Attribute 1: Experience Selling at an Early Stage Company, Typically in the First Five Hires

I really can't stress this enough: many people are attracted to working at a startup. They see stories or have friends who have made a ton of money in salary and equity. They hear the stories of ping-pong tables, paid lunches, and unlimited perks. As we know, the reality of working at a startup, especially in the early days, is the exact opposite. The pay sucks, risk is high, and your office is small, cramped, and old, if you have an office at all. There isn't anyone to create your sales presentation or take out the trash, it's all on you. If someone hasn't been through that experience before (or longs to do it again) it's a nonstarter for me in almost any case.

When you do find that person, really dig in on what their experience was like. Do they paint a picture that it was hard and scary and they both loved it and thrived at it? Or do they paint a rosy picture? Do they complain and make excuses for why it didn't go well, or if it did, how do they talk about their contribution? I'd love to tell you that there are quantitative data points you can pull out here, but frankly there are not. You need to get a sense whether this person really did work in an early stage environment where there were tons of unknowns, lots of risk, and they loved it and thrived. Listen to your gut, regardless of what their resume says. If your gut feels good, then check that box; if not, pass and move on.

Attribute 2: Tenure in That Company to a Much Larger Team/Higher Revenue (for Example, 5 to 50 Salespeople and/or $100 000 to $10 Million or More in Revenue)

The reason this is important is because, for me, it shows 4 things: resilience, dedication, loyalty, and an understanding of how the startup world works. This doesn't mean that you may not find someone awesome who hasn't seen a full cycle like this, but what we're trying to do here is hedge our risk. Hiring is hard; finding great people who can last is even harder. And when you can use little data points like this to help give you confidence that it's a strong hire, use them.

When interviewing candidates and talking about their history, specifically tenure in an early stage company, really dig in on what their experience was like through the growth. Again, you are looking for people who relish and thrive on growing pains, look back at their time with pride, and want to go through all that pain again. Also dig into what their contribution was throughout the growth. This will tell you a lot about what kind of employee they will be for you. Did they continue to grow within the organization, get promoted, and take on more responsibility, or did they stay a seller?

There actually isn't a wrong answer here; however, it's important to know these things so that you can determine what kind of contributor they will be for you. If you want someone who will grow and take on more responsibility, and you are talking to someone who was a top seller for five years but now wants to move into management, take some time to figure out why they weren't promoted in their last gig. There could be lots of reasons, and good ones, but typically in an early-stage company, exceptional people will take on more responsibility over time. This person may be a phenomenal seller but if they are not able to take on more responsibility and you need them to, then it's not a fit. If you and they are okay with taking a sales role that will likely always be a sales role, then you may have found a great fit for your company.

Attribute 3: Self-Motivation and Ability to Persevere through Tough Times (This Doesn't Have to Be in Business, It's a Life Attribute)

Even though this is third on the list, in many ways I consider this the most important attribute of any startup hire. I've worked in and with startups for over 20 years and there is only one guarantee: this shit is hard! There will be so many ups and downs. It will feel dire on more than one occasion. You'll be close to running out of money, or people won't be buying your product, or they will be unhappy or you'll have made a bad hire that is hurting morale, or a cofounder will leave or not be holding their weight. The point here is that you need to find mentally tough people who can not only work through the hard times but can be collaborative and creative and take initiative.

It's great when you find someone who's been through some tough times in business and can articulate what they went through, how they persevered, and it's even better if they smile and tell the story with joy. I like to ask them what they learned, what could have been done differently, and how they would approach the same situation(s) now that they have experience. The answers here can be very revealing. For example, do they take responsibility or blame others? Are they thoughtful in describing what they learned and how they would approach things today in detail, or do they talk about it with less understanding of what could have been handled differently? Spending time understanding how this person truly behaves in hard times is important and also difficult to uncover in the interview process. The closest thing I've found to figure this out is try to get into some kind of negotiation with them before you make an offer, it can even be in discussion of what compensation would look like. How do they handle themselves? While not perfect, this is a bit of an indication of how they will fare when times get tough.

I also like to look at other aspects of their life. What are their hobbies and what do they do in their free time? Do they challenge themselves constantly or do they spend their free time doing more relaxing hobbies? I personally love working with athletes, and I don't just mean that they were athletes in the past. It's great if you played a college sport and were good at it—but do you still play something? The reason I like athletes is because, in order to stay competitive as you get older, have a job, and maybe even start a family, the discipline you need to stay competitive and fit is quite difficult, but it's a behavior that typically carries across anything that person does in his or her life. Additionally, anyone who has played any sport for long enough has won, lost, been injured, come back from injury, and in general has been through all kinds of emotions and kept going.

This doesn't mean that there aren't awesome people who are not athletic, this is simply an attribute I've identified as an indicator of a good salesperson. It's personal and you will find those indicators for yourself in time as well.

Attribute 4: Long-Term (versus Short-Term) Financially Motivated

This is important because, as a startup, you'll pay them less. Base salary will likely be below market, commissions will be lower at first, and they'll need to understand and value equity. This is a tough one to tease out. Most people applying to a startup will be somewhat familiar with the lower pay and equity components but that doesn't mean that they really understand the financial implications in the short term and it also doesn't mean they really have the capacity to take on that risk.

Assuming they've been through this before, that would give me much more confidence that they at least understand what they are getting into, but people's lives change.

If they haven't been through this before, you have a real responsibility to drive a candid conversation about the reality of what they are getting into.

Startups are risky and everyone has a different level of risk tolerance. At the same time, there is no “right” or “wrong” time; the important thing is that everyone goes in with aligned expectations and eyes wide open about the risk involved. People come into startups from all types of backgrounds and at all points. I know an incredible CEO who raised her seed round while six months pregnant; it was hard, but she had great support and knew what she was getting into. I also know another founder who realized he needed to step back and find a more stable role to be able to know he'd support his family and pay his mortgage.

The key here isn't to find out someone's financial situation or home life and make a judgment about whether they are ready for this; in fact from an HR perspective you can't legally ask many of these questions anyway.

The point here is to have a really candid conversation around short- versus long-term financial expectations, appetite for risk, and a personal runway to join you. These questions are all fair game and really important for both of you to have level, set expectations before you hire that person.

Attribute 5: Has a Track Record of Working with Lots of Autonomy While Also Having a Strong Grounding in Personal Accountability

When your company is young and there aren't many employees, everyone has to wear multiple hats. A byproduct of having to wear many hats and having limited resources is that often even the best managers don't have time to be good managers. Because of this, early on you need to be hiring people who don't need to be managed. In fact, more so than needing to be managed, your first hires (not just sales hires) need to have a deep understanding of what needs to happen to move the business forward, and how to prioritize the 10,000 things happening at once and take ownership regardless of if things go well or not. This doesn't mean that you don't provide direction, what it means is that once your salesperson has direction and you believe you are aligned, they are able to overcome new hurdles as well as grow new opportunities with little hands-on management by you. That doesn't mean they are calling the shots and don't need to get your approval for major items; what it means, stated very simply, is that they know what their job is and they get it done.

You may be able to find someone who has all the first four attributes, but if that person requires ongoing hands-on management and direction it can take too much of your time. This isn't a nonstarter for me but given the choice between someone who can clearly work autonomously and someone who requires more management, especially for that first sales hire, I'll always opt for the person who can work on their own. And there is another benefit to this, which is that the person who doesn't need to be heavily managed has some ability to be strategic and collaborate with you as you think about growing the sales team and the business, because inherently in that skill set is the ability to see the bigger picture.

The caution here is that there are people who work incredibly well with autonomy but aren't great at having personal accountability. This can be devastating because on the surface you think you are working with exactly the right person, but when things start going wrong, and they always do, the person who doesn't understand accountability will start to lay blame on everyone else rather than taking on the initiative to help the company grow and get better.

How Will I Know When Someone Has Any of These Five Traits?

These traits are a little easier to tease out during an interview. The way I go about it is to ask them how they worked with their previous manager, what their communication was like, and how they tackled challenges together. If the person tells you something like their manager gave them direction and checked in regularly but was pretty hands-off, that's a good start. If they describe challenging situations in a way that gives you the sense that they took ownership by fixing the challenge or soliciting the right help, that's even better. Conversely if they reported to their manager and their manager didn't give them the ability or autonomy to try and fix challenges on their own, that could be a negative signal. You do have to be careful here, though, because it just as easily could be a manager issue, though I've found the best employees can gain the trust of any manager and are open to accepting responsibility.

Take your time with this first hire—do not rush. This hire is crucial to get right, otherwise you'll need to start this process over, meaning you'll lose time and revenue and put the success of your business at risk, no matter how awesome your product is. Get to know this person in an office setting and outside. Develop confidence both in their ability to do a great job and also to be adaptive to your company culture (salespeople tend to be loud and outgoing and early salespeople can play a big part in shaping culture, so be really diligent here). Make sure you get along. You don't necessarily need to be making a lifelong friend but they should be someone you think you can trust and can see spending a lot of time with. I have a mental test I do with all potential hires, which I call “the airport test”: I ask myself whether, if I were walking in an airport in a strange city and saw them but they didn't see me, I would walk over to them to make small talk. If the answer is, “I don't know” or “no,” then pause and figure out why. Even if they are exceptional, this first hire is someone you'll be spending a lot of time with and if you already aren't sure you'd want to spend time with them, you probably won't. This is a bit less important for future hires, but for this first one ask yourself if they pass the airport test.

As a recruiter who has worked with some of the best startups in Austin, I have to caution you … hiring the right salesperson to help jump-start your company is vital and will determine whether or not you will be around this time next year.

You need someone who can produce amidst a lot of ambiguity! A salesperson who can function without processes, defined marketing strategy, and someone that can hunt as well as they close.

Look for a seasoned salesperson from the startup world, who has experience taking a new product/service to market. Someone who is not afraid, who is passionate about the company and money driven!

If they don't have any of the above qualities, or even if they hit 75%, they are not the right salesperson to launch your company.

Reference check back channels!

Take your time selecting your first sales rep … they will be the face of your company. They are the first contact the money holder has with your brand … this isn't something you want to rush!

—Kalyn Blacklock, senior talent acquisition manager at Convey

What Do I Do Once I Think I Found My First Sales Hire?

Once you find the person, but before they start, put together a really loose training plan. And write it down. Take the time to make sure their first week has some structure to it. Great salespeople will want to jump right on the phone, so make sure they have the information they need to make good decisions when they start reaching out to potential customers. In your plan, make sure you describe to them the process you've been through (all the preceding chapters in this book) and what you've learned. Show them not only what they should do but why. Early on I don't spend a ton of time creating materials and rigid structure; instead I like to spend time helping tell the “sales process story.” Arm your salesperson with knowledge and the basic tools discussed in Chapter 3 and then quickly get out of their way, but make sure they know you are there to help, support, and ensure their success.

I strongly suggest that out of the gate you set a precedence with some sort of regular meeting cadence; at bare minimum, plan a weekly one-on-one and be extremely disciplined with attendance. Initially I'd set up an hour's meeting but as you get into a good rhythm you can likely change to 30 minutes. Depending on your team size, company culture, and how everyone works together, you may also have another weekly meeting with all stakeholders, including the salesperson.

In your one-on-one meeting you want to talk about pipeline and progress and, especially early on, at least half the meeting should focus on the learning process, how it's different from what was expected as well as recommendations for optimizing that learnings (which could fall on anyone, including the salesperson). This could be anything from the sales process to your ICP to the product or messaging. It's very important to be going through this process with your first hire before you bring any other salespeople into the company because essentially what you are doing is moving one step closer to creating a repeatable sales process, which means that you know, with a high degree of confidence, all the elements of how to grow sales (people, product, customers, etc.). When you have a repeatable sales process you are ready to scale and take off like a rocket, and until that point you simply need to put all the pieces in place. By working with this first hire closely to confirm all that you've learned and refine your understanding, you are collecting more data, which is getting you one big step closer.

Within 60 days (if not sooner) you will have a good sense of whether this is a great hire or a miss. You'll be able to tell not only by the meetings they are setting up but how those meetings are progressing and the feedback you are getting from them and potential customers. You'll also have a good sense of how they will fit into the culture you are trying to build. My hope for you is that you feel great after 45 or so days, but if the jury is still out at 60 days, my experience says the jury will never conclude, so cut your losses and start over.

Once you are sure that this is a great hire (but not sooner than 60 days), take a look at the newly collected data (you now have two people selling, you and your salesperson) and re-evaluate everything from your W3 to your process and funnel metrics and maybe even compensation. There are almost certainly some adjustments to be made based on new learnings. Figure out what those things are, make them, and then get ready to hire your next few salespeople.

Validating That Multiple People Can Sell Your Product

The first thing you are trying to learn and confirm is whether more than the two of you can sell your product, and what are the unique attributes your future salespeople need in order to be successful. This is similar to when you hired your first person. You had some early success yourself acquiring new customers, but you are special. As a founder, you have more skin in the game, more enthusiasm, and more knowledge than just about anyone. And as we talked about in the preceding section, in most cases you are the best salesperson for a long time. Just as with your first hire and getting validation that it's not just a founder who can sell, with your next few hires we are seeking similar validation. Is this a product anyone can sell or are you and your first salesperson special? What are the unique attributes of your product and company that will help determine who you should be hiring? These could be things like industry knowledge, company culture, customer type (enterprise or midmarket or SMB), or sale type. Likewise, what do you believe are the unique attributes of the people you will hire? How much experience will they need? Do they need enterprise or SMB experience? Do they need any sort of formal sales training or industry training and how will they fit into your culture?

At the point when you decide to hire your next few salespeople, you will have strong opinions on all of these things. Write them all down. Work with your first sales hire to see if they agree. Once you make the hires you will want to go back and validate your assumptions and note changes before you go on to the next set of hires and start scaling.

Hiring at a Faster Pace and Training

The other thing you are trying to learn is how to hire at a faster pace. While hiring begins by validating that more than just two people can sell your product and by understanding the attributes needed to be successful, that's only the first part. Once you have this validation you then need to figure out how to put it into practice. You will need to figure out how to find people with similar attributes to the ones you've identified. Are there specific companies or company types where you can find them? Do they have a specific training in common? Are there personality types that would enable your salespeople to be more successful.

The other part of this is training. Now that you've hired one person and validated more assumptions, you'll want to put a more specific training plan (see Figure 5.2) in place for your next group of hires. My recommendation is to start outlining what your training plan will look like at the same time that you start writing job descriptions. You won't need to go into detail yet, but these are the methods, which will inform each other. As you think about what type of salesperson you are hiring and what attributes are important, you can also be thinking about what kind of training plan will be necessary for your salespeople to be successful. For example if your product is highly technical, you will need to determine how much time to spend training on the product. If your product is less technical and you are hiring industry experts, then you may need much less time on the product and more time on the process and pitch. It's impossible to inform you in this book what kind of training plan you'll want to put in place for your new sales hires, however, Figure 5.2 shows an example of a one-week training plan for a SaaS company that sells analytic software to developers.

An important note: Your first salesperson should be involved in both the hiring process and the training process. They should be interviewing every candidate and spending extra time with finalists, and they should be on board with your choices (even if they don't fully agree). This draws your salesperson into helping them succeed and build the company. Then when it comes time to build out a training plan, ask your salesperson what you could have done better and for recommendations on how to bring this team on. This both gives your salesperson more ownership in their success and also puts your salesperson in teaching mode, which forces them to deeply understand the process and cycle and customers. Finally, you should share your adjusted model and expectations of the new hires with your salesperson and do a gut check about goals. You may both be wrong, but at least then you've done a solid check-in before they start. And you should expect that you are wrong about many of your assumptions—and that's okay. You're about to add a whole new dimension into your company and process which will turn everything upside down—this is what we want!

Here's the reality, you will probably get your first sales hire wrong, given how hard it is to get right. Internalize this reality and use it to ensure a disciplined approach to hiring your first sales player/coach. Compromising on criteria for this first hire can result in wrong messaging to wrong buyer, suboptimal pricing, and, most important, lost time and burning more cash. But the most insidious side effect of the wrong first hire? Finding some early traction that leads you down a dead end because the selling process wasn't broad enough in its exploration and discovery.

—Rob Taylor, cofounder and CEO of Convey

Your next hires should all start on the same day as a peer group. They should both learn from each other and be competitive with one another. None of them should feel they have an advantage or disadvantage relative to your company. This group should have many if not all of the same attributes as your first hire. Once they have started and are all trained, let them get to work.

Diversity Is a Must-Have

One thing I strongly encourage as you add this next group of hires is to look for diversity, all kinds of diversity. Personality, background, race, ethnicity, gender, and any other type of diversity you can find. There are, at least, two important benefits to this. The first is that you have a wider pool of data to help identify the best attributes of your sales team versus hiring carbon copies of yourself. Obviously you are awesome, and we would clone you if we could, but since that's not possible, the next best choice is to widen your net. While ultimately you are looking for a personality archetype, you still won't have enough data to exactly know what that is. The second benefit is that, at an early stage you start to build a diverse workforce. Again, there could be several books written simply about how diversity in the workplace drives better outcomes and every study I've ever read confirms this. Equally as important, you are inherently encouraging a culture of collaboration, creativity, and openness.

I asked Jason Thompson, VP of diversity and inclusion at Techstars, for his advice:

Research shows that diverse teams have better outcomes, so let's start with diverse teams! It is never too soon to think about success or how to build a successful team. Recruiting a diverse team is part of that process. A recent study by Morgan Stanley showed more diverse companies had better returns and were less volatile. Diverse teams help your bottom line.

In order to build a diverse team faster, I recommend following these simple steps:

1. Identify a D&I leader
2. Collect data
3. Check your bias
4. Network to recruit
5. Interview four

[Here is an explanation of those steps.]

1. Identify a Leader

   Identify someone to focus on diversity. In larger companies, this can be a chief diversity officer; in a small company, it can be you. Everyone in the company can and should be committed to diversity, but at the end of the day someone has to do the work. I have seen a lot of D&I programs and initiatives fail because everyone agrees to diversity and inclusion, but no one is responsible to get it done.

2. Collect D&I Data

   I recommend you start with a simple definition of how you define diverse employees. Typically, this is individuals who are underrepresented in your industry. This would include people of color, persons with disabilities, gender, gender identity, LGBTQ, and others.

   After you define diversity, compile the data on the percentage of underrepresented groups in your company, industry, and specific job title you are recruiting to fill. This gives you the baseline. Now you know where you started and can measure your success against this metric.

3. Check Your Bias

   There are a lot of bias trainings and some online assessments you can take to learn about bias. A very popular one is Project Implicit (https://implicit.harvard.edu/implicit/index.jsp). I strongly suggest you learn about your bias, but there is a simple bias test I can give you right now.

   If when thinking about recruiting diverse candidates your first response is: “We want qualified candidates” or “We can't lower our standards,” then this reflects bias. Focusing on recruiting candidates that are underrepresented does not mean “lowering your standards” or “less qualified.” If you automatically thought “less qualified” or “lower standards” it reflects your bias. You need to do some honest self-assessment about your thinking when it comes to women, people of color, people with disabilities, LGBTQ, and other identities.

4. Network to Recruit

   You have probably already done quite a bit of recruiting from your personal network to find and recruit talent. Now you need to be intentional. Let individuals in your network know diversity is important to your company, and let them know you want to identify and recruit diverse talent.

   Recruit within your network and outside of your network to find great candidates. If you have identified a person to lead your D&I work, they can begin building a simple list of events to attend to grow your network. If you are a small company with a limited budget, contact regional colleges and universities. (Don't assume you can only recruit at historically black colleges and universities.) Most have someone to lead their diversity work. Just knowing that person will help you identify candidates.

   Don't wait until you have a need. Start now with a list of organizations to which you will send your job openings when they become available, and, most important, a list of diverse candidates you can contact when you need to hire.

   A friend that is an African American female and CEO of a hospital told me how she was recruited. After she finished a presentation the CEO of a competing company introduced himself and said, “I am going to hire you. I don't have a position yet, but when I do I am going to hire you.” She told me that CEO kept a very simple list of great candidates and when a position opened he called the people on his list. You should do the same thing.

5. Interview Four Candidates

   Whenever possible, interview four candidates, include two diverse candidates, and the odds of you hiring a diverse candidate becomes 50%. It levels the playing field and helps to ameliorate any unconscious bias.

I recommend this process based on a 2016 Harvard Business Review article that showed that if there's only one woman in your candidate pool, there's statistically little chance she'll be hired—the same applies to race and ethnicity.

Conclusion: Diversity will make you more innovative and add to your bottom line. Hire fast because you have done the work to include diverse candidates.

—Jason Thompson, VP diversity and inclusion at Techstars

How Do I Manage All These Salespeople?

At this point you'll want to schedule one-on-one meetings with each salesperson, as well as a weekly pipeline review meeting that includes everyone. Running your pipeline review meeting early on may feel a little squishy as everyone is getting up to speed. Once you settle in it should be focused on, at least, top companies progressing through the pipeline, companies about to become customers, prospects at risk of falling out of the funnel, and any other urgent customer-related matters. I also recommend spending time in the beginning of the meeting reviewing key performance indicators (KPIs) to review how the group is doing and so everyone can see how they are doing relative to everyone else. I'd also save a little time at the end of the meeting to talk about general learnings and areas for improvement. This could be process, systems, pitch, communication, pricing, or really anything that is going to help the company grow. This meeting should be scheduled for an hour, though early on it will likely run longer. As you get into a good cadence and rhythm it'll settle back into a 45-minute long weekly meeting.

One question you are probably asking yourself right now is, “Do I make my first hire the manager of the sales group?” The answer is, “It depends.” Candidly having four salespeople reporting to you is a huge time consumer, but in the early days, as you are still in learning mode, it has many advantages, and most important is that it keeps you really close to the customer. Regardless, depending on your first hire's experience (i.e. they've built early stage companies before and have been in senior leadership positions), it might be appropriate and okay to let that person lead. This is one for which you'll have to use your insight.

The reason “it depends” and you'll need to feel it out is because not all great salespeople can be managers, even if they want to. Salespeople often view management as the obvious career track. For some it's true and others can have successful and healthy career as salespeople. We're not going to cover hiring a manager in this book, but I will share that your first sales management hire is equally as critical to get right as your first sales hire. If you hire the right person, they can transform your business while taking quite a bit of pressure off you. If you hire the wrong person, they can kill your business even if they are great sellers themselves.

If it turns out that you do have three to four direct reports, then it will become important to bring in a head of sales before you hire anyone else. This is important for, at least, two reasons. The first is that as CEO I don't advise that you have more than four sales reports if you want to run the company well. It's not that as CEO you can't handle this many reports, it's just not the greatest use of your time to be managing individual contributors at this point. Now I'm making an assumption here that you've followed this playbook and are actually on the path to scale. If you aren't, then you shouldn't be hiring this many salespeople yet. But if you are, you'll want to be managing the business instead of being inside the business.

Additionally, it's important (and maybe more so) that your sales leader feels like they are building the team versus inheriting one. This gives them more ownership and accountability as you continue to grow. Whenever you do hire your first sales leader they are going to want to put their own stamp on the sales organization, and they should—it's literally why you are hiring them. And especially when hiring early stage sales leaders, you are going to want them to feel like they built and own the sales organization. This allows them the flexibility to work and build in their style, which if they are good means you'll sell more faster, because they'll have their own playbook on growth.

Is It Time to Scale Yet?

Okay, so you now have three to four salespeople and maybe a head of sales. Your new salespeople are up to speed and starting to close some business. You've iterated on your sales process and likely have identified different attributes of what you will look for in future sales hires, so now what? It's time to start proving your ability to scale.

My next step is to double the sales team in one push (if you have four salespeople, hire four more). Use basically the identical process as before and likewise pay close attention and adjust accordingly in real time over their first 60–90 days. The one main difference in hiring this next group is that their short-term/long-term financial motivation will likely tip more toward short-term because now you have more understanding and predictability in your sales cycle and commission structure (we'll get to that shortly). Assuming a fully successful hiring group (big assumption) you now have enough data to start building more predictable models and figuring out your longer-term hiring plans.

The question you are probably asking yourself is, “How will I know when I'm ready to double my sales force?” You might also be wondering about hiring versus cost. Both are the right things to be thinking about.

In terms of how you will know it's time, cost plays into this. Remember that in Chapter 4 we discussed building a sales model. Since you've been diligently keeping up on it, you should have a good understanding of your cost of sales, how long it takes the average salesperson to ramp up, and at what point a salesperson can fund their own salary. By using the model you will know when you can afford to hire more salespeople. Likewise by using your model you will start to have a better understanding of the predictability around sales. When you bring in your next group of sales hires, this should also make it easier to know when someone is doing well and if they just won't cut it in the long term. If you don't have the actual working capital to hire but you have solid metrics and proven traction, then this is a good time to raise money to fund growth.

The final takeaway here for the entire chapter, but especially this last part on scaling beyond your first few hires, is to collect and use data for decision making. Be really diligent about understanding what and why in your own process gives you data-driven confidence that you are ready to scale and then use that same data to help drive decisions on how to scale. If you can do this right, you'll hire a very happy, highly productive sales team focused on helping you build the biggest business possible.

Traversing Changes in Compensation

To kick off this section, I'm thankful for my friend AJ Bruno who has shared a story from his days at TrendKite:

“AJ, are you freaking kidding me?” the first externally hired manager I had brought to TrendKite, was apparently not too impressed with what was showing on the screen.

“So, let me just get this straight, our base salary changes monthly based on team size, the amount of variable compensation we make also changes monthly, and you're telling me that my team goal is based on ARR (annual recurring revenue), but our team is tied to bookings?”

It was September 2016, and I was staring at eight angry sales managers in a room where I had just delivered their new compensation plans.

ARR is a software company's lifeblood. It's the ultimate measuring stick in SaaS (Software-as-a-Service) and is considered the “scorecard” for a startup. TrendKite, the PR analytics software company I cofounded in 2012, had cultivated this lifeblood very well in its first four years of existence and was one of the fastest growing software companies in the United States by the end of 2017. The average IPO company see growth numbers of 30% year-over-year. TrendKite had averaged 250% growth per year over a four year period.

My manager was succinctly bringing to my attention the main problem with their new compensation plans: while managers were switching their “measuring stick,” the individual sellers were not. Individual sellers were still measured off of bookings. If a sales rep sold a discounted two-year deal for $20,000, the manager would be credited $10,000 ARR ($20 000/2 years). It was in the manager's best interest to get the rep to sell the deal for one year at $12,000, but a rep's best interest to not to do that. Long story short, their goals were not aligned.

Lesson number one: always align goals across the company.

I had to brace for what I was about to say next. I hadn't been the driver in creating this plan. I had let others in the organization take the wheel and personally felt like the plan was Frankensteined together, and that was completely on me.

How did we end up here? Our compensation plans at day one were super straightforward. You got 10% on every deal sold, $1,000 for hitting your monthly quota, and $1,000 for hitting your quarterly quota. Simple enough, right? And it absolutely was. In 2016 we had 21 out of 25 individual sellers hit their yearly quota target.

So what happened in the next two years that changed? Our sales and account management teams were now 100-plus people and when you grow you find out quickly that there are a lot of stakeholders that have influence on your decisions (as there should be). How you manage this is critical.

The CEO, VP of finance, head of operations, and HR manager will all be interested in how you are paying your people and how it affects their part of the business. The board and the investors will want to make sure that the rollup of the financials connect to the “unit economics” of the company (in simple terms unit economics is how much you make for every dollar sold in a scaled business). Lastly, you will read a lot about what other thought leaders and market trends are saying. Ultimately, it is on you to collect the data and drive the process.

Lesson number two: lean into building compensation plans, and make sure you are the driver of the overall plan.

Every quarter it became the exercise of “is this the behavior that we should be optimizing for?” Being a founder who had taken on the role of the company's chief sales leader had always been fun. I didn't feel the pressure of a traditional “VP of sales” because I knew I could always find a role within the organization. I felt empowered to bridge the gap between the science of sales (board level, scaled up) and the art of it (individual sellers and the month-to-month, quarter-to-quarter psychology behind it). But at this very moment, I felt helpless and not in control of the major output for the team—their sales compensation. Because of this, how in the world could I feel in control of the results?

And the answer was that I didn't. Taking a step back for a second and looking at how we got to that point, it was pretty simple.

There's a great article by Dave Kellogg that discusses the merits of how much “cushion” a company should have between total quota and the financial plan that is approved at the board level. If you have $100,000 quota, and your financial target is $80,000, that's a 20% cushion.

Dave had this to say: “So think about this for a minute. The VP of sales can be at 83% of quota, the sales managers on average can be at 71% of quota, and the sales reps can be at 63% of their quota—and the CEO will still be on plan. The only people hitting their number, making their on-target earnings (OTE), and drinking champagne at the end of the quarter are the CEO and CFO. (And they better drink it in a closet.)

That's why I believe cushion isn't just a math problem. It's a cultural issue. Do you want a “Let them eat cake” or a “We're all in this together” culture? The answer to that question should help determine how much cushion you have and where it lives.” (See https://kellblog.com/2018/01/23/quota-over-assignment-and-culture/.)

TrendKite had the opposite issue for the first two years scaling its new business revenue: our quotas were below financial plan! Why? Because of the successful growth, there was downward pressure to hire fast, but I held back to find the right people. So, our quota capacity (the aggregate of the individual quotas) was typically 20% under the plan during that time. But guess what? We hit plan almost every single month (34/36 months). So think about that, our sellers were producing 120% of what they were supposed to, so that everyone won.

We had one of the best sales team in all of Austin and I would have put my team next to any in the country at that time. Everyone was aligned.

Lesson number three: create a system where everyone can win.

Back to my meeting, where cooler heads were prevailing. My second sales hire, who would go on to become the first director of sales at TrendKite, was walking everyone back from the edge of a cliff. “If you guys look at the upside, we now have an accelerator and we are responsible for only 90% of our team's quota to hit our on-target earnings.”

This was true, there was more upside. The company's third sales hire, who eventually was promoted to sales manager and also became the director of sales development, also spoke up “Plus, all of the OTEs have gone up.”

I could count on these two to help the rest of the team understand the changes and how to maximize their compensation as the plan evolved; however, other salespeople weren't as convinced. They looked over at my most senior leader, someone I had worked with for the past six years spanning two companies and two cities, for validation. She was deep in thought. She was the most pragmatic of the bunch but the least diplomatic. The other managers looked over as well. I held my breath as she mulled it over. She let out a sigh and said “AJ., even though there are quite a few changes, I can get onboard with them.”

In that moment, I had crossed the chasm…

—AJ Bruno, founder and former sales leader at TrendKite and founder of Quotepath

Let's start with a few facts.

Figuring Out a Fair Base and Commission

On to compensation: if you've ever asked anyone how to compensate salespeople and they have a seemingly standard answer, ignore it. The truth is, like figuring out product–market fit, it's a process. It will depend on the sales process, price, margins, the product, the market, your location, the type of person you are hiring, cost of sales and service, and LTV (lifetime value of your customers). The place to start is, what is a fair base that allows the salesperson to comfortably pay their bills and not struggle (assuming a reasonable lifestyle) in your region. While you definitely want your salespeople to be hungry and motivated, you don't want them to suffer month to month as that will lead to them leaving—especially your best ones. You want them to make enough money in their base so that they are comfortable enough, but with a big carrot (commission) out there so they can potentially make enough money to stay motivated.

Next you will want to think about the overall compensation package when commission is considered. Check out similar product/sale types as general starting points, but again assume that this will be adjusted. See what top salespeople for similar types of products are making. You'll also want to consider the stage of your business, what behaviors you are trying to motivate, and most important the cash your business has and what you will need to stay in business and keep growing.

There are many different types of sales plans, and as I keep saying, it'll take time to figure out which is the best one for your company—and it will change. Do your best to start simple and as I also keep saying, set the expectation with your salespeople that the commission plan will change as the business matures.

Figures 5.3, 5.4, and 5.5 show three examples of sales plans. Keep in mind as you look at them, they are meant to be general frameworks not specific recommendations. The percentages and time frames will vary based on the specifics of your business.

I'm personally a big believer that my top salespeople should be the highest compensated around (relative to peer salespeople/products) when they are performing. Conversely, when they are not performing, they should feel it in their compensation, too. What this means is that, I want to pay them a base that's enough for them to live on and have the ability to make more money than their peers through commissions. This creates a culture of highly motivated, low-churn top performers that also makes it easy to weed out low performers—often self-selecting their exits because they aren't making good money compared to their peers.

The challenge with my theory, at least for the first few hires, is you just don't have enough sales data yet to know how much commission someone will make. You don't really know yet how long the sales cycle is, and you don't know how many new customers a salesperson can close in a month. You are still playing with price and your product is still new enough that you won't have a good grasp on churn. The best you can really do is to take an educated guess, be honest about it, and don't be afraid to make adjustments to the commission plan (in either direction) as you learn more.

For your first few sales hires, this is also why hiring people with a more long-term financial mindset is important. Your first few salespeople will likely be positively lopsided with equity relative to every other salesperson who joins you (even numbers four through eight). Those first three to four salespeople are taking the biggest compensation risk, and for that risk they should have bigger upside potential. It also helps them be more bought in and help to drive a culture of positive growth. The bigger potential plays out in two ways. The first is direct with earlier access to the best potential customers. This is probably pretty obvious, but if you are selling to the Fortune 500 companies and you are one of the first few salespeople, you are likely identifying and working with the highest potential ones.

The other way early salespeople are compensated is with larger equity grants. Assuming that you are a company who uses equity to help compensate and motivate your employees, then salespeople will receive equity as well. Salespeople hired later are usually given smaller amounts of equity compensation relative to other departments because they have the ability to make more money through commission, but those early sales hires are taking a bigger risk and will likely be given a larger equity grant.

You probably get the pattern here, but just like identifying your ICP, figuring out pricing, building your first sales model, your first few passes on your commission plan are not likely to be right. The more important factor is developing something that feels fair and equitable around targets that the salespeople believe are achievable, and then being transparent that as the company grows and we learn more we will continue to make adjustments to continually align business growth with salesperson compensation.