Sales tales: “Sales organisation expansion guide”
By Stephen Allott, Venture Partner, Seedcamp
“This product is brilliant — streets ahead of the competition. It’s like you’ve invented the world wide web, the cure for cancer and the jet engine all in one go. It’s still early days but we need to be first to market in the USA”
As the VC board member finished talking, Humphrey Postlethwaite-Cavendish, the founder of Windsor & Elgar Technology Ltd, beamed with pride. His garden shed invention was going to be a world beater. Time to attack the US market.
As he set off for Heathrow the next morning he Googled sales recruiters in New York. He headed straight from Kennedy to the headhunters he had found, SoHo Sales, and walked up 3 flights from the street to their office. British Airways Club Class delivers you ready to do business, he thought.
“I’ve got a deep bench of top guns — real performers” said Hank Steinkuhler, the boss of SoHo Sales. “There are plenty of pros with experience at Oracle, Computer Associates, Salesforce and SAP who would be perfect for you”.
“What’s the best way to build a sales team in the US?” Start with the boss or start with some reps?” Humphrey said with mounting excitement. Hank seemed like just the right recruiter to work with. The retainer of $100,000 (30% of the first years comp) seemed a bit stiff but he wanted the best. Humphrey didn’t understand how sales commission was going to work but was embarrassed to ask a question and show his ignorance.
“Hire a great sales leader as EVP and let them do the rest” Hank said. “I can then work with them to build out your team. You can concentrate on your amazing technology”
“Perfect” said Humphrey briskly. He felt uncomfortable with sales. “Just so I know, how much will the new EVP want to make?” He had not heard of an EVP but again was embarrassed to ask.
“150 base, 150 variable and 5% of the company is what I need to attract the top candidates” said Hank thinking it would be hard to get his Oracle cronies to join a no-name start-up from the UK. Still he would find someone somewhere and the fees were rich. Humphrey didn’t seem to know that his fee should be 30% of the base salary rather than the on target earnings (“OTE”) of $300k. Based on that and the fact he would have the whole team to hire as well, Hank would make his sales target for the year by the end of Q1.
The new Executive Vice President of Windsor & Elgar Technology Ltd, started 8 weeks later. The office on the Upper West Side was expensive but that would give customers confidence, he had told Humphrey. Bob Haserot had lots of experience. Now he was an EVP at last. Switching sales jobs every 18 months during his long career gave him a lot of contacts around the US. He insisted he had global sales as well as marketing report to him as EVP.
“I want to make 5 customer face to face visits per week” he told his assistant who got busy booking the air tickets and hotels from coast to coast. Hank could take care of hiring the 6 reps he wanted who would cover each geography, North East, South East, Mid West, South Central and West Coast plus a channels rep to cover resellers nationwide. Paying double bubble commission on all sales would be expensive but that was what had worked for him in the past. He planned to hold a concall every Monday for the whole team including EMEA and AP.
It took 6 months to build out the team. Bob was always busy. His contacts always took his call and enjoyed lunch with him. The same message came back from his reps. Bob had had trouble convincing his old buddies to join him because this was a foreign company but the rich packages helped close the deal. It had been much easier running the sales kickoff meetings in Phoenix than going over to Windsor to meet the rest of the company. Anyway a couple of those crazy English inventors came over. Odd that they couldn’t explain the sales script but his people would figure it out.
Boy, Hank was happy. He had placed all the old timers on his database who had been finding it hard to get positions even though they had had to try everywhere else first. What a bluebird Windsor was. Hank made Presidents Club by Q2 and was top performer on the back of his old buddy Bob.
It was now Q3 and sales struggled. The board calls got more fractious. Bob told them he was doing things his proven way. Seasoned field reps with geographic territories and aggressive comp plans backed up by channels had always worked. They didn’t need help from Windsor as they had lots of contacts to work through. The board needed to realise that it simply cost a lot to grow US sales.
By the end of Q4, the board pulled the plug and sold the company. At least the US acquirer could see the potential of Humphrey’s invention. UK companies almost always failed in sales in the US so no shame there, thought Humphrey. He had hired SoHo Sales so it wasn’t his fault. One day his college buddies would realise he was first to invent the product and that was what he cared about. He didn’t really care that the investors lost nearly all their money (most of it spent in the US). At least they got 10% back on the exit.
That’s my cautionary sales tale. What went wrong? What should Humphrey have done differently? Well he made pretty much every mistake in the book so let’s go through it step by step.
If you’d like to know how, read on. If the nerdy details of sales organisation build out don’t float your boat, move on to something else and thanks for staying with me so far.
THE NERDY BIT THAT MAKES YOU MONEY
Sales is fun but designing a Sales Organisation is complex, even dry. It’s worth taking the time to get it right.
The starting point. Your sales are now going strong. You’ve closed some customer deals. You’ve brought on board 2 sales reps to work with you. Your sales pipeline is growing. You now want to expand your sales team but the questions keep popping up.
- Who gets which customers: how do you divide up your sales territories?
- What role: should they desk based or in the field? Can the service or product be sold over the phone?
- Should additional hires be at HQ or in country?
- What personality type: sales naturals (who can invent their own sales process) or product reps who follow a script? Is big company experience good or bad?
- How experienced: seasoned, recently experienced or untrained?
- Channels: should you have separate reps for Systems Integrators (“SI”), Original Equipment Manufacturers (“OEM”), local Value Added Resellers (“VAR”) and geographic resellers such as one handling the Chinese market?
- How do we handle integration partners who don’t resell (“take the paper”) but who complement our solution?
- What exactly is “partnering”? It can mean so many different things.
- Sales leaders: when should you hire one?
- Sales leader job titles: what is the difference between a VP Sales, Chief Sales Officer, Chief Revenue Officer, Sales Director, Sales Manager, Regional Sales Manager and Team Leader?
- Should you hire top down (leader first who hires reps) or bottom up (build a team and then find a leader)?
- Should you have a functional organisation (all sales people report to a global sales leader who reports to you) or a geographic sales organisation (regional sales leaders report to you) or a geographic organisation (regional sales reports to a regional general manager who reports to you)
- Pre-sales reporting lines: should you have pre-sales people (who do technical solution design) and should they report to the sales organisation or to a Technical Services head (which rolls up pre-sales, post sales and support)
- Should Customer Success report to sales and if so at what level?
- Should the user base and new business be split between Farmers and Hunters?
- Should the sales funnel be split into list creation (Market Development Reps “MDRs”), lead generation from prospecting the list (Sales Development Reps “SDRs”), closing (Account Executives / Sales Reps) and customer success (Account Management)
- Finally, should Sales and Marketing report to the same person or be separate?
That’s a lot of questions. Where do you start? Well, it all depends on your particular situation but let’s work through a typical case study to illustrate the answers.
Who gets which customers: or how do you divide up your sales territories?
In the example organisation in the chart below, the starting point is 2 reps split by geography plus a founder doing sales and an interim sales manager. The interim sales manager doesn’t have their own accounts, so in effect there are 3 people talking to customers.
The first questions are how you divide up sales territories between the three and how you allocate new leads. I am showing you geographic based territories in this example but there are several ways you can split territories including:
- Vertical industry
- Named accounts
- Customer Size
And you can subdivide this list so you could have, for example, Named Accounts in a vertical industry.
Business is divided into 2 named countries while the Founder handles the rest of the world. This business is growing into new geographies so the next steps are the USA and China. It’s also time to hire a sales leader who will be called “Sales Manager”. The sales manager will have capacity for some of their own accounts as well as managing their team, which at 4 reps, is less than full capacity (typically 6 reps). The sales manager could handle 33% of a full quota. The Founder has kept a few strategic accounts which require special treatment and which are harder to target on pure revenue. Where are the 6 (Founder, sales manager and 4 reps) located?
What role: Company HQ desk based or field?
In this example all the reps are desk based as it’s a medium ticket SaaS product (such as a data management tool) and can be sold remotely.
The China market is addressed through a geographic reseller who sells and integrates a best of breed Chinese language data management tool stack. The China rep is a European who speaks fluent Mandarin but who is based at HQ in Europe to be close to the rest of the HQ team as the technology and the market are rapidly evolving. The rep holds a daily one hour video with the Chinese reseller first thing in the morning and joins customer calls later in the day. The rep visits China for 3 weeks per quarter. Other factors in the HQ location decision include the difficulty of local hiring and of remote management of an in country rep.
The USA market is sold direct but the rep is also based at HQ. They make US customer calls in the European afternoon. They visit the USA in person 1 week per month. The Founder and the sales manager both accompany the reps on trips while handling their own accounts remotely.
Should further hires be at HQ or in country?: For desk based sales you have the choice of an HQ location or in country. At Red Gate Software in Cambridge the US sales and customer collections team worked East Coast US hours very successfully. Criteo initially built a multi-language sales team in London serving Europe, USA and South America. Incremental expansion is easy at HQ. Once critical mass is reached you can open a satellite office. The US is often first.
For field sales in the early days you also have the option to hire reps at HQ and have them travel into country. This can be lower risk than opening a satellite office from the outset.
What personality type: sales naturals or formulaic product reps? Sales to the first customers often need someone who can invent a sales process, customer by customer, rather than just follow a formula. It’s called “Making it up as you go along”. Let’s call this personality type a “Sales Natural”. Make sure your recruiter knows the difference. Reps with big company experience such as Oracle or Salesforce can often be the wrong type for early stage scale-ups. They can be used to using a proven sales process and can rely on the big company brand recognition to get meetings. Making calls from an unknown company is much harder.
How experienced should they be in sales and in your industry? There are 3 levels: very seasoned with say 10 years of experience, recently “qualified” say with 2 years experience and untrained. I often recommend hiring “recently qualified” reps as your core team and only adding in very seasoned folks if you have bigger deals and accounts to manage. Trainee people can be useful where you have critical mass and the capacity to nurture home grown talent.
Should you have separate Channels reps or could a territory rep handle both direct sales and channel sales? Consider China. You start with one rep covering the whole country. You have some direct accounts but the bulk of the business is handled by channels. If you hire a second rep for China would you give one the direct accounts and the other rep the channels? Or would you split the country by geography (or vertical) and have each territory rep handle both direct and channel sales in their respective territories? You would carve out a direct rep territory if you wanted to penetrate a vertical market aggressively but you would combine direct and channel to minimise channel conflicts. A further factor is that direct rep skills are somewhat different from channel rep skills. This can be a complex area.
Integration partners in the early days are often best handled by the CEO who will allocate time as appropriate. As your business grows, you may set up a “partner” organisation to service their needs.
Sales Leadership hiring timing. Hiring bottom up and adding a sales leader when you have some mass and momentum is often my preference. For Founders without relevant experience, hiring sales people bottom up means you should get the help an interim sales manager provides. Hiring top down requires skill in hiring a sales leader (help also needed) and delays hiring reps and therefore sales itself. It also creates the risk that a bad sales leader hire will result in bad rep hires. By contrast, bottom up hiring with help improves the chances that at least some of the reps will be good.
What job title should you give your sales leader? What is the difference between a VP Sales, Chief Sales Officer, Chief Revenue Officer (“CRO”), Sales Director, Sales Manager, Regional Sales Manager and Team Leader? What title to use? Are their roles different? Should you use a bigger or a smaller job title? Generally sales is targeted on closing deals whereas a CRO may be more strategic. For the first sales leader hire, I often advise using a smaller title (Sales Manager) and a more junior person. This will fit in with a smaller organisation. If they are good, they may well grow with the organisation. If not you can hire over their head. The bigger the title the higher the cost and often the higher the risk of getting it wrong. Again I often advise building from the bottom.
Reporting lines: should you have a functional organisation (all sales people report to a global sales leader who reports to you) or a geographic sales organisation (regional sales leaders report to you) or geographic organisation (regional sales reports to a regional general manager who reports to you)? It depends. If you as a founder like closer involvement in sales, having the regional sales leaders report direct to you cuts out the VP Sales layer and of course the converse is true. Geographic organisations are rarer today.
The Pre-Sales / Delivery function often sensibly reports direct to the Founder and not to Sales. This part of the design can be controversial as many executives are familiar with organisations where pre-sales are paired with sales and report to sales. This is more common in mature organisations. At the early stage, pre-sales resource needs to be allocated globally according to needs and the individual competences of the engineers rather than simply paired with reps.
Vertical territories can be useful to implement a focus strategy and where there is is commonality between vertical customers who self reference. Here is an example organisation
As you grow further you can start to plan for a global organisation. Geographic expansion and a mixed channels and direct approach is a different approach to verticals. Integration partners where there is no resale relationship can report to sales (as shown here) or to marketing or product management. Separate reps for channel partners can be justified if there is adequate return on their time.
A Value Added Reseller (“VAR”) often means a dealer who also sells consulting and training. An Original Equipment Manufacturer (“OEM”) means a vendor who sells their own proprietary products in addition to your product. A systems integrator (like Cap Gemini) means a contractor who builds large bespoke systems from multiple components some of which (i.e. your solution) may be bought in.
Partnering can mean you have an integration with another vendor (Oracle is an example) who promotes you to their customers but does not resell you.
Detailed questions still have to be dealt with all the way down the customer sales journey. You can split out:
- List generation (Market Development Reps “MDRs”)
- Lead generation (Sales Development Reps “SDRs”)
- Closing new business (Sales Executives or Account Executives “AEs”) “land deals”
- User Base sales (Account management or “Farming”) “expand deals”
- Customer success
People often ask me about these points right at the beginning of designing their organisation. In general you will be starting with the sales journey handled by a single rep and split them out over time.
I often advise having Marketing report direct to the Founder and not to the sales leader. Despite their obvious connections, you should avoid distracting the sales leader from hitting their sales targets.
WHAT HUMPHREY COULD HAVE DONE BETTER
- Persuade the best to join you rather than take the leftovers. You are selling not buying.
- Get smart before you start by talking to folks who have done it before so you know, for example, about job titles and the market rates for salaries and recruitment fees
- Hiring bottom up is often better than top down.
- Frequent job changes for Hank was a red flag
- Humphrey needed sales naturals rather than big company reps
- Desk based reps would be likely to have been better
- Hank called his contacts rather than finding customer prospects who were most likely to buy.
- The new reps would learn the product and the company better if they had gone for training at the UK HQ.
- Sending out some successful UK reps to work in the US helps transfer knowledge
- Get a recommendation for a recruiter rather than trust an unknown.