Dear B2B Sales Rep/B2B Technology Buyer,
If you work at a tech company, you probably have a B2B sales team. And as such, you are all too familiar with the mythical, heralded “Closing Week.”
Closing Week: The high-stress, intense sprint at the end of each month (or quarter) where sales teams work tirelessly day and night, calling every prospect in their pipeline to scramble and hit “Quota.”
Quota: The only metric by which every salesperson’s work product over the course of a month (or quarter) is measured.
A salesperson can be on vacation for ¾ of the month. They can leave at 2 PM every Friday to hit the golf course. They can even fracture their hard-earned relationships with buyers by pressuring them to sign a contract by end of month, ruining their reputation by coming across as yet another pushy salesperson… but if they get enough people to say yes and hit Quota, they are a winner. And if they don’t? Well, salespeople are only as good as the money they bring in, right? Fire them and hire ones who will hit quota. Right??
This is all bullshit. All of it. The stress. The pressure. The artificial deadlines. Just step back for a minute and think about it: Startups are trying to build scalable, long-term businesses. CEOs pitch investors on the vision of how StartupCo is going to become the next Uber for Google by 2022. You are also, personally, in it for the long haul: you have a 4-year vesting schedule and are taking below-market compensation in exchange for that equity because you believe that the company is going to be successful in the future. Then, along comes “Closing Week” and the sales team hasn’t hit quota yet. VP Sales starts demanding that everyone call every opportunity and PUSH PUSH PUSH!!! CEO starts sending out “inspirational” emails to “motivate” the team! Herds of salespeople are chain-smoking cigarettes and “feeling the heat”. CLOSING WEEK!!
But what if you are a salesperson who is ahead of the game and have already hit quota? While the rest of the sales team stresses, you have already done your job and are now just trying to help your coworkers. Then along comes a buyer, with whom you’ve built a long-term relationship over the past 3 months, willing to sign a $100,000 contract in the 2nd week of January. But the VP Sales is pushing you to “get that deal in December! Call and ask again! Email their boss!! Do WHATEVER IT TAKES!” … why?
- Will your company no longer be open for business in 10 days?
- Will you no longer need revenue to fuel the company the next year?
- Is pricing actually going to change? (Hint: it’s not, and every buyer knows that already because every seller uses the same tricks over and over again.)
Why are salespeople are willing to come across as pushy and selfish, willing to pester a potential customer with emails and calls ad nauseam, even willing to risk the deal entirely, just to squeeze more revenue into a false construct that has no bearing on the long-term success of the company?
What motivations are pressuring sellers to strong arm buyers to the point where they are publicly shaming reps on platforms like Twitter and LinkedIn?
Why do sales teams have a quota-based compensation system in the first place? The answer is notably complex, and yet, surprisingly obvious. Just follow the money.
Most SaaS startups have a similar founding story: CEO builds a product that gets some traction, pitches StartupCo to a few VCs, and raises capital in order to scale the business. What I never understood when I was a sales rep (and heck, didn’t really even understand until I actually raised our seed round… and I’m married to a VC!) is the concept of VC Math.
I could spend the next few paragraphs explaining how VCs vet the companies that they meet, but I recently read a fantastic explainer on VC Math by Homan Yuen, former entrepreneur turned VC, that does a much better job than I could. (After you finish reading this article, I’d highly recommend you read his detailed explanation revealing the mechanics that make the below true.)
To summarize the point that Homan makes, VCs require extreme outliers in order to make money. Two examples to illustrate the point:
Scenario 1: VC invests in 20 startups at a $10M valuation. All 20 of them have moderately successful exits at between $50M-$100M. (Odds of this happening: 0.00000%)
Scenario 2: VC invests in 20 startups at a $10M valuation. 19 of them go bankrupt, but 1 of them is a huge success and exits at $5B. (Odds of this happening: ~5%)
Which scenario do you think a VC prefers? Well on the human side, having 20 CEOs that you invested in all have successful exits and make a few million dollars for their hard work seems like a great win! Unfortunately for the VC (and for founders, as it turns out), Scenario 1 leads to a poor return and decent odds that the VC might be out of a job. Sorry Ms. VC.
On the other hand, Scenario 2 leads to an incredible return of the fund and odds that the VC is heralded as the next Queen Midas!! Who cares about the 19 failed startups… you picked the big winner and that’s ALL that matters in venture capital! The VC actually makes almost 4x as much money in Scenario 2 as in Scenario 1. Counterintuitive, and yet so important in understanding why salespeople have a reputation for being pushy.
Stay with me … Let me finish connecting the dots, and you’ll see how one leads directly to the other.
Let’s go back to StartupCo. When that CEO initially built her product and went to raise VC money, she had to convince those investors to put their money in her company. VCs have the pick of the litter — they are pitched by thousands of founders each year and invest in a small handful. Knowing what you now know to be true about VC Math, you can understand that a VC is always thinking about two things in parallel:
- What is the likelihood that StartupCo will win their market?
- And even if they do win their market, can this company actually scale to $5B+ or is it “only” a $500M company?
That 2nd point is the dangerous one. In order to raise venture capital, a founder has to convince their VC that they will be able to scale a company to incredible heights. In order to do that, they need to build a financial model that shows revenue growth at a staggering pace. Founders know this is critical to getting a VC to say yes, which is why there is so much emphasis on the “TAM” (Total Addressable Market) slide. VCs only want to invest in companies that are going to be absolute monsters if they succeed, so it is part of the job of a founder to convince their VC that they are in that category. This often means presenting an inflated growth plan that is nearly impossible to hit.
Now the picture comes into focus:
- VC demands outliers and crazy growth in order to invest. CEO needs money in order to scale company.
- CEO promises VC crazy revenue growth, and VC agrees to fund the company. The first-born is signed away :)
- CEO now has to actually hit these crazy revenue goals, hires VP of Sales and gives them an astronomical target to hit.
- VP of Sales feels pressure to hit insane numbers, quickly hires a bunch of sales reps and gives them inflated quotas with compensation plans that create even more pressure.
- Reps with inflated quotas feel pressure, push that pressure onto buyers.
- Buyers get annoyed with salespeople for being pushy.
That’s it. That’s how salespeople have gotten this reputation.
Now wait a minute!, you might proclaim. What about publicly traded companies? Their sales teams pressure us, buyers, too, but they don’t have VCs to appease!
True… but as you know, every publicly traded company has a revenue forecast that they set with Wall Street and their investors. Which is why every quarter they have an earnings report, where they either “exceed”, “meet”, or “miss” their target. If they miss their revenue target, the stock price of a company goes down and investors are not happy. CEO gets pressure to “right the ship” or is fired.
There is more to the story than this. There are micro-examples of salespeople who are pushy because that’s just how they are. I’m neither saying that all salespeople are angelic beings nor that there aren’t many great sellers who have a consultative, kind approach. What I am saying is that the average salesperson is just another normal human being with a job like the rest of us. Salespeople are not inherently pushy. They are forced to be because of the dynamics that go into building a company, particularly a venture-backed one. It is often at the Board level with the VC, the CEO, and the Executive Team, where revenue targets are set and inflated goals promised, that leads to the stress of Closing Week.
So the next time a salesperson is badgering you on the last day of the month to sign a contract, know that it’s probably not because they want to do so. The system itself is broken. Salespeople are not inherently pushy; they are just part of a system that casts them as such. So be kind to each other!
Background: I have played musical chairs over my 10-year career in the Bay Area. I started out as an inside sales rep, was promoted to sales manager/director/VP Sales at multiple venture-backed startups, then left sales entirely and moved to running product. I went from technology seller to technology buyer, and in the process got to experience sales from both sides of the table.
PS — Just in case my opinion on this wasn’t clear enough: This is not the way sales is supposed to be done. And it will have to change because buyers are sick and tired of this game. All the cold calls/emails, the pressure tactics to close deals every month. This must end. Here at Bravado, we are building the future of B2B sales. One powered by referrals and reputation, not cold calls and spammy emails.
Originally published at bravado.co.