Recently in New York I was invited to give the keynote at the New York Enterprise Tech Meet-Up (thank you to John Lehr and Work-Bench for setting this up). It turned out to be a great event, with the maximum 250 capacity hit days earlier and unfortunately a lot of folks didn’t get to attend.
I gave an updated version of the presentation I gave last year at Dreamforce on How to Hire (and if Need Be, Fire) a Great VP of Sales. That presentation was unfortunately lost to the video gremlins somehow.
But now we’ve got a video version here. This is the #1 most popular topic on SaaStr (the VP Sales) so I thought it was worth posting the video and also a full transcript and slides below.
The Number One Thing You Can Do to Accelerate Your Business Post-Initial Traction is Hiring a Great VP of Sales.
Jason M Lemkin: What I want to talk about today is perhaps the mistake that most of us make, by my non statistical study, 70 percent of us make, which is not hiring the right VP of sales.
If I give you one bit of advice from learning from the mistakes that I’ve made, which I’ll share as a case study, and the mistakes my peers and friends make, is that if you can maximize the success for this hire for your recurring revenue business, this is probably the number one best thing you can do to accelerate your business once you have a smidgen of something, once you have a little bit of traction.
That’s my background. I did sell EchoSign to Adobe. I ran their web business service unit which hit $180 million in ARR last quarter. Now, I just invest in SasS companies. That’s all I do. I don’t want to learn anything new. I don’t want to do biotech. The assistant thing [a company that presented] is pretty cool. That was pretty entertaining. Make the revenue recur, I’m interested.
Jason: All I want to do is practice what I learned and do better at it.
Then, we have this community in SaaS — SaaStr. Hopefully, some of you have seen it. We get about 700,000 views a month and 1,000 pieces of content . If it’s helpful to you, it’s got everything from how to build the sales com plan to how to think about hiring a VP marketing and how to hire a customer success thing.
Everything I learned, I just decided to share everything back. After EchoSign got acquired, I had nothing left to hide.
Let me walk you through what I learned. And let me step back. Who has a start‑up that is sub one million in recurring revenue? OK, that’s good. Who is between one and 10? Who is over 20? Relatively small, OK. I can help. We’ll do it together.
Let’s step back. Generally, what happens is 95 percent of us SaaS founders, while we may have done some sales in our career, we’re not formally trained in sales. There are a handful of us, but most of us are either from engineering or product backgrounds. It’s pretty rare that a VP of sales comes out and founds his or her own SaaS company. More power to you.
One of maybe the top 10 mistakes everybody makes is they want to hire this VP of sales too early. They get this thing going. They build this really cool product. I’ve got 5,000 people on it, but I’m only doing $10,000 a month in revenue.
That’s great, but that doesn’t really pay for one engineer fully, and I’ve got four. I don’t know anything about sales. I’m doing this thing for the first time. I’ve got to hire the first VP of Sales like tomorrow. The number one thing that, I think, I’ll tell you is unfortunately, for better or for worse, it has to be you — you have to be the first VP of Sales. For the simple reason, well, two simple reasons, one, you can’t attract anybody good when you’re that early.
And two, a VP of Sales wants to make money and wants to make a lot of money on their stock. They want to make coin. Anyone that’s good is not going to join your company at $5,000 or $20,000 MRR a month, it’s just not going to happen.
Sometimes, you may have to do that [hire the VP Sales too early] and we’ll chat about it, but you’re not going to get anybody good. Two, if you hire too early, you don’t have a recurring process in place yet [for them to build on top of]. Until you have a recurring process, you can’t drop someone senior and have them accelerate it. It’s got to be you.
Here’s, going back in time, how I built up our user accounts. In the beginning, it’s you, then, what a lot of us do and that I do is you’ll hire a few reps yourself, you figure it out after you’ve made the first sales yourself. Then, once you’ve got something, ideally, at least, maybe a million in revenue, a million‑and‑a‑half, what I call Initial Traction. Then actually, probably, you’re probably ready for that VP of Sales.
Sometimes, you’ll hire it a little earlier than that, but we’ll chat about it. But really, structurally, you’re just not ready, you’re going to have to hack it and make it happen until then.
My one tip I want to go into so that when you do make this hire, you do it right, is whatever you do, [first] have two reps that are performing well before you hire a head of sales. If you only have one, you’re not running an A/B test and you really have no idea why this one rep is doing well.
If you look at any SaaS startup, in the first couple reps, they always find one guy or gal that’s just amazing, just killing it. They’re booking a million bucks a year and then the next person is doing $200k, and then, there are four guys that can’t close anything.
If you don’t have two of those, you really don’t know what’s happening. It’s not that that person is so amazing or such a magician. You have to create a repeatable process if you’re going to scale up the sales team. Whatever you do, hire two.
They’re not that expensive. There’s a lot of angst when you don’t have a lot of money for hiring sales reps. Don’t forget about two things, you don’t get your bonus unless you close revenue — and salary vests. Whatever that [on-target] salary is, you only have to pay half of it if they don’t earn their bonus, and you only have to pay a 12th of it a month. Reps are not expensive if they perform.
In fact, if the close almost anything, they’re accretive, they make you money. Whatever you do, don’t hire one, hire two. It’s my number one tip in the early days.
Then, let’s step back, it’s you, you’ve got two reps performing, maybe a third that’s doing OK. You’re getting a little bit of traction, you’ve got to half million in revenue, a million in revenue, and you’re ready to bring in a VP of Sales. If you haven’t made this hire before, and most of you haven’t, let me tell you probably the most important thing to understand.
The Number One Job of a VP Sales is Recruiting a Great Team.
What this job actually does, notice the last one [of the Top 5] is closing revenue. The number five on the top five things list that a VP of Sales does is close deals. I’m not saying they don’t close revenue as a VP of Sales.
But let’s step back a minute, you’ve got three reps on your team already, doing whatever revenue, four, and you want to triple your revenue. You’re going to need eight, 10 reps just to hit the plan in 12 months. Your VP of Sales’ number one job is getting eight to 10 great people on you team. Not eight to 10 mediocre people, not three people at the bottom that waste your leads, but getting eight to 10 people on your team.
This is the number one job of VP of Sales — recruiting a great team. What I’m sure you’ve seen if you manage any reps is the performance is divergent. If that VP of Sales does nothing else but increase the quality of folks on your sales team, as measured by revenue per lead, you’re going to see amazing things happen.
Number one is recruiting. I’ll get into this in a minute, but when you’re recruiting a VP of Sales, if nothing else, ask them, “Who did you recruit at your last company? Who did you hire?” If this person did not successfully hire at least three or four good reps, even if they’re young, they’re not a VP of Sales.
If they inherited a team that was somewhat successful, they didn’t recruit any of them, they’re not a VP of Sales. Maybe you’ll take that risk, we’ll chat about it, but if they don’t know how to do this, they can’t really take your company to the next level. I can’t tell you how many SaaS companies that I’ve worked with that hire some super smart person, 160 IQ, managed six people at their last company, but didn’t really hire any of them.
Do you know how many of those make it to $3 million in revenue? Zero. If you can’t recruit a team, you can’t do the job. That’s number one. Number two was they may not be selling, but they’re back‑filling. If you haven’t worked with a great VP of Sales, they’ve got 3, 4, 10 people under them, they know every deal, at least every deal that’s of any size.
What they’re doing is they’re seeing the mistakes they make, they’re focused on where they can help, they’re bringing resources in, whether it’s from product or engineering or their own skills, and they’re back‑filling that team. They’re managing all the deals, they’re just not necessarily closing all of them.
Then last tactics, how do we get more revenue out of the company. Customers, you’re thinking about that all the time, how do I get my deal size up? How do I increase pricing? He or she will think about that.
Strategy actually comes down the page. When you hire a VP of Sales and all they want to talk about in the interview is strategy, strategy, strategy, I’m not sure they’re a closer. But it is important. How do you go from maybe a $5k a year product to $20k a year to $100k a year? How are you going to do this strategically?
Again, last, creating and selling deals him or herself. Because if you think about that math, you’ve got a VP of Sales doing a million bucks a year, you want to increase your revenue to three or four million…if you have him or her carrying a bag for too long it’s not going to work, there are too many people to manage.
I may have this right here. One of the other classic mistakes people, when they make this hire, especially, because they’re worried about money, and we all worry about money, until we get to about $10 million in revenue, and then, money doesn’t matter anymore.
At $10 million in revenue, when you hit initial scale, there’s somewhere for them in the business, whether you’re VC backed, a lot of VC back, a little VC, whether you’re self‑funded, it doesn’t matter. $10 million, you can fund so many people, but until then, money matters.
One of the biggest ways you can waste money is making someone a player‑coach for too long. They’ve got to bring these people in. You can do it for a quarter, prove them out, have them hold a quota. But if you’ve got this person holding a quota on their own as an individual contributor [inaudible 0:09:24] team for a year, you’re wasting this person’s time.
This player‑coach is another sign that maybe you’re hiring someone that isn’t that seasoned or experienced. One more insight on when to make the hire, we chatted about not doing it too early. Classic mistake is hiring someone before you’ve got a repeatable process. I don’t have a repeatable process, I want to hire Linda to create it for me, Linda will not succeed nine times out of 10. You’ve got to have a repeatable process.
Don’t Make the VPS Hire Too Early — But Too Late is a Waste of Time (and Leads).
But just as importantly, this is what I see all the time. Honestly, if you wait even one month after you have a repeatable process, you’re losing money. Let’s imagine you get here, you’re doing a million in revenue.
Let’s pick a number, let’s say you’ve got 200 leads a month coming in, whatever the number is, 50, 100, doesn’t really matter. As soon as you bring this great VP of Sales in, and I’ll show you this in a minute, your revenue per lead will go up. You’ll make more money off those leads.
If you don’t have that hire ready to go the minute you get initial traction you’re flushing, you’re at least sub‑optimizing their leads, best case. Worst case, you’re wasting time, you’re wasting your life. You’ve got to get from 1.5 to 10 as fast as possible in SAS and you need this resource to help you.
Too early is a disaster, 98 times out of 100. But too late, you’re wasting your life as an entrepreneur. We’ll chat a little bit more about that. What it really means, if you think about it, we talked about how getting a really great VP of Sales on month three is impossible. But it takes a long time to recruit someone that’s good.
Let’s imagine I’m at some hot SaaS company, I’m a VP of Sales. I’m making $400,000, $500,000 a year. Why am I going to join your company?
It’s a cash driven business. Not only am I making $400,000 or $500,000, but I have a great team. I like my team. If you’ve worked with a great VP of Sales, they create great teams. They like to stay together. They like to work together. Why would they come to your company?
There may be good reasons, maybe that company got acquired like RelateIQ, those resumes that are flying already. There may be other reasons. But the thing is even when that happens, that person’s going to take their time.
If you’ve hired the VP of Engineering, impossible hire, but when they love something, they jump. They get 20 great offers. There are a million startups , but they’ll get their equity, and they’ll just go and make it happen.
The VP of Sales has a strong incentive to wait. Because they want cash and equity and it’s a high‑risk change for them. My point is as early as you are, you may not be here, you should be prerecruiting this person. You should be meeting with as many potential VP of Sales candidates as you can, because this may be a six to 12 month hire. It’s brutal. It may be a six to 12 month hire. Don’t wait.
A Great VP of Sales is Accretive. A Mediocre One is a Cost Center.
One other point I want to get in, and then, I’ll talk a little bit about my mistakes. This, you’ll learn as you see it more and more with so many startups, a mediocre VP of Sales is a cost center. Think about this math, I hit $2 million in revenue and here’s an average of what the OT is for VP of Sales, $300,000, that’s an average OT. Certainly, it could be a lot more expensive than that. That’s bonus plus base, OT.
You’re like, “$300,000, oh man, that’s a lot of money.” It turns out a mediocre VP of Sales that’s just closing the deals you would have closed otherwise, but taking $300,000 out of your own pocket is clearly a cost center. It’s a frustrating, painful, expensive cost center.
But a great VP of Sales, and I learned this when I went from my crappy VP of Sales to my great VP of Sales — is accretive. A profit center. The first one was a disastrous cost center. The second one, he made me money in 60 days. A great one is accretive, and the simple reason is they’ll raise your revenue per lead. They’ll take those 100 leads a month, 200, 1,000, and you’ll figure out what your leads are closing without this great VP of Sales. They’re closing $70 per lead, $7,000 per lead, whatever it is.
A great VP of Sales will increase that. He or she will increase it, because he or she knows how to close. They know how to ask for the maximum amount of money per deal without pissing off the customer. They know how to ask about budgeting. They know how to get the deal in this month, this quarter, so it does close, and your revenue per lead will go up.
If you’re at $2 million in revenue and this VP of Sales increases your revenue per lead 10 or 20 percent, he or she more than pays for themselves right there, forget about any other changes.
What I learn this, and I’ll show you in a minute. My first VP of Sales, I raised what used to be called the series B, now it’s called the series A, a lots changed. I raised my $5 million, and I went out and I hired my VP of Sales from the big tech company and I’ll show you the chart in a minute.
But things just went off the rails. It was terrible. I called it my year of hell and I’ll show you a chart. Things went off the rail. There was this little event, I don’t know if anyone in New York remembered Lehman Brothers went under, there was a lot of drama going on that year. It was really clear what the root cause at the time was of our revenue decline.
I only understood it with hindsight. It was clear within 30 days, he was a mistake. That’s my failure as a CEO, not his. It was clear in 30 days and I kept him. What happened was under him the revenue per lead declined. When it was me and my three reps, I don’t remember what our revenue per lead was, but when I actually tracked it and went back, it went down 50 percent.
Turned out, and I’ll show you this chart later, our leads, even through Lehman Bros, there was no deceleration of our leads. Our leads just kept going up and up and up. But if the revenue per lead goes down, what happens to the net revenue, it decelerates. I hired my second VP of Sales, who was one of my customers, who was the first head of Sales from LinkedIn.
How My Real (Second) VP of Sales Doubled Revenue in 60 Days.
Within 60 days, he had doubled the revenue per lead. How did he do that? Did he create a great outbound program? No, there’s no time in 60 days. Did he stuff the funnel? No, it’s 60 days. He brought great business processes with him and he brought three reps his first week. He brought three of his best reps from LinkedIn.
They came in, they didn’t know my product. They didn’t know its flaws. They didn’t know anything, but they knew how to close in a competitive environment, in 60 days he doubled our revenue. This is the whole thing. Talk about accretive, within that we were cash flow positive within six months. That’s as accretive as it gets.
Let me just summarize this quickly and go on to a little bit more. We hit most of this, but why will it increase the revenue per lead. I know I hit this, but if you haven’t lived in it, let me explain to you again why revenue per lead will go, with a great, not a good, but a great VP of Sales.
They’ll do a few things, certainly, better than you will as entrepreneurs. Entrepreneurs, founders, CEOs, they’re great middlers. They’re great people when the email comes in, “I’d like to buy your product.” We’re all really good at demos and passionate about our product, and we know all the features and we know how to demo everything, but we’re not always that good at getting the check on December 31st.
If you’ve ever worked with a great VP of Sales you’ll see this amazing phenomenon, December 31st is the best day of the year. Why would that be? Think about it as a buyer, I was a VP in the Fortune 500 Adobe. What incentive to I have to buy anything on December 31st?
There are some budget issues. But is there any way that I’m going to deploy that product the next day? I’m on vacation. I’m not even in the office. Nobody in Adobe worked the last two weeks of December.
How do you do this? This is the magic of sales. They know how to ask. They know how to the close to develop the relationship. They know how to hire people better than you. Better reps equals more revenue per lead. They know how to scale. Brandon brought in three people the first week. They know the amount of head count that you need to drive the revenue. What they’ll do is they’ll position you the right way at market.
As founder/CEOs, 8.5 times out of 10 we under price and under position. Because we come in and the last the thing we want to do is not close a lead. In the early days, probably, until you’re $10 to $20 million in revenue, every lead is precious, especially to a founder.
I remember at EchoSign, when we Google and Groupon and Facebook, all these cool names. I’m like, “Whatever you do, these have to close.” I wanted the six‑figure deals, but you lose Facebook, man, you’re fired. We’ve got to get Facebook.
That’s great, we get the brand and we get second order revenue and referrals, we should do that. But what it often means as founder/CEOs is we’re not great at optimizing the max amount of revenue, and also, pushing this and pushing that market. Your VP of Sales will do all of that and make it more fun.
All of this together, this is great. What it will do is increase the revenue per lead. As long as you’re even at a million‑and‑a‑half in revenue, whatever that OT, the on target earnings, the total amount you pay him or her, as you can see in the chart , he or she will pay for themselves.
Who to Hire. The 4 Types of VPs of Sales.
We hit a lot of this, too late, don’t take 20 months. The one that I’ll touch on a little bit, but this middle of the paradox. There are two mistakes that we often make with VP of Sales. One is we want to hire the person out of Salesforce, or pick your big company. That sounds like something that’s great. We want that domain expertise, we have a similar customer set.
First of all, don’t forget, Salesforce is a $5 billion company now, it ain’t a startup. We know that the odds of a big company guy coming from a…we know that the Oracle VP doesn’t work. Salesforce is the same as Oracle today.
We get over‑attracted to the name. Maybe we end up making someone that’s too heavy a hire. This is a challenge. The tough one is, do we give on experience? I want to chat about that. My real point is with the VP of sales you’re probably not going to get the perfect hire.
The perfect hire is…we all want rock stars, whatever trite term you want to use. Maybe you’ll get that in your VP of engineering or VP of product, possibly, your VP of marketing. But the problem with your VP of sales is, that super great guy that’s going from $30 million to $150 million, he’s not a good fit for you. Maybe that person that hacks it from zero to a million, which maybe needs to be you, they’re not going to be a good fit for you.
What’s the tradeoff? We’ll chat about that a little bit. The one thing I’ll tell you is you can’t get the perfect candidate. If you get the perfect candidate on paper — then she’s probably not very good. Because you can’t have it all.
Let me explain to you how to get as close to that as possible, but just a couple quick things. Why do 70 percent of folks hire the wrong VP of sales? I’ll tell you about why in a minute. They hire at the wrong stage, the wrong type of person. Maybe the real reason we do it is because we got to get it done.
We’re getting to traction, we’ve got a million‑and‑a‑half, two million in revenue. It’s just like me after I raise that series B, series A, whatever it was. I got to get it done. I just raised that venture capital. I got this obligation. I got no VP of sales. I haven’t even met a VP of sales. I just got to get this done. We make a bad hire.
We all do this. I’ve made a bad VP of Sales hire . I’ve made a bad VP of engineering hire. I’ve made a few others. I think actually of all the bad hires you can make, VP of Sales is the worst because it’s far worse that no hire at all. At least, if you hire a horrible VP of engineering, which is terrible, but as long as the rest of the engineering team agrees on that person, he or she will probably write a little bit of code. You’ll get a release or two out, and then, it will be a disaster.
What did the letter from your first VP of Sales say?
Jason: I never read it until after we were acquired. I couldn’t bear. I assumed it said I was incompetent.
I was incompetent to hire him, agreed. But actually when I finally read it when we were cleaning out the desk to move to Adobe headquarters, it actually said it’s not my fault as the VPS, it’s Jason’s fault, because the company wasn’t ready to have a VP of sales. None of it’s my fault because it wasn’t ready to have a VP. Who’s fault? It wasn’t his fault. The company wasn’t ready. It’s not marketing’s fault. You don’t know whose fault it is.
This is just…the bad hire is a disaster, because everyone will blame each other. They all say the leads got worse, the leads are crappy. There’s no more good Googles and Facebooks. It’s just Amy, and she could only pay $5 a month. As cool as the company is, these are crap marketing getting crappy leads.
You end up with this marketing against sales leads thing. It’s just a disaster, because you’re the only one who will really know who’s right here, you can’t make this bad hire.
This is one of the most important charts. It’s a little complicated in SAS that I think informs the whole revenue cycle. As you start to get a SaaS business going in the second and third and fourth years, it’s hard to feel this in the first year, you’ll realize that the whole thing is about second order revenue.
First of all, these customers you get in the first year … you close this customer for $10,000. But then, they renew in the second year, they renew in the third year, they renew in the forth year, they renew in the fifth year, but then they do more.
They upgrade. If you treat them incredibly well from both a sales and a customer success perspective, they’ll buy more from you. If you make them loyal, if you make them truly, attitudinally loyal, if you make them love you, they will buy more.
Then, not only that, they’ll refer you to their friends. Then, they’ll quit their job and go to another company and they’ll bring you into their company, the second order revenue. But if you have a bad VP of sales and that long term relationship starts off bad…I tracked this later.
You don’t get any of this. They only buy the absolute minimum that they have to. It’s like United Airlines. I’m stuck in the frequent flyer program but I’m not buying anything from United. I’m not going to buy a car from United. I’m not going to buy jeans. That’s it. The minimum I have to. They’re not going to buy anything. You’re certainly not going to tell your friends to fly United.
It’s not just the revenue loss that I had with the bad VP of sales. It was all the customers he closed were unhappy. I lost all these downstream effects in years two, three, four, five. This is the power in SAS. I realized once we got to even $4, $5 million a year or so, but it had been a little while, I realized we could grow 80 percent a year with no sales.
I don’t mean with no salespeople. What I meant is we could grow 80 percent a year just with leads from the existing base. Buy more, and referring us to more people and building the brand. We could grow 80 percent without any outbound or any complex lead generation stuff just from the base.
If you misinvest in that, you’re dead. I’m a big fan of over‑investing in customer success as a function. We won’t chat about it today. But no matter how great your customer success team is, if your VP of sales isn’t great it’s going to ruin that relationship from the beginning.
Again, just a quick reminder, I know we did this story. I’ll skip ahead to it. Why, then, after all that mess, were we able to double sales in 90 days? Upgraded the team to closers. It worked the first week. They didn’t know the product. What you’ll see if you hire a VP of sales and you have a team, and if you don’t see this it’s trouble.
If you hired a VP of sales and he or she keeps all the reps you already had … that’s trouble. Because you know that they’re not all great. If you have three or four folks in your team, the bottom person can’t be that good … you’re not a sales manager. You didn’t know what to look for. They can’t be that great.
I can tell you if they say they’re not all great — but they need to keep all the existing reps — this is even worse. If the VP of sales says I need to keep all of them, you know he or she can’t recruit. They good ones never do that. The good ones immediately analyze the team, go over the weaknesses with you, and immediately, make changes, whatever they are. Sometimes, it will even be a promotion. But if there’s no changes, it’s tough.
What Brendon did is he took probably the best guy on our team at the time, or the number two guy, was just an SDR. He was a junior sales rep just cold calling and qualifying deals. He immediately made him head of SMB. Within a year, he was head of enterprise. Now, he’s VP of Sales at Zenefits. He manages over 50 sales reps. You’ve got to see a motion up or down on this chain.
A couple of things that I know if you see in VP of Sales once you hire them that’s worrisome. Pipeline. You work at a billion dollar company, pipeline’s really important. Show me the visuals, do the analytics. If you’re at a startup, for me pipeline is a sign of failure.
How much revenue are you going to close this month? I don’t need to see the charts and I don’t need to see $7 million next to Comcast, or $12 million next to whoever. Because that stuff’s all crap. It doesn’t mean anything.
What I learned is the mediocre VP of sales in an early stage SaaS company talsk about building the pipe, building the pipe, and then the pipe doesn’t close and it’s “not their fault”. Those sales cycles are getting longer. The good ones, there’s no pipeline. It’s just, what’s the MRR addition I’m going to do each month?
When Brendon came in, we never discussed pipeline again. At least not for a long time. Not until we were at $10 million.
One last one .. .how are we doing on time? Are we doing all right? Another flag, my first VP of sales could not handle competition. As soon as our competition was in a deal, he folded. I can’t compete. Oh man, the competition’s so much better. I lose. I quit. Jason and the engineering product guys can’t build a good product.
Maybe it’s true. But the great ones embrace competition. They love to win. It’s a game. Maybe they give up on some deals that you really can’t win, but all of the sudden our win rate went up. Our real win rate. You embrace it. It’s a game.
I’ve interviewed so many VP of sales candidates for so many companies since then. Yes, maybe you’re in a space that has no competition. We laugh at that. It is true. Most of the folks at Salesforce, places like that, they don’t really have the type of competition.
It’s hard to be a rep at Salesforce, because you’ve got to force people to close and buy when they don’t really have any reason to buy this month or quarter. But they don’t have to embrace competition. If you have competition, and 90 percent of us do, a VP of sales that doesn’t embrace it, it’s not going to work. But he did, and all of the sudden we closed more deals.
Maybe just a couple last points on this. This is the mistake I alluded to before that a lot of us make. There really are…I made up these four stages of VP of sales all the way from nothing to $100 million. The later ones actually you probably can find. I call it Mr. Dashboards.
They’re managers of managers. Sometimes, managers of managers of managers. They’re really good at hitting the refresh button in Salesforce and getting the reports and talking about pipeline. They’re really good at selling up, and they usually look pretty good in a suit. But they don’t sell, and they’ve only managed managers. It’s too far away. You’ve got to be really careful of that person.
At the other end, this is the higher hope you don’t have to make, but sometimes, you do. I call this person the evangelist. This is someone who’s actually…sometimes, you hire between zero and a million. It’s never built to sales team of any size. We often make this higher, and they’re super smart, and the evangelists…they already studied your product to the nth degree before you meet them, and they have all these great ideas, but it’s a little too product‑y.
You know why? Because they’re really just an evangelist. They’re just like you, but probably not as good.
Sometimes, you do need to hire this person, because you’re burnt out and you need leverage. But this person will be gone by a million‑and‑a‑half in revenue. I can tell you nine times out of 10 the person that’s totally smart, 160 IQ, loves your product, can talk to all day, but has no experience managing the team or closing, they’ll be gone in your company here.
There’s these different phases. I call one to 10 Mr., Make It Repeatable. Someone that comes in, they bring in the three to four to six reps and they build this up to 10. Then there’s a different category, Ms. Go Big. My real point is if you hire someone that’s too stages above, where you’re at and bring them in, high chance of failure.
I think you can risk doing one stage above. In other words, if you’re doing $1 million, I think you can risk hiring someone that’s only done $10 to $50 million. It’s a risk, because they haven’t done your stage, but eventually, we get there. Two stages is too much. If they haven’t done your stage, like the evangelist, 100 percent chance of failure.
Maybe it’s he one stage risk that you take is one type of risk to take. The other type of risk to take is someone that’s more junior than you want. You’re going to hire a director of sales, masquerade them as a VP of sales. The tradeoff is there. I think that generally works, as long as they’ve hired at least three or four good people. At least, they can do that piece. At any event, whatever you do you have to realize the same person may not make it all four of these stages.
Last couple points. When you’re going to make this hire, and I even have a script that I put on the blog, but let me just tell you the key things you can do to screen. I screen a lot of candidates, and I don’t even need to know the product or anything to figure out whether they can do the job.
This controls for almost everything. Have they sold at next year’s target ACV? Let’s say ACV’s annual contract value, what your product’s price per year. If your product today is $300 a month, and that’s great. You’re starting to get a few bigger customers and your goal next year is to do 20K deals, 20K ACV deals.
If this person has sold at 20K, he or she will have developed the skills necessary for your company. No matter what it does. 20K, there’s different bands. There’s the very bottom of the market, premium, self‑service. If you have sales people there’s a certain set of skills there. It’s really just pushing it through the process.
At 3 to 5K, this transactional thing, it’s quick sales cycles. A lot of people, a lot of volume. There’s a set of skills there. The 20 to 40K thing is consultative. As you get into the six figures you can get on jets a lot, because you can have a lot of people not closing a of deals.
What types of outbound versus inbound do you use? What types of people do you hire? How do you think about qualification years and price points and sales operations? We can talk about all this stuff in sales, but it turns out you pretty much sell products at a given ACV the same way.
If you love this candidate and they’re the greatest person in the world and your product’s going to be $5,000 a year next year, and they worked at success factors and they enterprise 500K a year group, do not hire them. No matter how smart they are and how many people, they do not know how to sell your product.
Next year’s target ACV I can guarantee you 90 percent certainty that they have the skill set they need for you. This is almost that plus tell me the last three or four reps you successfully hired. Those two questions, I feel like I get 90 percent of what I need in a hire.
We talked a little bit similar, are they comfortable and competitive, how do they think about outbound and inbound. You’ll learn about that. We talked about it, because this just goes to hiring. And who are the first three people you bring with. I’ve got to tell you, this question, you’re going to want to hire people that fail this question. Again, going back to it, don’t make this mistake.
A friend of mine’s got this great SaaS company. It just hit $2 million. I’m an adviser investment since zero. I told him not to hire the VP of sales. I love him. He’s gone, because he failed this test.
Tell me the first three people you bring with them. I don’t know. I don’t know anyone to bring with me. A great VP of sales always has at least a couple of people that worked in their last gig that whatever they do they want to go with them. LeBron James, Mike Miller.
How much did he just lose going to the Heat? LeBron’s going to bring…they want to go back. It’s not that different. The great reps want to stay with their own little LeBron. If he or she works somewhere, and he doesn’t have at least two people, then, he doesn’t even have to email or talk to. It’s hopeless. There is no chance.
These interview questions. This solves for recruiting. This solves for whether it’s going to work out at your company size, so you don’t accidentally hire the greatest person in the world, but the deal size is too big they won’t have your skill set. These two can control for everything.
The last tip I want to give you, I alluded to this earlier, don’t overvalue domain expertise. Sales is sales. My guys came in from LinkedIn to EchoSign. They didn’t know anything about our product. Within the first week the close rates went up.
Was that because of domain expertise? No. It’s because the deal size was roughly the same. They knew how to close customers, enterprise customers, at the same deal size. They knew how to talk to them. They knew how to talk business process language. The bigger the deal the more you talk about business process. The smaller the deal the less you talk about business process. They had done this and they knew how to do it.
Everyone does this domain expertise thing. “Oh, this person’s out of real estate. I’ve got to hire this guy. The one guy that was really smart at Yardy,” or whoever it is. That’d be great, but only if they meet all the other criteria, then you give extra points for domain expertise.
The problem is we all get too excited about this. We all get too excited about the company that looks and feels like the company we want to be, but it doesn’t mean they have any of the skills to sell what we need to sell today. I don’t think the product matters. I literally don’t think it matters. Selling at the same ACV, in a vaguely similar industry, is what matters.
Moderator: Two minutes.
Jason: Two minutes? Real quickly, one quick thing I want to say, and I’ll end here and we can open up to questions. I alluded to this before. This is my last hit.
You’ll Know Fast if You VP of Sales Won’t Make It. Within Just One Sales Cycle. Period.
If you do all this and you still make the hire, you’re going to know really fast. Let me tell you, I learned this myself, and now, I’ve learned it 20 times in a row. Believe it or not, you will know in just a few months if your VP Sales is going to make it. In fact, you may know in 30 days. You will know 50 percent of the way through your sales cycle. Let me just walk you through the math and then we’ll break for questions.
Say, you have a 60 day sale cycle and you had nothing before. You had the crummy VP of sales before. You come in, you’ve got this set of leads. You’ve got this set of raw materials. Whether you’re doing poorly or well, if that person can’t come in and increase their revenue in one sales cycle that comes out of them, it is hopeless. There is no excuse. Because either they’re going to do a better job with what you have or not.
I can tell you, even some of the stories of the last year. If this doesn’t happen it’s just hopeless. I saw this magic happen in 60 days with my VP of sales doubling revenue in 60 days. Don’t give them six months. Don’t give them nine months. We all make mistakes. If it’s not there in one sales cycle, don’t listen to the excuses. You’ve just got to kill it and find the next person.
Audience Member: I’ve been amazed by the number of casualties among the VP of sales.
Jason: Yeah, 70 percent.
Audience Member: When I asked the VCs and my boards, I’ve asked a bunch of them, they never say whether you can recruit people. They tell me he was not able to put that right process in place. He did not organize the thing. I call it the VC closing machine.
Jason: 90 percent of VCs don’t know what the hell they’re talking about for this particular hire, sub $10m ARR or so. Because they have no operational background and they think the fancy resume produces results. They churn through VP of sales. They’re wrong.
Audience Member: It’s the lack of ability not only with recruiting, but the lack of ability to put together a process.
Jason: Why couldn’t he put together a process? How hard is it to put together a process? You put together a script. You buy some tools. You hire some people.
I think it’s just the wrong person. They’re under founder stress. They have these VCs. I’m in one myself now. They gave into it. They made the wrong hire.
Audience Member: They don’t blame themselves. They blame the VP of sales for not putting the right…
Jason: No, it’s the CEO’s fault for hiring the wrong VP of sales. Any VP of sales that can work at the stage…we all have crummy processes when we’re early.
Here’s the thing that they’ll do. It goes back to my point. Whatever your processes were before, a great VP of sales will improve them. When they improve them, what will happen? Your revenue per lead goes up. I can’t predict exactly how much. When the revenue per lead goes up, it all clicks.
It’s so easy to come into a company with $2 million in revenue, leads, four reps, and a CEO who’s never sold, and make things better. Track the leads, call them back. I’m investing tomorrow in a company doing $2 million in revenue. I put three of my guys in. 80 percent of leads aren’t even called. What do you think’s going to happen in 60 days? Boom! That’s a process. Call the freaking leads.
What did he do, this CEO as $2m in revenue? He already brought in two salespeople in the first week. I just got the picture when I was coming here. He brought in two people, and they will call 100 percent of leads. That’s not the most sophisticated process in the world, but it will drive revenue up.
The VC’s wrong…
Audience Member: In the early days, how do I train my sales reps better?
Jason: Sales reps more than anybody I know learn by osmosis. They listen to each other’s calls, they list, they watch it. Training’s great.
You have to have training. A sales team that sits together in the same room open style performs better. Yes, you want them together. We talked about it, the VP of sales, once you have managers, they want to jump into the deals. The manager needs to be sit physically, my view, within their team.
Especially, unless the deal sizes are tiny. If you’re selling a product that’s $20 or $30 a month, there’s different things we could talk about. That usually ends up being OK.
The one that’s tougher, and I’ve seen it with companies in New York selling outside of it and I’ve seen companies outside of New York trying to sell into Fiserv and media and ad tech and other spaces, is can I have the VP of sales be in a different office than the CO and the VP of product and the VP of engineering.
Obviously, that’s a bad idea. If you’re worked with a successful VP of sales in the early days you’ll realize that they’re an extension of your product team. They go out, they talk to the customers, they get different types of feedback than the VP of product and the CO does. They yell at the team, because these feature gaps where they lost of the deal. “We could have closed this $300,000 deal if only we were in Romania.” That’s true. That doesn’t work if you’re not together.
The great VP of sales and the early sales reps are a key part of the product team. That’s a bummer. But you can’t have it all. I think my uber learning is it just raises the bar, because what I’ve found is the really good VP of sales candidates know this and they want to be very close to the CEO. It’s a risky job. The great ones really don’t want to be in a different office than the CO. Forget about what’s bad for the company.
That one I find is the biggest struggle. At an upper level, we all end up with distributed teams at some point. Sometimes, we have a distributed team on day one. Sometimes, it’s 10 years down the road. You’re going to end up getting there. But the great ones want to get close to the CO. I’m struggling to solve that one.
Audience Member: Can you break apart a little bit when you know you’ve got a repeatable process? What are the tea leaves there? How does that look to you when it’s time to hire the VP of sales, I know I’ve got a repeatable process?
Jason: I’ll tell you a few drivers of it, but I’ll give you a quantitative answer.
As long as your deal size isn’t a million dollars or more, it’s about a million‑and‑a‑half in revenue. A million and a half in revenue, you’ve probably got at least 100 customers, 50 customers. You’ve got a statistically significant number of customers. You’ve been at it for a little while.
This is exactly when I felt it, but I’ve talked with 20 or 30, 50 SaaS founders. As you get to a million you start to see it, but it’s not quite there. When you get to about a million and a half you just see, I can start to see that this many leads per month, however I get them, outbound, inbound, left bound, right bound, I start to see that this many leads kind of does produce this amount of revenue.
I’m not totally sure why every deal gets closed. There’s a lot of black art to…the script may not be perfect, but I start to realize that if I get 100 leads a month I’m going to get 100K in new ARR. For a variety of reasons, $1.5 million I would say is what it is. It may be earlier. If your deal size is really high, maybe you’re doing all six figure deals, so many you need be a little bit…you need a statistically significant number. That’s when you’ll feel it.
Audience Member: How do you feel, pre that point, but you’re trying to get some process, hire a consultant to get some better scripts or more approaches to consultant help.
Somebody who comes in, spends a week or two, goes through the cycle a few times. You’re not ready to have the VP of sales, but something you guys can work with to improve things …
Jason: Never seen it work. Sounds like a great idea, the consultant. I’m being binary, but not quite facetious.
Let me tell you how I answer that and then come back and address it. What I do think is important…when you hire those first two sales reps, here’s my one tip for these first two sales reps. This will work.
One, they have to have some experience. Later you can hire all different types of people. Later you can hire kids fresh out of junior college or whatever you want, high school. You can import them from Chile, I don’t care what you do. But the first two have to have a couple of years of real SaaS experience.
They don’t even actually have to be…let me get to the second point. They don’t even have to be top of the heap. They at least have to be mid pack. And most importantly — the first two reps have to be people that you would buy from.
Later, you will find out you are nothing like your average customer when you get bigger. But you’re just like your average customer in the beginning, and later the universe will change, and you will get more middle America and you will get more of this and you’ll get more of that. If you try to hire reps like you later — you will fail.
But if you would buy from the first two folks then you know you can trust those leads, these precious leads, to this person. If they’re at least mid pack, they don’t have to be great, and you would buy from them…then, because they have experience, they will bring at least rudimentary processes in.
They have used Salesforce. They may not know how to use Marketo, but they can maybe set up HubSpot for you. They can probably buy a purchased list if they have to and email it. They at least know enough, probably more than you. But if the first two have no experience you’re kind of dead in the water.
Those consultants come in and it doesn’t work. They say — I’ll help you close some customers, I’ll do it 100 percent on commission. They work for about five minutes and it’s hard, because you’re new, and they go away. They do some scripts, but they’re not responsible for a revenue number, they don’t really iterate the script. You can’t listen to two calls and do a good script. You have to do 20.
That should work in theory, but I’ve never seen it work in practice. The way I do it is make sure those first two reps have experience. At least two good years. The first guy I hired, the first rep, he made it all the way to the end of last year. He made over 800K last year. He did great. He had a lot of equity.
Both his parents were doctors, super smart guy. Worked in his garage at first. That was his shtick. But super smart. He had five years of experience. It was SaaS. Super smart, loved the product. I trusted him. He knew enough to get everything going, I didn’t have to be that guy.
Audience Member: What do you think about sales reps for companies with a much lower MRR?
Jason: Here’s what I’ve learned. I’ve shared the math. Let’s step back. If it’s about $300 a month, or say $3,500, $3,600 a year, that works.
Simply put, it works. Do the math. I close 10 deals a month, that’s $36,000 a month, that’s $400K a year. I take home $100‑something. The math works. The $300/mo price is well proven. I call it the WebEx model. That’s what WebEx optimized around. That’s what a lot of…actually, if you look at Box’s, Box has a lot of big deals. But that $300 month isn’t far from Box’s average. Their average deal size is $3,600. That’s WebEx, again. I had a lot of $3,600 customers. That works with inside sales.
The thing about $3,600 is it has to be almost all inbound. It’s too hard for most products to make outbound work at less than five figures in ACV. What I learned from that one guy that got promoted really quickly is if you’re hyper efficient you can make it work at $100/mo. Instead of closing 10 you’ve got to close 30 deals a month to hit your quota. Your average rep cannot do that. It’s too many demos. How many demos a day can you do, 12? No, you could do two or three.
These sales reps don’t have EAs. It’s so much work to set up…three demos is three hours.
Plus you need a half hour to prep and get your computer ready and schedule the thing. How could you possibly close 30 deals a month doing 100‑something demos? But it is possible in a very high velocity market.
Below $99, it starts to become basically customer support. Zendesk does it. Zendesk has sales reps down to $10 a month. They’re stay at home. They’re mostly stay at home parents, moms or dads that work part time, but they make very little money. Because they’re stay at home they work harder than you or I would for that amount of money. That’s pretty uncommon.
The real answer for most of us, you’ve got to drive your deal size up. You’ve got to get to at least $100 a month. But if you believe your deal size can get to $300 and it’s at $30 today, it’s cool. It’s just an investment. Then, I wouldn’t sweat it.
Audience Member: Main differences between SaaS and perpetual? You keep emphasizing the SAS piece as opposed to…
Jason: Personally, I believe that, at a product level, who cares? It’s just software.
It’s just a different way to sell it. The real problem today is you can’t raise money, you can’t IPO, you can’t get acquired for perpetual license. You’re dead in the water.
Ignoring all that, what’s the difference, right?
Jason: In theory, there’s no difference. The reality, we know when we build these models…there is a reason Wall Street wants recurring revenue. Because when we build these models, once you get out to year three, four, five it’s much more money in recurring than perpetual.
I think just structurally, because it’s hard to IPO, it’s hard to get acquired, it’s hard to recruit people, you generally don’t want to do perpetual. I was just talking to a company doing $80 million in mostly perpetual. It’s all going through the switch to try to turn into SaaS and IPO. I just see everyone switching.
I was a senior vice president at Adobe. When we were acquired in July 15th, 2011 at 3:01 PM, Adobe was doing $4 billion, 75 percent perpetual. The stock price was at $28. $4 billion in revenue. Today, you know how much money they’re doing in revenue? The same $4 billion. That’s zero percent growth for all those years. But I think the stock price is at $80. Why? Because now it’s 75% s recurring.
Try to change. I have no religious or visceral views, but the world doesn’t want perpetual. Look, to not be binary, and then we can break and wrap it up, take a look … Storm Ventures, where I’m a partner now, was the incubator of this company called MobileIron that IPO’d a couple months ago. A big success. MobileIron is SaaS company, by cohort. When we look at the revenue really it’s half perpetual, half SaaS. But at least it’s mostly SaaS. That’s enough.
The truth is you just want to be SaaS‑y. It’s like services, professional services. My learning on professional service is you’re an idiot if you don’t charge for professional services. You know why? As long as it’s 20 percent or less of your revenue, you get full credit for it, and all the customers will pay it in the enterprise as least. They’ll all pay services. They’ll all pay for scanning the paper documents in. They don’t mind. They don’t care. 25 grand to do this, 50 grand, whatever.
As long as it’s not more than 20 or 25 percent of your revenue, you still count as a SaaS company. Do a little of that, try and switch some of the perpetual to recurring, mix it up, look like MobileIron, I think you’re OK. That’s what I would look at.
Moderator: One more.
Audience Member: You mentioned you brought on…the good VP of sales, that he brought with him certain processes. Can you comment on what some of those basic processes were that he put in place?
Jason: I’ve got to tell you, and Brendan’s my brother, I love him. I don’t think he brought any grand nonobvious processes in place, at least not in the very beginning.
We came in, we had Salesforce, we had Marketo, we had a lead scoring system that was built. It was primitive, because lead scoring was not as sophisticated. All he did was he changed who got what leads routed through Salesforce, and that’s it. And upgraded the team. And helped them sell better. That’s it. There were no real process changes.
He did change the script. I would say script and lead routing were the only two things that I saw that were changed, maybe for a long time.
Audience Member: What was the previous guy doing wrong?
Jason: The previous guy came from a company that was doing $700 million at the time. He did not know how to work in a startup, because he came from Salesforce, which was my fault not his.
Because of that he couldn’t understand what types of folks we needed, and he didn’t know how to hire them … as an RVP in a Big Tech Company, he had 11 people in sales operations and four sales engineers supporting him. He couldn’t even understand what some of these things you need to do in a competitive start-up, because it’s all handed to you.
It’s not that he didn’t work hard. He worked very hard. But there’s so much infrastructure around you that he had no idea what processes to put in place. Even when he tried … for example, he tried a lot of things. He tried to put together an outbound team for us.
We didn’t have any outbound at the time. It was a good idea, but he’d never done it before. He had no idea how to do it. It was a disaster. This outbound team never outbounded nothing. They never brought in a single deal. He just hadn’t done it. You can say these things, but if you haven’t done it you can’t do it for the first time at you’re startup. It’s asking too much.
All right, thanks everyone. I appreciate your time.
Moderator: Let’s give another round of applause to Jason Lemkin.