November 3, 2016
Ep. #26, Organizational Scaling
In this episode of To Be Continuous, Edith and Paul discuss the steps that a startup can take for successful organizational scaling. They br...
Thank you very much. It's a great honor, always, to be in front of super smart guys and gals who have dreams, that want to start companies. The older I get, the more I appreciate the opportunity of being here. So thank you very much for having me.
They asked me to talk about sales. That's because I grew up in sales prior to being an investor, and I think I know a little bit about sales. But prior to just talking about sales, the thing I wanted to do is go through about 10 slides as to why sales is important, and why in the world, in 2015, you have no choice but to run as fast as you can, which wraps in sales and wraps in marketing.
Bear with me for the first few slides which are the setup slides. What's new in the world? What we contend at Sequoia Capital is that everything is new, and everything is new every day. By 2015, for a thousand dollars, we're buying the computing power of a mouse. By 2020, of a human being. By 2040-2050, the human race. We're just seeing the tip of the iceberg in what's going to go on with software and with compute.
You all know that there's going to be more personal mainframes, as I think of them, than human beings in the world. Which is precisely why you're seeing companies not go public earlier. A lot of people are saying companies are not going public because of a lot of private funding. No, it's the other way around. It's because you've got to go for world domination as fast as you can, and you can't do that as a public company. You want to do it as a private company.
The distribution of personal mainframes, where a great piece of software can spread overnight, causes the need for all of us, all of you, to run as fast as possible. We convince corporate America to spend two trillion dollars to bring technology in-house, and now we told them, "Let's spend another two trillion dollars and move it in the cloud."
There are opportunities all over the place in this enterprise. We've created more data in the last 12 months than all the years of human history combined. And by the way, in the next six months, we're projected to have more data being created than ever before combined.
That's why, for the first time, AI is interesting. Because we're overloaded with data.
When AI came out in 1975-1980, they really were not solving a problem. Now we have a real problem: too much information. We lived in a world where companies sold to humans, and as you all know, this device has placed himself in between an old-line industry and the customer, where the real value is the customer.
And so the old-line industries now are confined to being a back-end. Almost like the carriers didn't want to be dumb pipes, the old line industries now are dumb pipes. And now, for the first time, what we're seeing is humans selling to humans, humans selling to companies.
What we're also seeing is a much more efficient type of an economy, because if you have two hours free, now you can monetize it.
Back when I was in college, I sold my textbooks prior to finals so I could go on a date. I wouldn't have to do that right now, because I can go drive a cab, drive a taxi, a black car, for three hours so I can go on that date. I didn't do very well in that course, by the way.
It's not just in IT. I think we're seeing it in healthcare where, in the next two or three years, to sequence a genome is going to come down from a billion dollars for the first time to a thousand dollars. And I contend this happens everywhere: logistics, payment, healthcare and so on.
The compute infrastructure, all these changes I'm talking about where you better run or die, are occurring throughout the U.S. economy. We're just seeing the tip of the iceberg. This is the Dow Jones 30, 1960. These are the companies that are left. This is not as impressive as the next set of slides. These are the new Fortune 1000s between the decade of '73 and '83. About a third of those companies were new to the Fortune 1000.
Ten years later, 45%. Ten years later, 60%. Ten years later, 70%. The rate of change is increasing. Now we're going to start getting why sales has started to be important. Black swans. And I cheated by a year here and there, but we had the PC in '75, the router in '85. Netscape went public in '95. The iPhone, really '06, but I put '05 just for shock value.
We don't know by definition what the next black swan is, but we know it's coming.
No idea what it is, we never know what it is. By definition, when people tell me, or they ask us, "Doug, what's hot?" My answer is I don't know what's hot. It's in your mind what's hot, because I can tell you the day before we met the founders of AirBnB, I would not have told you, "Let me tell you what's really hot, that I'm going to take a room out of my house, and I'm going to share with a stranger." I would not have said that.
Or the day before we met the founders of YouTube, I would not have said that the 25th start-up in video was finally going to make it. We never know what's hot.
It's you guys and you gals that, in many cases, solve a problem that you see with your own eyes. And you happen to be the proxy for another billion users.
You know what's hot. We don't know what's hot. And this shows that the rate of change is accelerating, years to a hundred million users. From PC to Internet to mobile phones, the slope of the line is increasing. We're having accelerated disruption.
Now, we've always been on this curve, except that when you're in the early part of the curve, it looks flat. It looks like the world is not moving. But when you start hitting the midpoint on the curve, now it's pretty obvious that things are changing. We're clearly at the midpoint. And when you're living in this world, you better manage for change. And manage for change means you want to experiment.
You want to fail fast. You want to evolve. You want to get rid of the old stuff. You want to press the responsibility down. You want to kill the stuff that's not working, and so on.
If you're centralized, you're done. So if you guys are founders where everything has to go through you, you're making a mistake. In fact I often gently tell founders, don't put the founder name on your card. The whole world knows you're the founder. Don't remind everybody, because your job is to integrate people in your company.
The moment you remind them, over and over again, the card, the corner office or the corner desk in your case, that you're a founder, I think you're doing yourself a disservice. Because the integration of talent is your key.
Therefore, we recommend that you have as few people as possible. That experience, in many cases, is a curse because experience means that you know how the world worked yesterday. And so you want to hire people that can break problems down from first principles. You want to make fast choices, fast decisions. You want to be decentralized, you want to have compensation schemes that are straightforward where a PhD is not needed. And you want lots of technology.
You want to grow, grow, grow, and now we're going to start talking a little bit about sales. But I wanted to give you the framework, because a lot of people don't think sales are necessary. You want to grow, grow, grow, and then growing depends on four things.
The cost of capital. If you grow twice as big, but you have half as many shares, you really haven't done anything. You want to have market size. You cannot grow very big if you chose a small market. You're wasting your time. I would actually argue that if you're chasing a small market, don't go raise venture capital. Maybe raise a small-seed round and turn it into a cash-flow business. You want to run as fast as the boat, your company, can go.
A boat can only go as fast as the hull speed. Now, I was corrected in this because the boat that won the championship really wasn't sailing in the water. It was sailing above the water. But assume you've got a normal boat, and you're in the water. You can't go any faster than your skill set to manage a company.
Some KS is good. Too much KS, and you're going to blow yourself up. And the last thing that's going to go right into sales is unit economics. If you're losing money on everything you do, once in a great while you'll converge and get out of that. Nine times out of 10, volume isn't going to cure a bad business.
In sales, what unit economics means something different, and that is, if I give you three dollars, and you promise to give me three dollars or two dollars every year for the next five or six years, I should do that deal all day long. Meaning, you've got to understand your business at the micro level and invest if your unit economics are powerful.
Now let's talk about the thing I actually know a little about, and that is sales. We have heard these lines over and over again from super smart founders, and I will not embarrass them by naming the companies. But make no mistake. It's companies that you know extremely well, companies that are called unicorns by the media, and companies that had to go through this learning.
The first thing I heard, "We don't need salespeople. Product sells itself." Let me tell you, the product doesn't sell itself. Once in a great while you have a Google. Once in a while you have a Facebook. But most companies are not Google and Facebook. We have companies with 30% gross margins that act as if they're Google, and they're not Google.
Second, this is a quote I've heard. I almost wish I could tell you the names, and you'd chuckle. "We don't want to hire salespeople because they are going to ruin the vibe in the company." Now, think about that. What makes an engineer really happy? To see his or her product in a customer's hand. The notion that the salesperson is some kind of robot without any IQ, that you can put some coins in him, and he behaves as you wish, is yesterday's misguided notion.
And third, that R and D and sales are on two different planets, two different universes. They don't belong underneath the same roof. Let's keep those as far as possible. Say you now have a product, or you almost have a product. What should you do? When do you hire the first rep? What does the first rep look like?
You should hire your first rep 60 days before you can ship the product.
Why 60 days? Not because he becomes the product manager to help you product-manage the last 10% of the product. Let me be clear again. Your salesperson will never product-manage that product. But 60 days so he can be trained along with the founder on what the product is, because it's going to be the founder that's really going to sell the first seven or eight accounts anyway. But you want to start injecting some of the product DNA, some of that knowledge, in the salesperson.
The first rep you choose should not be a super accomplished rep, which won't come anyway, because those people wait until your company's going like this. Then they want to make $400,000. It should be a semi-younger rep. Four or five years, has done a little something, wants to take a shot, is compatible with the company. That's when you hire your first rep.
Keep in mind, don't hire a VP of Sales early on, because a VP of Sales will wait you out. Because a VP of Sales wants to make sure the dogs are eating the dog food, that the product sells. And you can go with this structure for the first four or five salespeople, three or four. At some point, one of these people you hire has to feel like a regional manager. Hire someone that's managed three or four people only. Not the person who's managed a thousand people. He's more sales operation. He's more managing upwards than downwards, and you can start building an infrastructure.
You can hire a young person on the East, maybe two on the West, so you can experiment. Maybe your customer base is on the East, maybe they're telesales, but you want to experiment during these days. And if you ever have a choice between best athlete and domain-knowledgeable, guess what you should hire? Does anybody want to guess? Best athlete, always go with the best athlete. You can teach a domain.
And so then you start injecting a first-level sales manager, and you want to get to a point to have a structure where your regional guys, they're really the ones who do the work. Not your VP of Sales. The regional people are the key, the person who runs the East, the Central and the West. They're the ones who do all the work. If you have telesales, it's the local manager. The VP of Sales will set strategy, will do a lot of other things, we'll talk about it, but it's the regional people that are the most important people in this organization.
And you want to build it not top-down. You want to build it bottom-up. At some point, you've reached some kind of run rate, five million, seven million, where you can attract a halfway decent VP of Sales, and at that point, don't make the mistake of hiring the billion-dollar salesperson, but hire someone that's gone from ten to a hundred million.
Don't call them the VP of Worldwide Sales, call them the VP of Sales. it gives you room to come over the top later with a VP of Worldwide Sales, later. So, that's what you do. Start with relatively young people that have sold something, one, two or three. Come back with regions. Make sure you have the regional guys or the regional VPs. They're they key to driving the business. VP Sales, not the heavyweight VP Sales. Either he or she grows up, or you come over the top later. That's how these things are done.
So, hiring sales reps. The first thing I hate, I look at a lot of resumes. The salesperson to stay away from is the "two-and-out" rep. Four jobs: two years, two years, two years, two years. Now, if the company has gotten bought, those are all good facts. But there's a million resumes.
Go look at sales reps' resumes, and you'll be blown away how many "two-and-out" reps, or the rep that did something 13 years ago and has been two and out since. Two and out means that by the time people have figured out things, either they figure out he's no good or she's no good.
Try to figure out if you're selling a widget or a solution.
A widget is this. I can sell you this, I have it in black, red or white. A solution is where I have to be creative. I have to explain things to you. Maybe it's a complicated SaaS piece of software. Maybe I'm selling to a high-ranking person.
A widget salesperson cannot sell solutions, and a solutions salesperson cannot move fast enough to sell widgets. At Meraki we had widget salespeople. At ServiceNow we have solutions reps. Solutions reps are more precious. It takes more skill set to sell solutions. Do make the mistakes of hiring one for the other.
The other error that we often make: the super-high achiever sales rep from a big company, his achievement in a big company is not at all correlated with what he or she is going to do in a small company. We have hired so many people from Cisco that sold eight, nine, $12 million, that could not sell $500,000 in a small company. You want to look for an entrepreneurial mindset.
You want to look for people that haven't sold something with the benefit of the mother ship right behind them. Because in your world, there is no mother ship.
There is he or she on point, there's maybe a person a little more experienced in sales, and you, the founder. So don't make the mistakes. And I made that point to product management. I've seen that I actually made that mistake a few times, where it's T-minus five months, and we came across a salesperson when we didn't really know how to shape the last part of the product. He'll figure it out with us. Incapable, impossible. It's a waste of shares.
Then what you're going to do is, you're going to burn him or her out just by the time the product is ready to sell. The notion that salespeople are coin operated was very much of a 1970's notion. Yes, you can spiff them if you want a little more in a quarter, but you want people who are inherently smart. You want people that have a track record of having done something, hopefully in a smaller company. You want people who are likeable, because they have to mingle with the rest of the company.
You want people that are compassionate, not me-first kind of people. You don't want them in the building. Said differently, I'd rather fire a high-producing person who's an ass, because he's bad for the DNA of the business. Get him out of the company. And you want people that are incredibly humble. You want people that are good listeners.
Selling is not talking. Selling is listening. Selling is understanding what the customer is telling you, understanding what the customer is not telling you. Selling requires a high degree of EQ. If you interview a salesperson, he interrupts you, she interrupts you, doesn't get the beat of a meeting, treats the receptionist in a rude way, out of there. You don't need those kind of people.
Sales leadership requires a whole different set of skills. First thing to realize is that your company, once you sell product, product is so important. I don't want to try to minimize that at all. It's uber important, but at some point, when you're shipping product, it really becomes all about the customer. The engineers, the founders need to be customer-driven. And so the sales leader has to help in this transition, the VP, from a product-driven company, and you can always be a product-driven company, but also to bring the sales-driven culture.
He has to be a visionary. He has to be a crystal-clear communicator. He's an executive, he's not just a VP of Sales. Great VP of Sales are part of the team. They're not these people that are just there, "Go get me some sales, come back later." They're part of an executive team. They have to interface with marketing. They have to have nice tension with the CFO. Why is it? Because they're prone to booking things.
The CFO says, "Well, I'm not sure we want to book that, exactly." But they have to engage in that two-way conversation among intelligent human beings. They have to be willing to pay for performance. Let me tell you, I'm the kindest man to a performer, and I am pretty ruthless to non-performers.
I think non-performers should be given a chance through a remediation program to try to improve, but after you've had the conversation, after you've babysat them, after you've tried to teach them for three, four, five, six months in a compassionate way, they should be removed.
A great sales executive is always interviewing. Interviewing is over half of his or her time, because you want to keep that funnel full. It's not one of these that, here, Mr. VP, you have three heads. By the time the CEO or the founder gives him three heads, the day after those heads should be filled. Not nine months later, not six months later, because he's always interviewing.
One little telltale sign if you've made a mistake in hiring a sales exec is the number of people that are willing to follow him. We've hired sales execs where they brought in within at PlanGrid, the VP of Sales brought in seven or eight sales reps, they followed him. We've hired sales execs that a year, a year and a half later, not a single person followed them, and I knew in the first 90 days that we made a mistake.
They have to be consistent. They can't be moody, and they have to have ultra high integrity. They have to generate excitement, and they have to be part of the team.
The other thing that people don't think about, there's a thing called sales ops. Sales ops is the right-hand person to the sales executives who figure out what the world needs to look like for the next 18 months. You should always have an 18-month little model for the salesperson. Why is it? It takes six-to-nine months to ramp salespeople, so in order for him or her to meet your goal, 12 months is not enough.
You always have this model that you tweak that gives them an idea where do you want me to be 18 months from now, so he or she has the time to bring in the people and bring them through the sales-productivity ramp. Twelve months is not enough. And the sales ops person figures all of that out, a king of spreadsheets that is the right-hand person to the sales exec as he hires, as he interviews, as he deals with the management team, as he goes and closes business. The VP of Sales should be out of the building about half the time.
Here's how a business is run. First of all, people should have quotas. People should have a sales productivity ramp. Now this is important. I don't know if you know what a sales productivity ramp is. It's a model you have that says in the first quarter he's going to sell "X." Maybe X is nothing. In the second quarter he's going to sell X, maybe X is 20 percent. In the third quarter he's going to sell X, maybe it's 50. Q4, it's 100%.
You've got to get that right, and you have to adjust that based on empirical evidence, because your whole plan would crumble if you get that wrong. Because this is all going to roll up to quotas, to a board plan, and if you get that ramp-up wrong, then everything else you do is wrong. So get that right. It always takes a little longer than you think and changes based on empirical data. If you modeled it, and six months later you're seeing it takes salespeople a lot longer or a lot shorter, remodel it.
First you have quotas. Then you've got a sales plan, the VP has a sales plan. Sometimes the sales plan is the quota rolled up to the VP. Sometimes the VP says, "I don't want to live like that. I want to have my quota 10 percent lower." And then you've got a board plan. Maybe it's 10% over the sales plan because you don't want to miss the board plan. Then you've got something called over-capacity. This is how you run your business.
You want your capacity at the field level, the number of reps you have, the full-time reps, the reps that have been there for a year, 100%, the sales-productivity model. You add all those numbers, you multiply and you add, and all those numbers should be 20% higher than your board plan. That's how you run the business.
You never want to have the addition of the salespeople to add to your board plan. So the over-capacity should be 20% higher than your board plan. That is key.
You should have at least half the people making quota, 70, 80% getting to 70, 80% of quota, 20% just missing. About one fifth of your sales force should turn over, and a few more for promotion. Those are the kinds of metrics that expert VP of Sales look for.
If you turn over more than a fifth of your salespeople, it's going to look like a sales problem, right? Well, be very careful. They always look like a sales problem because the product isn't selling. And Sales VPs have gotten removed, salespeople have gotten removed, but you want to really double-click on that. Is there really a sales issue? Is the problem widespread across geos? Are there only two people out of 15 who are selling? It could be that you have a product problem or you've got a product market fit problem, something else is wrong.
But I will tell you the manifestation of the problem is always sales, and only once out of three or four times it's actually sales, especially if you have five or six salespeople. Think in terms of over-capacity, assign the quotas, build a VP of Sales quota, build a board plan. Twenty percent over-capacity. It allows for this turnover, promotions and so on. That's how all the companies that are real companies, private and public in infrastructure, run their business.
Now, on the Internet, in consumer Internet, you don't have this. You have a website that sells things. You have the new title called the CRO, and things are done very differently there. This is very much more of a sales-type of structure for the enterprise where you have salespeople. This is a sales-learning curve.
In the early days, you want to experiment. You don't want to run as fast as you can until you know. Don't hire five of same people from the same company. Hire someone from a big company. Again, I'm going to pull examples: someone from Workday, someone from ServiceNow, someone from a small company. Try, see what works. See what DNA works, experiment, and only when you have a repeatable formula, you want to run as fast as you can, even though your losses can be increasing because of this thing I said earlier, unit economics.
If you're unit-economics profitable at the single-salesperson level, you should run as fast as you can given the four constraints: market size, your ability to manage and cost of capital. Right now, cost of capital is extremely low. Ability to manage is up to you. Market size is up to you to pick a good market.
But there's going to be some point where you cannot run fast enough, and if there's a mistake we've made in most boards I'm on, we haven't had the courage to go even faster.
I mean, you really want to go. Go, go, go, go, because the world is changing at a faster and faster rate. If you don't go, I assure you your competitors are going to go.
Again, more of the nitty, gritty stuff. These are the ratios. One manager to six, seven salespeople. One second line manager to six, seven reps. If you've got telesales, you can go a little higher because everybody's concentrated, everybody in the building. You can go eight or nine or ten. And then when you do channels, then you can manage a few more people.
But this is the formula through iteration that's proven to work in the great sales-DNA companies. This is the first slide where I show you that sales is really math and not an art. So what you do, you have a process for forecast, and it's the sales manager's job to enforce this process, because this rolls up to a forecast. And when I listen to a board pitch, I ask for the forecast, and then I ask them, "What's the number that you're not going to miss?" And the number you're not going to miss, when we go in closed session is the number. Then we really do some real staffing and budgeting around, because we don't want to run out of cash.
This is an example of a real pipeline from ServiceNow, a real company. This is how ServiceNow is run. And so what we try to do in ServiceNow and all the companies, we take the pipeline, which is multiplying the percentage by the opportunity, adding all the numbers. Those numbers, if you want to have any hope in meeting your quotas on a regular basis, they should be three-to-five X your quota.
It's not the only way to use it. You could have five gradients, not 10, this is one that works. But it's very mathematical. Is it budgeted? Did you get it? Is it funded? Is it in purchasing? All these things.
This is a slide from the ServiceNow board deck from a few years ago. What you see in the dotted line is the quota. That doesn't change. What you see in the blue line is the quarters, and as you see, all companies are back-end loaded. In today's age, they're far less back-end loaded because of SaaS, because you have some upsell in existing customers. I can tell you that 15 years ago, 70% of the business came in the last two weeks. I mean, you talk about closing windows at the board level.
This is actually quite pleasant. Red is what VP of Sales was getting from his regional guys as the commit number. The green is what the VP of Sales thought his gut was telling him based on experience. And the purple shows the upside. If a few things line up, that's what we're going to get. And what you see then, on a quota of 34, is how the quota shaped out.
This is how you want to run your business. It's very mathematical. It's not a black-magic art. It's not something that's too mysterious. Sales is a science. You want to have a lot of processes in place. You want to hire the kind of people I told you. You want to try to over-assign at the field level, and then you want to manage through the gradient I showed you in the earlier slide. And then you want to follow like this, just in case something happens early in a quarter that your CO knows.
Now the worse mistake, and I call this an inexcusable mistake. You know, look, there's a lot of errors that are made. There's one you should never make. Imagine you hire a lot of expensive salespeople. Salespeople are expensive. A telesales person will cost you between 60 and 80 in base salary. A field salesperson will cost you 125. They expect to make, the telesales, between 120 and 150, and the field salesperson 250. So you're baking in a lot of costs, plus you may have a system engineer to go along with them, a technical specialist. So, they're very expensive.
The mistake you can never make is to hire salespeople and not have enough leads.
That's a huge mistake. It's an inexcusable error. It's a rookie mistake. And so leads are raw, they're qualified and converted. If you have 100 raw leads, usually about five percent are qualified, one percent is converted. That's kind of how it works. And depending on the price point of your product, if you're selling a $400,000 product, I care far less about cost per converted lead. If you're selling a $40K product, I care a lot.
I'm on the board of a company where the average sale is $75,000. The cost per converted lead is $45,000, before we include the cost of sales, the costs of engineering. That says we're shipping dollar bills with each sale. So you want to have that number. Yes, you can manage cost per lead. Yes, you can manage cost per qualified lead. The only thing that matters is cost per sold lead, because that gets baked into your numbers. Now you know your cost per lead.
Now a few rules of thumb about sales. If a salesperson costs you $120,000 a year. His quota is $600,000, and let's say you have 75% gross margin. The 600 comes to 400, the salesperson costs you 120. That's 3.3-3.4X leverage on that salesperson.
Here's the metrics. At 2X leverage a salesperson, you have a tough business. At 3X leverage on that salesperson, remember it's not what he sells, it's on your gross margin level. Three X you have a decent business. At 4-5X, you have a terrific business. So you want to make those calculations. Then you bring in your cost per converted lead, and at the unit-economics level, you can figure out if you should run faster or not.
In that company where we're shipping dollar bills, I can tell you we're not running faster. That is not the issue in that company. The issue is can we experiment a little more, bring the cost of sales down, bring the cost of leads down because all we're going to do is go broke faster if we run faster.
It sounds obvious, but I will tell you at board meetings, most venture people don't understand any of this. Most founders don't understand this. "Oh, we're spending this much. They don't break the problem down to these simple metrics." It's really, very simple, no black magic here. And so you have leads, I told you how to think about leads. You've got a pipeline, I told you how to think about pipeline. Three-to-five X, the multiplier, blah, blah, blah. You've got a forecast that's based on an over-assignment at the field level, so there's some hedge, and then you close it. It's no more complicated than that.
I'm going to leave you with one or two more messages. Sales is not a salesperson's job. It's an enterprise job, the founder, the engineers.
Try sending an engineer on sales calls. Try rotating some of your engineers to meet customers. They'll have fun, they'll get more engaged in what the customer really needs. Try creative ideas like that.
Bring marketing into it, bring customer support, and so on. It's company-wide: product management, product marketing, finance. It's a company-wide role.
In summary, the world is moving very, very fast. You have no choice but to move. I gave you the four constraints. Unless you move, your competitors will. It's my contention that sales and engineering are very compatible for the simple reason that engineers want to see their products sold. The salesperson of 2015 looks a lot more like an engineer than he did from the salesperson you may imagine, you know, with the three-piece suit, with the big budget, the stretch limo, "Let's go to a restaurant to close a deal."
Some of those guys and gals exist still, but now they're in the minority. Sales is a very simple science. If you understand it, if you understand what's necessary, you can implement it in your company. The only mistake you might possibly make is hiring the wrong person. But you will not make the mistake in a structure, how to run it and how to run your company.
Based on that, I'm happy to take any questions.
Young. In this day and age, I want to say young. How about people that have more of an entrepreneurial bend? That have gas in the tank? And I'll say one more thing. Don't have a set playbook.
Well, widget/solution comes from their background. If they sold routers, that's kind of widget-y. If they come from a software world, more solution. If they come from a smaller company, they've had to improvise more of a solution. And so that's how you know.
When you think about your board, all these things, board control, especially most of you founders are technical with a product mindset. The very first board member I would put, as soon as I'm getting ready, is I would put someone on the board who would know something about sales: a sales executive, a regional manager, a CEO that was into sales.
Have either he or her help you interview, or your board member, who hopefully has interviewed a lot of people, though I'm not as hopeful with venture board members knowing anything about this. I'm being quite serious. Employ friends that know about sales to help you select this person. Some of these things you can get from their resume. A lot of things you can get from meeting them. It's the instinct when you meet someone. They're right or they're not right.
Careful, because salespeople are very clever at masquerading their weaknesses. Things I look for in salespeople is that if they changed jobs, they were brought there by the manager who previously worked for them. People who got promoted within a job. Those are the little, telltale signs. If I see that, that's 90% of the battle for me.
If I see someone that has had two jobs, why did you find job B? "Because my manager sold. They gave me a call to join here." That to me is golden. At least someone that knows them thought highly of him or her.
On that note, something else came to mind. Careful with salespeople that always sell what you don't have and that they're building. Careful with salespeople that sell "the product of tomorrow." That's an excuse. Or the other telltale sign, careful of the salesperson that always turns a sale, oh no, it's gotten to be a strategic sale. "A strategic sale" are code words for, "We're not getting the purchase order anytime soon." No, I'm serious.
OK, it's strategic, great. Why don't we get the customer to try $200,000 worth today, if it's so strategic? Things don't work where the customer goes into hibernation and magically he shows up with $3 million purchase order. So careful of those little telltale things.
The less experienced the rep, the more hesitant they are to go up. But I have to overlay some other things. I look at a lot of business plans. My favorite ones are the ones that you sell to someone with a budget, someone who's got money. My least favorite one is where I've got to prove "you've got a problem, Mr. Customer." I want to talk to a customer who already has a problem. I don't want to explain he's got a problem.
I stay away from the one where my PhD is smarter than your PhD. We're stuck in the muck. We're stuck at a low level. We may win the battle, he may win the battle, but now I'm stuck with a person that doesn't have a budget. So, you want to try to shape your product to be able to talk to someone with money, and then you want to be able to find a salesperson who can call at that level.
Rarely do you have the luxury of a small company to talk to the SVP of Johnson & Johnson. You don't belong there. You earn the right to work there. In a small company, I don't care what you have. You're never really going to have the need to call very high up, because you're not credible.
As a matter of fact, the thing you want to do is sell here and hope the guy here doesn't hear about you, because he may kill it, "Forget it, I'm not buying from that little company." And so it matches, the fact you have a less experienced person, but you haven't earned the right to go up.
We have a lot of companies that hide from the CIO for the first three or four years and magically then they become a CIO-level sell, because now they're credible. And so that requires, as the company matures, the salespeople mature, you bring in a little more experienced people, you raise your price point, you moved up market, all the things you do through time. And you earn the right to start talking higher, higher in the organization.
If someone who's smart, who wants to be a salesperson, the very first place I would put them in a job called the SDR, sales development rep. Go get some leads. Show us and yourself that you can at least talk to someone and convince them to listen to a salesperson.
I'm not saying you want to keep them there for a year and a half, but a good three-to-six months, it's great entry-level training. With the exception of if you have a technical systems engineer. You know, the person that goes with the salesperson on sales calls? I have found terrific salespeople coming from that domain. Why? They've been in the field with a salesperson for three, four, five years. They know the product cold. They're incredibly credible in front of a customer.
But if you have a whipper snapper that hasn't done that, then let me try out an SDR. And you can find he's a killer SDR, perfect. Now let's move you to telesales. So, you want to move them up. And that same thing goes for sales management. Don't ever put a sales manager who's never sold on top of salespeople. He or she will not have the confidence nor the respect of his team. I've never, ever seen that work.
Look, say you have a company selling to pharma, and all the pharma companies are in New Jersey, in Boston. I don't think you have a choice. But assuming you're not selling to pharma, I'd rather have the first, not just one, two or three salespeople near me.
A lot of people say, "Well, let's put a salesperson in Silicon Valley. Let's put one in Boston. No, no, no. I want to be able to try to minimize all the variables, so I can figure out what's really working or not working. If I have a salesperson there who is a 28-year-old male, and a 46-year-old female here, I can't draw any conclusions.
Is it a territory, is it the experience level, is it the domain? I actually like to run the sales beta program. I think all you guys are used to the tech beta program. I actually like to run the sales beta program to see what's working and what's not. So close to the headquarters at the beginning is always good.
Remember the sin you can never have, no leads. At PlanGrid we hired 10 salespeople. We went from zero to 10 before we ran out of leads. About that number. But we sensed that the leads were not going to last, so now we came up with lead gen. Don't waste money. If you're overloaded with leads, you may want to hire an SDR, the sales development rep, to qualify. You don't need to spend on lead gen. But you always have to think ahead.
Now, if you have a fast sales cycle, then don't run the 18-month model. The 18-month model is run for field sales rep, six-to-nine-month ramp-up. Telesales, three-to-six-month ramp-up. All you're going to see is 12 months. But you always go where the puck is going to be. Don't go where the puck is.
Sales is a dynamic thing. Don't sell the problem today. You got to sell the problem of tomorrow. Oftentimes I see a board plan where their sales increases are like this, flat. Wait a second. If we meet our plan for the first two quarters when sales like this, there's no way we're going to run sales-flat for the next two quarters. That plan lies on the amount of cash it burns.
It's a plan that will never happen, and so I ask for a realistic plan, a plan for success. We can always replan every quarter, and it doesn't mean we have to spend 32 hours, doesn't take that much. You lower the number of reps in a model, blah, blah, blah. But go where the puck is going to be.
So, a few things. First, two reps doesn't build the confidence for me. In the earlier slide, where we were when you ramp, two sales reps, you're not there yet. In my mind, you're experimenting. Five, six, seven, eight reps. I actually want to see some reps failing. I want to understand why they fail, blah, blah, blah. That's the very first thing.
Second, you can never invest in too much training. And so one thing I ask VPs of Sales, salespeople, I want them to know the product cold. And so this I will do with every VP of Sales. We hire a VP of Sales, and I'm on that search committee. I tell them in 90 days we're going to meet, and I want a thorough demo from the product from you. I want to see it from you, not your guy.
I've met VP of Sales at my house on a Saturday on the 90th day. I want to see the demo. Now, I don't know anything about the product. You could dazzle me, but you see I'm all nervous. "Oh, look, I can show you this screen." They get excited, they connect with the product.
So, one, two people are not enough. Invest in training. A critical point of your company is when can you sell a deal without the founder being involved. That to me is a big milestone. It may not be at the knee of the curve, but it says you're making progress.
No, I'm chuckling because once I was asked, and I won't tell you what, and I was 25 years old. A VP asked me if a customer asks you for X, would you get it for him? I said, yes. If a customer asked you for Y, would you get it for him? I said, no, and they were both the right answer. They were both a little questionable, but I won't tell you what they are.
Look, salespeople, especially field salespeople, have a little more personality, a little more things. But I wouldn't put up with nasty vices. I wouldn't.
Look, people can do whatever they do in their private life. But if there's a sales conference, and they do things that you don't think are part of the company's culture, that's not acceptable. You should make it very clear during training. Don't wait until afterwards. Very, very clear, the things that are expected and the things that are not expected. I mean, you shouldn't put up with crap, basically. Thank you.