will flail. But at the later stagethese people are fantastic becausethey do know how to run a strategic process.They build great relationships andthey can get really great deals done.It does take longer to get therethan most people think.

What you don't want to doin the execution phase is you don'twant to hire people who aremore entrepreneurial.When you get to this stagethis is all about structure.There's a lot more of the fundamentalsin place and you've got marketingwho has created an engine for these peopleto be successful. You haveall of the supporting sales enablementand you've got sales operation supporting them,but without that they will flail.

You really don't want to have theentrepreneurial types be at workat this stage because they're notgoing to be happy and you don'twant to skimp on marketing or othersales enablement if you're startingto hire these people.It's a very sophisticated engine thatneeds to be in place.

I knowI'm making it sound scarier thanit actually is, but I'm trying topaint a picture of how difficult it isto get there and how many of thedelicate elements of this needto be in balance.

Finally, the transition phase.I'm going to jump to the middle becauseI think this is the most interesting part.This, to me, is the part that makesor breaks a company.By the time you get to theexecution phase things havekind of worked themselves out.You've kind of figured it out.You have the model and it's startingto repeat itself.

The transitionphase is where you can really shrinkthis curve and get to the other sidemost effectively, but it's one ofthe hardest ones to get through.Because this is where you're buildingout all of the fundamental componentsof what a sales organization shouldlook like when it does get to scale.

What I've found during thisphase was that people who did wellwere a mix of all of the athletic,creative,intelligent, product passionate peoplefrom that early stage mixed with allof the strategic process skills ofthe later stage.

It's very, very difficult to pull off,but what worked really well for meand what I've seen work in severaldifferent environments is, if you canget people who have worked at similarsized companies and who are veryhigh level and looking for their nextposition where they can achievea higher level, a higher position.For them this is a career advancement.They get a higher level role thanwhat they had previously.

They've seen this movie before.They understand what it's like to workat this level, and they're very strategicand they can go out and sniff outdeals and get them done whilethey're building out the infrastructure for it.

You could getsomebody who really wants to be onthe VP path, but they've never donethat before but they're very good andthey've worked in this size companybefore. If you give them a title,you give them some equity and yougive them a healthy package they'llgo out and do a lot of those dealsin the early time.In the meantime they're building outthe pathway so they can hire peopleunder them.

It's a model for creating thetraction, creating the structure thatultimately will lead you to gettingto the later stage in the execution phase,but you need to find really good peopleto do it. To me that was the best thingthat we ever did, and I'll tell you howwe really screwed it up and thenhow we fixed it later.

Finding people who are rockstars,even if you can only hirea couple of them during that transition phaseis one of the best things you couldpossibly do to shorten that curveand get to the next phase.

I'll talk about what wedid at Jive, but if you start bringingon people that are not familiar withthis stage of the journey too earlythat's another area where you'regoing to run into a lot of problems.If you don't have a sales leaderwho can start bringing on someof the aforementioned rock starsand keep them happy and keepthem engaged and keep the wholeprocess moving it's also going to fall apart.

I'll stop there. Are there any questionsat this point?

Q: Roughly how long does it takea sales rep to break even andat what monthly recurring revenue (MRR)or annual recurring revenue (ARR)?

A: There are two marks in herethat are the distinguishing points ofthe different phases of the model.One is the break even point.The rough benchmark here is thatwhen you get to that early stage a salesrep will earn roughly what they cost,their fully loaded cost.If a sales rep can earn theirfully loaded cost then you'restarting to get out of that initial phase.

Then going from the transition intothe execution phase is kind of double their fully loaded cost.So, a sales rep who maybe in total costs $300,000 with all theiremployment costs and travel andeverything else, that can sell$300,000 in a year for that first phaseand then $600,000 to get out of thatsecond phase.

How much you're doing totalas a company, I think it can varypretty wildly.In our case, we're ontwo separate sales learning curves.We had initial products that wewere selling that were definitely intheir execution phase.It was more inside sales and we needed to figure it all out.Then we launched a new product that was brand new and we weresort of starting on a new curve total.

That's the sales learning curve.Three distinct phases.You're figuring stuff out.You're starting to build the infrastructurefor scaling and then you are scaling. Then you're putting a lot of moneyinto it and really building outthe organization.

We dealt with all of thoseat Jive, and I'll talk a little bitabout my experience there.

To make sure that we're all on the samepage and some of you probably alreadyknow a lot of this stuff, I thought I'dtalk a little bit about some of thedifferent types of sales approachesso we're all speaking the same language.

What I think of as the four uniquetypes of sales approaches that youmight see in a B2B companylaid out here are self-service,I'm sure a lot of you know well, which is you've got a free productout there then if people want toupgrade to something bigger they cando it over the web.Typically, you see more of a 1 to 10k annual ACV, or annual contract value,for those types of self-services deals.

Moving up from that you have what arecalled transactional inside deals. This is people who are selling stuffover the phone.They can do it in one or two callsand be done with the sales process. You do need a person who's there.They're doing it all remotely.They're doing it over the phoneand usually the deals are done withina couple of weeks or so.

Then you have what I callstrategic inside.This is what you might havehistorically seen a lot of field reps do,people who are out in the field,selling deals. But now you can doso much over the web and phone thatthey're able to do larger deals thatmay take four to nine months. All of them can be done over the phoneso you can avoid all the travel costs,and typically the reps who have todo that cost less overall.

Then for the larger deals there isthe field sales approach where you have people who are outin the territories.They each have their own smallteams to support them out in the field. These are for much larger dealswhere you really do need somebody out therewho understands the inside of thesecompanies, who has relationships with them,can run a process, can manage a territory.

It's less prevalent than it used to be,but I don't want to lie to you and sayit doesn't exist anymore.In fact there's a lot of companiesputting it to great effect out there.

It's not something to necessarilybe afraid of, it's just something to be very wary abouthow you build it in and making surethat you do it the right way.Because if you don't take into accounta lot of the variables we talked about beforeit can be an unmitigated disaster.

I'll talk about it in a minute.Any questions on that?

Let me talk about the Jive storya little bit, just as a quick backgroundbecause I don't want to spend toomuch time on it. Jive originally startedin New York City right after September 11th.It was the worst time possibleto raise money in the worst city to havea startup at the time, and we were probably selling the dumbestproduct at the time which wasdiscussion forum software.

There was no way we were goingto raise any money.We had to just start selling whatwe had. Luckily, because of theopen source roots and thedeveloper community that we developed,we were able to start selling out ofthe gate and stay profitable and buildout a small team.

New York was an incredibly hardplace to run a B2B softwarecompany at the time.It's gotten better, but at the timeit was horrible. We decidedto move and go to Portland, Oregonwhere we continued to build out theteam and the infrastructure. Wewere going to hire more engineers out thereand more inside sales people, and wesold the products that we had.

All the time we were looking for a marketwhere we could sell our productsmore aggressively, where we couldtake these collaboration tools that wehad and turn them into somethingmuch bigger for a higher price tagand a more strategic value propositionfor our customers.

We tried a coupleof different markets that ultimately failed,and then we finally found oursweet spot market in 2007 afterspending a couple of years doing researchinto where the whole space was headed.

We got our first money from Sequoiain August 2007 after about four monthsof selling the new product and fromthen on it was a crazy ride.We had to rebuild the company severaltimes over, rebuild the executive teamseveral times over and ultimately takeit to the point where we were ableto take it public. That was the pointwhere I opted to be a chairman asopposed to a public company CEO.A great ride, but a lot of lessonslearned along the way.A lot of good fodder for case studies.

Some of the things that I screwedup that I'll talk about and I know I'mrunning short on time so I'll try andget through this fairly quickly. The first one on here, which I'vetalked about before is we hiredexecution stage reps long beforewe were really in an execution stage.What that meant was we didn't havea network of people that we could go outto and hire sales reps, so we just wentout through channels like Craigslist andpeople that we knew and headhunters.

We got all of these sales repswho looked great on paper, but they werecoming from Oracle and IBM and BEAbackgrounds. What would happen isthey'd get to the company, and we'retrying to sell this new product in awhole new market that was very exciting, but they didn't knowwhat to do without tons of marketing supportand sales enablement.

I had to go outin the field and sit in with these guysand they'd have their sales engineer go upand do the entire presentation while theysat in the back of the room and ate donuts.

They would just literally waitto go get a deal signed. That'swhat they're used to.They're used to having existingbudget dollars.They're using to having a wholeteam of people doing everythingfor them and they would run a process.It was a nightmare.It was the beginning of 2008 whenI hired a ton of these field repsand spent most of our $15 milliontrying to hire all these people to goout and do this work for us. Itwas a disaster because they were notused to working in this early stageenvironment.

And because it was 2008,the market collapsed, I had to do a layoffand I ended up bringing on a new salesleader, thankfully, who was able tobring in a lot of his team. Hewas really good at this phaseof a company and the people thathe brought in as his lieutenants werefantastic at that phase.I kind of had to rebuild the entiresales team through that period of time,but ultimately it worked.

The first pass attransition phase was a total disaster,but the second pass we learneda lot and we brought on some really,really talented, amazing people andmade it all work.

The other lesson learned wasbecause of that we really didn't have thatnetwork in place.One of the things I would encourage youas you get to those later stageswhen you're really building out afull sales organization is to the extentpossible really try and tap into a greatnetwork of people as opposedto just going through traditional routesand interviewing sales people youmeet on Craigslist and that sort of thing,which is usually a disaster.

Try and find somebody who hasled a team of people before and whocan bring other folks with them,and they get excited about it.Even if you have to pay up for them.I think it's worth it in the long runrather than just going out and gettingwhoever you can find, who seemslike they've done pretty wellin the past.I would back channel the hell out of them.I would talk to as many people asyou can who might have insight intohow they've worked before and whether they can really do it.

It's a hard role to hire for, but if youdo it right it can really makea difference in your company.

The other thing that I learnedwas we hired a ton of people aheadof results.We thought the whole thing was figured out,but the reality was we weren't even close.The first field rep we hiredimmediately went and sold a milliondollar deal. I was like, "Yes!We need more of those guys. Let'shire a bunch of them."And we did that and none of them dida million dollar deal again.It was a disaster.

We were hiring ahead of resultsinstead of hiring based on results which is really what we should have done.It should be a much more insightfulprocess to understand what's workingand what's not. For you as foundersand leaders of the company you should beactively involved in sales deals a lotand not rely on these people to do it for you, so that you can have a deep gut sense ofwhat's working and what's not and howtruly repeatable this is. Becausethat has a big impact on the typesof people that you hire.

A couple of things that I thinkwe did well: We did hirea really great leader who was capableof finding the right sweet spot tosell into and bringing that informationback, working well with the executive teamto shape the road map and the go to marketstrategy, and then helped bring on a lotof those really talented people thatwere able to get us to that next phase.

If you wantto get great people give thema chance to increase their responsibilityand give them a career path they getexcited about. That's a really, really good way to do it.

Find people who are willing totake less salary, take more equity and bringsome of their strategic prowess that they've hopefully experienced before in these companiesand play an early, humble roleas they build out the infrastructureand then hire more people underneath them.

We talkedabout those different types of salesapproaches.One of the things I thinkwe did well was by the time I leftwe had a machine where wewere doing the transactional sales,the $10,000 deals over the phone. Those in turn would lead to salesrelationships with more strategicinside people who could hopefullyturn them into larger deals. Thosewould in turn go to field peopleover time as you build those accountsand hopefully can become seven figureaccounts with the help of a fieldsales organization who is out there.

think it's not just choosing oneparticular model, but having a wholepipeline. If you've got opensource, if you've got premium, whatever it is, that pipeline is clear how youget from one stage to the next.

It's not necessarily something you needto have out of the gate, but certainlysomething you need to think about as you'replanning for the future of the businessbecause the sooner you can putthose pieces in place the better.

For a quick recap: The sales learning curve — I've used it.I think you'll find a lot of VCs are bigfans of it.I've been lecturing on it in termsof the Jive approach to it, orthe Jive case study for a while.

The whole point is get really goodstrong business builders from out of the gate.Then find really strong exec caliberpeople to come in and build outthe infrastructure, people that haveworked at that phase before andare willing to roll up their sleevesand do the hard work and they knowhow to do it.

As you get to the other sideyou can hire reps who can be moreproductive out of the gate and you canhire more of them because you feelconfident that the machinery is in place.

I think the only thing I would offeris that repeatability is a very, veryhard thing to get, and it's very easyto think you've found repeatability,but the reality is you haven't.

I encourage you to be involvedin as many deals as you possibly canin the whole process of building outthe sales organization and beintimately involved in it.

Don't be scared about it or hand it over to somebody elsebecause you really need to have agut feel that it's working and thatyou truly understand it before you startmaking some of the investment decisions.

If you can, find people who representa really solid network.Maybe there's one company out therewho'd been acquired a couple of yearsago and they had a really talented team.If you can find a way to tap into that teamand start pulling some more of them overas they get a little bored nowthat they've been acquired, that's a great model for it and Ithink works really well and I've seenthat work in a lot of companies.

Finally, I've mentioned thisa couple of times, if career advancement is a key thatyou need to do in order to getgreat people on board, feel free touse that liberally for the right people.

By the way, I'm not a venture guy.I'm not out looking to lead dealsor any of that stuff.I'm like one of you.This is just something I feelpassionate about and I've seen so manycompanies screw up and so I believevery strongly in people doing it the right way. That's really why I'm here tonight.I'm not here to be a VC or any of that stuff.I'm here as an entrepreneur just tryingto share this stuff, and I think it'sreally interesting.

I've had a lotof interesting conversations with startupcompanies, seeing different wayshow they've approached it over time,and I've learned a ton myself.With that I'll stop the presentationpart of it and maybe we can have a discussion,which I think is much more interestingthan this stuff.

Q: How do you pay sales reps during the first two phases, if not by base plus commission?

A: On the first phase, I wouldn'tdo commission at all.In the first stage when you're learningI think it's MBOs.I think they should be motivated by equity.They should get a healthy chunk of this companybecause it's early stage and they're anearly employee and they'rebuilding up their reputation andtheir career is advancing.

They should be paid to learn as muchas possible and I think that comes from MBOs.

Maybe you get a couple of signature accounts,but you're not paying a quotaon those accounts or commission onhow big the deal is.Really, you just want early accountsto learn from.

However you're structuring it,I would align them with the successof the company through equityand then specifically on how you wantto do that first phase.I would set up MBOs for that.If the goal is five customers whoare reference customers, and it doesn't matter how much they'repaying us but they're referencecustomers and they'll take a callfrom everybody else, that's their MBO and that's what theyshould be focused on.

Then the second phase is now you'reactually starting to put in traditionalcompensation plans, but you're mixingit together. You're mixing compensation of quotaand what people want to earn withsome high level strategic goals aswell.

And a lot of those early guysare also getting good equity chunks. Certainly the leader of the organizationis getting good equity, and that's howthey should be driven. But the peopleunder them, those first lieutenants whoare going out there and doing a lot ofthat work as well, should also havehealthy equity plans.

They shouldbe motivated by that, but that's backedup with traditional compensation mechanics.You actually have quotas that you'regiving them, territories,and the foundation of a structure.

Q: How many sales reps do you have in each phase?

A: That's a great question.I think the first phase for a lotof companies you're talking aboutone to three people.The second phase, depending on how you calculate it, can be maybe10 to 12 to 15, within that range.It could be more if you still haven'tfigured it out and you've got great people whoare going out there and executing. But I would say quota carrying reps,maybe eight to ten.Then the next phase, hopefully you'vefigured things outat that point.

Q: At what stage in the company did you read the article and learn about your mistakes?

A: Well, Sequoia sent it to me, and I can't remember when. But probably in 2008, when I was in the middleof all this crap.I was like, "Now you tell me."

At the time we actually did thinkthat we had figured it out.We had Jim Goetz from Sequoiawho is fantastic and now the numberone VC on the planet after WhatsApp, and Sequoia was helping us.

It wasn't like we were in a boxtotally blind to this.We actually did really think we'dfigured it out.After I put the pieces together,I realized all this stuff. But whenyou're in it, it's very, very hard to see.

Q: How do you handle pricing and sales tactics in the early phases?

A: I think the pricingearly on is not nearly as important.What's most important is that you'regetting them as a reference customer.You want the price to be sufficientlyhigh so that they take it seriously and that it's a real deal,but you have a lot of room to wigglein there because ultimately you reallywant to get them on board asa reference customer becausethey're giving you credibility.

Pricing is a whole other presentation.It's crazy complicated,and there's all kinds of things you can do.

I found if you get the right peopleon board — from the product, the marketingand with the right sales leader,that conversation about pricing canwork itself out pretty effectively.

Q: At what stage do the positions consolidate around having a sales leader or a CSO?

A: In the first phase, yes, you as CEO are doing a lotof the early deals.Then the person you hire to go outthere and figure out how to makethe sales model work, you cancall them whatever you want.You can call them VP of Biz Dev, which a lotof times I've seen, because Biz Dev sounds like sales. Ultimately you want to transition them outas you start bringing on somebody elseto do more traditional sales. It's when you get to thetransition phase that I think you mayhave a title of VP of sales.

Chief Revenue Officer is whatsome people do and I thinkit does work for some companies. But I think you have to be reallycareful because what can happen isyou can have the same personrunning sales and marketing,which is traditionally whatChief Revenue Officer means, then marketing falls under salesand becomes solely a salesenablement machine.

Marketingcan actually offer a lot more benefitsthan that.If you really wantto build a big brand and create strategicpositioning in the market and havea leadership strategy andall those kinds of things, you really need a strong CMO.

But if you have somebody who is solelyreporting to a sales leader who'sresponsible for hitting quota, they'regoing to just be creating leadgeneration tools and communicationand stuff that is subservient to sales.

Q: At Jive, how did marketing help sales?

A: I put a lot of emphasis on good marketing.

I would say it's incredibly difficult to findgreat marketing talent, but when youfind it, it makes a huge difference.I think the things that were reallyimpactful to us as an organization wasthe AR and PR, and making sure that we hadestablished a leadershipposition.

That was incredibly important,but we only established a leadershipposition because we were doingso well in sales because we were winningso many deals and had so manycustomers and were bigger than everyother company out there.So we became a leader of the categoryonly because it was really working.

But then you have to do a good jobmanaging the analyst relationsand the press relations.You have to do a good jobgetting to know the analysts. So, there's that. I think positioning yourself vis-a-visother players out there, and findinga way to tell a story that's compellingand makes sense why you're differentthan anyone else out there, is whatgood marketing can do.

All the sales enablement, all the toolsthey need to go out and get their job done,the case studies and the ROI tools andall of the comparison charts and stuffthat you need to go and be effectiveas a salesperson; they should begreat at developing as welland obviously the lead gen component of it — really high impact lead generation machines.

There's a lot of things that greatmarketing can do and if you don'thave a versatile marketing leaderyou may only be good at one of them. That's why the strength ofmarketing group is made up of a lotof different types of people.

Q: In hindsight, what told you that it was okay to go ahead and start hiring all new sales reps?

A: Well, it was kind of interestingfor us because we had a stable ofinside sales reps in the early daysand they were selling the old products.Then we launched this new productand those people started selling that,so we had this team of people whowere starting to sell it and gettinginto some pretty big deals. Ontop of that we decided to get that first fieldrep that we talked about, and it was clearthe market was starting to take off.We were starting to see a lot morecompetition out there.

We were doing social software for large companies.When Facebook started to take offa lot of people started to say wellwhy don't we do something like thisfor this project.There started to be a lot moreprojects to come up, and we wantedto make sure that we were out there,and we wanted to be the first trueenterprise class vendor in that category.

To do that, we needed people who couldlook and walk and talk with the enterprise people, so we brought some on.The problem was, again, we broughton people that were used to muchlarger companies and even thoughthey could look and walk and talkenterprise they didn't have anywherenear the level of machinery theywere used to and that was what failed.

I think, for me, it was seeing a lotmore deal flow come in and it was clear wecould hire more people and they couldbe productive and start sellinga lot of these deals.That was when I knew we werein that next phase.

Q: How do you define repeatability? How do you know it's working?

A: That's such a good question.It's so hard, and it's very easy to over sample a few dealsand think you've found it.Because you get really excited about the deals.You go out and sella project and you're like, "Oh, we solvedthis problem for them and it's reallyexciting and I'm sure tons of otherpeople have that problem."

The reality is every company istotally different.Even companies in the same verticalcan be wildly different about the waythat they set up a lot of theirtechnology infrastructure. So, you can extrapolate too muchabout that repeatability when it's not there.

I think it depends a lot on the natureof the sales model, too.If you're solely like a transactionalinside model and you just needpeople on the phone, it's not thathard to get to because you cansee how people are doing the deals.Is it working? Is it not?What techniques are they employing?Could we put somebody else inand make them productive withthe same level of training?

It gets more difficult as you get fieldpeople because you can only hire so many of themand they're not all made the same. A lot of times in the early daysthere's one or two people who are theheroes who go in and help heroically closea deal and they help out whatever rep it is,but that doesn't scale. You need to make sure thatall these reps on their own couldgo out and be effective.

That's why I think you really don't know,but you have to be involved in the salesto have a gut sense that it trulyis working and that it's repeatable.That's why you should never straytoo far from being involved in the salesorganization and not rely too much onthe leader to take care of everything.

Q: What metrics or data do you track to discover if you have repeatability?

A: Like what metrics do you track?I think the metrics would dependon the company.

I would look at who are the differenttypes of people, the different roles in the company thatwe're talking to and is there consistencyacross those roles?What are the pain points thatwe're addressing?Is there consistency acrossthose pain points?

Are we starting to see similar patternsamong all these conversationsthat we're having?Or is it different?What are the companies that we'recompeting against in these deals?How do they see us vis-a-visother competitors out there?

I think it's all those types of thingsthat you start cataloging and capturing,and you start to get a sense ofwhether there is repeatability. Are the pain points very consistent?Is the landscape consistent?Are we consistently differentiated in these deals?And that starts giving you the talent.

Q: Did you have any sales experience before you started working at Jive?

A: Not direct, no.I was never a salesperson, per se,but I was Jive's first sales person really.I sold the first $500,000 and thenI had the biggest deal there — a $2 milliondeal that I did for the first five or six years.

I was selling consulting servicesfor a long time.I think you never really stop selling.First of all, everybody's a salesperson.You always hear that thing, and I hadnever really stopped selling, but I wasnever a traditional salespersonin a traditional sales organization.That's kind of a bullshit answer.

Q: Do you think it's important for the founding team of a startup to have sales experience?

A: I had twoco-founders who had absolutely noexperience whatsoever and they weredevelopers. They brought me in although I was not a salesperson, but I was flexible and I was that athletic "can do a lot ofdifferent stuff" guy and made it good in the early days.I think it's that — if you can find somebodywho can be your partner in crimeearly on.

If you haven't had salesexperience and have no idea what to dowhatsoever in sales then maybe you can bring on somebody to helpbe the partner in crime to go out anddo deals with, who does understand it.

They don't have to come from a salesbackground per se.You just need a really smart, passionate person.Somebody who truly understands the spacewho can have good conversations withthe customers and start identifyingthose patterns. That's the typeof person, I think, is important to bring on.Ideally the CEO can do a lot of it,and if not then find somebody elseto bring on early who can.

Q: How do you prove you're repeatable instead of jumping the gun early?

A: I think it's a good question.I think if you have really good advisors,board members and investors thenwhat you do is prove to themthat it's repeatable.If I'm going to go prove to someonethat it's repeatable, including myself by the way,how would I do it?How would I prove that we've gotrepeatability and force yourself to talkabout repeatability and do it with peoplewho have seen what repeatability looks likeand can offer you advice in that regard.

I think a lot of it's gut, but that gutneeds to be developed over time,and I think it's helped out whenyou have people who have beenthrough it before. But it's really hard.It's the hardest thing.

Q: Since much of sales is based on quotas, is there a good midpoint between quotas and your system for sales during early stages?

A: If you're in that transition phase,this kind of middle phase and you wantto start bringing in quotas for people, I think it's rocket science on some level. It can get really complicated,very quickly.So you need to be careful.

I think one of the best things you can dois get an early commission modelor quota model from a companyyou respect that was similarand had a similar sales model, that was one of the things we did,and see how they structured it, and you've got a starting point. But, I woulddo as good a job as you canto keep it really simple.

However many reps you have out there,what are their territories or what'stheir zone that they're working in,and then how many deals can youexpect them to do in that given time frame.But by that point, if you're inthe transition phase you should havea couple people working in a coupleof different territories so you cankind of divide and conquer.

Then it's just whatever the right type of deal.If its MRR that you're tracking or ARR,annual recurring revenue, figure outthe metric that is most relevant to the successof your business and what you want tocontinue to track and use that as thebasis.

For example, early on we used to doperpetual deals something a lot of you probably have never heard of. You sell once license agreementand then you do kind of 20% of thatsupport and maintenance ongoing.Early on the reps could sellsome of those deals and I hadto make sure that they weremotivated to do nothing butsubscription deals.They only got 20% quota credit for thoseperpetual deals early on.

You have to make sure they'remotivated to do the type of thingsyou want and the metrics that you'remeasuring them on are the onesthat are the most relevant to the healthof your business over the long run.

I think that's the challenge. I would use somebody else's asa starting point if it's very relevantto the type of sales that you're doing.

Q: How did you arrive at a sales manager or a VP of sales when you built Jive?

A: We had an early stage guywho was a product guy by backgroundand he was doing all the sales early on when we were in New York.Then we moved to Portland and we hiredthe first, more traditional sales leader. His background was managing inside teams. He was really, really strong at building outan inside sales team and really humble.Meaning he was not afraid topick up the phone and call everybodyand build it up himself from scratch.

That was the first experience I hadin being partnered with a moretraditional sales leader,and it worked out well. But again you have to be carefulof people who are good at that andbuilding out the machinery too quickly because they want to builda machine.That's what their intention is to do, they want to go start building the machine.

If you're building the machine beforeyou really understand how that machineshould look — if you haven't prototyped itand you haven't seen how it worksand you haven't tested it againstdifferent markets and that kindof thing, then you're going to build out amachine that ultimately you haveto take apart.You don't want to do that.

Ultimately it worked out well.For the inside team it was a great partnership.