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war stories from the startup frontlines

building a sales organization
page three of three | previous page

the audience: q&a

Q: How do you know whether you've set a realistic goal, especially for your first hire?  Also, how do you compensate a person? Do you have any ballpark ranges for the going rates?

Mr. Rogers: A very, very good question.  The expectation level you set coming in is very important because you don't want to set a plan in place that would be designed for failure from the beginning.  It's not good for you, and, obviously, it's not good for the sales candidate.

          I'll tell a quick story about the “theory of aggravation.”  It goes back to Gina's point.  Every salesperson causes their manager some degree of aggravation. Everybody can manage a plow horse, but it takes a seasoned manager to manage a thoroughbred.  The thoroughbred takes you to the Kentucky Derby, so you draw a line in the grass and you set the level of aggravation. The level of performance must always be above the level of aggravation.

          With respect to goals and aspirations, you've got to define the market.  If you're going after a vertical market, you've got to get somebody who is experienced in that vertical market and has the contacts to go after those organizations.  Or, if it's a geographical territory that you want to develop first, that person has to have that as their goal. The expectation is a reasonable sales goals over a period of time, depending upon the sales cycle for your product.  It's very important not to deceive yourself about having a sales cycle that is very, very short.  The sales cycle is typically twice as long as you think it's going to be.

          From a compensation standpoint, when you are starting, your sales and marketing percentage of gross revenues is going to be on the order of 20%.  It's going to start higher than that, but that ought to be your objective. You're probably never going to get it below 15%, so it's always going to range between 15% and 20%.  You look back from that to decide what the base salary plus commission is in order to drive your salesperson.  That really varies by sales job and product area and the market for the products.  In some places it's higher and some places it's lower, so you have to figure out what the revenue expectation is for the salesperson within a particular market.  In software sales, it's very high; incommodity products it's typically very low.

Ms Dubbé:  For those of you who have no revenue in your companies, it's very difficult to base sales off of 20% of revenue, so that first hire is key.  What you have to do is look at your expense base. As Walt said, typically, a sales rep in this territory needs to pull down $1.5 million to $2 million in sales a year. That’s for a good, solid sales performer in a quality software company. In startups, most often, when you're beginning at zero revenue, that is just an unattainable goal in a six- to 12-month period.  What we typically do in the early stage is start with a six-month compensation window. For the first six months you need to decide, as a company, are you paying on bookings or are you paying on cash?  It's one of those fundamental sales comp plan issues. Given that cash usually flows 90 days after the booking, from a revenue recognition and a cash standpoint, that's a wiser choice, but can your sales rep eat for that long?  Are you going to put them on a draw for that long?  Those are some of the fundamental issues of beginning a company.

          There are surveys out in town about what a typical sales rep is paid, the typical commissions, and the typical options. Options are granted based on a series of funding issues, and there are established ranges.  Again, for a startup, there are no hard and fast rules, because you're typically operating from a zero revenue base.

          The other point that you need to consider is that you bring this sales rep in and you're paying him on performance. You've got an engineer sitting right next to him who’s not being paid on performance, so you need to establish a culture within your company that encourages risk reward.  That is a typical problem for an early stage company.

Q: If a sales cycle is about six months long, how do you make sure someone is performing?  How do you manage and monitor that, and how big does your pipeline have to be in order to reach your goal?

Ms. Hyde: I'm a great believer that watching the pipeline on the front end is the best opportunity to secure success on the back end, particularly if you have a longer, more complex sales cycle. For instance, I have three different business practices.  One of them is a new business for which we've only been providing this product to the market for a little over a year.  For that one, I look even harder at the pipeline because it's key and we don't have the results there that we do in the more legacy business areas.

          I'm always looking for 3X to 4X pipeline relative to business that needs to be closed, but I also believe that you have to drill down into that pipeline as well.  Anyone can put the name of a company on a piece of paper and say it's a $2 million dollar opportunity and that it looks very good.  I always get concerned if a deal appears that it's going to need its own birthday cake, that it's been on the pipeline so long that you're tired of hearing about it and it's not moving toward closure. If you have support engineers, whether they're a part of your development team or they're pre-sales engineers that are supporting the salesperson, I utilize those people as extra validating information.  In fact, because I have a fairly significant-sized sales organization over my business practices, I actually get a weekly report, and all the sales VPs under me see their section of that report as well.  In it, the systems engineers indicate the meetings coming up for the week and the things that they have been doing with each of the individual salespeople by account.  At the same time, I'm looking at the salesperson's activity that they have documented for me, and I'm comparing it to what the engineers are saying about that same deal.  For the best salespeople, you'll find that these are hand in glove.  When you have a problem with the salesperson, many times these things will be very different or there will not be the level of activity and positive orientation on the engineering reports.

          Those are just a couple of things I do. We utilize something that's fairly inexpensive, Salesforce.com, an ASP-based sales automation tool. You don't need it for just one person, however, you can certainly do it by hand.  I would suggest weekly meetings with the salesperson. There’s something I say to people, it's one of my little phrases, "Performance is the ticket to freedom.” If you're concerned or you find it a little bit uncomfortable to do all of this detailed reporting, well, as soon as we see some performance. . ..  Obviously, you position this with the individual that it is not a flogging; it is your desire to ensure that they're going to get the support they need to perform as they need to perform.

Mr. Skinner:  Beware of what I call “pipeline insurance.”  That is, I'm a rep, I get all the big deals out there, but you see nothing happening.  As a result, you're tentative to take any action because you're worried about losing the big deal that person controls.  I always push it two ways.  The first thing is, I always want to know specifically what the next step is and when it's going to happen, and I follow up on that.  If Thursday you're going to meet with the CIO and, at that point, you're going to understand exactly what the landscape looks like, I'm going to contact you on Thursday afternoon to find out how well it went.  You've got to police these things very well, like Carolyn's "producing is liberating” phrase. The second thing is that you need your own re-insurance.  Always make sure somebody else is involved with these big accounts, whether it's a pre-sales individual or it's another member of management. Make sure that if something happens or you're going to lose a sales rep, somebody else is in touch with that account, knows what's going on, and can pick it up and take it. 

Q:  Is it possible for early stage startups to bring in a high level individual to build the sales organization by extending equity? 

Ms Dubbé: What we found through the portfolio is that some of the best hires you make are salespeople who have hit home runs in the past and are willing to bet their compensation on their ability to perform. Those people are willing to take a big chunk of equity in lieu of salary, or a very low base with a very high upside.  I call them my long ball hitters because they are typically the ones who are so comfortable in their ability to produce that they're willing do that.  They are hard to find, but once you get them into an organization they can be the key person that is responsible for that organization's success.  As Walt said, it's like corralling a maverick.  You're going to want to kill them as much as you want to kiss them because they are going to push the envelope everyday, but they are the ones you need.

          The bigger concern are the people who want no risk. A really good salesperson is a calculated risk taker.  If you hire somebody that wants a base in the six-figure range with a very low commission, you have not hired a salesperson. I want a salesperson who says, “Don't pay me base, give me 20% on everything I sell.”  Then, all of a sudden, I am betting on their success just like they are.

          I encourage all of you: Never cap upside. Anybody who is willing to take a comp plan with a cap upside, you don't want in your organization.  You want somebody who is going to swing for the fence, who looks every day at their pay stub because that's how they keep score. You want someone who wants to do nothing but make an incredible amount of money, and you want the comp plan to incent them for every dollar they bring in.

          You have to be very careful when you build your organization. That first person you hire, if you get them senior enough, will build an organization with a culture that emulates that person.  That first hire you make sets the tone for the rest of your people, whether they're all mavericks and long ball hitters or whether they're all going to sit in the office and talk to Aunt Tilly on Friday afternoon.  You want a risk taker, even with the aggravation factor.  You're going to trade some aggravation to manage those people, but they're going to be the ones that really produce.

Q:  How do you interrupt a sales relationship that's five or 10 years old, especially when some of the relationships are corrupt?  If you have a product that's better than somebody else's at a lower price, higher quality, better features, and you can't get that relationship, what should you do, such as using legal procedures and playing the rules game?

Mr. Skinner: I'll just say one thing, that you've got to have a real benefit and you've got to be able to prove it.  I have found that most situations are more competitive than you might think.  I have not encountered a high percentage of any type of corrupt environment like that.  You have to go out and express your value proposition and possibly even partner with the incumbent to show added value.  That's one way to get in there and prove it.  A lot of times, confrontation isn't going to get you there.

Mr. Rogers: Yes, creativity is the key to what you're trying to accomplish across all the fronts that you've mentioned, and people do buy from people that they like.  If you have a salesperson who is calling on an account, they need to know everything about that prospect in order to build the relationship you're talking about, which gets beyond the lowest price, the best product, and so forth and so on.  It's really knowing their prospect's personal habits as well as anything else, even what time they come to work in the morning.  Many times, that's an open window that a lot of salespeople miss.  With flexible work hours today, there are people who have oddball types of work habits.  Look at all of us; we're here at 7:00 this morning.  It would have been an ideal time for somebody who was trying to sell to us.  If they knew we were going to be here at 7:00 this morning, they could have made a sales call first thing.  That's true with a lot of prospects, and that's how you build a lot of relationships.

Audience Member: You're back to the product's enhancements.  If it has a price savings of one-third or two-thirds, one should be able to sell that product. If one can't sell that product and does all the things you're referring to, what does one do at that stage?

Ms Dubbé: You are getting outsold, my friend. That's the bottom line there. If you have a product that's technologically better, there is no guarantee, regardless of the price point you set, that it's going to sell.  That's when you measure the quality of the sales individuals you have involved. That happens every day in our industry.  I have portfolio companies that say they have the best product at the lowest price, but that doesn't always win. 

Audience Member: It doesn't unless you have the legal side.

Ms Dubbé:  I'll fundamentally disagree with you on that.  I truly believe that when you resort to legal means, you have missed the sales opportunity.

Q:  I'm with a firm that introduces IT solutions providers to the federal government.  We typically deal with senior management, sales, and marketing people, yet they're incredibly naive about the federal market.  How does someone deal with you when you're on the other side of the desk? How would you generate leads, how would you build a pipeline?

Mr. Rogers: I would say the federal market is probably one of the easiest markets to understand with respect to the prospect base when you're looking for people that have no experience.  I always marvel at a comment I get in conversation, “I'm here, I've lived here all my life, and I'm in sales, but I don't sell to the federal government.”  The first thing I ask them is, “If you lived in Detroit, would you be selling to the automotives?”  Absolutely.  Well, that is our industry in this town.  First of all, in the federal government there are defined rules and regulations. There's a defined competitive procurement process and there are a number of defined ways to sell using contract vehicles.  All of that is knowledge that is typically gained over time, but it can be gained fairly quickly by attending the right training courses and so forth that are not long in duration.

Ms. Hyde: In federal there is a lot of homework to do.  I've spent about 75% of my career in the government side, and I’m now doing a lot in the commercial space.  If anyone is hiring a sales executive to sell into the federal space, I don't mean to put it negatively, but you have to have someone who has the stomach to tolerate the complexity.  By nature, salespeople are coin-operated and oriented toward instant gratification.  The government business can be extremely rewarding and the scores can be extremely high, but I've seen many circumstances where two or three salespeople have worked a particular deal, been terminated because they didn't close anything despite giving their blood, sweat, and tears to the deal, then the last guy in a round of musical chairs is awarded the deal and becomes the big hero.  At EMC where I used to work, they're pretty free with their expletives. I used to say that federal was the new “F word,” if you'll excuse me.  Everybody wanted to think of reasons they shouldn't do government business.  They didn't like the reporting mechanisms that you had to do relative to pricing in GSA; they thought that they couldn't get the margins that they wanted; it took too long; and 100 other reasons.  I was one of the folks who changed their thought process on that. Now, when the commercial businesses are suffering in a pretty bad recession over the past year and a half, it's the government business that's keeping a lot of these folks afloat, so I would imagine you're seeing a big uptick in your business as well. 

Q:  Have you ever hired a stranger over somebody qualified that's worked for you in the past?  Also, have you ever hired someone that was successful in the past working under you, but came to regret that decision?

Ms. Hyde: Yes.

Mr. Rogers: Yes. 

Mr. Skinner: The stranger versus somebody I've known, yes.  I've worked in this industry for quite some time. I know a lot of people in different cities, and, periodically, I try to get new blood.  If I'm going into anew operation, I don't necessarily pick up my Rolodex and strike up the band again.  In some cases I do, if I have a particularly stellar person, but, in other cases, I'll have to get new blood with new contacts that can take me to new places.  Sometimes, when I've gotten the band back together, I've had to fire the drummer.

Ms. Hyde:  As to hiring someone who worked for you successfully in the past, but who did not perform at another place, I've done that and I did it fairly recently. I took an individual who had been very successful working in my organization at a much bigger company, and this brings us back to an earlier point.  She came to the company that I'm at now where we don't have a piece of collateral for that, where leads are thin, etc.  She was very successful in a large company environment, but, in the business practice in my organization where we were in startup mode, she wasn't able to function well.  

Q:  What about small entrepreneurs in a niche market that don't have massive funding or the ramp to going public?  What are your thoughts on whether they can outsource the operation of sales or marketing or promotional activity?

Ms Dubbé: I was the first hire at a company called Trusted Information Systems here in the area.  They had all engineers and they hired me.  I'm convinced that the only reason they hired me is because I have an engineering degree and they could tag me into a sales role.  It was like pulling teeth to get the engineers to talk about anything.  They were security people—No one needs to know that.  That's classified.  I can't say.—I was a member of the organization and they were coin-operated.  Every time you put a quarter in, they said, “You don't need to know that.  The customer doesn't need to know that.  Nobody needs to know that.”  It was like pulling teeth for me as a member of the organization to get information out of them.  I think it would be even more difficult for a consultant.

          That said, I think it's largely incumbent on a particular business to decide its course of operation.  I've seen it work both ways, but a lot of it is dependent upon the personality of the organization.

Mr. Skinner:  I've been able to have the marketing aspects farmed out successfully and done very, very well.  There are a number of firms around here that do that very well.  I've never seen it on the sales side.  You need a dedicated, focused person. To echo what Gina just said, one of the worst things I've seen companies do, and I've done it myself, is to forget to keep salespeople totally in the loop.  They are the face of your company.  They've got to go out there and talk about everything. If they're not up on the latest pricing and the latest thinking about how you're positioning the product, then you're missing an opportunity.  Own the sales process, but you can delegate some of the marketing and positioning. 

Mr. Rogers:  To follow up on that, you can leverage your sales organization.  Even if you have one person, you can bring manufacturer's reps in the field into a small company.  That is a well-known practice, but their function is not necessarily to know your product in detail; it is to understand the market you're in and facilitate your person getting access.  Your person still has to get out and make those sales calls.  It doesn't work the other way around.

Q:  Suppose you’re a new company with a small number of major accounts in different cities such as Philadelphia and New York.  How do you manage the geography, especially early on when you're developing a culture?

Ms. Hyde: I don't know your product or your business, but, assuming I would need to spend entire days in specific accounts, I would tend to put those first couple of people in my headquarters operation and fly them out to those locales.  Even though there's an expense associated with that, there's so much they need to know and so much they get from the day-to-day interaction with the folks on the technical side and senior management.  Maybe you would be luckier than me, but I would wait until things were more mature and had some successes under my belt before I located those folks remotely.  Philly is not so bad.  If you had somebody that was a superstar and they could drive in a couple of days a week to the local office down here, but to put somebody in California or Chicago, that's tough.

Q: How do you ensure that people will bring in profitable deals? Can you base commissions on profits?

Ms Dubbé: I always tell my sales team that the comp plan is Mother.  If there's ever a doubt, you go to Mother to figure out what you're going to do.  That means that you’d better write that comp plan correctly to incent them to bring in the profitable deals.

Ms. Hyde: Right.  I have several different compensation plans.  In one of the areas where we're not concerned about the sales folks having access to cost because the cost of the hardware is pretty much public knowledge, we're using standard equipment there, we actually let them retire quota by virtue of the actual dollar amounts.  If they do a $500,000 deal, they essentially retire $500,000 against their quota, but we subtract out the cost of the hardware. So, if the hardware is $50,000, then they are paid on $450,000.  That's how we do it in one business area.  In the other area, we have different tiers of percentages, so we pay more on software in one space, lesson services, and the very least on the hardware component.  We extrapolate from that what the balance should be, then go forward and put the comp plan around it in that fashion.  Those are two ways of paying them the most on what's best for our company.

          Relative to discounting and ensuring that they do profitable deals, they're given a certain amount of latitude before they have to come back to their boss or to myself.  If we're in a situation where we want a particular piece of business for a strategic reason, as executives we can make a decision to sell it lower, but we only give salespeople a certain amount of latitude.

Mr. Rogers: A salesperson must control where their income is going to be derived, and you can't have them pricing the product. You can’t have them signing up to a comp plan that's gauged on profit because they have no control over that, and they would get discouraged if they brought in a deal and some shenanigans were played, like saying, “Gee, that wasn't a profitable deal for us so you don't get a commission.”  That said, when you bring salespeople in, their compensation has to be directed towards what you're trying to accomplish, and the very first thing you're trying to accomplish is to get a booking.  You can't have revenue without a booking, and you need to get a booking with a realistic delivery timeframe.  So, if the large part of your revenue is going to be tied to the delivery of that product and/or profitability, you need to reward upon booking some percentage, then tie the higher percentage to the successful implementation of the product. 

Q: Could you comment on how telesales fits in? 

Mr. Skinner:  In the mid-market, we always end up with an inside sales person because of the price points.  A lot of times you're testing things when you get started and you don't want to have that cost on board.  What you've got to do is find a company that has deep experience, like any sales rep, and one that can point you towards referenceable successes. Then you partner with them and you find enough room in your business model to be able to pay them.  That is not on an hourly basis, or on the number of raw leads.  Try to find criteria based on three or four different things to get them bought into the lead, the close, and so on at certain values. 

Q:  How much importance do you place on your salespeople being intensely technical, or do you try to move up the chain to deal with higher level people at your client who aren't as technical, for example?  Do you develop technical skills in your sales organization?

Ms. Hyde:  I believe that the salesperson needs to be able to articulate the “so what,” if you will.  If it's to a CTO, the message is different than it would be to a CFO, potentially.  I remember years ago at Data General we had a successful salesperson, and the joke was that he didn't know one of the minicomputers from the refrigeration units in the data center.  Those days of the partying sales rep that gets the deal on the back of a cocktail napkin are pretty much out the window, however. I like to see a salesperson believe they should have the ability to articulate the business value, but I've also seen other people in sales that are too technical.  There's nothing that breaks my heart more than the salesperson who is so technical that, although he or she works very, very hard, they hit an objection and they want to come back and reengineer the product to the customer's needs.  I almost think that you want them knowing enough to be dangerous, if you will, to appear knowledgeable, but to know enough to bring a technical person in at the right time.  I like to say that the best salesperson is a good reference librarian.  He or she knows where the right resources are and knows what needs to be pulled into get the deal done.  I would prefer someone who is able to understand technology, to communicate to the high level folks, but then brings the technical people in.  There's also an advantage in an account to have different people map to different parts of the organization.  If your salesperson is speaking to the CTO, then they can bring you, the president, into the CEO; then they can bring their technical person into the key technical decision-maker.  You have multiple points of touch within that account and a strategy to close it.

Q:  There are all kinds of training programs out there like Sandler and Dale Carnegie and Zig Ziglar.  What's your experience training existing salespeople and using those kinds of resources?

Mr. Skinner: I'll start off, again, by saying that getting the right person up front who has been through a lot of that is most important.  I always ask what their formal training has been because you can't be in a position to spend that type of time and money to do it.  If you've got a great person whom you want taken to the next level, any of those courses are good to reinforce the fundamentals, to make sure that they're navigating the accounts well, and so on.  We used to run people through them.  I wouldn't pick one over another with one mild exception. That is a company called Complex Sales out of Atlanta.  That is the only one, to my mind, that takes the strategic selling and solution selling and marries them well to the whole marketing and messaging side of the equation.  All of them do a great job on the sales side, but this is the only company I've found that does a good job in the sales, product management, and marketing side.  Then you get the sales benefit out of that.

Ms. Hyde:  This is certainly not comparable to a training program, but I think a very good book is Herb Cohen’s You Can Negotiate Anything.  We had the author speak at our sales kickoff meeting, and he's coming out with a new book in September.  He was a fabulous speaker and we also had him to a workshop for the salespeople.  We had them on competing sides negotiating, and it got extremely competitive.  That was my entertainment because I got to observe.  It's a really great book on knowing when to hold them and knowing when to fold them, if you will, and I would suggest it.  It is a quick read, and, for about six dollars, it's not a heavy investment. 

Q:  You have had lots of sales experience and stepped on the land mines, but how does an entrepreneur successfully interview, hire, and manage a function which they probably don't understand, when they don't know what they don't know?

Mr. Rogers: That's a very good question. Depending upon your availability of funds to start a sales organization, you've got to find a person who can come in initially and help generate revenue, but also have the skill set to build an organization.  That’s not an easy person to find, but it's what you've got to be looking for. The most successful way to approach it is to have someone who can develop that discipline.  That's probably true of disciplines throughout your company, and sales is no different.  You put your top engineer in the development side and you put your top sales management person to run, develop, and grow the sales organization.  There are so many companies today that have that requirement.

Audience Member:  What are the options for a pre-revenue startup?  You often can't afford that person when you are in your validation stage.

Ms Dubbé: That's an interesting problem that we see as early stage venture capitalists.  Those of you who are founders are the best representatives for your product, and you're going to be forced to put on that additional sales hat and go out and sell.  Without that first bit of revenue, you're not going to generate enough to bring on a salesperson, and it's a cascading event.  In addition, if you can find that mythical salesperson to come aboard for a very high equity position, it's another trade-off, but there are no other options.  Very rarely will another company agree to rep or sell your product unless it's had a proven revenue track record.  You become the salesperson for your company, the voice.

Q:  One option that high tech startups have is reseller agreements with other technology companies.  Do any of you have experience with that, and what are some of the cautionary tales?

Ms Dubbé: That's an excellent topic to close on today, channel management.

Mr. Skinner:  You have to find the right channel partners and really understand whether they're selling similar solutions to the same decision-makers. You have to strike a reasonable agreement with them and never give anything away as an exclusive.  You should always have your options open to go directly to a department.  I've seen too many people think they were going to hit a home run by giving some exclusive territory or time to somebody.  Find somebody who can replicate their current success with your product.

Mr. Rogers:  And don't deceive yourself.  Everyone says that they want to avoid channel conflict.  There is always channel conflict.  It gets back to your business model.  How do you want to take your product to market, and where you see it going downstream?

Ms Dubbé: On behalf of the Maryland TechCouncil, I would like to thank you all for coming out today.  We also applaud the Netpreneur organization for the basis for these events.  Thanks for coming out. You have the steely glint in your eye and the curl in your hair.

[End]

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