July 18, 2014
Minimum Viable Product for Platforms
Marty Cagan is the founder of Silicon Valley Product Group and the original SVP of Product and Design for eBay, where he defined the product...
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 here because I wanted to be entrepreneurial. After doing my own consulting for a while and realized I was still consulting and not actually starting a company, I did a dotcom briefly with some friends. While I was at that dotcom, I met two guys named Matt and Bill who happened to be going out to New York City around the same time. They had developed an open source application and wanted to turn it into a real company, so we started it in New York City.
It was called Jive Software. After bootstrapping it for five years and moving it to Portland, Oregon, we finally found our sweet spot of a market, raised money, continued to scale it and I took it to the point where we made the decision to take it public. At that point I opted to be chairman and not be a public company CEO.
Since that time, I have been doing all manner of things. I helped start companies, helped buy companies, started small venture funds, have worked at Andreessen Horowitz as a board partner, which is like a part-time partner. I got bored with all of the meta stuff and have decided to go back into the startup world. So I'm starting a 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 that I attract in some way, and end up doing a lot of sales. I have seen it a lot. I have actually coached a lot of different startup companies on their own sales strategies. I've worked really well with engineering types who have built out a good developer platform and then want to take it and turn it into more of a repeatable sales engine.
Tonight will be a little bit about the learnings that I've had over the years and what works well for sales when it comes to early stage companies, and how that changes as the company grows over time.
What I really want to accomplish was these three points that are on this sheet. Essentially: How do you start thinking about sales and building it into the DNA of your company? How does that role within your company change over time? What are some of the key terms and sales vernacular that you need to be comfortable with?
It's not my normal topic by the way. I do lots of topics on a lot of different things, but this is one I feel really passionate about and one that I feel has a huge potential to really shift the energy of a company and turn it into a great company. I think a lot of people out there don't really understand sales or have misperceptions about what it means.
I feel like when people really do start to understand what sales means and how to embrace it and how to inject it into the host organism that is your company, and then grow it, great things can happen.
I wanted to start out and talk a little bit about a subject or at least a framework that is common in at least the 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 original article for Harvard Business Review back in 2006, I came to know, and when they were looking to refresh the case studies that they used in the articles, Jive became one of their case studies.
One of the great things about becoming a case study is it means that you really screwed things up. Because good case studies are all about mistakes.
We screwed up so much stuff that it was like this really juicy, great piece. So, it turned out well. I actually go into the Stanford MBA program every semester and they teach a sales management class there and Jive is one of the first case studies that they talk about in the class. I sit there and listen to 100 MBAs, or however many it is, trash my company and all the decisions I made as they're talking about the case, and then I come on afterwards and own up to it.
It's a great framework and I think it's really helpful for a lot of people. It's helped a lot of the VCs speak to their companies. But I would warn you, what will happen is a lot of VCs love it so much they'll just send it to you and say, "Read it and go use it." But actually taking the lessons from it and applying them to what you're really going through at that point in time turns out to be incredibly hard.
It's like crossing the chasm when everybody thinks, "Well you've crossed the chasm." But nobody really knows. Nobody really gets it.
It's a framework that's helpful for talking about sales and bringing it into an organization, but can also be equally confusing if people don't truly understand how it's playing out inside that company.
My understanding when I talked to Tim and Tom about this is that a lot of you are developer focused companies. As a result there is a model that starts with really winning the hearts and minds of developers and capturing developer mindshare. From there, going and being pulled into companies in the early days through the developer channel and then expanding it, and over time starting to figure out how you can provide more and more strategic value for those companies.
The sales model or sales process will evolve from self serve, easy up and on, open source, whatever you're doing all the way through big strategic relationships 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 source application. We were bootstrapping the company. One of the first things I did was turn it into a non open source application so that we could actually make money and eat.
We kept the developers really happy. We continued to give them access to the source code. We kept the price really cheap and had an amazing group of engineers who were part of our community, and they continue to be a part of us. They helped pull us into large organizations. Then we released another big open source project later.
We were always about pleasing developers from the early days.Then over time we started getting pulled into larger enterprise deals and started building out an organization that became more enterprise focused.
Over time I think we probably lost track of a lot of the early developers who were so great. That's kind of a story for another time, but I think the whole point is that this path is one that a lot of companies have seen. I saw it first hand and I want to use it as the backdrop for talking about the sales learning curve.
This is an image of what the sales learning curve is. Essentially there are three distinct phases that it's talking about in the development of a sales organization. The first stage, what they call the initiation phase is really where you're learning. This is where you're collecting data and 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 called the transition phase where you've started to get some early traction and the model is starting to play out, but this is where you really need to figure out well what's the sales infrastructure that we need to build? What are the types of people that we need on board? What is the marketing infrastructure that we need? How do we need to support these salespeople? There's a lot of building out the framework that you're going to use ultimately to scale it, but you're still going to make a lot of mistakes. It's a lot of stuff you have to figure out, and that's why it's transition.
It's a period of having enough traction, but you need to learn what to do in order to build out the right framework to get to scale.
The third phase is what they call the execution phase and that's where you can just start putting people and money into the sales process. You've really figured it out at this point, and you know that every dollar you put in is going to return a certain number of dollars back out of the model. It takes a long time to get there, but that's ultimately the goal of progressing through this sales learning curve.
Ideally, what you want to do is shrink the sales learning curve right? You want the period of time for each phase to be shorter so that you can get to the point where there is repeatability whether it is sales traction such that you know you can bring on new reps and they'll be productive right out of the gate.
If you overlay the model I just talked about on top of that, what you're really saying is: you've gone out, you've done the developer thing and you really are starting to build a community of developers.
They are starting to pull you into some early deals. You're learning everything you can about those early deals. Then you're starting to pull in inside sales teams, some of the first sales people you hire, some of the first structures that you put in place for hiring sales people, and really starting to build out the framework of how this thing is ultimately going to scale.
By the time you get to what's called enterprise sales, you either have strategic inside reps who are doing it or you have people who are out in the field. At that point you really have figured out the model. I'll talk about each stage and what each stage looks like in terms of the people that you hire next.
The first stage, the initiation phase on here, this is what I see a lot of early stage companies screw up. What they do is they've gotten a couple early deals. They got a few customers and they realize they're getting inbound calls, they're having conversations about partnerships and other people that want to start using their product in production and they say, "This is too much to handle. We need somebody to come in and do sales. We need to go hire a salesperson to go do this for us."
Even though that's a good reaction to think about bringing in somebody that can make sense of i, often times what they do is they go out to the market and they try and find someone who can "do sales." The problem is that a lot of the people who do sales, and by the way if you ever interview a sales person they're great. They're all great. They interview really well. It's what they do.
You're used to interviewing product people and engineers, but it's very different when you start interviewing 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 typical sales people or sales people that have been in a larger organization early on and it's a disaster. They're not used to dealing with the ambiguity that comes at that stage of a company's development. Really what you need in this early stage are athletes. You need people who are really smart, really passionate about the product, really capable of having conversations about where this whole thing could go. I mean really they should be motivated by collecting data points that are about learning.
They should be motivated by building the business and figuring out how to build the business. If you bring on somebody who wants to come in and just do deals it's a disaster because what they'll want to do is they'll go sell some stupid deal which is going to gum up the works of your engineering team for a long time and they think they did a great job, but the reality is they messed up your road map for a long period of time and started writing checks that ultimately you can't cash.
What you need is a learner. You need somebody who is really flexible and capable of having a conversation with your product team, with the marketing folks, being in front of customers.
It's a very well rounded what they call a Renaissance Rep who can work in all these different environments and ultimately collect the right data points they need in order to learn and ideally what they do is they work themselves out of a job.
They do a great job at this. They figure it out and then you can go hire somebody who can build out that initial structure in the transition phase. A lot of times these people may come out of the marketing organization. They may have been marketing people beforehand. They may have been developers and product managers. They may be MBAs who have just gotten out of a program.
Whatever it is, you need somebody who's out there doing those early stage deals. Maybe you as CEO or founders have gone out and done a couple of deals and maybe the first 500K is yours. But then this next phase, as you get to maybe $1 million or $2 million in revenue, this is when you need somebody or a couple of people who are capable of going out there, selling deals and not being rewarded for how much money they do. They're being rewarded for how much they learn in the process and how quickly they can work themselves out of that job.
It's one of the hardest things to do, finding somebody who is capable of being that well rounded and a good DNA fit with the team.
The big warning here is don't just go out and hire a salesperson to do this because it's going to be really, really challenging for them. They're going to flail. They're not going to know what to do. They're not going to be as good at really understanding the product, at communicating with customers and ultimately taking all those learnings back to the product development team and working with you to figure out what to build next.
What not to do, you really don't want to hire the traditional people who have been in a traditional sales role, or they worked at large companies. They're really not going to be used to dealing with this level of early stage where they have to make up their own marketing materials, where they have to create their own presentations, where they have to sit in long product meetings and add value to those meetings.
What I saw being successful is that these early stage reps came from a multitude of different positions in their history. They've come from a variety of different places and they really, really genuinely get passionate about the product and they can speak about it very intelligently.
Jumping to the other side of the model over here what we call the execution phase. This is when you've figured stuff out. This is when you start hiring big company people who know how to do this and you've got the systems in place and the machinery in place. It takes an incredibly long time to get there and this is what most people overestimate.
They want to start hiring big company sales 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 guys who are used to having all of the machinery in place already. There definitely has to be all the marketing, all the training, all the sales engineering support, all the field marketing support. All this stuff has to be there for them to go run a process. What they're really good at is running a process. To do that they have to have all of this foundation in place.
What you might get in this stage are people who have worked at larger companies or similar sized companies but they're used to working in that systematic type of environment. They're very strategic, very process driven, but they're also cash comped. These are the people who are going to come there and be paid in cash.
They're the ones who, it sounds awful, but they get the big checks on the stage and the big home run and they high five each other a lot and bang the gong and all the other stuff. This is that group of people.
I think if they don't have a lot of that infrastructure in place they will flail. But at the later stage these people are fantastic because they do know how to run a strategic process. They build great relationships and they can get really great deals done. It does take longer to get there than most people think.
What you don't want to do in the execution phase is you don't want to hire people who are more entrepreneurial. When you get to this stage this is all about structure. There's a lot more of the fundamentals in place and you've got marketing who has created an engine for these people to be successful. You have all of the supporting sales enablement and you've got sales operation supporting them, but without that they will flail.
You really don't want to have the entrepreneurial types be at work at this stage because they're not going to be happy and you don't want to skimp on marketing or other sales enablement if you're starting to hire these people. It's a very sophisticated engine that needs to be in place.
I know I'm making it sound scarier than it actually is, but I'm trying to paint a picture of how difficult it is to get there and how many of the delicate elements of this need to be in balance.
Finally, the transition phase. I'm going to jump to the middle because I think this is the most interesting part. This, to me, is the part that makes or breaks a company. By the time you get to the execution phase things have kind of worked themselves out. You've kind of figured it out. You have the model and it's starting to repeat itself.
The transition phase is where you can really shrink this curve and get to the other side most effectively, but it's one of the hardest ones to get through. Because this is where you're building out all of the fundamental components of what a sales organization should look like when it does get to scale.
What I've found during this phase was that people who did well were a mix of all of the athletic,creative, intelligent, product passionate people from that early stage mixed with all of the strategic process skills of the later stage.
It's very, very difficult to pull off, but what worked really well for me and what I've seen work in several different environments is, if you can get people who have worked at similar sized companies and who are very high level and looking for their next position where they can achieve a higher level, a higher position. For them this is a career advancement. They get a higher level role than what they had previously.
They've seen this movie before. They understand what it's like to work at this level, and they're very strategic and they can go out and sniff out deals and get them done while they're building out the infrastructure for it.
You could get somebody who really wants to be on the VP path, but they've never done that before but they're very good and they've worked in this size company before. If you give them a title, you give them some equity and you give them a healthy package they'll go out and do a lot of those deals in the early time. In the meantime they're building out the pathway so they can hire people under them.
It's a model for creating the traction, creating the structure that ultimately will lead you to getting to the later stage in the execution phase, but you need to find really good people to do it. To me that was the best thing that we ever did, and I'll tell you how we really screwed it up and then how we fixed it later.
Finding people who are rockstars, even if you can only hire a couple of them during that transition phase is one of the best things you could possibly do to shorten that curve and get to the next phase.
I'll talk about what we did at Jive, but if you start bringing on people that are not familiar with this stage of the journey too early that's another area where you're going to run into a lot of problems. If you don't have a sales leader who can start bringing on some of the aforementioned rock stars and keep them happy and keep them engaged and keep the whole process moving it's also going to fall apart.
I'll stop there. Are there any questions at this point?
Q: Roughly how long does it take a sales rep to break even and at what monthly recurring revenue (MRR) or annual recurring revenue (ARR)?
A: There are two marks in here that are the distinguishing points of the different phases of the model. One is the break even point. The rough benchmark here is that when you get to that early stage a sales rep will earn roughly what they cost, their fully loaded cost. If a sales rep can earn their fully loaded cost then you're starting to get out of that initial phase.
Then going from the transition into the execution phase is kind of double their fully loaded cost. So, a sales rep who maybe in total costs $300,000 with all their employment costs and travel and everything else, that can sell $300,000 in a year for that first phase and then $600,000 to get out of that second phase.
How much you're doing total as a company, I think it can vary pretty wildly. In our case, we're on two separate sales learning curves. We had initial products that we were selling that were definitely in their 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 were sort 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 infrastructure for scaling and then you are scaling. Then you're putting a lot of money into it and really building out the organization.
We dealt with all of those at Jive, and I'll talk a little bit about my experience there.
To make sure that we're all on the same page and some of you probably already know a lot of this stuff, I thought I'd talk a little bit about some of the different types of sales approaches so we're all speaking the same language.
What I think of as the four unique types of sales approaches that you might see in a B2B company laid out here are self-service, I'm sure a lot of you know well, which is you've got a free product out there then if people want to upgrade to something bigger they can do 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 are called transactional inside deals. This is people who are selling stuff over the phone. They can do it in one or two calls and 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 phone and usually the deals are done within a couple of weeks or so.
Then you have what I call strategic inside. This is what you might have historically seen a lot of field reps do, people who are out in the field, selling deals. But now you can do so much over the web and phone that they're able to do larger deals that may take four to nine months. All of them can be done over the phone so you can avoid all the travel costs, and typically the reps who have to do that cost less overall.
Then for the larger deals there is the field sales approach where you have people who are out in the territories. They each have their own small teams to support them out in the field. These are for much larger deals where you really do need somebody out there who understands the inside of these companies, 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 say it doesn't exist anymore. In fact there's a lot of companies putting it to great effect out there.
It's not something to necessarily be afraid of, it's just something to be very wary about how you build it in and making sure that you do it the right way. Because if you don't take into account a lot of the variables we talked about before it can be an unmitigated disaster.
I'll talk about it in a minute. Any questions on that?
Let me talk about the Jive story a little bit, just as a quick background because I don't want to spend too much time on it. Jive originally started in New York City right after September 11th. It was the worst time possible to raise money in the worst city to have a startup at the time, and we were probably selling the dumbest product at the time which was discussion forum software.
There was no way we were going to raise any money. We had to just start selling what we had. Luckily, because of the open source roots and the developer community that we developed, we were able to start selling out of the gate and stay profitable and build out a small team.
New York was an incredibly hard place to run a B2B software company at the time. It's gotten better, but at the time it was horrible. We decided to move and go to Portland, Oregon where we continued to build out the team and the infrastructure. We were going to hire more engineers out there and more inside sales people, and we sold the products that we had.
All the time we were looking for a market where we could sell our products more aggressively, where we could take these collaboration tools that we had and turn them into something much bigger for a higher price tag and a more strategic value proposition for our customers.
We tried a couple of different markets that ultimately failed, and then we finally found our sweet spot market in 2007 after spending a couple of years doing research into where the whole space was headed.
We got our first money from Sequoia in August 2007 after about four months of selling the new product and from then on it was a crazy ride. We had to rebuild the company several times over, rebuild the executive team several times over and ultimately take it to the point where we were able to take it public. That was the point where I opted to be a chairman as opposed to a public company CEO. A great ride, but a lot of lessons learned along the way. A lot of good fodder for case studies.
Some of the things that I screwed up that I'll talk about and I know I'm running short on time so I'll try and get through this fairly quickly. The first one on here, which I've talked about before is we hired execution stage reps long before we were really in an execution stage. What that meant was we didn't have a network of people that we could go out to and hire sales reps, so we just went out through channels like Craigslist and people that we knew and headhunters.
We got all of these sales reps who looked great on paper, but they were coming from Oracle and IBM and BEA backgrounds. What would happen is they'd get to the company, and we're trying to sell this new product in a whole new market that was very exciting, but they didn't know what to do without tons of marketing support and sales enablement.
I had to go out in the field and sit in with these guys and they'd have their sales engineer go up and do the entire presentation while they sat in the back of the room and ate donuts.
They would just literally wait to go get a deal signed. That's what they're used to. They're used to having existing budget dollars. They're using to having a whole team of people doing everything for them and they would run a process. It was a nightmare. It was the beginning of 2008 when I hired a ton of these field reps and spent most of our $15 million trying to hire all these people to go out and do this work for us. It was a disaster because they were not used to working in this early stage environment.
And because it was 2008, the market collapsed, I had to do a layoff and I ended up bringing on a new sales leader, thankfully, who was able to bring in a lot of his team. He was really good at this phase of a company and the people that he brought in as his lieutenants were fantastic at that phase. I kind of had to rebuild the entire sales team through that period of time, but ultimately it worked.
The first pass at transition phase was a total disaster, but the second pass we learned a lot and we brought on some really, really talented, amazing people and made it all work.
The other lesson learned was because of that we really didn't have that network in place. One of the things I would encourage you as you get to those later stages when you're really building out a full sales organization is to the extent possible really try and tap into a great network of people as opposed to just going through traditional routes and interviewing sales people you meet on Craigslist and that sort of thing, which is usually a disaster.
Try and find somebody who has led a team of people before and who can 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 run rather than just going out and getting whoever you can find, who seems like they've done pretty well in the past. I would back channel the hell out of them. I would talk to as many people as you can who might have insight into how they've worked before and whether they can really do it.
It's a hard role to hire for, but if you do it right it can really make a difference in your company.
The other thing that I learned was we hired a ton of people ahead of results. We thought the whole thing was figured out, but the reality was we weren't even close. The first field rep we hired immediately went and sold a million dollar deal. I was like, "Yes! We need more of those guys. Let's hire a bunch of them." And we did that and none of them did a million dollar deal again. It was a disaster.
We were hiring ahead of results instead of hiring based on results which is really what we should have done. It should be a much more insightful process to understand what's working and what's not. For you as founders and leaders of the company you should be actively involved in sales deals a lot and not rely on these people to do it for you, so that you can have a deep gut sense of what's working and what's not and how truly repeatable this is. Because that has a big impact on the types of people that you hire.
A couple of things that I think we did well: We did hire a really great leader who was capable of finding the right sweet spot to sell into and bringing that information back, working well with the executive team to shape the road map and the go to market strategy, and then helped bring on a lot of those really talented people that were able to get us to that next phase.
If you want to get great people give them a chance to increase their responsibility and give them a career path they get excited about. That's a really, really good way to do it.
Find people who are willing to take less salary, take more equity and bring some of their strategic prowess that they've hopefully experienced before in these companies and play an early, humble role as they build out the infrastructure and then hire more people underneath them.
We talked about those different types of sales approaches. One of the things I think we did well was by the time I left we had a machine where we were doing the transactional sales, the $10,000 deals over the phone. Those in turn would lead to sales relationships with more strategic inside people who could hopefully turn them into larger deals. Those would in turn go to field people over time as you build those accounts and hopefully can become seven figure accounts with the help of a field sales organization who is out there.
I think it's not just choosing one particular model, but having a whole pipeline. If you've got open source, if you've got premium, whatever it is, that pipeline is clear how you get from one stage to the next.
It's not necessarily something you need to have out of the gate, but certainly something you need to think about as you're planning for the future of the business because the sooner you can put those 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 big fans of it. I've been lecturing on it in terms of the Jive approach to it, or the Jive case study for a while.
The whole point is get really good strong business builders from out of the gate. Then find really strong exec caliber people to come in and build out the infrastructure, people that have worked at that phase before and are willing to roll up their sleeves and do the hard work and they know how to do it.
As you get to the other side you can hire reps who can be more productive out of the gate and you can hire more of them because you feel confident that the machinery is in place.
I think the only thing I would offer is that repeatability is a very, very hard thing to get, and it's very easy to think you've found repeatability, but the reality is you haven't.
I encourage you to be involved in as many deals as you possibly can in the whole process of building out the sales organization and be intimately involved in it.
Don't be scared about it or hand it over to somebody else because you really need to have a gut feel that it's working and that you truly understand it before you start making some of the investment decisions.
If you can, find people who represent a really solid network. Maybe there's one company out there who'd been acquired a couple of years ago and they had a really talented team. If you can find a way to tap into that team and start pulling some more of them over as they get a little bored now that they've been acquired, that's a great model for it and I think works really well and I've seen that work in a lot of companies.
Finally, I've mentioned this a couple of times, if career advancement is a key that you need to do in order to get great people on board, feel free to use that liberally for the right people.
By the way, I'm not a venture guy. I'm not out looking to lead deals or any of that stuff. I'm like one of you. This is just something I feel passionate about and I've seen so many companies screw up and so I believe very 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 trying to share this stuff, and I think it's really interesting.
I've had a lot of interesting conversations with startup companies, seeing different ways how they've approached it over time, and I've learned a ton myself. With that I'll stop the presentation part of it and maybe we can have a discussion, which I think is much more interesting than 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't do commission at all. In the first stage when you're learning I think it's MBOs. I think they should be motivated by equity. They should get a healthy chunk of this company because it's early stage and they're an early employee and they're building up their reputation and their career is advancing.
They should be paid to learn as much as possible and I think that comes from MBOs.
Maybe you get a couple of signature accounts, but you're not paying a quota on those accounts or commission on how big the deal is. Really, you just want early accounts to learn from.
However you're structuring it, I would align them with the success of the company through equity and then specifically on how you want to do that first phase. I would set up MBOs for that. If the goal is five customers who are reference customers, and it doesn't matter how much they're paying us but they're reference customers and they'll take a call from everybody else, that's their MBO and that's what they should be focused on.
Then the second phase is now you're actually starting to put in traditional compensation plans, but you're mixing it together. You're mixing compensation of quota and what people want to earn with some high level strategic goals as well.
And a lot of those early guys are also getting good equity chunks. Certainly the leader of the organization is getting good equity, and that's how they should be driven. But the people under them, those first lieutenants who are going out there and doing a lot of that work as well, should also have healthy equity plans.
They should be motivated by that, but that's backed up with traditional compensation mechanics. You actually have quotas that you're giving 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 lot of companies you're talking about one to three people. The second phase, depending on how you calculate it, can be maybe 10 to 12 to 15, within that range. It could be more if you still haven't figured it out and you've got great people who are going out there and executing. But I would say quota carrying reps, maybe eight to ten. Then the next phase, hopefully you've figured things out at 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 middle of all this crap. I was like, "Now you tell me."
At the time we actually did think that we had figured it out. We had Jim Goetz from Sequoia who is fantastic and now the number one VC on the planet after WhatsApp, and Sequoia was helping us.
It wasn't like we were in a box totally blind to this. We actually did really think we'd figured it out. After I put the pieces together, I realized all this stuff. But when you'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 pricing early on is not nearly as important. What's most important is that you're getting them as a reference customer. You want the price to be sufficiently high so that they take it seriously and that it's a real deal, but you have a lot of room to wiggle in there because ultimately you really want to get them on board as a reference customer because they'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 people on board — from the product, the marketing and with the right sales leader, that conversation about pricing can work 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 lot of the early deals. Then the person you hire to go out there and figure out how to make the sales model work, you can call them whatever you want. You can call them VP of Biz Dev, which a lot of times I've seen, because Biz Dev sounds like sales. Ultimately you want to transition them out as you start bringing on somebody else to do more traditional sales. It's when you get to the transition phase that I think you may have a title of VP of sales.
Chief Revenue Officer is what some people do and I think it does work for some companies. But I think you have to be really careful because what can happen is you can have the same person running sales and marketing, which is traditionally what Chief Revenue Officer means, then marketing falls under sales and becomes solely a sales enablement machine.
Marketing can actually offer a lot more benefits than that. If you really want to build a big brand and create strategic positioning in the market and have a leadership strategy and all those kinds of things, you really need a strong CMO.
But if you have somebody who is solely reporting to a sales leader who's responsible for hitting quota, they're going to just be creating lead generation tools and communication and 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 find great marketing talent, but when you find it, it makes a huge difference. I think the things that were really impactful to us as an organization was the AR and PR, and making sure that we had established a leadership position.
That was incredibly important, but we only established a leadership position because we were doing so well in sales because we were winning so many deals and had so many customers and were bigger than every other company out there. So we became a leader of the category only because it was really working.
But then you have to do a good job managing the analyst relations and the press relations. You have to do a good job getting to know the analysts. So, there's that. I think positioning yourself vis-a-vis other players out there, and finding a way to tell a story that's compelling and makes sense why you're different than anyone else out there, is what good marketing can do.
All the sales enablement, all the tools they need to go out and get their job done, the case studies and the ROI tools and all of the comparison charts and stuff that you need to go and be effective as a salesperson; they should be great at developing as well and obviously the lead gen component of it — really high impact lead generation machines.
There's a lot of things that great marketing can do and if you don't have a versatile marketing leader you may only be good at one of them. That's why the strength of marketing group is made up of a lot of 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 interesting for us because we had a stable of inside sales reps in the early days and they were selling the old products. Then we launched this new product and those people started selling that, so we had this team of people who were starting to sell it and getting into some pretty big deals. On top of that we decided to get that first field rep that we talked about, and it was clear the market was starting to take off. We were starting to see a lot more competition out there.
We were doing social software for large companies. When Facebook started to take off a lot of people started to say well why don't we do something like this for this project. There started to be a lot more projects to come up, and we wanted to make sure that we were out there, and we wanted to be the first true enterprise class vendor in that category.
To do that, we needed people who could look and walk and talk with the enterprise people, so we brought some on. The problem was, again, we brought on people that were used to much larger companies and even though they could look and walk and talk enterprise they didn't have anywhere near the level of machinery they were used to and that was what failed.
I think, for me, it was seeing a lot more deal flow come in and it was clear we could hire more people and they could be productive and start selling a lot of these deals. That was when I knew we were in 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 deals and think you've found it. Because you get really excited about the deals. You go out and sell a project and you're like, "Oh, we solved this problem for them and it's really exciting and I'm sure tons of other people have that problem."
The reality is every company is totally different. Even companies in the same vertical can be wildly different about the way that they set up a lot of their technology infrastructure. So, you can extrapolate too much about that repeatability when it's not there.
I think it depends a lot on the nature of the sales model, too. If you're solely like a transactional inside model and you just need people on the phone, it's not that hard to get to because you can see how people are doing the deals. Is it working? Is it not? What techniques are they employing? Could we put somebody else in and make them productive with the same level of training?
It gets more difficult as you get field people because you can only hire so many of them and they're not all made the same. A lot of times in the early days there's one or two people who are the heroes who go in and help heroically close a deal and they help out whatever rep it is, but that doesn't scale. You need to make sure that all these reps on their own could go out and be effective.
That's why I think you really don't know, but you have to be involved in the sales to have a gut sense that it truly is working and that it's repeatable. That's why you should never stray too far from being involved in the sales organization and not rely too much on the 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 depend on the company.
I would look at who are the different types of people, the different roles in the company that we're talking to and is there consistency across those roles? What are the pain points that we're addressing? Is there consistency across those pain points?
Are we starting to see similar patterns among all these conversations that we're having? Or is it different? What are the companies that we're competing against in these deals? How do they see us vis-a-vis other competitors out there?
I think it's all those types of things that you start cataloging and capturing, and you start to get a sense of whether 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 then I had the biggest deal there — a $2 million deal that I did for the first five or six years.
I was selling consulting services for a long time. I think you never really stop selling. First of all, everybody's a salesperson. You always hear that thing, and I had never really stopped selling, but I was never a traditional salesperson in 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 two co-founders who had absolutely no experience whatsoever and they were developers. They brought me in although I was not a salesperson, but I was flexible and I was that athletic "can do a lot of different stuff" guy and made it good in the early days. I think it's that — if you can find somebody who can be your partner in crime early on.
If you haven't had sales experience and have no idea what to do whatsoever in sales then maybe you can bring on somebody to help be the partner in crime to go out and do deals with, who does understand it.
They don't have to come from a sales background per se. You just need a really smart, passionate person. Somebody who truly understands the space who can have good conversations with the customers and start identifying those patterns. That's the type of person, I think, is important to bring on. Ideally the CEO can do a lot of it, and if not then find somebody else to 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 then what you do is prove to them that it's repeatable. If I'm going to go prove to someone that it's repeatable, including myself by the way, how would I do it? How would I prove that we've got repeatability and force yourself to talk about repeatability and do it with people who have seen what repeatability looks like and can offer you advice in that regard.
I think a lot of it's gut, but that gut needs to be developed over time, and I think it's helped out when you have people who have been through 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 want to 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 do is get an early commission model or quota model from a company you respect that was similar and 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 would do as good a job as you can to keep it really simple.
However many reps you have out there, what are their territories or what's their zone that they're working in, and then how many deals can you expect them to do in that given time frame. But by that point, if you're in the transition phase you should have a couple people working in a couple of different territories so you can kind 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 out the metric that is most relevant to the success of your business and what you want to continue to track and use that as the basis.
For example, early on we used to do perpetual deals something a lot of you probably have never heard of. You sell once license agreement and then you do kind of 20% of that support and maintenance ongoing. Early on the reps could sell some of those deals and I had to make sure that they were motivated to do nothing but subscription deals. They only got 20% quota credit for those perpetual deals early on.
You have to make sure they're motivated to do the type of things you want and the metrics that you're measuring them on are the ones that are the most relevant to the health of your business over the long run.
I think that's the challenge. I would use somebody else's as a starting point if it's very relevant to 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 guy who was a product guy by background and he was doing all the sales early on when we were in New York. Then we moved to Portland and we hired the first, more traditional sales leader. His background was managing inside teams. He was really, really strong at building out an inside sales team and really humble. Meaning he was not afraid to pick up the phone and call everybody and build it up himself from scratch.
That was the first experience I had in being partnered with a more traditional sales leader, and it worked out well. But again you have to be careful of people who are good at that and building out the machinery too quickly because they want to build a machine. That's what their intention is to do, they want to go start building the machine.
If you're building the machine before you really understand how that machine should look — if you haven't prototyped it and you haven't seen how it works and you haven't tested it against different markets and that kind of thing, then you're going to build out a machine that ultimately you have to take apart. You don't want to do that.
Ultimately it worked out well. For the inside team it was a great partnership.