On Thursday, June 25, Jason Lemkin, Managing Director at Storm Ventures, and Aaron Ross, author of Predictable Revenue, joined our CEO BJ Lackland for a live Q&A about start-up growth, sales, and funding.
We’ve taken their 45 minute discussion and pulled some questions and answers you might find useful if you’re scaling your sales team. Enjoy!
Q: In a predictable revenue-based SaaS company, what are some fundamental practices that are crucial to success for a sales rep?
Aaron: One thing I’ve found to be incredibly helpful to make anyone successful who’s selling, whether you’re a CEO or a sales person, is having been in lots of sales cycles where you’ve seen what works well and what doesn’t.
With this experience, you develop the expertise to offer potential customers what is truly useful to them. You build up the confidence to know when you’re talking to a great prospect who is hesitating—and then say, “You need to buy for these reasons.” And then you can help them use your product in the right way.
You also develop the confidence to say, “You know what, you probably shouldn’t do this with us. You might need to look at a competitor or not do this at all.”
Expertise and confidence help take away some of the nervousness, anxiety, and fear of rejection that even a lot of people in sales have.
Q: What’s the typical evolution of a sales rep’s career path? How do you get to the next level?
Jason: There are really two career paths for sales professionals. You can be an individual contributor (IC) forever. Then the typical career path is to go more enterprise, learn how to sell bigger deals, and once you start selling million dollar deals, you can start taking home million dollar commission checks. The other path is to eventually become a VP of Sales.
So for the aggressive sales rep who wants to get to the next level, the first thing you need to decide is if you want to be on the IC track or the manager track. Look inside yourself and figure that out, because VP of Sales sounds glamorous, but it’s a very different job than an IC.
The greatest rep can make more for a long time than a VP of Sales, but the VP of Sales can get one percent of the income. So what’s your play?
One of the big mistakes I see hot but green startups make is hiring the best sales rep to be a VP of Sales, but that sales rep has never actually been a manager, never hired or led any reps.
If you’re that sales rep, you will fail 95 times out of 100, because the number one job for a VP of Sales is recruiting a team. If you’ve never recruited anybody, you will fail quickly, at least in a high growth environment. If you’re in a slow growth environment, you may be able to stub your toe, but if you go to somewhere hot, you will die.
If you’re on the management track, don’t make the jump to VP until you’re ready. You’ve got to be at least a team manager or a director—and you’ve got to report to a great manager. The greatest VPs of Sales in SaaS have all reported to someone great for at least a year and built small team under them before they went on to the next best thing.
BJ: I agree. Recruiting is such a different skill and building a sales team is such a different skill than actually selling. You’re selling when you’re trying to recruit somebody, obviously. But it’s a totally different process.
Jason: So many great sales reps could kill the top 10 percent, but they skip the steps, and six months later, they’re out of a VP of Sales job. It isn’t worth it. I think it takes you about five to six years to become a real VP of Sales for a fast-growing SaaS company, best case.
You’ve got to have hired three reps. You’ve got to close loads of deals. You’ve got to know what the difference between outbound and inbound is—and you need to have done both.
There’s only so many hours in the air you can skip to be a pilot.
Q: What are some of the biggest mistakes companies make in hiring a VP of Sales?
Jason: Making your best sales person your VP of Sales is a classic mistake. It usually doesn’t work out, but it’s not fatal. I think the number one mistake is excessive “logo affinity”.
A CEO decides they want to hire someone from Box or Dropbox or Salesforce, or pick your company. Then they let everything else kind of slide. The person hasn’t really recruited a great team, didn’t really blow out his numbers, and doesn’t actually understand how the company sells. Overrating logo affinity is especially true for first time founders, but I see it again and again from all sorts of companies.
Q: How do you know if you’ve hired a real VP of Sales?
Jason: You will know in 60 days whether you’ve hired real a VP of Sales, because a real VP of Sales will come in at trajectory X, and if he or she does not increase that to new X plus X percent within half to one sales cycle, they’re not a VP of Sales. If you don’t see any improvement quickly, you’ve hired the wrong person.
The number one thing that every great VP of Sales does in their first week is upgrade the talent pool. Literally, before they even understand the product. That works like magic. If you don’t see that upgrade, fire your hire tomorrow and apologize because it’s your fault for bringing them in.
Q: What are some of the common problems you see with companies making the transition from a service business to a SaaS product business?
Jason: It’s a far more difficult transition than anybody anticipates. I recently wrote a blog post about a company called Logikcull, which bootstrapped a services business in e‑discovery that’s been around for 10 years. They were making a lot of money and poured all that money into building a SaaS business.
We just invested in them, which violate every tenet of what we do. This strategy usually doesn’t work, but they’re killing it. The number one learning is you’ve got to go all in.
The temptation is to go 50 percent in, 80 percent in, maintain the services business. Put my buddy Linda in charge of the services while I go do SaaS. You see that again and again. But I don’t know any of those that really kill it.
These guys at Logikcull, they moved the entire company from DC to the Bay Area to be where it is. They took a $4 million services business that had good margins and put every nickel into building the SaaS business, which is a little bit irrational, when you think about it.
They sacrificed big, six figures into seven figure draws to build a unicorn.
But if you don’t go all in, it never works. You’ve always got one foot on the other land and those guys down the street that are all in, they’re going to eat you for lunch.
Q: How important is it to have a customer success team distinct from the actual account executives and sales reps? At what stages should people be developing all those different groups?
Aaron: No matter what size you are, you have to have a focus on customer success. When you’re one person, you’re focused on it. You might block out time for it.
When you’ve got two sales people, typically one might be a prospector, one a closer, or one inbound lead response, one closer. The next person you hire could be customer success. It depends on how many customers you have, and whether they’re staying or they’re going.
It’s very easy for a small company to get so focused on new customers that they forget about the current ones and take them for granted. You don’t really switch your attention until you start losing them. Maybe you suddenly have 5 percent of attrition per month, and then they decide they’ve got to fix this.
I’ve seen companies where, by the time they’re 10 or 15 people, usually have someone dedicated to customer success who can really just focus on it. Because if you’re doing it part time, you’re not going to really nail the solution that you need.
Jason: Yep. My rule of thumb is that it’s a single digit hire—before the number of employees hits the double digits. Seasoned entrepreneurs, the second timers, they’re hiring customer success people even before they have salespeople, because they understand the power of word of mouth, referrals, up-sells, re-sells, left-sells, right-sells, land and expand, expand and land. That’s where the money is. Eighty percent of the revenue in SaaS is after you sign the deal. You’re a fool if you wait to invest in that 80 percent.
Q: What’s the ROI on a customer success manager (CSM)?
Jason: ROI on a CSM is probably eight or nine months. To cover their salary, they’ve got to either save a deal or get an up-sell. It just doesn’t happen in a week. But in the early days, the only customers you have are those that absolutely love you, because otherwise they would just go to whatever big vendor is already in your space.
So the truth is, you never, ever have real churn in the first year. You have lots of seeming churn, but those are customers you should never have had.
It’s a tough tradeoff, because you need about 12 months of runway to comfortably hire a customer success team when the eight-month payback is there.
One interesting thing about funding alternatives, like Lighter Capital or even Angel List, is that it gets you that extra three or four months of runway and you can you hire a CSM. If you spend 100 grand on a CSM, and that saves you an $80,000 customer, and gets you an 80k upgrade, it’s all positive, right?