16 mini sales lessons from A16z
Building the go to market model is reproducible for scaling. Here’s the summary from a16z: https://a16z.com/2018/09/02/sales-startups-technical-founders/
How to go to market
- Direct: supplier talk to end user and transact with the customer and form 1 on 1 relationship
- Intermediary: (channel partner) exposing your product to the distributor who can expose to the end user
- OEM: (original equipment manufacturer) large company that have relationships with channel partner and end users. OEMs are likes of Amazon etc.
Focus on one channel at a time and scale over time. If going to market with all end points, the end user has too many touch points and result in direct channel conflict. At first, reduce the amount of conflict.
Sales Engagement: how much to spend on marketing vs sales
Segmenting markets for GTM:
- Enterprise: Direct, high cost of sales, lower number of users
- Mid-market: Channel + inside sales, medium cost of sales, okay number of users
- Small-biz & consumer: Freemium, inside sales, low cost of sales, large number of users
Build out the sales organization
Why is this required: Sales increases the dollars per customer basis. Through freemium, users only care about features that matter to them. There needs to have a mechanism that expose the users to the features that are important and valuable.
Make sure that the sales force productivity gap far exceeds the freemium go to market.
Who do I hire for sales org?
Repeatable sales model is achieved at the execution phase. Repeatable sales model is one where when new sales person is hired, the yield from the sales person is expectable. We get the visibility and productivity on the sales org.
At the initiation phase: Renaissance rep is required: technical (2–3). They are one person band. No sales engineer. No marketing department. They are the lone wolf.
At the transition phase: when the renaissance reps break even, when they can generate 1 time annual sales rep fully loaded cost, the sales org. VP of sales is hired here.
At the execution phase: when sales reps generate 3x their own cost. The very effective company probably generates 5x their fully loaded cost. Only here can people generate repeatable sales motion. At this point, marketing operations are brought in, sales engineering support, coin operated.
When hiring, think about which stage we are in. The renaissance reps are always good for opening up new markets and opportunities.
Setting the Annual Sales Number:
Predicting the annual sales number is a core strength. Setting the annual sales number is reconciliation between bottoms up and top down where everyone should feel good about these two numbers
- Bottoms up forecasting: pipeline, new customers, rep capacity, productivity ramp, hiring plan
- Top down forecasting: market size, product readiness, board input, growth objective
Total Quota needs to be 20% higher than the overall company plan to account for people leaving. When the quota is super high, the sales team will become disenfranchised despite making the company plan.
This is the process between mapping products to different segments of the market. Coverage matrix is about appropriately map the right amount of resources in each customer segment:
Managing the sales organization (compensation, forecasting)
Forecasting: building a capacity to understand and exercise forecasting. Forecasting accuracy is about long term investment. Sandbagging: under promise and over deliver. For companies go to IPO, the company’s predictability is important. Hygiene around forecasting practices will impact the company’s long term health.
Revenue Composition:Revenue to comp the sales people vs not comp. Different metrics to apply for revenue recognition in Saas:
- Total Contract value
- Annual Contract Value
- Annual Recurring Revenue (Do this)
Reward on Annual Recurring Revenue (ARR) which includes upgrades, new, and recurring and then detracted churn. Pay Sales reps on new businesses and upgrade businesses. Increasing ARR is a function of new and upgrade businesses. Pay commission on new and upgrade. Service the recurring revenue (service/customer success to handle).
Compensation: Base salary + commission. Commission is variable cost. Compensation curve is the pay curve. 80% is around where the commissions are started to increase. 100% OTE (on target earnings). Beyond the 100% OTE, the sales people should be incentivized to make a lot of money. The curve should be capped. And that portion beyond the 100% mark is the accelerator phase.
- Comp card should be write index card
- Easily understandable by every rep so that reps can understand
- Minimally many variables
70% sales reps should meet or make their quota. If more than this make their quota, quota should be raised.
This should be a nice sloping line. 70% means all sales members are productive enough across all territories. This would be scalable.
Pipeline is a predictor what’s achievable within a quarter. Pipeline should be at least 5 times the end quarter number.