What Makes a Great VP of Sales and How to Hire One

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In SaaS, #1 most common misfire, with a bullet, is the VP/head of sales.  In fact, there’s a VC saying that I used to really hate.  It goes something like “You’ve Got to Get Past the Carcass of Your First VP of Sales” or “It’s The Second VP of Sales When You Really Start Selling” or variants thereof.  It used to really bug me because I am a firm believer in the strategy of Zero Voluntary Attrition and trying to hire fewer, more committed resources over a higher volume of mercenaries that turn over more often.

The thing is, it turns out the VCs are basically right.  Because in SaaS start-ups, it seems like the majority of first VP Sales fail.  Don’t even make it 12 months.   And totally screw things up as they fail.   And this is really, really painful.  It’s much worse than a bad VP Marketing hire.  Because with a bad VP Sales you can lose so much momentum, and create so much internal confusion, that this one bad hire can really cripple you as you try to get from Initial Traction to Initial Scale.

So I want to try to help you if you’re going through this.  It’s going to take a few steps. First, in this post, I want to outline what a VP of Sales in a SaaS company actually does.  Because I think this is 50% of the problem – founder/CEOs are looking for the wrong things out of their VP Sales. Then later, in a different post, I want to describe who to hire, and how.  And I’ll even give you a script to help you make the right hire.

Before we get there, though, let’s outline in order of importance The Top 5 Things a Great VP of Sales Actually Does at a SaaS Company from say $500k in ARR to $20m+ ARR:

1. Recruiting

Like Nick Saban:  20%+ of their time.  Because you’re going to need a team to sell.  And recruiting great reps and making them successful is the #1 most important thing your VP Sales will do.  And the great VP of Sales all know this. They all either have in their back pocket, and/or are constantly on the prowl for the next 2-3 great reps.  Because sales is a lead-driven but headcount-closed business.  To hit their number, they know they need the heads.  It becomes mathematically impossible without them.  

2. Backfilling and Helping His/Her Sales Team

Helping his/her sales team close deals.  Working and closing key deals with them. Spotting issues before they blow up.  Seeing opportunities ahead of the horizon. In general, making sure his/her 3 reports, then 10 reports, then 30 direct and indirect reports — work as effectively and efficiently as they can.

3. Sales Tactics

How to compete.  Pitch scripts. Coordinating FUD and anti-FUD.  Segmenting customers. Optimizing how best to work with Demand Gen and marketing.  Getting feature gaps filled with Product and Engineering. In sum -> Learning and understanding how to maximize the revenue per lead.

4. Sales Strategy

What markets should we expand into?  How do we shore up our base? Where should we spend our resources, our money?  Once you’re past $20m or so in ARR, Strategy passes Tactics and goes higher on the list — once the VP Sales has a strong group of lieutenants/managers (e.g., Directors of Sales) to repeatedly execute core Tactics.

5. Creating and Selling Deals Him/Herself

This is the last of the Top 5.  Important, yes.  But #5 on the list 5 most important things your VP Sales should be doing.  And this is perhaps the unobvious part.

It’s #5 I think that is the root of half of the problems hiring your VP Sales.  Up until you make this hire … you the founder have likely been the acting VP Sales yourself, hopefully with 1-2 reps to help you (ideally two).  And you want to accelerate, do better … so you want to hire a VP Sales to … sell better than you.

Makes sense.  Except it doesn’t — because believe it or not, even at just $1-$2m in ARR, you’re already getting too big for VP Sales to be spending most of his time selling himself.  Let’s say you hire your VP, Sales when you are at $1m in ARR.  And you want to get to $2m in ARR in the next X months. OK, adding in churn, you’re going to have to add another >$1m+ ARR … quickly.  To do that, you’re probably going to need at least 3 scaled-up reps working 100% to hit quotas of say $300k-$400k each (you can raise these later, but it’s hard early).  And to do that, if your ACV is say $5k … you’re gonna need to close 200 deals in the next 12 months. 200 deals.

And then … as soon as you hit that run rate (which actually should happen earlier than month 12, because you have to hit the velocity early than that to hit the full year-end goal) … you’re gonna need 6 more reps to hit the next goal.  All of a sudden, that’s 10 reps.  Before you know it. And 400-500 deals a year.

So yes, your VP Sales should be out there closing the big ones, the huge deals, on a plane, on a jet, of course.  Sometimes, soup to nuts, lead to close. And it’s great when they even take a quota at first, to do it themselves.  But there’s no frackin’ way he/she can do more than a handful of all your deals directly, him/herself.  The deal volume to hit your growth targets is just too high.

So my uber-point here is you shouldn’t hire a VP Sales until you are ready to scale and build and fund a small, growing sales team.  And any VP of Sales that doesn’t see this — probably isn’t a great VP of Sales for you.  Instead, he/she is either just a great individual contributor, a great figure-it-outer … or a deeply flawed candidate.  Either way, not a great VP Sales.

Your VP Sales cannot rescue you from “Great Product.  No Revenues”. Your VP Sales cannot rescue you from having no organic demand for your product.

>> But a Great VP Sales can take that tiny bit of Initial Traction, that small little trickle of inbound lead flow … those raw materials … and do something really magical with them.  Drive your revenue per lead way up, and put you in place to jump on and close every practical piece of business that comes through the door.  Create a real machine to monetize the prospects and leads that find their way to you. And then add some gravy in outbound and other expansion on top of that.

That’s the magic in a great SaaS VP Sales.

10 Great Questions to Ask a VP Sales During an Interview

Ready to hire your first VP Sales?  But haven’t done it before?

Let me give you a partial interview script that may help a bit.  You’ll have to vary it for different types of SaaS businesses — a bit.  But it will basically work for all SaaS companies from say $200k in ARR to $10m in ARR or so — a wide range.  (After that, you’ll probably be looking for a different type of VP Sales. We’ll get there in our next and final VP Sales post.)

Before we get there, as a reminder, I strongly recommend you hire 1-2 sales reps (ideally 2) before you hire a VP Sales at a minimum.  And make them successful first. So you can practice what you preach, and know of what you are hiring. And also to get big enough so a VP Sales can actually help, not hinder you.  More here in our prior VP Sales post: When You Hire Your First Sales Rep — Just Make Sure You Hire Two 

Now if you are ready, but haven’t done it before in SaaS, here are 10 good screening questions to see if you have a real VP, Sales candidate in hand — or not.  These questions mostly don’t have right or wrong answers, but will help you determine the quality and fit of the candidates:

1.  How big a team do you think we need right now, given what you know?  

If he/she can’t answer — right or wrong — pass.

2.  What deal sizes have you sold to, on average and range? 

If it’s not a similar fit to you, pass.  If he/she can’t answer fluidly, pass.

3.  Tell me about the teams you’ve directly managed, and how you built them.  

If he/she can’t describe how they built a team — pass.

4.  What sales tools have you used and what works for you?  What hasn’t worked well?  

If they don’t understand sales tools, they aren’t a real VP Sales.

5.  Who do you know right now that would join you on our sales team?  

All good candidates should have a few in mind.  Tell me about them, by background if not name.

6.  How should sales and client success/management work together?  

This will ferret out how well he/she understands the true customer lifecycle.

7.  Tell me about the deals you’ve lost to competitors.  

What’s going to be key in our space about winning vs. competitors?

8.  How do you deal with FUD in the marketplace?  

This will ferret out if they know how to compete — or not.

9.  Do you work with sales engineers and sales support?  If so, what role do they need to play at this stage when capital is finite?  

This will ferret out if he/she can play at an early-stage SaaS start-up successfully — and if he knows how to scale once you scale.

10.  What will my revenues look like 120 days after I hire you?  

Have him/her explain to you what will happen.  There’s no correct answer. But there are many wrong answers.

ok let’s make it 11 actually:

11.  How should sales and marketing work together at our phase?  

This will ferret out if he understands lead generation and how to work a lead funnel.  Believe it or not, most candidates don’t understand this unless they were really a VP Sales before.

These questions aren’t magic.  None of them are particularly insightful or profound in isolation.  In fact, hopefully they are kind of obvious. But what they will do, is they will create a dialogue.  From them, you’ll be able to determine: (x) if this candidate is for real, or not, (y) if this candidate can really be a true VP, a leader, a manager — or not — and take you to the next level — or not, and (z) if the candidate is a good fit for your company and space in particular.

If any of the answers are terrible, pass.  If any don’t make sense, pass. And if you know more about any of these questions that the candidate does — pass.  

Your VP Sales needs to be smarter than you in sales, sales processes, and building and scaling a sales team.

VP of Sales Compensation Plan

So now that you’ve hired your VP Sales, it’s important to know how to pay this critical role. I don’t think it’s necessarily as nuanced and interesting a topic as how to pay and scale the sales team itself, or how to hire for this role.

But incentives are critical, and the VP Sales will likely be the Seemingly Most Expensive hire you ever make.  That’s stressful. So let me tell you what I did and learned. The 50/50/25+ plan. And as you can see if you look at the Boston Strategy Group chart at the right, as usual, it’s just a little different from The Ordinary way to go.  Not a lot different, but meaningfully so.

The 50/50/25+ Plan

Here’s what I learned and knew before I figured out the 50/50/25+ plan:

No best efforts cr*p.  Even if you hire a VP Sales very early, there has to be a clear quota and plan for him or her to hit.  No best efforts stuff. I know it’s teamwork in a start-up. But sales is sales.

In a start-up, the VP Sales has to also be aligned to costs, not just revenue.  It’s natural for a VP Sales not to care about costs.  Just to want a budget and a top-line number to meet. But costs are critical when you’re adding sales reps and then a VP Sales ahead of profitability.  Sales just feels sooo expensive early on.

The VP Sales has to somehow be accretive.   This seems almost impossible, unless you give her a big quota, which as we’ve discussed, doesn’t scale.  So how can this big salary not just be a big drain on limited capital? How can the VP Sales not be a “tax”, at least from a financial plan perspective?

The Good VP Sales have large OTE (On-Target Earnings) Expectations.  You can’t get a great VP Sales for a nominal $1X0k salary.  You can get a crummy one, however.

Many candidates will tell you they want a guaranteed draw for 6+ months. They’re leaving something good for something risky.  So guarantee me my full bonus for 6+ months until I’ve built up a big enough pipeline to close enough revenue to hit my number.  Sounds fair — on the surface.

It’s tough.  And I got most of this wrong before I got it right.

So here’s what I figured out, for us, and it worked well.  It’s just one way to go:

A High OTE is No Big Deal — if your VP Sales Hits Your Number.

So don’t sweat it.  Instead, align it. Do you really care if the OTE is $300k, or heck even $500k, if the VP Sales brings in $Xm more revenue than you expected?  Of course you don’t … and you don’t pay it if it doesn’t happen … plus bonuses “vest” over the course of the year …

So we paid 50/50/25+, which means:

50% of OTE paid as base salary.  No draw (i.e., no guaranteed bonus for X months until you scale).

50% of OTE paid as a bonus, with the target being the overall company revenue number for the year.  Top-line revenue, inclusive of churn, inclusive of upsells and self-service, net of everything.  The same number you and everyone else in the company is trying to hit. A number that’s hard to hit, but that you have say 50-60% confidence you can hit.

25% or more upside for exceeding that plan.  Basically, we paid our VP Sales X% of every single dollar after we hit the plan for the year out.  That % has to go down over time, but the basic idea was if the Stretch Plan was hit (Stretch for us = plan that I had a 25% confidence in hitting), then there would be a 25% boost on top of the OTE.  If the Stretch Plan was exceeded, the comp goes up from there. No cap.

It was that simple.   And what it meant was, like the sales rep comp plan, if the VP Sales killed it — the money would follow.  And if he didn’t, it didn’t, and the cost wasn’t that stressful. And since our Real VP Sales killed it, he made good money, was highly accretive, and we got to cash-flow positive at $4m in ARR even paying our VP Sales well and paying our sales reps 25% of the deal size.

A few thoughts on the plan:

Ideally, don’t do a guaranteed draw.  I know it seems to make sense.  But the thing is, if you pay your VP Sales in full on hitting the plan, it shouldn’t matter if that gratification is delayed a few months, so long as the real OTE is high.  A draw actually can be an excuse for laziness. It sucks some of the hunger out. And lets the candidate blame others for their own issues. {Yes, I know some will disagree and this is controversial.  Just my view.} If you do end doing a draw, keep it short (e.g., one quarter) and make sure the VP Sales have to “make it up” in sales quota payments by the year-end.

But do pay well when they kill it — against a sane plan.  And please don’t cap the upside.   That’s the trade-off.  No draw, no huge salary for just showing up.  But you have to pay very well when a realistic plan is hit (not a ridiculous one), and you have to pay very, very well when you exceed it.  This will appeal to a great VP Sales on the way up.  It won’t appeal to a mediocre one or one on the way down.

Pay bonuses out monthly, even if the goals are quarterly.  This is the flip side of the no guaranteed draw.  No delayed gratification here. It’s hard enough to come into something new as VP Sales and make magic happen.  Once it does — pay now. Not later. Don’t make your VP worry her quarterly bonus might not come, or be subject to vagaries.  

Pay it out monthly, even if it’s a bit of a guesstimate, and true it up later.  Many sales leaders have some scar tissue about not being paid a bonus or two. Just pay ’em.  Be better than that, and build trust and loyalty back.

In the beginning, consider bonuses and goals that match the overall company ARR goals — not just new new bookings.   My VP Sales and I both worked toward the same goal as everyone else in the company — the end-of-the-year revenue goal.  EchoSign has a self-service component, and the Client Success team managed churn, and upsells were split between Sales and Client Success.  You could make an argument the VP Sales should only be responsible for net new revenue from sales. And that may be the way to go later. But until you are at $Xm in sales, I say everyone should have the same revenue goal where practical.  One overall revenue goal for the founders and VPs and everyone. It also incents the VP Sales to work with the other functional areas around post-signature revenue (support, product, client success, etc.).

Good luck!  I think anything works well here, as long as you align interests, and the plan is achievable.

You can see from the above chart, and in the BSG Team Ventures data here, that most VP Sales are heavy on guaranteed comp and light on the upside.  You’ve been warned. 🙂

Published on September 16, 2013

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