January 11, 2018
DevGuild: Pricing Strategy – Priced To Scale: The Only Constant Is Change
Don't miss this DevGuild: Pricing Strategy panel discussion on the connection between your pricing and the speed with which your company can...
Hello, my name is Fred. Rainforest was a YC company in 2012, and we went through Heavybit for a while. We moved out about a year ago. We have about 110 customers, and we raised our Series A in January. We're kind of like in the middle of the growth curve.
We have learned some lessons so far. I've learned a lot because I went from being the one sales guy to now us having, I guess, 17 people who focus on revenue and sales in the company,whether it be sales, management, all these kind of things. I have made, as you can imagine, a huge number of mistakes so far. I will share some of them today.
The one caveat is this talk is mostly for people with 10-plus paying customers. The reason I put that kind of disclaimer in there is because, if you don't have 10-plus paying customers, it's too early to hire salespeople.
If you don't have 10 paying customers, and I'm not talking like five bucks a month, but like real money, then don't hire salespeople. Keep doing the founder sales thing.
It's a huge, huge mistake to be like, "Oh, I don't want to talk to other humans. So I'm going to hire salespeople." Because that's what most of our instincts are, especially if you're kind of like an engineering or product nerd/founder. Ignore all of this stuff until you have convinced 10 people to pay you for your product. Once you have done that, then this talk is for you.
So, this is the dream. Most of us start our companies because we want to build an amazing product, not because we want to get super great at sales. And so most of us think, "Build it, and they will come." You build an amazing enough product, and you get this amazing hockey stick of growth. That's the hockey stick, apparently. In England, the hockey stick looks different to that.
Usually the company that everyone holds up as an example of this is Atlassian. Atlassian doesn't have salespeople, and yet they're IPO'd as the best fucking company ever. Well, it turns out that's kind of a lie, actually.
Atlassian has tens of thousands of salespeople. They just don't pay them. Salespeople work for other companies, but they still have people selling Atlassian stuff. Most founders that I know go through the transition of like, "Okay, we have this product. Some people will buy it. It kind of works. We're making some revenue." And then they're like, "What next?"
The "what next" is you have to figure out sales. This is the reality, right? This is our actual revenue curve, as well as like an image of me, a more handsome version of me when I was trying to sell it.
This is the first two years of our revenue. You can see it's completely flat. We got somewhere, right near the end of that, we're like 300K ARR. But that's a lot of pain and suffering and bad sales. And so this is usually what you have to go through, and probably some of you in the audience who don't work at Rainforest probably recognize this because you're in it right now.
The good thing is there's a solution to it, and it's called learning how to do sales. As Mya said already, founders are usually bad at sales. This is something that might be controversial, so I just want to expand on this a bit. As founders we're the best SEs, the best sales engineers in the world, right?
We know everything about our product. We know everything about the technical integration of our product. We know everything about all the use cases and all the different ways that you can use it. That does not make you a good salesperson. In fact, that makes you a very bad salesperson, because when a customer or prospect asks you a question, you're like, "Let me give you all the information I have about the thing." Which is not how you sell things.
Basically, we're bad at sales because we're too honest and we know too much. That's not to say that salespeople are liars, but salespeople run a process, and it's kind of like this very interesting thing that is not just answering questions. That's usually where you start. The nice thing is answering questions got us there, right? Answering questions got us our first three, four hundred thousand dollars of annual recurring revenue.
The other thing as well is that sales is hard and scary. The personality type required to start a company, to build a great product to get initial traction, is very different from the personality type required to go out and face rejection every day on sales calls and sales meetings. That's the reality of it.
I think that if you pictured I'm the guy on the right, and you're the guy on the left, and I'm extending my hand down to you, the key things to figure out are sales strategy.
Strategy is a big word, but it really just means at this stage three things: who the persona is, how to qualify the company, and what your pricing is.
We'll go through each one in turn, then, what is a sales process? It sounds basic, and it is kind of basic, but it actually works. And then, hiring your first salesperson. So, that's really the content of the talk.
Why do you care about this? Because you get a giant revenue curve like this. This is Rainforest's actual revenue curve. Ignore the part that's tailing off at the end a little bit there. Just focus on the other part.
Why should you care about this? At the end of the day, it depends on your perspective. But my perspective is that the objective that we will have here is to build an amazing business. Maybe you just want to have a long-term, super great company, and the revenue side is whatever. But to survive as a company, you need to do what brings you a great business. And the answer to that is building a repeatable revenue engine.
That's what the VCs look for. At Series A, most people here, most people in Heavybit, have seed-funded startups. And the VC is like, "I think that it's possible that this could become a good business. Now let's see what they do with this money." What you have to do to get to the next step is you have to prove with that seed money that you can have a repeatable engine of revenue generation.
The really hard thing is going from that real flat, mediocre muddling around revenue piece to actually the engine, which is just producing consistent growth. And, you can see that this curve, which starts inflecting upwards, was 20% per month, I think. Is that right? Twenty percent per month for 13 months straight, or something like that.
Before that, it was like a few months were really big, a few months were really low. It goes up, down, you can see.
Consistency is what matters, and that's how you get to Series A. That's how your company doesn't die.
That's why you should care about this. I talked about this a little bit already, but the components of the startup sales strategy is kind of simple, and it seems a bit dumb. Maybe it is, but this is kind of the thing that matters, and we spent maybe four or five hours at Heavybit a couple months back chatting with and helping the different member companies.
Every single one of them was fucking up every single one of these things. That's where you start, trust me. Rainforest is still messing up things; we're terrible at pricing right now. Qualification is really good. Persona is iffy. But this is the bread and butter of sales. The thing that you should focus on most is just figuring out each of these questions.
This is where the talk gets a bit dry, but it's probably actually quite helpful to you. The first thing you have to figure out is which persona buys the product, which persona uses the product. These are usually different things, right?
To use Rainforest as an example, we're a QA product. When we started, we were like "We sell to QA people." QA people use Rainforest, and that's great. Turns out, QA people don't like Rainforest, really because we're like the four horsemen of the apocalypse for QA people, and QA people don't have any budget to spare.
That's this first problem that you run into. First of all, you have to figure out who buys the product and who has the budget to buy it, right? And so, we went from QA people, to their developers, and most of us consider ourselves to be developer companies. The challenge with developers is that they don't want to spend a lot of money, and usually they don't have a big budget to spend.
Basically, the real important thing for you to figure out is who's going to buy the products that you have, and by "buy" I mean decide to put the company credit card in and spend $1,000 a month on the product that you've built. And then, who's going to use it?
You design the product for who uses it, and you design your sales process for who buys it.
You know, often the end user is different from the buyer, as I said, but what's interesting is that very often, especially in dev organizations, the successful adoption of tools relies on a top-down sale. What we figured out at Rainforest was that the VP Eng or the CTO, they look at people for whom Rainforest ticked all the boxes.
The CTO, the VP Eng are just thinking about efficiency, risk, speed of deployment, productivity of their devs. And so, Rainforest kind of does all of those things. It became very, very easy once we figured out, "Oh, we have to sell to the VP Enges." Because then we would go and talk to them, and they'd be like "Fuck, yes this is all of the things that I need right now." And the VP Eng chose the budget.
Once we figured out that our buyer was the technology leader, then the end user was typically going to be the product manager. It became really, really easy because we designed the product, not really that easy, but it became easier because we started designing the product around what the product manager needed from their day-to-day workflow.
We designed our sales process around what a VP Eng cares about, which is stuff like ROI and productivity and all those things. The one other thing, and this is obvious and everyone knows this, but if your product doesn't solve one of the top five issues for both the buyer and the user, then you're completely fucked because there's infinite, nice to have, incremental improvements.
There's millions of those on the market, tens of them get started every day. All of us know beautifully designed, amazingly thoughtful, really interesting products that aren't on anyone's top five pain points, and therefore they never get used and they never get bought.
So, take a good hard look at what you're building because if you don't do that then all of the other stuff that you do is just going to just never actually really work, you have to nail that. And, it's the YC truism again, "Write code, talk to users."
If you don't feel like you're at that point yet then you can get there, but you have to be honest with yourselves about that, because like a great sales team, a great salesperson's not going to fix any of that. So, that's personas.
Next thing is the thing that we saw in our conversation with the Heavybit companies. This is the thing that companies do the worst, because it's probably the hardest to stick to, and it requires the most discipline.
A little story from our past. When I was still the only sales guy, I spent maybe 18 months trying to sell Airbnb. I went for dinner every week in their cafeteria. I met all of these different people, and I kissed the babies, and I posed for selfies, and it was just this amazing experience. I was like, "Fuck yeah, Airbnb! We're going to have the logo on the website. It's going to change the world." And they never fucking bought Rainforest.
Why? Because Rainforest is not set up for a giant company. Rainforest is set up for a little company. I didn't have the discipline to realize that, because I just got blinded by the beauty of the logo. I think what's super important is that you're really, really rigorous with your qualification process. Again, you'll be able to sell like, "Oh, my best friend is VP Eng at Pinterest." Well yeah, no shit Pinterest is going to buy your stuff. But, I'm talking about actual sales beyond your network.
To share what we think are bizarre qualification criteria today at Rainforest, we will only talk to people. We will only go through a sales process with people if they hit these characteristics. So it's like a headcount number. It's how much money they're likely to have. It's who we're able to speak to in the organization, and some other stuff.
I think important thing here is that it has to be repeatable, and you get to this through experimentation.
If you're a dev, if you're a product person, you already know how to do this, right? You've already figured out how to build your product. You iterate based on feedback. You come up with hypotheses, you test them. A salesperson sees absolutely no difference.
Basically all of the feedback that we gave Heavybit companies in our four hour session with them, every single thing came back to this: you're not qualifying people rigorously enough. If you're selling today, if you're doing founder sales, if you have an early initial sales team, the key thing I would do, and the one take away from this talk that you just absolutely have to implement if you want to take this seriously, is
go through every single person that your team is speaking to and see, is this person qualified, and can we realistically sell them?
Because if not, you're just wasting a huge amount of time. That Airbnb story, I've repeated that many times for many different logos, and I know pretty much all of my friends who have similar companies have done the same thing. Qualification is like the absolute most important thing. That's the single take away from this talk, that you just have to do it.
Pricing, this is like an infinite topic. I highly recommend Michael Dearing's class and talk on pricing. He's much more intelligent than me. Basically, I only have a few key takeaways from this, as an economist thinking about substitute goods, that really helped me.
With Rainforest we kind of noodled around on our pricing. We started at $50 a month, and then we went to $250 a month. We had all these little plans, and we copied all these SaaS pricing pages and all this bullshit until we realized that, actually, when people are buying Rainforest, they're basically thinking, "Should I hire a QA person, or should I buy Rainforest?" That's a pretty clear substitute good.
Now, we're lucky because there is not a huge amount of competition in our space. If you're doing a better New Relic, it's going to be harder for you, because pricing is already defined in the market. If you're creating a category where you can realistically and convincingly compare the value your product brings to something else that they would spend, then you can set you price based on that. Hence why if you go to Rainforest pricing site, we're priced at 120 grand a year, because that's roughly the cost of a single fully loaded QA person. So, that's my first point.
Everyone knows the cost-plus pricing versus value-minus. I've never seen anyone do value-minus pricing. If anyone does it, let's talk about it in the Q&A. Everyone says that's the way to do it. I've never seen anyone actually do it. The one other thing for founders, if you're still doing founder sales or if you have like a genius sales team, the thing that we always do is when we ask for money, this is how the conversation goes: "So, interesting, how much does the product cost?" Awkward pause. "Well, it's $1000 a month, but, you know, we can talk about that and we could do a special strategic discount or partnership."
Tell the price that you have and then just shut up.That is what salespeople do. That is what we as founders are phenomenally bad at doing.
Just be like, "It's $1,000 a month." And then just wait, and it actually works.
So far, the one other thing I want to say about pricing is that most of us have never paid anything for software in our lives. Personally, I downloaded all the software I've ever used. The most I've ever paid on an ongoing basis for anything is like 10 bucks a month to Spotify.
I haven't been a fucking procurement person in an enterprise IT department, and those are the people that we're selling to. So just remember that. Remember that you have literally no idea what your product is worth to the company, and you have no idea how they even think about making these purchases.
One of the things I've noticed that really defines a very high quality salesperson, from just a new founder trying to be good at sales, is that the salespeople know the amount of money that makes it even worth running a sales process. Usually that's going to be north of $30 or $40 thousand a year.
I know when we started, we were at $100 a month. The notion of charging even $1,000 a month for something that we built, cobbled together, was just absurd. How could anyone do that? And now we charge $120,000 dollars a year, and I feel very good about that, because I know that they get an immense value from buying the product. That's like a psychological evolution that you go through as a founder, I think. So, that's persona, qualification, pricing. That's like the kind of main point here.
I think the other thing for me, and you can read this, but the key point about the process is that it's a process, and you have to run it and you have to trust the process. Like it says in the little grey text, it seems fucking simple. And it is really simple.
But be honest with yourself. Do you really follow up with every single person that comes inbound and starts the email thread? Do you really keep emailing them until they reply and tell you to fuck off, or "Yes, I might buy"? Do you really do that? Because the answer is no, I guarantee it.
I know from just horrible, brutal experience that doing this and remaining disciplined and trusting the process and just running through this with every single person that comes through the door is very, very hard. You probably won't be doing this, and honestly, this is why salespeople make the big bucks. Because this is very draining psychologically, emotionally and intellectually.
If you think about really, really good conversion rates from someone saying, "Hey, I want to buy," to someone actually giving you dollars, is maybe 25%. That's a tiny, tiny number of people that you have conversations with that make it through to actually giving you money. And so it's very hard to do this, and for me this is the biggest justification why you should hire salespeople immediately if you have 10 plus customers.
Who do you hire for your first salesperson, or if you have a salesperson? And I hope they're not in the room, because that would be an awkward conversation. If they don't match this qualification criteria, then I would tell you that you should definitely fire them. We gave this advice to several of the Heavybit companies, like about six months ago when we were here for the feedback session.
Number one is this guy, right? Fuck big company experience. I can't tell you how many founders come to me saying, "So, we have this new sales guy. He was an enterprise sales rep at Salesforce, so amazing." Like, that's total bullshit, right? And, do you know why? Because being an enterprise sales rep at Salesforce, New Relic or one of these big companies, everything is there for you.
You know, it's like a professional athlete. You just show up, you get your back massaged, you put your brand new, customized Nikes on. They give you your perfect tailor-made golf clubs. You know, that is not the job that you are hiring this person for, unfortunately. Maybe in five years and a huge amount of success later it will be, but it's not today.
As soon as you start to see someone selling themselves on the basis of their big company experience, or you start to get attracted to them, because you're like, "Well, we're just like New Relic, and they were Director of Sales at New Relic, this is going to be amazing." It won't work. I just promise it won't. That's my first, number one thing. Just don't hire those people.
Have them take a good, hard look at what they're producing for you. It's intuitive, right? This person needs to be a creative person. Good salespeople, and yeah, the hiring thing, the hiring slide is last for a reason. That's because the solution to the sales problem is not hiring. The solution to the sales problem is the process and all of the creative work that goes into figuring out who the persona is, how to qualify them, what the pricing is.
This is where I wrote my little thing. Good salespeople run a process and produce dollars. Good salespeople. Great salespeople run a process and produce lots of dollars.
Truly amazing, unique, unicorn salespeople actually create processes.
And so I think that's something that's really worth just thinking about, because I've seen a lot of people, and I know we did this ourselves. I've seen a lot of people be like, "Well, we hired the salespeople, so now they'll just figure it out." If you think about all of the shit that a salesperson is required to do to do their job well and produce lot of dollars, that's a very hard job.
There's not a lot of room for creativity and coming up with the answers to all these other questions raised earlier on in the deck. And so, in my opinion, we have to have a process already in place.
And so with our first salesperson and when he came aboard Mr. Farlan over there. When he came on board, I already had a process. It was bad, but it was a process, right? We already knew, like, "These people care about it. We sell to these people. This is how they evaluate Rainforest, and this is what they compare us against."
We didn't just say, "Hey, here's a blank slate. Figure it out." People have tried to do that, a bunch of Heavybit companies that tried to do that, and we were sitting alongside them. It hasn't worked out.
The other stuff is kind of obvious. It should be. Don't hire inexperienced salespeople, just don't do it. It just doesn't work. They need to know how to do the job. They're not going to learn from you, because you don't know how to do it. That's the first thing. Four-plus years selling. Assuming that you guys are software as a service, it must be SaaS, right? They must have experience selling SaaS.
If they sold enterprise software, if they sold fucking databases for Oracle, they don't know how to sell SaaS. It's a completely different beast. Don't even talk to them. It must be software. "Oh well, you know, we sold like, whatever, clinical devices to hospitals." You don't know what you're fucking talking about when it comes to software.
As everyone here knows, you've spoken to salespeople before, right? The nerds in the audience, you've spoken to salespeople. Looking at you. You've spoken to salespeople, and they've like tried to talk the talk. And you're like, "You don't know what you're fucking talking about," and you don't buy software from them, right?
The salesperson needs to be smart enough and versed enough in the world of software to be credible.
And then, this is the key one, must be a similar ACV. That means annual contract value, so a salesperson who's kicked ass selling a $12,000-a-year product is not going to be the same person who kicks ass selling $120,000, is not going to be the same person that kicks ass selling $1.2 million. That's something that's often overlooked. It's very easy to understand.
When the salesperson's resume comes in your door, just say, "What's the average ACV of the deals that you're selling at your current place?" But don't hire people who don't fit these. And trust me, this is horribly hard learned experience that I'm sharing with you guys. We have hired a large number of salespeople and fired an also quite large number of salespeople, and every single person that we fired missed one of these criteria.
How the hell do you interview for these people? How do you find them, etc.? How do you figure out who's good and who's bad? In general, what we've seen is that really good salespeople will have a lot of numbers on their resume. CV is British for resume. They'll have lots of numbers on their resume.
They will say, "I worked here, and this was quota retainment,115%, this was the average ACV. This was my conversion rate. This was my... blah, blah, blah." Right? Bad salespeople will have a paragraph of text saying like how amazing they were. So always dig into that.
When should you hire them? Now, assuming you're at 10-plus paying customers, hire your salesperson now. If you can focus on the creative stuff, and they can focus on running the process, you will get to the revenue curve inflection point much sooner. It's just kind of simple.
What I would tell myself four years ago was basically all the stuff that we said. I guess the one thing as well so Mamoon Hamid, he's a VC at Social+Capital. He did a presentation at the SaaStr conference two years ago. Go and look at that deck, and then just build a spreadsheet model which outputs each of the charts that he references there.
Whoever is responsible for revenue in your company, whichever of the founders decides to kind of own that, look at that every single day and email it to the company. Make sure you understand all of those metrics, because as soon as you start having conversations with investors, they're going to want to know all of that stuff.
The sooner you can see like, "Interesting, we're adding a lot of new MRR, but our upsell is not amazing and we have quite a lot of churn," then you can start to figure out "What should I focus on in the business?" That's it, thank you very much.
Good question. The question is, "Do investors get scared off by a very narrow qualification criteria?" Yes, which is why we don't tell them. I don't mean it in the sense that you deceive your investors. You say, "Yeah, we just sell to Microsoft all day," when actually you sell to little startups.
Of course, any one of our businesses here, the objective is eventually to sell to the Global 2000 enterprise, right? You're going to start where you're starting, and you're going to eventually get better. The context for us, for the qualification stuff, is like, these are the people we're set up to sell to today, and if you look at our ACV, if you look at the size of the companies we've sold today versus six months ago, it's just steadily been increasing.
I think what's really important is to understand what you're able to do realistically, today, as an organization. If we went out today with our sales team and said, "Hey, we're just only going to speak to 5000-plus person companies," we would sell nothing for 12 months, right? And obviously, that's not okay.
What we are saying is, "Okay, now we want to expand from where we are today, where we know we can sell. We have good success." Start to figure out, "How do sell to the next tier up of companies?" What I would encourage everyone to think about is be realistic about where you are today. But of course, still try and build a plan towards moving up market.
When we started out, like I said, we thought we were selling to QA people. I mean, anyone here who has worked with QA people will know that's probably not the funnest conversation to have. We had maybe 50 of those conversations.
We went into companies, we spoke to their QA team. We're like, "Would you like something that basically does what you do, but more efficiently and more cheaply?" And, they were like, "No, we would not like that." At some point it started to become a bit obvious that we probably weren't going to be able to sell to them.
Then we thought, "Well, let's just figure out who else in the company might want to speak to us." And part of that was a very random process, but also I think you can kind of determine that a little bit by figuring out, "What does your product enable for the organization?" It's kind of like a douchey thing, but what does the product enable for the organization, and then, who in the organization has those things as KPIs?
For us, as I said, it was like speed, decreasing cost, increasing efficiency. If you think about who in a typical software company has each of those things like a KPI, which their professional success is measured against, it's always the engineering leader. If it was like LaunchDarkly, and we were doing feature flags as a service, then probably the KPIs would be most aligned to like the product manager. So first thing, my buyer is going to be like the VP of Product.
To be clear, what I was trying to say, maybe I explained it poorly, was only hire salespeople who have a track record of selling SaaS, if you have a SaaS product. You're right, and the person I was referencing with the medical stuff was actually Morgan.
I think the key point here is you want to minimize the risk, so I think Morgan himself will tell you it's going to be less risky to hire someone who's proven themself in SaaS sales, than it is to hire someone who has been selling agriculture machinery.
For sure, there are anti-patterns, there are amazing salespeople that probably fail all of my criteria. But the question is, do you as a company want to spend your time taking a risk on those people, or do you want to minimize your risk?
When do we as founders still get involved? We're roughly midway between zero and $10 million of ALR. We have a bunch of really good professional salespeople, and so where we get involved today is basically if a deal stalls, usually in negotiation.
Usually what happens is everything is great, the demo goes great, everyone's happy. And then at some point we're like, "So, this is what it costs, and they just melt away into the background."
In online dating, it's called ghosting. That happens all day everyday in sales.
It's kind of shitty, but it really works, an email from the CEO and email from the CTO really helps, especially if you're selling to a technology-related buyer. We should be honest with ourselves; we're kind of judgmental.
If I have some sales guy talking to me about this dev productivity thing that I should buy, I'm going to be skeptical. But if the CTO is like, "Yo, I'm going to get on the phone and talk through all of your concerns," it's kind of a different conversation. We basically parachute into deals when we have to to help save them.
Then, of course, there are certain kinds of customers when you're moving up market, right? So, we're trying to speak to a bunch of people who are companies of like 2000 or 3000 people, then we just get wheeled out and we just sit there. We smile. We're like, "Yes, we're the founders." So, that's the answer to the first question.
The second question, and by the way, what I would say is basically, you just get involved where you can help. As soon as you have salespeople, just ask them, "How can I be most helpful?" They'll usually figure out how to use you strategically, that's what our sales team has figured out how to do.
Yeah, great question. "What is the interplay between ACV today, the kind of salespeople you need to hire, and where ACV is going to?"
I can kind of give the personal experience from us. When we hired Farlan, our first salesperson, I think we were charging maybe $500 a month for our most expensive plan. Farlan was coming from a background of selling stuff around a hundred grand a year, something like that. So, when we spoke to Farlan, it was like, aspirationally, that's where we want our product to be.
How we thought about it was like, "We want our product to be at about $100,000 a year. We think that we could be worth that much today to a customer, we just haven't figured out how to get that much from a customer."
I would figure out, in your particular example, what your aspirational ACV is and be realistic. What are the other things that someone could buy, apart from your product? Then just pick a number, whether it's $10K, $50K, $100K, it's a million bucks, whatever it is. Make sure that the salesperson that you hire first has experience selling to that ACV.
The second part of the question is, "How does that ACV evolve?" Farlan at some point came to me and was like, "I think we should increase our prices." I was like, "Oh, okay." And then literally, I just committed the change to the pricing page, and I pushed it, that was it, as long as you grandfather in your existing customers and don't say, "Hey, the plan is now twice as expensive."
As long as you're cool with all of your existing customers, what we found at least, is that people will pay much more than you think.
So basically, experiment. And, if you double prices, and nobody buys, then after a few weeks you can kind of tell like, "Okay, well, that's too expensive."
I mean, I haven't cracked the code. When I say first salesperson it's kind of a lie because we hired three first salespeople before the fourth, first salesperson who ended up being our long term, first salesperson. So messing up a bunch is the first answer.
I think being smart about the profile, the "who to hire" slide, for me, that encompasses all the learnings that we fucked up, right? The first, first salesperson we tried to hire was an SE, sales engineer, at Twilio. And so now it's obvious to me that that person is not going to come in and build a sales organization from scratch.
At the time, I was like, "Cool, an SE. They'll like develop a friend lead, they're young and hip, that's awesome." Some of it is just like doing the thing. In terms of attracting great salespeople, I think that salespeople are just like engineers, just like product people, just like anyone else. The really great ones are looking for a mission that they care about.
Now, I'm not saying that our salespeople all really care about QA, but what they really care about is like the vision that we have of how to change things. They think that, just like with every other kind of hiring that you do, if you can convince people that you really believe in this one thing really strongly, then the people who find that exciting will kind of end up gravitating towards you. And I think that's what happened for us. Also, up and into the right revenue curve is helpful.
The first thing was trusting the process. I was way too emotional and temperamental. I'm an emotional person, but people in Rainforest are laughing when I say that. It's really hard to not take the sales process personally.
If you're doing founder sales today, you probably experience things where someone emails you, and they're like, "This is awesome. How can we get on board tomorrow? I'm ready to pay this, fucking do this." And you're like, "Yeah." You do a hangout, and you show them, and everyone's happy. And then they just go dead. It's very, very hard to not take that personally.
A good salesperson will just repeatedly email the person and call them, again and again and again. Eventually, they'll be like, "Hey, my mom was sick, and I was on holiday in Barbados,and now I want to buy," and that's awesome.
I never saw those people, because I was like, "Fuck you. You fucking stopped responding. "Fuck you, get out of my fucking pipeline." Honestly, trust the process. That's really the main thing I would say.
The other thing is don't get too caught up in selling psychology and all that. I read all these stupid books. I read "The Art of War." I was ready to go to battle. Like, really? The first 10, 20, you know, what some people think of is like the first million dollars of revenue, which theoretically some people believe should be the founder, I think it's really 10 meaningful, paying customers, and then you hire salespeople.
That first chunk of revenue, a lot of it, is based on you. A lot of it is based on your charisma and your ability to inspire the buyer, frankly. You're like a three person company, or a five person company, or an eight person company, you're fucking nobody. If you're speaking to a company of even like 20 or 30 people, they're like, "Ha, what the fuck do you know about anything?"
It's all on your shoulders, and that is not necessarily the easiest or best answer to give, but I think that's really true. That's why I get wheeled into deals today, right? Literally, the salespeople are like, "Okay, we need to trot Fred out to get the vision stuff." And I'll literally get on the phone and be like, "This is the vision," and set the vision for like the next five years. Then I get the thumbs up.
People need to believe in that, and so it's still a very, very personal thing. I think just focus on listening to what they have to say. Also, the other thing I would say is treat it like customer development, really being the wolf in sheep's clothing works. You're like, "Oh, we're just looking for product feedback. I'm not trying to sell you anything. Let's just talk about the product."
Just be real chill. Don't really push super hard for the sale. If the customer's interested, they'll immediately ask you about pricing. But yeah, that's getting too granular, probably, but hopefully that's a bit helpful.
Yeah, good question Paul, thank you very much. The first two salespeople, and these are all great people, were basically the same profile. One was a SE straight out of Twilio, one was an SE straight out of Cisco grad scheme. Both of those was completely on me.
Sales engineer alongside SDR is like the bottom rung of sales, right, theoretically? Just like if you were to hire someone who's fresh out of CS undergrad, and be like, "Hey, create a world class engineering team." It doesn't really work very well. That was just complete persona mismatch.
The third first salesperson was like a super hardcore enterprise sales guy, and he or she is where the first bullet point "Don't fucking hire big company people" comes from. He had the most amazing CV ever, closed millions and millions of dollars of deals every year, great logos, amazing rolodex, but like he's the pro-athlete, right? He needed to come in and like do all the stuff I said before, so he was not ready to come in and create something. That's why they were just the wrong people, the wrong people in terms of experience and where they were in their careers.
The first thing is you don't really have to, because actually, if you look at a junior, or the kind of salesperson that you're going to attract as your first sales hire, usually they'll basically be working for equity. They won't take much base salary, and they'll be mostly compensated based on commission. We're talking, in SF, like 50K base or something like that. That is not a very expensive experiment to run.
That's the first thing, is they get paid mostly in commission, so therefore it's not a very risky thing to do. If you hire your first salesperson, and they don't work out, you're not going to lose that much. The other thing as well, for any early stage employee, it's mostly about equity. And most of it is going to based on their belief in the long term future of the company. So those first few salespeople are not expensive, actually.
Good question. So, AE stands for account executive, which is like industry jargon for someone who closes deals. VP of Sales is like the manager. It's a good question, people have different opinions.
I think what I would do if we had it all over again was I would hire basically who we hired, Farlan. But if Farlan wasn't around, then the profile I would hire would be a kind of rising star, closing rep role, four or so years of being consistently promoted, but hadn't yet hit the management track. So still very much like about closing deals and making lots of money, because you want that hunger, right?
Probably, if you're a startup founder, you didn't start this to make lots of revenue. You started this to build an amazing company while shipping an amazing product. And so you need that injection of hunger to hit the money targets, and that is what salespeople are motivated by.
The problem with the management track, the problem with going in, again to use the engineering analogy, the problem with going in and saying like, "Hey, I'm hiring a VP Eng when I have no engineers. And now go and figure all that shit out." It's a lot to do, you know? At the early stage, you just need engineers to crank out code. You're going to do a lot of shit, but some of it will hopefully be good. I think the same thing applies to salespeople.
The sales process was the worst sales process ever in the world. It was like me going and having coffee with the guy and talking to him about his problems and trying to convince him that he should pay for Rainforest. This goes back to qualification thing, but the key problem with him was his last or penultimate bullet point access to the VP Eng CTO just wasn't there, right?
This was a guy who wanted to fix the shitty ass culture of QA inside of EVB at the time, which they've since fixed, I'm sure. He was like this crusader, and probably, I'm seeing some nodding, you have wasted time on trying to sell to these people as well.
The fact that someone really, really believes in your mission and really loves your product and really thinks that you can solve a core problem for their organization doesn't mean fucking shit if they aren't the right person. And so, we wasted a ton of time with those people, that was an example.
Good question. So, I mean, Jason Lemkin is like SaaS Jesus, so I'm not going to commit heresy. But I think Jason's coming from a perspective of being an incredibly good sales guy as Founder and CEO. If you have that skill, and a lot of Jason's advice is based on that premise, you get to the first million dollars of ARR on your own, right?
Now, I know that, for me, that's hilariously unrealistic. If we tried to wait to get to a million bucks of ARR before hiring salespeople, Rainforest would be dead today. If one of the founders has a really strong sales background and is really charismatic, really able to generate revenue, has experience running a sales process, experience managing hiring salespeople, fuck yeah. Hire two salespeople, A/B test them, do all of that militant stuff. That's the fastest way to get to a productive sales team, 100%.
I think that the kind of company I was envisaging, like when putting together this talk, was very much where Rainforest was two years ago. It was like six or seven of us, all of us just engineers working on product. I was the only person who was a bad enough engineer that I was forced to be like the guy speaking to people. If I was in that situation again, I would not hire two salespeople, because it wouldn't have the bandwidth to handle them, wouldn't know what to do with them.
You have to create the relationship and really understand that first person. They're going to be treated almost like a co-founder. I think you have to be really honest with yourself about, like, "Do we have the experience to be able to handle two salespeople?" Because as soon as you get two salespeople, they'll start competing with each other, and all this other stuff.
Now, the A/B test nature of it, which is why Jason recommends it, is brilliant. As soon as you start to figure some of this stuff out in terms of the persona and qualification stuff, definitely hire another person as soon as possible.
The key logic there, for everyone who doesn't know Jason Lemkin, is basically like if your first salesperson is shitty and doesn't give you lots of dollars and doesn't close lots of deals, you won't know whether it is just the salesperson that's shitty, or if it is me and the product and the process that's shitty. And so, if you have two, then it's easier to kind of tell.
That's the logic, and it makes sense. Going from me being the only salesperson to, literally, most of our sales team is at that table right there, has been a very interesting process. Basically, it's all down to Farlan, who was our first salesperson who has amazingly scaled to be the manager of all those people. You have to get super, super lucky to have the first person be a very productive salesperson for you and also scale to be the manager.
The one thing I've learned, four and half years in, is that I have always been attached, and I think most founders are like this. You're super attached to this notion that this person will scale forever. And you're trying to find these perfect people, Like, "You're the first marketing person. You're going to create the marketing organization around you and work with like 10,000 people, you'll be up there on stage at Dreamforce," right?
Unfortunately, that is almost never, ever the case. Farlan is very much a unicorn because, and that's a horrible douchey thing to say, I'm sorry, but whatever the non-douchey version of unicorn is, he's like a unique individual in that he's able to close a lot of revenue. But he was also able to build the team and attract them and manage them well.
What I would say is don't even obsess over that at all, just focus on the day-to-day needs of the business today, and then it becomes pretty clear if the person stops scaling. And now it's amazing, because we have just like this fucking revenue-generating machine, and as a founder, you start to get to be able to be much more high level, rather than thinking like, "Fuck, I have to reply to these 30 emails from people who are asking questions about the product." You can think about, "Okay, how can we tweak the process or change the pricing or go up market," or those kind of more strategic things.
Good question. Rainforest promotes very quickly, and we have one of the best sales organizations in the industry, if anyone's looking for a job.
Just to make clear the kind of terms used, SDR stands for sales development representative. This is like industry jargon for someone who spams people. Sorry, that's a bit offensive to salespeople. Someone who generates leads. AE is account executive, that's industry jargon for someone who closes deals.
Usually in early days, you start with just a salesperson, and they do everything, right? So, your first salesperson doesn't look for any kind of specialization, they just have to do everything. They have to source the deals, they have to figure out who's good, they have to close it, they have to do all that shit.
At some point, and actually for us, our second and third hires are both in the room, Mr. Jon and Elan. Both of these guys were hired as SDRs because Farlan was closing lots of revenue, and we started realizing like, "Okay, we need more leads." So we hired these two dudes, and we tasked them with finding new leads for Farlan to close. That's kind of like the evolution that we went through.
If you have hundreds and hundreds of leads and just no ability to close, you'll have a different setup. But once you have those different stratas inside the organization, I think the key thing with promoting salespeople is just to understand what impact it will have on the organization.
We actually have kind of messed it up a little bit in the early days, because we basically took each one of our amazing SDRs and were like, "Great, you're a closing rep." And then we had a problem of now there's no SDR generating the leads. We're going through learning on this ourselves right now, right? So that's the first thing to say.
The second thing is that almost every single salesperson that has joined Rainforest has been in some way motivated by the fact that we have a very proven, like Jon and Elan are both salespeople now, right? They joined the company roughly a year ago and it only took them that long to go from like being SDR to being promoted and having much more responsibility.
To go back to the gentleman with the good accent who asked the question about how to attract good salespeople, salespeople are crying out for career progression. And every single person who is in your company today is there because they think that your company represents the best opportunity for them to grow professionally. You have to offer exactly the same shit to the salespeople.
If you go and look at Yelp, for example, or you go and look at any company that has really scaled it's sales organization to a large size, what you'll see is that these poor fuckers go in there, and it's like, "Yeah sure. You'll be closing in six months." And three years later, they're like, "I'm still spamming people, what the fuck?" That's because at some point it becomes like this pyramid scheme problem right?
I think you can really differentiate yourself and get amazing quality salespeople, even though you might be early stage and more unproven, if you can say to people, "Listen, we actually promote here. We have a proven track record, after six months you're going to be promoted to a closing role, or you'll leave." Thank you so much.