Tuesday, October 1, 2019

Fear of Sales

"Our direct sales and customer success efforts are focused on larger organizations who have a greater number of users and teams and have the potential to increase spend over time... We had 575 Paid Customers >$100,000 of ARR as of January 31, 2019, which accounted for approximately 40% of our revenue in fiscal year 2019." 
-From the Slack S1

We have a unique model that combines viral enthusiasm for our platform with a multipronged go-to-market strategy for optimal efficiency... Our sales model allows us to efficiently turn a single non-paying user into a full enterprise deployment. For the fiscal year ended January 31, 2019, 55% of our 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing. These 344 customers contributed 30% of revenue in the fiscal year ended January 31, 2019. 
-From the Zoom S1

Two of the most viral, bottoms-up products in the history of enterprise software benefit immensely from direct sales[0]. For Slack, 40% of their revenue comes from just 575 customers (out of 88,000 paying customers and 500,000 total customers!) while for Zoom 344 customers generate 30% of their revenue (up from 22% and 25% in the prior two years). Big customers are growing faster for Zoom versus customers overall. I know Slack started on enterprise sales late, so it is possible this number could have been even larger today.

Many technical or product-centric founders have an innate (and inappropriate) fear of sales[0]. While it is inevitable that their company will need to adopt direct sales, technical founders often procrastinate on building a sales force. This is usually a mistake. If direct sales could boost growth from 15% a month to 20% a quarter on $1M in ARR, the company will have $184M in revenue versus $93M in revenue after 4 years[1].

If the company actually does not have good bottoms-up adoption, the impact sales can be even more striking. In DataDog's case, 72% of their ARR is from large enterprises.
We have a highly efficient go-to-market model, which consists of a self-service tier, a high velocity inside sales team, and an enterprise sales force. As of June 30, 2019, we had approximately 8,800 customers... Approximately 590 of our customers as of June 30, 2019 had annual run-rate revenue, or ARR, of $100,000 or more... accounting for approximately 72%of our ARR... Further, as of June 30, 2019, we had 42 customers with ARR of $1.0 million or more" 
- DataDog S1 

So why do product-centric founders fear sales?
1. Familiarity.
Most technical founders have strong familiarity with bottoms-up sales. They download open source packages all the time, and adopted Github or PagerDuty or Stripe through word of mouth. What many founders have not seen directly is how well a repeatable sales engine can work.

The simplest advice to founders on this point is "just do it". Just as you needed to learn how to do PR,  how to hire and negotiate salaries, how to raise money, or how to hire other specific functions (finance, legal, customer support etc, you will need to learn how to do hire sales people and add go-to-market as a function.

To learn how to hire a sales leader, you need to take the same steps you took to learn how to hire marketing or customer support or legal - ask others who are 2-3 years ahead you as founders who have done something similar how they did it. Or go and find 3-5 great sales leaders or CROs and ask them how to hire, and interview for the role, and how to best run the function.

Just as you do not need to run your finance team yourself, you can hire a great sales leader to partner with to drive sales for you.

2. Perception of sales as an art versus science. In reality there is a sales playbook.
Since sales are stereotypically driven by people with liberal arts degrees who played sportsball in college, technical founders often view it as a bit of dark magic involving expensive dinners, cross country flights, and a lot of small talk, high-fiving, and gong-hitting.

In reality, sales is a giant process engineering exercise which has benefited from 40 years of iteration. A great sales leader will have an effective playbook they can apply, a pipeline process to run, and a hiring and compensation approach that will work for your market.

Sales at its best is a repeatable, understandable operational process that can be run in a metric driven way. Indeed, sales productivity is dramatically easier to track and understand versus engineering productivity. Metrics may include revenue productivity per head, payback periods, and funnel or pilot conversion and close.

The temptation of a technical founder is to make sales up as they go along. For your sake, it is best to resist this temptation to re-invent the wheel and to hire someone who knows what they are doing. You will obviously need to work with this individual to set overall objectives, interview the first hires for culture and the like. But you should view sales as an integral part of your startup team - and not something to design yourself from scratch.

3. Cool factor.
Bottoms-up adoption is considered much cooler and more organic than doing inside or direct sales. Your customers are coming to you. How cool is that? Why would you ever lower yourself by going to them and actively engaging them?

The even cooler thing is to build a monster company having enormous impact and a platform you can use to influence the lives of millions and generate the revenue and market cap to affect humanity-level productivity and social change.

If resistance comes from your team versus you, explain to them that your goal as a company is to build something great. To build something at scale, you will need to get big companies to adopt your product (even more people can use it!), that all the companies your employees use and admire actually have sales forces, and that sales at its best can provide insights that would be more challenging to get otherwise (see below)

4. Cultural concerns.
"Sales will be an invasion of fratty liberal arts people and our culture will be ruined! There will be people with nicely pressed shirts making small talk in loud voices while making too much direct eye contact! Don't they realize life is not a staring contest?!?!!!"[2]

Often when I hear about the cultural concerns of working with sales, it is from people who have never worked with sales. The reality is:
a. You will ramp sales headcount slowly at first. Unless you have built a sales org before, it is wise to start small. Add a sales leader. See how it goes. Have her add 1-2 people. See how it goes.
b. Sales tends to be geographically distributed. Direct sales people often work in region since much of their time is on the road. Inside sales teams (who are often phone and email based sales) may be more cost efficient to have in a remote office. The reality is you will eventually be going out of your way to get the sales people together in one spot for offsites and conferences, or to spend time at HQ, versus them taking over your home office. The primary place I have seen sales actually dominate a culture is when you have a remote sales office and then add a handful of engineers and leave the engineers to fend for themselves. Or when you have a sales-centric CEO to begin with, in which case the culture will be sales-centric as expected.

Sales will change your culture, but it is an inevitable change. Instead of fighting it determine how you can productively incorporate sales people. How can you grow in a sustainable manner? How do you want your culture to evolve? Taking it slow is a better long term solution than not doing it at all (or waiting to long and regretting it).

5. Sales at its best.
At its best, sales is not only a large revenue driver, but also a way to get customer feedback and input back to the team. It should drive rapid revenue growth while feeding your team competitive intelligence, customer concerns, feature requests, and other insights from the field. These can help drive business strategy, product roadmaps, and your ultimate success as a company.

6. Sales can cause a company to overspend and crash & burn.
I have seen instances where a company overhires a sales force before it has a repeatable working sales model, or real product-market fit. In this case, a sales team can be existentially bad for a company. You will burn through all your cash before sales shows success. Often this happens when an incoming sales leader over promises and over hires, and sales productivity is slower than expected. For example, a company may hire 20 sales reps and promise a 6 months payback period, when in reality the new sales reps ramp slower and are less productive. Suddenly, the company is stuck paying out a sales guarantee to new hires and it blows up due to poor cash management. This pattern is actually quite common. It is often better to start sales teams small and experimental, and then ramp.

Give yourself permission to ramp sales slowly, make sure things are working, and then ramp some more.

Fundamental Decision
The fundamental decision a technical or product-centric founder faces is this:
Do you want your product to be adopted by as many people as possible, including people working at the largest companies in the world? Do you want to win your market and industry?

If your answer is yes and you are running a SaaS or enterprise company, you should start to build a sales force as soon as you have signs of product market fit[3]. Don't wait. Don't procrastinate. Don't make excuses. Even if bottoms-up is working, you will end up with a smaller, less important company if you wait on building real sales and customer success teams.

You should feel free to start small and take incremental steps - but the key is to take the steps early. Don't wait too long. You may also go through 1-2 sales leaders before finding the right one (and understanding what to look for for your product and culture)[4]. That is OK too. Give yourself permission to make a mistake or two, and let your team know this is all an experiment. This is all about the long term.

Thanks to Stephanie (Schatz) Friedman for early comments on this post.

[0] A quick aside on sales definitions:

[1] You of course want good unit economics and payback times on any customer acquisition efforts, including direct sales.

[2] I am of course joking. I have a technical Ph.D. and a math degree so actually kind of hate most small talk.

[3] Assuming your price point and return on a customer is high enough. For example, if you are only making $100 per year per customer, you can not afford a sales force. At tens of thousands per customer, you can afford an inside sales force. At $100K+ per customer, you can afford direct field sales.

[4] By the way, if your gut is telling you the new sales leader or AE is doing a bad job, they probably are. I have often seen technical or product-centric founders second guess their own judgement on people in these roles. Excellence has the same feel irrespective of function.