Don’t Forget To Overhire Salespeople
Inovia Growth Hacking Tip #764
Every entrepreneur wants to grow sales, and every startup business plan shows it happening on a quarter by quarter basis. Accompanying sales growth is growth in the number of hires onto the sales team. However, one common mistake entrepreneurs make is to hire exactly the number of salespeople that the business plan calls for. Why is this a mistake? Because not all salespeople will be successful at the company, and too often, the business plan doesn’t make any allowance for failed salespeople. When a salesperson doesn’t work out, what happens is that the revenue predicted in the business plan isn’t achieved, and the company enters a difficult stage: under-performing, therefore with less money in the bank, shorter runway, less proof points than are needed to raise the next round — in summary, on a path to failure. And all because the company’s hiring plan presumed 100% productivity success for each new sales hire.
Fortunately, the solution is simple. If an entrepreneur doesn’t want to fall into this trap, she needs to adjust her business plan to overhire salespeople. This impacts both the headcount (which will be larger than before), and the budget (salespeople need to be paid, and the good ones are not cheap). My rule of thumb for over-hiring is a simple one: For each new sales hire required by the business plan, hire three instead. I can see the eyebrows raising now: “Three? Holy cow, that’s going to be expensive!” Yes, but for a definition of expensive, imagine the company missing its revenue number for a couple of quarters while the entrepreneur slowly discovers that the new salesperson isn’t going to be productive. That’s expensive, both in lost time and money.
When an entrepreneur hires at this 3:1 ratio, it could be that all the new hires work out perfectly, in which case, the company ends up well ahead of its business plan numbers — a very good thing. Raising new money becomes easier, and the company is seen as an over-achiever by investors. But the company may not be lucky enough to have all three new hires work out. Still, if two of the three new hires work out, the situation is still very positive — the company’s plan only called for one new salesperson, so having two productive hires still puts the company ahead of its business plan — another great outcome. And here, we immediately see the value of the extra hires. If the company chooses only to hire one salesperson, what if that one was the one who is not being productive? Our company would then have fallen into the “under-achieving” hole. But by over-hiring, we have not only avoided that, but we are actually ahead of plan, thus “over-achieving”. We are also able to push back against arguments by the under-performing salesperson, as to why they are under-performing. Having an existence proof of a salesperson who is performing or over-performing, puts the CEO in the powerful position of being able to say “Well, Fred doesn’t seem to have those problems selling, so go do what Fred does.” This greatly reduced the time needed to convince new salespeople that they need to be doing something different in order to achieve good results for the company.
Perhaps the situation is more dire, and we only have one of the three salespeople being productive. Since our business plan only needed the one new hire, we are at least performing to plan on the revenue side, and therefore will be “achieving” (though not “over-achieving”).
“100% new hire productivity in sales is a fiction, and has no place in a startup’s budget anyway”
Naturally, we’ll want to fire the under-performing salespeople, and replace them with new hires in an attempt to over-achieve again. But at least, while we figure out how to be better interviewers for the next new sales hires, the company’s revenue is coming out as per plan. It is fair to say that expenses will be greater than originally planned, due to the extra hires. But it would be a mistake to assume that each new sales hire will be productive, so it is crucial that the budget be adjusted to account for this reality. In other words, 100% new hire productivity in sales is a fiction, and has no place in a startup’s budget anyway.
Now, let’s consider the case where, of the new hires, none of them work out. Of course, this puts the company in an under-achieving position with respect to sales. But, at least the company finds this out much quicker than if it tried three sales hires serially rather than in parallel. Hopefully, this means that enough runway remains for the company to fire those three, and try again, having (hopefully) learned something about who not to hire. Would the same information have been learned if salespeople had been hired one at a time instead of simultaneously? Perhaps it would. But the crucial point is that the company’s business plan calls for revenue to arrive on a schedule. Missing that schedule is incredibly disruptive to the company’s ability to prove its worth to investors, because under-performing is always bad. By hiring simultaneously and in excess of the plan’s requirements, the chances of an overall miss are greatly reduced.
There are two kinds of business plans: Those where everything must work out well in order for the company to succeed, and those where everything must work out badly in order for the company to fail. The former business plan is fragile — even a single failure means the company is doomed. The latter business plan is much more difficult to break — many things must fail together in order for the company to fail. By hiring only the amount of salespeople that one’s sales model (part of the business plan) calls for, an entrepreneur puts her company on a fragile path, where even a single hiring fail means the company misses its numbers. But by applying the simple solution suggested here — over-hiring new salespeople by a 3:1 ratio, the entrepreneur puts the company on a very robust path, where it takes 3 simultaneous hiring mistakes to make the company under-achieve.
Final thought: Over-hiring 3:1 not only makes the business plan harder to break, it also makes sales management much easier at that crucial “first few sales hires” stage that occurs when a new startup brings its products to market. In particular, it makes it easy to see which salespeople need to be replaced, and which should be better rewarded. It is much harder for a salesperson to blame the product or feature set for his poor performance, when the next salesperson is selling the same product in much larger numbers. So: Overhire, to ensure the company never under-achieves.
