SaaStr Podcast #379 with SaaStr CEO and Founder Jason Lemkin: “The Top 10 Mistakes Founders Make When Hiring Their First Sales Team”

Ep. 379: From how many reps to hire, to compensation models, here are the top 10 mistakes founders make when hiring their first sales teams and how to avoid them.

 

This episode is sponsored by Outgrow.

 

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Jason Lemkin
SaaStr

Transcript:

Announcer:

Welcome to the official SaaStr podcast. Are you looking to better educate your audience on the value you deliver? Build products or service recommendation tools, create assessments to identify areas they can improve, and build savings calculators? Find out how you can build these same tools for your business at outgrow.co/saas. That’s outgrow.co/ S-A-A-S.

Announcer:

In today’s SaaStr Insider, SaaStr CEO and founder, Jason Lemkin, shared the top 10 mistakes founders make when hiring their first sales team.

Jason Lemkin:

I wanted to talk today about the top 10 mistakes that all of us, almost all founders I work with, make when they hire the first sales team. I made many of these mistakes myself. Over the years, I just see everyone making many, if not all 10 of these mistakes again and again. So I wanted to go through them as a checklist. Some of this we’ve dealt with before, and we’ve certainly written about saastr.com, but I think it’s super helpful to hear the 10. So maybe you can course correct before you make any of these mistakes.

Jason Lemkin:

The first one is you can’t hire any sales reps before you’ve done it yourself. Folks listening to this that are further along, get this. They all know it, but it is a classic error so many founders make. Hiring some kid off AngelList, or Craigslist, or wherever you find her or him, to get sales going, doesn’t work. Maybe it works one time out of a hundred, but how are you going to find someone that knows the product better than you? That knows non-existing customers better than you? It’s not going to happen.

Jason Lemkin:

This term founder-led sales is maybe overused these days, but it is true. You almost always have to start there. So you have to find a way by will, by force of will, by marketing, by blog posts, by podcasts, by YouTube, by showing up to events, even if they’re digital today. But you’ve got to get those first 10, 20, 30 customers yourself before you’re ready to hire a sales rep.

Jason Lemkin:

What happens when folks don’t? When they don’t get the first group of customers going at first is those sales reps close zero because the founders and CEOs have to do it. Not only do you close zero month after month after month, but you erase so much precious time and money in the middle. So even if you’re terrible at sales as a founder, as a CEO, like that’s too bad, but you will find a way. Worse salespeople than you have found a way through marketing, through chutzpah, through networks, through incessant tweets, through something to get those first 10, 20, a hundred customers before they hire a sales rep. Beyond that, you know this, if you hire a rep to do something you don’t know how to do yourself, it’s not going to work out.

Jason Lemkin:

Okay, number two related point. We have chatted about this many times in various ways. Yet people still make this mistake is you can’t hire a VP of sales before you have an engine, before you have a process. Really that almost always means two sales reps hitting quota. So I know you want to immediately have a sales rep if you have any money in the bank in the beginning. Then the second things start going, you want to hire that VP of sales, but wait.

Jason Lemkin:

The VP of sales is there to scale it, to go from reps three to 300, to improve how you talk to customers, to improve how you deal with leads, to drive up your deal size, to drive down your close cycles, to shorten sales cycles, but not to be a magician. As we’ve said many times on SaaStr, your VP of sales is not a magician. So plan on hiring a VP of sales as early as you can. Ideally, your VP of sales will hire reps three through 300 for you, but not the first two. Don’t be ready to close that VP of sales till you have the beginnings of a repeatable process.

Jason Lemkin:

Okay, number three, and this is such an important tip that maybe we’ve said before on SaaStr, but that people forget. Your first couple of reps, the ones you hire yourself, not the ones that your VP of sales hires later because that’s different. We’ll get to that next. But your first two to three sales reps, no matter what, no matter where they come from. Whether they come from some store down the street, whether they come from Google, neither of which is a good idea. Whether they’re someone your brother knew from college, which is a flag as well. But whatever it is, they have to be folks you would buy your product from.

Jason Lemkin:

I have this discussion with founders all the time like, “Oh, my first two reps, Elaine and Bob, didn’t work out.” “Why not?” “Oh, well, they came from this great SaaS company, this other great SaaS company. They knew all the acronyms, and someone said they were great.” I always ask them at the end, “Well, Elaine and Bob, would you have bought your product from them? Would you have?” The answer is always no.

Jason Lemkin:

So these first couple reps can be quirky. That usually means they’re probably smarter than the average rep. It may mean they’re mid-pack but speak the language, but know your product. You need those first couple of reps to magically understand your product and to magically be able to sell it back to you. Maybe not in the first meeting, but by the second or third meeting, and you can’t cut that corner. Yes, you want a rep that sold at your ACV. It’d be nice if the rep was in your industry. It certainly would be nice if she already came out of SaaS. That sure would help these days. There’s a lot of SaaS companies.

Jason Lemkin:

But no matter what corners you cut, don’t cut that one. It has to be someone you would buy your own product for it. If you do, then you can bring them into deals. You can even give them your smaller leads. But if not, they’ll just waste all their leads, and it will become a failed downward spiral.

Jason Lemkin:

Now, number four, the opposite is as soon as you have that VP of sales, don’t make the mistake of insisting the next reps are people you would buy from. Then you’ll have a much more heterogeneous type of reps. You’ll have folks that seem to close in seconds but never understand your product. You’ll have folks that talk, and talk, and talk, and talk on your sales team. You’ll have folks that are super brief and to the point. You’ll have folks that really know how to do a solution. You’ll have folks that are really qualified folks, and it will take a village.

Jason Lemkin:

You will find even in the today’s of hundreds of hundreds of sales tools, and marketing tools, and science, and quants, and dashboards, you will find there are many ways in sales to get to the top of that mountain. Different styles because we’re different human beings, and we connect with each other in different ways. There’s introverts and extroverts, and folks that like to pick up the phone, and folks that don’t really like to talk on the phone, and folks that love Zooms, et cetera, et cetera. So don’t expect reps four through 400 to be folks that you would necessarily buy from. Allow your VP of sales to hire who she wants and judge her on results.

Jason Lemkin:

Number five, most important point. Hopefully, you break out of this by a couple of million in revenue, but I’ve seen CEOs make this mistake up to 50, 60 million in ARR, which is you can’t underpay sales folks. Maybe you’ve never been able to raise any money. Maybe you have a token amount of capital. Maybe your sales efficiency is so low because it’s so hard to close it. You just don’t feel like you can afford it. “I can’t pay a rep. I met this kid. He wants $150,000 a year and on-target earnings base and bonus. All I have is 500K in the bank. How could I afford this? Maybe I should put him on commission?”

Jason Lemkin:

A lot of things will race through your mind, but sales is about money, folks. You cannot underpay the good ones. You can cheat, and here’s the cheat. You can meet their ask. Let’s say the rep wants 150K, OTE, on-target earnings. You can say, “Look, Linda, Bob, Bill, I’ll give you your 150K OTE, but you need to close 450, 3X that.” That’s very fair in the early days. Maybe that’s not even doable today. So maybe she’ll end up taking a little bit of extra risk to hit her OTE, but you can’t pay below market. The best salespeople want to be paid fairly for hitting their number, and you will only attract the bottom feeders, the worst of the worst, if you underpay. It’s better to hold them to a higher standard and pay them very, very well when they hit it.

Jason Lemkin:

Also, when you pay well to sales, even before you have a VP of sales and especially after, it becomes a self-hiring engine. When Jane comes in and her quota is 500, and she hits 700, and she makes a ton of money, she’s going to tell all her friends. They’re going to get excited. If the CEO is pretty cool, and the product’s pretty neat, and it looks like it’s going somewhere, good salespeople are going to start to flock to that story that Jane tells her friends. So paying market or even paying in the high end of market when you can is one of the highest ROI things you can do for sales recruiting.

Jason Lemkin:

Number six mistake folks make, both VPs of sales, but we’re going to talk about reps here is they let reps go on too long. They let reps stay that fail at one sales cycle. You do not want a high churn sales environment. That is out of some movie, Glengarry Glen Ross. I don’t know these other sales movies. I’m not into them. You don’t want that. You don’t want to constantly be firing sales reps. Who wants to work there? What good sales rep in SaaS, where there’s thousands of SaaS companies, wants to go somewhere where they feel like they’re going to get fired? No one, no one good goes there.

Jason Lemkin:

You want a zero voluntary attrition sales team, and you want as low a churn sales team as possible. But that means raising the bar. That means each rep ideally is as good or better than the existing reps you have. That’s the way many engineering teams recruit, and the best sales teams recruit that way, too. They don’t allow the bar to go down in sales. They inch it up with each hire. If you do that, that means when you do make a mistake, you’ll know fast, and you’ll know in one sales cycle.

Jason Lemkin:

So look, if your average rep that’s up to speed can close,say, I don’t know, 30 deals a quarter, 10 deals a month. You cannot necessarily expect a rep to do that their first week, even their first three months if your sales cycle is, say, 45 days. But the bad ones don’t put anything up on the board in the beginning, the bad reps. The bad VPs of sales don’t inflect the curve. The bad VP of sales don’t increase the performance of any metric. The bad sales reps just never really close anything in the beginning.

Jason Lemkin:

You might like them, and people might tell you to give them more time. But the problem with giving them more time is not their base salary. You can probably sort of afford that. It’s the lost leads. It’s the leads that you gave to Bob for 90 days when he doesn’t close anyone. If you gave them to Amy, she would have closed a lot of them. Those lost deals go to your competitors. They don’t buy more from you. They don’t stay with you for 10 or 20 years. So you have to concentrate your leads in your best closers in the early days and a long time. So you’ve got to move on from reps that can’t close much faster than the raw numbers make you think.

Jason Lemkin:

Number seven, mistake again and again and again, especially when we’re capital constrained, don’t ask your VP of sales to carry a bag for too long. What I mean by that is don’t ask her to be an individual contributor, to have her own quota. It will be very tempting in the early days to do that. You will hire your first VP of sales. You may have no capital or a little bit of capital, and she wants $400,000 a year in OTE. Now, not base, maybe 200 base and 200 bonus if she hits the plan or maybe more or maybe less, 300K, 250K, 500K, depending how experienced they are. There’s been a lot of inflation in SaaS in the last five years as cloud companies have exploded.

Jason Lemkin:

You will be tempted to say, “Yeah, I’ll pay you that ask, but you’ve got to bring in enough money to pay for it. You’ve got to do it.” At first that sounds good, and I do know a lot of VP of sales that are experienced and say, “You know what? When I start, I want to start to carry a bag. My first quarter, I want to close deals myself because if I don’t do it, I can’t coach the team to do it.” When I hear that from a sales rep, I’m like, “Awesome, that’s great. You carry a bag for your first quarter, and you prove it. You walk a mile, and you make it happen.”

Jason Lemkin:

But ultimately, it doesn’t help at least after a quarter, after a sales cycle, because there’s too much work recruiting. There’s too much work backfilling. Your VP of sales is helping the two, and then four, and eight, 16, and 32 folks that work under her. Her job is to identify who needs help and where to parachute into deals so that they’ll close, not to be the 28th rep even if they’re great at it. So it’s okay in the beginning, but it’s not even necessary. You judge a VP of sales by how her team does, and how she increases the velocity and the revenue per lead.

Jason Lemkin:

Number eight, and this a little bit goes against my point in the beginning of hiring folks who you would buy from. Although the only parts of the number eight is don’t hire someone that last sold cosmetics, or pool equipment, or something that’s not SaaS. Look, that can work later. I haven’t found that it often does. But when you go from rep four to 400, and you need a heterogeneous mix, you can take folks from very different industries. Maybe not cosmetics or pool supplies but maybe from very different industries, maybe from healthcare, maybe from all different types of things and train them.

Jason Lemkin:

When you have trained them, when you have a system, when you have onboarding, when you have multiple layers of managers, you can hire folks that have no experience. You can hire very entry level people, in fact. But when you start in SaaS, you need folks with at least 18 to 24 months of SaaS sales experience. You need that because you don’t have it as a founder. You don’t know the basic things. You don’t know how to operate Salesforce. You don’t know what the cadences are. Yeah, you could figure it out yourself because you’ve done some sales. But trust me, don’t hire the best person that’s sold something because sales is sort of the same. But hire folks that know SaaS in the beginning. Don’t make that mistake.

Jason Lemkin:

Nine, we hit this one a little before, so I’ll be short. But don’t over-index on logos. Don’t hire someone, especially in the early days, because they worked at Salesforce, or Dropbox, or Slack, or Twilio. Those are great names. Those are great iconic companies. I love having their CEOs and their founders at SaaStr Annual and sharing their mistakes. But those are not startups. Salesforce is at $30 billion runaway. Twilio’s coming up on $2 billion in revenues. Slack’s at a billion. Zoom’s coming up on $2 billion. These companies were startups. Yes, if you hire employee number 10 at Slack, they get it. They know it, but these companies are as big as many of the oldest software companies.

Jason Lemkin:

So don’t get too excited about the LinkedIn. I would much rather hire a rep that has two years of experience at a SaaS company at 10 million or 20 million ARR, so a stage or two beyond you, then one of the hot shots out of Slack. It’s not going to work. It’s a totally different set of skills and tools when you have a brand behind you, and sales ops behind you, and warm leads, and schedulers, and a clear path against the competition. You don’t have any of that at your startup.

Jason Lemkin:

The last one, point 10, and we touched on this. It’s the flip side of moving out any reps that can’t close in one sales cycle. I mean, they’ll never close if they can’t put one deal on the board. But the flip side is you cannot let any great reps leave. Chase them down the block when we go back to the office. Chase them on the Zoom, beg them to stay, promote them, do whatever it takes, listen. You should strive for zero voluntary attrition on your sales team. Your best sales reps should be closing more and more, and making so much money, and having so much fun, and having so much responsibility, and working with their friends, and bringing their friends in like we talked about Jane before, that no one wants to leave.

Jason Lemkin:

That the only reason a sales rep should leave your startup, the only reason is because they have the culture, and they have the friends, and they have the money, and they have a product they believe in, and they have the dream team and a boss. Most sales reps will stay almost forever if they love your VP of sales so be thoughtful on that. If you have that, if you have the VP of sales, and the brand, and the fun, and people are well paid, why would you leave if you’re a rep? It’s so risky to leave and go somewhere else for less money with a worse boss.

Jason Lemkin:

The only reason a great rep should leave, if you have a great sales team, is for a promotion. Eventually, you will find if you grow fast enough, there just isn’t enough room. Everyone wants to be promoted if you’re growing quickly. Everyone wants to go from SDR to AE. Many folks want to go from AE to manager or director. At some point, ironically, the faster you grow, the less room you have on the promotion chart because you’re hiring so many people. In the beginning, you’ll find, “Well, I’ll just promote my best SDR to AE.” That works great when you’re small, but what do you do when 20 great SDRs like you–You run out of slots.

Jason Lemkin:

So at some point, some of your best have to go to chase their dreams, to become a VP of sales. But those should really only be folks in management. You should still try to find a role for them no matter what you can do. At least try never let any great reps leave. They know so much. They will attract their friends. They’re the heart and soul of your company, and you’ll replace them with someone that closes less.

Announcer:

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Published on September 25, 2020

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