0:00
Here's the mistake that 99% of founders and sales reps make.
Search this video
0:00
We're not really selling in B2B, we're solving problems.
0:05
Our job as sales reps in SaaS is to not sell a used car, okay?
0:05
We are selling a Tesla Model 3 performance.
0:11
It has competition, I might not need it this week, but it's pretty darn good.
0:18
Let me help you get you into that Model 3 performance today.
0:18
I've even got a special discount for the end of this month, and let me just help you.
0:23
I've spent four calls answering all your questions and I've explained to you all the things and why the supercharging network is better than the regular one that doesn't really work at the charger near your house.
0:32
I've gone on Google and I've seen there's no charging network near your house.
0:36
There's only Superchargers. I got you, don't I?
0:41
That's the job of SaaS and sales because we're not selling commodities.
0:48
Today, my guest is Jason Lemkin.
0:48
Jason created and runs Saastr, the world's largest community for SaaS and B2B founders.
0:54
He also runs two of the biggest town conferences every year, one in the Bay Area, which attracts over 15,000 people, and one in Europe with over 3,000 SaaS executives, founders, and entrepreneurs.
1:05
Before Saastr, Jason was the CEO and co-founder of EchoSign, which he grew to over 100 million ARR and then sold to Adobe where he ended up as a vice president of their web services business.
1:16
If you follow Jason on Twitter or LinkedIn, you know how much wisdom he has to share about all aspects of building a successful SaaS business.
1:27
In our conversation, we focus on what I find most product leaders have the least experience in, building a sales team.
1:33
We get very practical and tactical on how long you should wait to hire your first salesperson, what your one to two first hire should look like, why you should actually hire two salespeople, not just one initially, how to comp them, how to interview them, when it's time to hire a VP of sales, how to avoid your salespeople flaming out and burning through all your cash.
1:53
We also get into how to make the product and sales relationship healthier, including how to push back on sales and feature requests, why your head of product should be super involved in your sales process, how long you should make your trials, why you should avoid annual contracts, and so much more.
2:06
Jason also shares advice for running a conference, which I found super interesting.
2:11
This episode went long because I just couldn't stop asking Jason questions, but as a result, I'm excited to bring you this incredibly rich episode on building your sales team.
2:20
If you enjoy this podcast, don't forget to subscribe and follow this podcast in your favorite podcasting app or YouTube.
2:25
This helps tremendously and I really appreciate it.
2:30
With that, I bring you Jason Lemkin after a short word from our sponsors.
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4:52
Jason, thank you so much for being here. Welcome to the podcast. Hey, I'm so excited. Long time. What's the expression?
5:04
Long time fan, first time dialer or something? Caller?
5:08
First time caller, yeah, first time caller. First time guest.
5:10
I don't know if that exists in 2024 or not, but yeah, that's me.
5:11
So thank you so much for letting me come.
5:15
It's absolutely my pleasure.
5:15
I feel like you're the kind of guy that I knew would be on this podcast eventually, and I'm glad that we're finally doing this.
5:19
I also feel like we can go in so many directions.
5:23
I feel like you have so many insights on so many parts of building a business, especially a B2B business, but I thought it would be most interesting to dive deep into building your sales team, essentially trying to help people figure out how to start their sales team, scale their sales team, and all the elements they go into it. How does that sound? I think it's great.
5:46
I think it's an evergreen topic, but I think there's remains a consistent set of confusion, fears around how to build a sales team, and it's evergreen.
5:51
The tools change and the pace has changed, but the issues, I love to dig into them because we keep making the same mistakes as founders and executives again and again and again. 100% agree.
6:08
It's such a black box to me.
6:08
Sales, I've never done sales, and I'm always just like, "I have no idea what's going on here."
6:14
So this is how I learned from folks like you. You touched on this now.
6:19
Now, I wasn't going to get on this, but I think it'd be interesting just this question of, does everyone need a sales team?
6:23
Will you need a sales team if you're listening as a founder?
6:23
Is it simply, if you're a B2B business, you'll need a sales team?
6:28
How should people think about, "Will I need a sales team?"
6:32
If you truly build a self-serve product, you can either never have a sales team or Slack defer it or Canva really defer it.
6:36
Canva didn't really build a sales team until they were well north of 500 million in revenue because it's epic self-serve.
6:48
Slack started all self-serve, and by the time they went public, the majority of their revenue was enterprise sales.
6:54
So you can sequence things.
6:54
You can have hybrid models like a third of Asana's revenue is still from self-serve, and two-thirds are from a self-serve motion.
7:05
So there's all different hybrid things.
7:05
The most important thing though I've found is however you get those first 10, 15, 20 customers, be honest, be honest, and if you've talked to them as a founder and you know that they need a sales type motion, they need effort to deploy it, they have questions about security, they have questions about competition, they have onboarding requirements, and you say, "Hey, I don't like sales, so I'm going to do a PLG motion," you'll fail.
7:30
One of the things that I've done with so many founders over the years, and it shocks them at first, is your first 10, 15, 50 unaffiliated customers, the ones that find you from the ether, they're the next 50, 100, 200, 1,000, and you can either embrace them or run for them.
7:48
Too many producty founders find that, "Hey, gosh, I'm going to have to do sales," and they exit it. They exit it.
8:00
I'll tell you a company I invested in 18 months ago when things were easier, maybe 20 months ago, they were doing 5 million in revenue, growing over 100% with the sales like motion.
8:05
Things got harder, things got harder as they did for many of us, and they decided to fire the whole sales team, and now they're doing less than one from 5 million with beloved customers.
8:16
If I told you the logos, your jaw would drop.
8:22
Over 5,000 20 months ago to 1 million today because they fired the sales team because the founders didn't like sales, they thought it was icky, they didn't want to do it, they were tired of doing it.
8:31
I can tell you several stories like this.
8:34
So you've got to be honest about the ...
8:34
Sometimes we get it just right on day zero.
8:34
Sometimes we know exactly how our company is going to work or Lenny's podcast is going to work.
8:40
We can predict the future perfectly, but I find in B2B, a lot of times the industry, we end up winning.
8:44
The segment of the industry, the type of customer is not what we initially thought and either lean into it and be a success or run from it because sales is icky and risk failure.
9:00
When you talk about being honest, what you need to be honest about is that you need sales help to close customers? Be honest about that.
9:03
Just be honest about, yes, the motion that it will take to get those first 10, 15, 20 customers, and if they were able to find you by putting their credit card and no one had to talk to them, then that's your DNA today.
9:18
DNA today. It doesn't mean you won't go up market later like a Slack or a Canva, but if you can get them all to do that and you never have to talk to them, then get really good at viral loops, get really good at almost B2C type motions, get really good at this kind of stuff and hire growth
9:33
hackers and do the whole almost B2C-ish motion, which we have at self-serve, but if your first 10 customers come in and say, "You know what, Lenny, I'll pay you $5,000, but you've got to solve this problem I have with online video," that is not a self-serve motion. It is not a self-serve motion.
9:44
It is not a self-serve motion.
9:51
Even worse, sometimes worse is your first 10 customers, five of them sign up online, but it takes a huge amount of effort for 19 bucks a month, and then five say they'll pay you $5,000 a month.
10:00
Some founders are like, "I'm going to work on the five that pay us 20 bucks a month, not the five that'll pay us $5,000 a year."
10:05
I find too many folks that don't like sales, too many folks that have not had any life experience in a sales-led environment flee from those customers, and I've never seen that lead to success.
10:18
We're surprised who our niche is sometimes.
10:23
We talk about nailing our niche, but sometimes we're surprised that niche that finds us.
10:28
There's a lot of startups I've invested in that start off product-led growth and quickly realized, "This just isn't working," and many of them move to, "We need to actually hire salespeople and start to go top down."
10:37
Most companies are a hybrid.
10:37
Even there's weird hybrids like there's folks like Mongo and Snowflake.
10:43
Mongo has, well, maybe Mongo's much better example, Mongo has a free low end version, and there's open source too.
10:52
It's a little confusing, and then there's not a lot in the middle, and then there's a lot of big.
10:55
There's all different ways to combine a product-led or self-serve motion with sales-led.
11:02
Too many founders in the beginning think it's either or. It's not either or.
11:06
So I think the big takeaway here is sales is not a question of if you're going to need a sales team, it's a matter of when.
11:12
The Canva example is crazy.
11:12
Maybe that's the [inaudible 00:11:16] But they still have one.
11:16
But they still have one now. They still have one.
11:18
I think Notion, I think at 10 million ARRs when they hired their first salesperson. That makes sense.
11:23
So I think the question that leads to is, what is a sign that you should start to hire your first salesperson?
11:28
Even if you hate sales, even if you think it's icky, even if you don't like it, as a founder you've, 95 times out of 100, you've got to find a way at least to close the first 10 customers yourself.
11:38
You've got to find a way.
11:38
We could dig into how to do that if you don't like sales.
11:43
The hack though is that even if you don't like sales, customers love to talk to the CEO. The customers love it.
11:49
Here's the other thing, as a founder, you're really good at the product in the market, hopefully even in the early days.
11:59
So what's important is even if you don't know how to do outbound, even if you don't know how to send a cold email, even if you don't how to do any of this stuff, and even if you don't know how to ask for a check, even if you don't know how to open or close, almost all founders are A+ middlers, A+ middlers, A+ middlers.
12:12
Before we started, you and I talked about podcasts and content, and immediately it was an A+ conversation.
12:18
Maybe you don't know how to close a big sponsor, I'm just making that up, and maybe you don't know how to find one, but once you have someone in your spider web, letting the conversation, you and I just had was A+, and any founder should be there by day one, by day one, and prospects love it.
12:34
If I want to buy CRM, I don't get to talk to Yamini at HubSpot or Marc Benioff, but I get to talk to you and your CRM company.
12:42
It's magical for early adopters.
12:47
So bear in mind, no matter how bad you think you are as a founder, you're pretty good at the middle part of sales.
12:52
So find a way to get any prospects, get really good at the middle, and then work up your courage.
12:57
Work up your courage, and find how to ask for next steps and money.
13:03
What would it take, Lenny?
13:03
How can we get going on Riverside? What would it take?
13:03
We would love to have you.
13:08
What would it take to get you going next week?
13:08
You've got to learn that little motion, but you don't have to learn all the stuff you think is smarmy other than how to go from middle to just ask for how we can get going.
13:16
I like this term, middlers.
13:16
So just to make sure I understand what that means, in the middle of the conversation, you're not great at initiating, you're not great at closing, but you could talk about it.
13:27
Yeah, and this is where sales reps are terrible.
13:27
Most sales reps, once you go beyond the five basic questions, they can't tell you how a database works or how to eliminate hallucinations from your product or how to do payroll in Eastern Southern Guam.
13:41
The sales rep, and we can talk about this, they need help.
13:47
They need help from the founders in the early days.
13:51
They need help from sales engineers or product people, which is my favorite place to get the help as you scale, but they need help.
13:54
The beauty to founders is they don't need help in the middle.
13:57
You can be 10 times better in the middle than any sales rep at your bigger competitor.
14:04
If you're running, I am just making up CRM, but if you're running a new CRM startup, you can run circles around 98% of the sales reps at Salesforce or HubSpot.
14:08
They have the brand, they have the partners, they have the integrations, but they cannot answer the questions you can answer. Okay.
14:17
So you close the first 10 customers.
14:22
What are other signs that, "Okay.
14:22
Now is really the time we need to start hiring sales"?
14:26
I think as soon as you've got those 10 customers and more than 20% of your time is booked up with customers, you need leverage. You need leverage. You've got to get ...
14:32
If you do it too early, if you're not spending 20% of your time in sales and 20% of your time in recruiting, you're failing as a founder.
14:42
You need 20% of each, 20% in sales and 20% recruiting.
14:42
Nothing else really matters at some level as a CEO, maybe not as founders, but as CEOs.
14:48
Once you cross the 20%, you need leverage or your calendar will die.
14:53
So you need to hire one rep and you've got to hire two because otherwise, there's no A-B test.
15:00
You have to A-B test humans.
15:00
You have to A-B test humans.
15:00
You've got to hire two as hard as it is, and there's just one cheat code to those first two. There's one cheat code.
15:13
I talked to so many founders that screwed up their first sales hires, and they always nod when they hear it.
15:16
Those first couple reps have to be people you would buy your own product from. That's it.
15:24
Now we can talk about other criteria.
15:24
We can talk about normalizing for deal size.
15:24
We can talk about industry expertise.
15:29
We can talk about all this kind of stuff, but when you go out as a first time founder and interview 30 reps, and you're going to have to interview 30, and 20 are just going to break your brain because they don't do any work and they don't do any prep and they didn't even go to your website.
15:41
Then eight of the next 10 are okay, but you know it's not really going to work, but you might hire them if you get tired.
15:48
If you're lucky, one or two of them, they're like magicians.
15:52
They ask the right questions, which we could talk about.
15:52
Then take a pause and say, "Look, no matter how strange their background was, whatever they did, it's not the right background.
16:02
It's not our same deal size. It's not our industry.
16:02
They actually weren't very good at their last job.
16:06
They got let go at their last job, but I would buy from Lenny. I know.
16:06
I've been doing this for a year.
16:11
Every day, I would buy from Lenny because Lenny just explained to me my product and my customer's problems in a way that I actually believe.
16:17
Forget about what's on her LinkedIn or his LinkedIn. I would buy from Lenny."
16:21
That rep always works because you can trust them with those leads.
16:25
Almost every first time founder hires someone because they worked at Twilio or CloudFlare or wherever, and they talk the talk and they can say ACV and NRR, and they can talk all these acronyms. None of which matter. None of which matter.
16:37
We all get attracted to logos on our resume, but in our gut, I always ask them, "Did you know that Jason was going to ...
16:43
Would you buy from Jason?"
16:49
They're like, "You're right.
16:49
I wouldn't have bought from Jason, but he worked at Twilio."
16:53
So just wait, wait and interview 30 sales reps, however you find them through LinkedIn, through use recruiters, use contingent recruiters. It's exhausting. Do everything.
16:59
Work your network and then be flexible in the beginning.
17:04
We're looking for pirates and romantics in the early days.
17:08
We are not looking for folks with massive sales operations teams and enablement teams.
17:13
You're looking for that quirky one that's got a few extra IQ points, that for reasons that make no sense has fallen in love with your little product that is so feature poor and does nothing, but they love it, they love it, they love it.
17:24
My first rep I had this back in the day, he had gotten let go by a prior startup and he was struggling and he was living in his brother's garage at the time.
17:35
This was not your number one person at Snowflake, but of all the 30, he came in and what's now Adobe sign? EchoSign.
17:43
He described the whole problem.
17:43
He described how we would solve the problem for our customers in the early days of this category.
17:47
It was clear, whatever it took we needed him and whatever we needed to backfill the garage or whatever, this was the only one that could sell the product, and he did it for a decade.
17:58
Closed our first five-figure deal, first six-figure deal, first seven-figure TCV deal. Didn't scale completely.
18:03
Inside of Adobe was harder to scale inside of a 20,000 person company than it was in a six-person company, but he was still there.
18:13
He still made that far to the journey, but he was the only one that I knew that I would buy my product from, not that I would buy something from, but I would buy my product from.
18:24
Leads are so precious in the early days.
18:24
It's so hard to find leads. That's the problem.
18:24
You hire this perfect person from Snowflake and you have three leads a month and you give him two and he doesn't close them, your company's going to die. Leads are so precious.
18:36
That's what folks don't get.
18:43
So wait, and I know it's painful, and I know most founders have hired this person with the right LinkedIn that they wouldn't buy their product from. Just keep interviewing.
18:52
You need that quirky pyromaniac that loves your product and can sell it. They're out there. Amazing advice. Wow. There's so much there.
18:57
I'm going to follow a couple threads there.
19:02
In terms of the level, I know a lot of people make the mistake of going with a VP of sales pretty quickly. What's your advice?
19:06
I know you talked about general attributes, but what's your advice for the level and seniority of these first two hires?
19:14
Two things, one that's evergreen and one that's maybe especially apropos for today's environment.
19:19
The evergreen one, which I've talked about for over a decade, and I think folks that have been through it will see it, which is you need two sales reps hitting quota closing deals before you're ready to hire a manager for them.
19:32
Almost all VPs of sales, their job is to take you from rep three to 300, to take you from three to 300, to take something that's just starting to repeat, a script that's just starting to work, leads that are just starting to come in.
19:44
Then take Lenny and Jason, the two reps I have, as quirky as they are, they're crushing it.
19:55
Then I'm going to hire a more heterogeneous type of person going forward.
19:55
I'm going to hire the person from Cloudfare.
19:58
They can't all be like Lenny and Jason, they're pretty quirky, but at least I can learn from them. What's working? What are the objections?
20:02
How do we get around that feature gap?
20:06
We're one year old, we're two years old.
20:06
We've got a lot of feature gaps.
20:09
This integration doesn't quite work.
20:09
How do we box around those issues?
20:09
How do we sell our 10x feature?
20:15
Because if you're a startup, your product isn't very good, your software is not very good, and you have a competitor, but you have some 10x feature that is driving people to buy you something you're doing that does not exist in the marketplace.
20:28
The really good reps get insanely good at selling that, and the folks off the street, the new VPs often doesn't even understand the 10x feature. It's too subtle. It's too subtle. Why?
20:37
The fact that your product is localized in Portuguese magically means you can win these deals.
20:43
I'm making up something that doesn't quite make sense.
20:43
So you need two reps that are hitting quota and then you hire VP of sales.
20:47
If you hire it before then, you're doing a Hail Mary. It ain't going to work.
20:51
It never, ever, never, ever, ever, never, ever works.
20:58
You're asking them to find product market fit to be the first rep, to be the second rep and scale it all at the same time.
21:03
It's mission impossible to do all four at the same time.
21:09
So that's the biggest mistake is, Lenny, I can't get sales going at my company.
21:09
I can't do it, but I raised $4 million in my C+ round.
21:14
I'm going to go out and hire the VP of sales.
21:14
That VP of sales will not be there in eight months. You know what else?
21:18
2 million of the four will be gone because they'll never understand the product.
21:21
They will never understand.
21:21
There's so many things we could talk about, but if there's one thing I could reinforce for this audience, it's that early sales team, they've got to be product gurus for your product audience.
21:36
They've got to be product experts.
21:36
Later as you scale, they can't be or you can't scale.
21:42
When I started, when I came out of my own startup and started interviewing other folks, I remember I would interview a lot of folks at places like GitHub back in the day.
21:45
I'd be like, "Do you have a technical background? Are you an engineer?
21:49
Have you ever built any software?"
21:52
They're like, "No, I don't. I don't know.
21:52
I don't know," and I was like, "I was curious how you could do it," but GitHub was so well-established that it's 10 questions.
22:01
It's 10 questions and grab a sales engineer.
22:01
It's 10 questions and grab ...
22:01
So you got to be really good at 10 and then you grab a sales engineer.
22:05
That doesn't work in the early estate startups.
22:08
So you've got to find these sales folks that are a bit of product savants and dropping the VP of sales in that isn't a product savant, which is a big issue.
22:14
That's all mister or miss process. This is the issue.
22:19
They're all mister or miss process.
22:19
So the second point I wanted to make, and I was on the fence for years of when you hire a VP of sales, do they need to carry a bag?
22:26
Do they need to sell themselves or not? Does it matter? Does it matter?
22:31
I wasn't sure for a long time.
22:36
The reason I wasn't sure for a long time, it's not that you don't want a VP of sales carrying a bag.
22:40
I do think a VP of engineering also should commit code. We can talk about that.
22:43
Carrying a bag, meaning close sales themselves?
22:46
Yeah, not just be a boss. Have a quota. Yeah, have a quote.
22:48
The reason I was on the fence was because I was like, "Well, listen, in theory it's great, but let's say you're a hot startup and you want to go from two to six this year."
22:56
So I want to add 4 million in new bookings, and let's say I can do 400K in quota per rep.
22:56
That means I got to have 10 reps. She walks in with two. I'm at a race, aren't I?
23:04
I got to hire eight in the next six months to hit my plan, and I got to put numbers on the board.
23:10
If I'm going to out there as an individual contributor sales rep, I'm never going to hire eight people, am I?
23:18
It's never going to happen.
23:18
So I used to say I don't know if it matters, but what I've learned the last 18 to 20 months when everyone has gotten lazy, Lenny, everyone in tech has gotten lazy, is I see way too many VPs of sales that come in and never have any idea how to sell the product, never, never.
23:32
They only want to be managers.
23:38
Now, whether they carry a bag or whether what they do is they join calls with the reps, whether they backfill the reps, you want your VP of sales in deals 20, 30 hours a week when they start.
23:48
I see VPs of sales today start, they're in no deals.
23:48
I'll go to a board meeting and a VP of sales will be there two, three months, and they'll have a look on the board.
23:54
I'm like, "How's it going with Airbnb?"
23:56
and they'll be like, "I don't know. I got to ask John."
24:01
Doesn't know because it isn't in the deal, isn't even in the deal. So I see this too often.
24:08
Another company I'm on the board on, I really like this VP of sales a lot.
24:08
He joined and six months in, sales were down from where, the new bookings were down from where they were six months before. He was honest.
24:17
He's like, "The biggest problem is I feel like I didn't have time to learn this product.
24:22
It's a complicated product.
24:22
It's more complicated than the product I last sold, and I just didn't have time."
24:26
Jason, this conversation is going exactly how I'd hoped.
24:31
There's so much actionable advice here.
24:31
Let me try to summarize a little bit of the things you've said and then keep going.
24:36
So let me know what I'm missing here.
24:36
I'm going to try to just highlight some of the important things you mentioned.
24:39
So in terms of when it makes sense to start hiring your first salesperson, a couple of things you shared is you've closed the first 10 customers on your own as founders.
24:47
If you're spending more than 20% of your time on sales and you need to start creating more leverage.
24:54
I'll throw in one other thing I've heard and just to tell me if this is also true, that there's a repeatable process you've created.
24:58
You can sell consistently enough or you can tell someone, "Here's how I've been selling." Is that right? Yeah.
25:08
If you hire a VP of sales before then, it's approaching 100% chance of failure. I see.
25:13
So you can hire the first two reps before you're like, "Here's a pretty good process that has worked for me a number of times." Yeah.
25:17
Listen, as hard as it is for a lot of founders to even get their arms around, the reason is you've got to be that crummy first head of sales with them.
25:26
You've got to manage those reps.
25:26
You've got to be in the field with them.
25:30
You've got to be figuring it out before you can hire the person.
25:30
You just have to even if you're terrible at it because you're still going to be a good middler.
25:39
You're still going to be a good middler. Okay.
25:39
A few more things that stood out to me.
25:42
One is hire two sales reps immediately, not just one.
25:42
These reps you need to interview about 30 people.
25:48
Eight will be pretty good, 20 will be terrible, and two, these are people that you can see selling your product and you would buy from them.
25:54
They're often very quirky and not maybe a traditional sales background.
26:00
They've never been VPs of sales, essentially.
26:00
They're more like AEs and things like that historically or maybe not even salespeople historically. Is that right?
26:10
I think you will regret it if you don't hire these first couple of sales reps that have a couple years of experience if you're in B2B with B2B sales.
26:15
They need a couple of years of experience and they need a certain amount of maturity, and maturity is a real issue, and these are in any early hire because we just don't have time to babysit people.
26:29
There's no onboarding, there's no training.
26:29
So they need a couple years of experience, ideally something close to your deal size, we could chat about why, that would be nice, and enough maturity that you can trust them with that lead.
26:37
You can trust them with your customer. Okay.
26:43
Then you hire a VP of sales once you're ready to go from three to 300 reps.
26:48
Your advice is also give the VP of sales a bag slash a quota slash they need to be doing sales themselves in today's world.
26:53
At least for a little while.
26:53
More importantly, if they don't want to, I think in today's world you got to run from them.
26:59
Exactly whether they fully carry a quota, a half quota, whether they backfill the sales team, you want a salesperson.
27:12
Here's the thing, Lenny, you want a ...
27:12
This is going to sound silly, but it's not. Trust me on this.
27:16
For anyone watching, listening, you want a head of sales that actually wants to do sales.
27:16
I got to tell you, and I'm still struggling with this myself after the last three years or so, so many folks in all functions, we could talk about other functions too, but especially in sales, don't want to do sales anymore.
27:33
They don't want to do it. They don't want do it.
27:39
2021 was crazy because everything was too crazy.
27:39
There's too much money, too much going on.
27:39
2022 was the knife falling. That was crazy too. 2023 was just hard.
27:45
Whether it's burnout or whatever out or just too much change, I would say I've probably interviewed for different reasons, 50 VPs of sales in the last 12 months, I would say the majority don't want to do sales.
27:59
It's my first screening question.
28:04
That's why they got to carry a bag because it proves they actually still care about the craft.
28:09
The best sales folks love sales. It's a craft. They love money.
28:15
Yes, they love money, and that does matter.
28:15
Do not hire a sales rep that doesn't like money. Trust me on this one.
28:20
There's 0% chance they'll work out either, but they also like the craft.
28:25
They like honing the script.
28:25
They like beating the competition.
28:25
They like figuring out the counterfeit.
28:30
They like figuring out the weapon and the 10x feature.
28:30
They like working on a team. They like hunting.
28:34
They love it, but then sometimes I just think burnout is always a reality, but I just think that the last three years have been so yo-yoed, that folks are just, they're out. They're out.
28:45
Don't hire them no matter how smart they are, and that's the test.
28:52
I'll tell you, I talked with a really great VP of sales candidate that had worked with a top 10 tech company and I asked him what he wanted to do in this next role.
28:56
He's like, "I've got a great team.
29:02
I've got eight people that I can bring with me.
29:02
We're ready to lock and load." I'm like, "Okay.
29:05
Well, let me tell you one of my views in today's world is that you've got to actually visit more customers now, not less.
29:09
In a distributed world, it's more important to visit customers."
29:13
He lived in the East Bay in Pleasanton in the East Bay, which is maybe 20 minutes east of Oakland.
29:18
He said, "I'm willing to visit customers, but I won't go as far as the peninsula in San Francisco." He's just happy at home.
29:23
He's happy at home, Lenny, and he don't want to sell.
29:31
This guy has the best LinkedIn and the best references, but he don't want to sell anymore. He needs a job.
29:36
He wants to be a VP of sales.
29:36
I see this across the industry and I'm struggling to find answers.
29:40
I think the biggest hiring ...
29:40
We talked about a lot of tactical hiring mistakes that you can make today in sales.
29:46
The biggest strategic mistake you can make today in sales because there's so many veterans, there's so many folks that worked at Twilio and Mongo and wherever, pick any great company you want.
29:53
There's so many veterans out there, you just can't hire the ones that don't actually want to sell anymore, and there's too many, there's too many.
30:03
You mentioned that you actually just asked them in the interview.
30:07
The first question is, "Do you actually want to sell?"
30:07
What other questions do you ask for either ... Let's go through both.
30:10
You said you have these questions that you ask for the early hires and then the VP of sales.
30:14
What are some tips for people when they're interviewing these folks? It's interesting.
30:19
VP of sales or VP of product, I look for the same answer.
30:23
One of the Colombo style questions I ask them, and this is so odd.
30:23
It barely even counts as a question is, what do you want to do your first 30 days? What do you want to do?
30:33
Actually, I usually ask, "What do you want to do your first two weeks?"
30:33
In B2B, if I don't hear from the VP of sales or the VP of product that I'm going to go meet customers, out, I'm out.
30:42
There's too many VPs of product too, Lenny, that don't want to meet customers anymore either.
30:47
The majority of VPs of products that I interview, they don't meet customers.
30:47
Every single great VP of product, chief product officer I've ever worked with in my entire career, you know what the first thing they do in the first two weeks?
30:58
They're like, "Leave me alone.
30:58
I'm going to go talk to 20 customers. Leave me alone."
31:00
The first two weeks, they're like, "Leave me alone.
31:01
I'm going to go talk to 20 customers. Leave me alone.
31:01
Leave me alone, I'm going to go talk..."
31:06
They don't want to sit out on meetings and look at PRDs and talk out of their navel on endless internal meetings.
31:12
All the best ones, they say they just leave.
31:12
They literally say, "Leave me alone.
31:16
I will see you in two weeks.
31:16
I'm going to go meet with 20 customers."
31:16
And that's what products should do.
31:20
Sales, whether it's prospects or existing customers, it can vary, but they should be like, "On my first day, I want to join five calls."
31:29
And when you hear that story of, "I don't want to travel out of Pleasanton," or they say, here's what you're going to hear from the wrong person for anything, even up to 50 million in revenue, "I'm going to spend that first month working on process," "I'm going to spend that first month
31:44
getting Salesforce up and running," "I'm going to send the first month on territory planning, Lenny, because we really, with our three reps, I really want to make sure we've nailed territories, right? Lenny will do the south, Elaine will do the east, Jason will do the west."
31:54
Lenny will do the south, Elaine will do the east, Jason will do the west."
31:59
When you hear process, process, process, from any, from marketing, product, sales, customer success, too, boy, it's the death of customer success. It's just...
32:04
And it's not that you don't need process, it's just, it's even worse than it was than a few years ago.
32:10
And I know this is going to trigger some people, but the truth is they don't want to work. They don't want to work. They don't want to work.
32:19
I literally just got this LinkedIn email to work with me at SaaStr, from this person who'd been reading SaaStr for eight years.
32:23
You're like, "I want to run account management, customer success for you.
32:28
Here's what's, you're doing wrong, here's how to do it."
32:31
I'm like, "Oh, this is pretty good."
32:31
And I DMed her back, I'm like, "Great.
32:37
To be honest, you realize that you're actually going to have to talk to customers and sponsors yourself in the beginning." No response. Just out. Just out.
32:40
And that was the best one I got the last 30 days.
32:46
That was the best inbound that I personally got.
32:50
I know it sounds triggering or critical, but as founders, we have to be honest that there's this vast pool of veterans with great LinkedIns and great resumes that are so burnt out, Lenny.
33:01
And let's not blame them.
33:01
I know it sounds like I'm blaming them or being negative, and I'm trying to not be negative. I'm empathetic.
33:05
I am empathetic to the burnout, but don't, you can't hire these. There's too many.
33:11
The industry is littered with the burnt out.
33:15
They're littered with it.
33:15
And if you hear a touch of cynicism, if you hear anger, if you hear, "I don't want to meet customers in any..."
33:20
and I'm going to say any VP role, product, sales, marketing, customers...
33:24
If they don't want to meet customers their first, let's make it a 14-day test, you know they're never going to want to meet customers.
33:33
These folks that don't want to do sales that are VPs of sales, I imagine when you're further along, that's more, okay, because you don't need them to be doing sales, right?
33:39
They want to manage, optimize. No.
33:43
I see you shaking your head?
33:43
I mean, okay, you think, okay, there's an element, let's call it north of 50 or 100 million, where for, what's sometimes called commercial sales, SMB sales, it really is all process. Okay? So for sure, I agree.
33:54
But at Salesforce, they're trying to close $100-million-plus deals.
34:02
You think that the sales leadership doesn't need to be in those deals?
34:07
You think they can just hit refresh on the dashboards and track them from home? No.
34:12
Marc Benioff today is still flying to meet customers.
34:12
He said the other day, why does Marc Benioff go to Davos?
34:18
He sits, and I've never been to Davos.
34:18
He sits at the same place, at the top of some staircase. Okay?
34:24
And Salesforce drops millions of dollars, and he waits to meet customers, prospects, and partners in person all day, because it's efficient. Because it's efficient.
34:31
Because he can do 50 or 100 customer or prospect meetings a day at Davos.
34:36
He's still doing it at 30-something billion in revenue. Right?
34:36
So this idea that, is there some truth at...
34:44
For example, when I worked at Adobe back in the day, it is true that Adobe, which was, parts of the business, sales literally was dashboards. I get it.
34:50
Okay, at four billion, 10 billion in revenue, but most of your audience is not ready to hire at four billion or 10 billion in revenue.
35:04
They're not ready to hire that person. Don't hire them, right?
35:08
I don't know, maybe Satya's listening. You never know.
35:12
I think on the sales side of the business, they're flying out to the big deals?
35:17
To close the loop on this thread, when you're interviewing the early sales reps, those first two quirky folks, what are some questions and ways to know if there may be a good fit?
35:22
You mentioned one of, you feel like you would buy from them? Okay.
35:27
The one, really, the simplest one, and early in my career, I thought this was silly or hated it, this Glengarry Glen Ross.
35:34
I don't know if it was Glengarry Glen Ross or that toxic Leo movie about sales, which is still entertaining.
35:38
Yeah, one way or another, Lenny, it's got to be, "Sell me this pen."
35:44
But it's not "Sell me this pen," it's "Sell me this app."
35:48
So I don't like surprises, I don't like games.
35:48
I like to do this in a second interview or whatever. Give them time.
35:54
And I don't like to judge too harshly, but whether it's the first interview or the second, they got to sell you this pen.
35:59
They've got to put in the 30 minutes of work and maybe it's two hours.
36:04
But here's the thing, today's world, you can go on YouTube or someone's website...
36:09
There's an explainer video for every product under the sun, isn't there?
36:14
I am shocked how many salespeople I have met, Lenny, from SDR to SEB of sales that, by the time...
36:22
And I'm doing an interview for a portfolio company, this isn't a screener interview, they haven't even watched an explainer video yet.
36:25
I could be the fifth or eighth interview, and they don't know how the product works.
36:28
They have not even gone to the effort of searching YouTube or the homepage and watching it.
36:37
And forget about explainer videos enough.
36:37
But so many companies do webinars now and they publish them on the...
36:42
Really good stuff, customer testimonials. Right?
36:42
If you're a sales rep, you don't actually have to know how the webhooks work or how to provision an API key, but you need to know the product as well as that webinar that's on YouTube.
36:51
And 98 out of 100 folks won't bother in an interview. They won't bother.
36:59
They're just going to click on "Apply" on the ATS and tell you, "Hey, I recently stumbled upon whatever. It looks like...
37:05
Do you have time to discuss." Right?
37:10
But that one that actually does enough work and watches the video, and then can sell it to you, and they're going to make mistakes.
37:14
They're not going to get it right, but they have enough confidence with the core problem to be solved.
37:17
Because here's the mistake that 99% of founders and sales reps make.
37:23
We're not really selling in B2B. We're solving problems.
37:32
And this is why so many people are struggling in 2024, because they can't...
37:32
their products, as sales reps, as companies, they can't solve big problems anymore.
37:40
Our job as sales reps in SaaS is to not sell a used car, okay?
37:40
We are selling a Tesla Model 3 performance. It has competition.
37:45
I might not need it this week, but it's pretty darn good.
37:52
And I'm going to help you understand, Lenny, because you're in the market for the car, why this is the best one.
37:56
I'm going to be honest about where it's not.
37:56
I'm going to answer all your questions.
38:00
I'm such an expert, and then I'm going to ask you, Lenny, when is that...
38:04
You have 280,000 miles on the Civic?
38:04
Let me help you get you into that Model 3 performance today.
38:11
And I've even got a special discount for the end of this month.
38:11
And let me just help you."
38:14
And I've spent four calls answering all your questions and I'm explained to you all the things and why the supercharging network is better than the regular one that doesn't really work at the charger near your house.
38:23
And I've gone on Google and I've seen there's no charging network near your house, there's only supercharges. I got you, don't I?
38:27
And that's the job of SaaS and sales, because we're not selling commodities.
38:33
And that's why the best reps will also tell reps when not to buy their product.
38:38
As painful as that seems in tougher times, in 2024, the best reps say, "No, we're not there yet. We're not the right...
38:43
If you need this feature, if you need this integration, I want you back in six months when you use this big product that isn't that great.
38:52
But today, we're not the right solution for you."
38:52
That's, the best ones do that.
38:57
They have the confidence to know to close it.
38:57
And the rest of the world thinks this is some sort of adversarial transactional thing and it's not. Right? Software...
39:07
I think hopefully all your audience would agree, when it's done right, software's magical.
39:12
It solves incredible problems, incredible problems.
39:12
What Airbnb does, what Uber does, what SaaS... Things solve...
39:18
I can track my customers, I can manage, I can automate my communications. It's magical.
39:23
You shouldn't have to use boiler room tactics and use [inaudible 00:39:30] tactics when you have something.
39:28
But, it doesn't sell itself, except for a little while in late 2020, early 2021, that screwed the whole world up when products actually sold themselves.
39:38
I feel like this is a separate podcast we should do of just how to get better at sales and how to sell.
39:44
But, I feel like that's its own hour of conversation.
39:49
I did a great episode with April Dunford where, I don't know if you follow her stuff, but she- Yes. ...
39:54
essentially describes exactly your approach of help people understand the market, help them understand the entire landscape, and then talk about your problem.
39:59
So anyway, we'll link to that episode.
40:03
Has a lot of good advice there.
40:03
In terms of this interview, selling-me-a-pen approach, to give people something very concrete to do.
40:09
How do you actually set this up?
40:09
Is it like, "Sell me your product," and then they put together a pitch for your team and they pitch you on a product?
40:18
I'll tell you, until the boom, until everyone in late 2020 got so desperate to hire anyone with a pulse, almost everyone in sales had to come and they had, during an interview process, they actually had to do the pitch.
40:30
They would come and you used to do it in person with this screen.
40:34
You can do it on Zoom now, it really doesn't matter, but do it for real.
40:34
Do it for real, and everyone would see.
40:39
And everyone in recruiting change, people stopped doing reference checks, they stopped doing these tests, and they would just hire warm bodies.
40:51
Late 2020, I can tell you a funny story in a second, and it was okay until it wasn't.
40:51
And our hiring processes have not reverted back to pre-March, 2020, and I think it's failing founders left and right.
41:02
I can't tell you, I would say 95% of the hiring I see out there, people don't do reference checks anymore, Lenny.
41:08
And we can talk about when they work and when they don't, but no one does them. No one does them.
41:11
You're going to invest so much...
41:11
Forget about the salary, it doesn't really matter.
41:19
So much time, your time, your leads, everything's so precious, to bring Jason into your company and you're going to go through all this recruiting process and you're not even going to do any reference checks?
41:28
People don't even do reference checks.
41:33
And they don't, they stopped doing, "Do me this demo," because they were so worried the rep would go to Gusto or would go to Deal, or would go to remote. There was no time. I got to get... This SDR has 50 offers.
41:41
Lenny, we got to hire this SDR with three weeks of experience.
41:46
We've got to decide today.
41:46
And that's the way, and hiring does not come back.
41:46
If those hires bounce, not only is it bad for you, but it's a disservice to the... It's worse for the hire.
41:53
I mean, that poor CloudFlare woman that blew up with the thing, there's so many issues there we could dig into, but it's all Cloudflare fault for hiring her.
42:06
Okay, let's forget about that she didn't close a single deal.
42:12
Okay, so objectively, in sales, should you retain your job in sales if you can't close a single deal?
42:18
I don't want to get into some of the triggering things, but remember, if you hire someone and they fail, it's all your fault.
42:21
She didn't know what she was getting herself into.
42:25
No candidates can do enough diligence ever. There's not enough time. There isn't enough time.
42:29
And this is true all the way to the top.
42:29
And so, as an investor, a board member, it's funny, when I do interviews, I do this thing, I try to be the last interview sometimes, and the founders don't want me to do it. They want me to sell.
42:44
I don't want to be the last one.
42:44
And what I want to do is when, Lenny, you've decided to join Ellen at her startup, right?
42:48
At the end, I said, "Look, Lenny, I've talked to Ellen, she loves you. You have the job. You've got the job.
42:52
What I don't want you to do, Lenny is bouncing three months after.
42:57
So let's slow down, let's talk about the questions you have on your mind, and let's have a safe space where we can make sure you're going to be happy and successful there." Right?
43:09
And sometimes even the founders get mad at me for doing this, because sometimes, the candidate bails.
43:12
But I'm like, "I know you're mad at me today, but it is your fault.
43:20
A hundred percent your fault if any of your hires fail. Don't blame them. And I'm guilty of this.
43:24
I get upset when people start and they don't give it their all or they don't do it.
43:24
I mean, what if you hired someone for your podcast and they decided, "You know what?
43:33
I don't want to do the podcast this week. I'm tired. I'll do it..."
43:35
You're so mad at them, but you should've seen it during the hiring process. Right?
43:42
So, tying it back, that's why you've got to do this, "Sell me this pen."
43:47
You've got to, before you hire the salesperson, have them sell your product real. Do the demo.
43:51
And if they need more time, give them more time.
43:51
Let them watch another demo.
43:57
Don't have them feel like it's a trap or spook them.
43:57
Treat them the way you would like to be treated.
44:02
But if you skip this step, I mean, what's the point? You're not helping them.
44:08
What I love about this process is it connects exactly to what you recommended you look for in these hires is, "Would I buy my product from these people?"
44:13
So this makes a lot of sense.
44:17
And you give them this assignment at home and they do work on this and they come in, right?
44:20
It's not like come to the office?
44:20
If you talk to a great transactional VP of sales that's hiring tons of reps that do it, they'll make them do...
44:24
If they're still doing this, they'll make you sell the pen fast in the process. They don't have time.
44:29
They're doing 20 interviews a week, 30 interviews a week, you've got to sell me this pen.
44:32
But if you're a founder and I'm talking about you've already talked to a bunch of candidates, you're down to one or two, make them, tell them, "Look, this isn't a trick.
44:40
I'm not that great at telling my product myself, but I got to know that you're going to be happy and successful here. So do a demo for me."
44:49
And if they won't do it, they're not a salesperson.
44:49
And too many people went into sales, not...
44:53
The other weird thing about B2B sales in good times is actually, a lot of these folks are not really what you might think as salespeople.
44:59
They can't do outbound, they can't pick up the phone.
45:04
All they know how to do is to manage leads that come in and say, "I want to buy today."
45:04
And you need those people, too. Okay?
45:09
And I'm not saying you don't need those people, too, but that's not always what we think of as sales.
45:13
Another black box for me, and I think a lot of people with sales, is comp and quota, had actually set up their comp for early hires, and then how to actually decide on a quota.
45:23
What advice do you have for figuring that out early on?
45:27
What percentage is commission, what percentage is salary?
45:27
All that- Yeah, everyone gets this wrong. We worry...
45:30
Look, at scale, when you're extremely mature, extremely mature, and very profitable, you really got to tweak this stuff very carefully, and we could talk about that if it's relevant.
45:43
But, in the beginning, we get this all wrong.
45:48
What matters is, can a sales rep close more than they take home?
45:48
In the very beginning, that's all that matters.
45:55
It's just you selling, right?
45:55
The first three months of a new rep, you're lucky if they can close as much as their take-home pay is, their OT.
46:01
And so, in the really early days, my early, early day comp plan is, look, your first three months, you keep a hundred percent of what you close.
46:12
Of course, that's not profitable for the business, but you've got to invest in them, right?
46:15
You keep a hundred percent of what you close.
46:15
And if you have enough going on in your business, usually, that's enough to put supper on the stove.
46:24
And that's without a salary? No, no.
46:24
You pick an OT, a salary, but you got to...
46:28
Okay, let's step back for a minute. You got to pay market. You got to pay market.
46:35
And in the early days, if you're bootstrapped or really lean, this stresses folks out.
46:41
I just talked to this great rep, Lenny, but he wants 150k OTE.
46:41
And in fact, it's a step down.
46:48
He had 170k at Slack, but he knows this isn't a startup. He wants 100. He might take 140.
46:52
And OTE is total comp, overall total comp. Total comp. And the founder panics.
46:52
"I don't have, I'm only making 60. How can I pay 140?"
46:57
Well, let's break it down for a minute.
46:57
First of all, let's be tactical.
47:03
It's usually 50/50, right?
47:03
50% base, 50% bonus for a sales rep.
47:03
So they're really only taking home a 70k base, trying to make another 70. Okay?
47:10
Then 70 divided by 12, help me do my math. It's not quite 6k month.
47:17
Well, maybe with taxes it is.
47:17
You're really only paying 6k a month for a couple months to see if this experiment works out.
47:22
You're investing 20,000, you don't have $20,000 to do sales?
47:27
Then don't do sales, if you can't find $20,000.
47:27
So people freak out too much about this comp-line number, this base and bonus, the on-target earnings, OTE, and they're not more practical about what am I committing to cash upfront?
47:44
Two, you need a plan where it's a win-win.
47:44
So if this person makes 140, but ultimately, a sales rep's got to bring in four to five times what they take home.
47:51
That 140's got to be 500, 600 or more.
47:58
The more enterprise you are, the bigger the multiple has to be, and the higher the comp.
48:03
But it's got to be 3x to 5x at a minimum, 3x for small businesses, 4x for mid-market, 5...
48:09
You got to get there, but you don't have to be there on day one and two.
48:09
When you get there, the reps should be accretive, shouldn't they be?
48:13
If they make 150 and they bring in 450, unless your marketing costs are out of control, which can happen, but that's not sales fault is it?
48:24
If your marketing costs are reasonable and you pay a sales rep 150 for closing 450, if you engineer your plan right, you should be smiling, not frowning.
48:34
Where it gets tough is when you have a ton of folks not closing.
48:34
When you have a ton of folks not closing and you have extremely high marketing costs, then it all breaks.
48:40
Your cap breaks, your payback period breaks.
48:45
But, if you have inbound leads, if you have demand, and you have sales reps that can sell you this pen, they're going to be accretive, Lenny, because of that math.
48:54
And take the pressure off, don't make them close 5x their take on their first quarter, make them close 1x.
48:59
Let them put points on board, let them eat.
48:59
And so negotiating, here's the point if you think about it.
49:05
Negotiating someone down from a 150k OTE to 130, it's not going to make any difference.
49:10
You want them to close 600 or 700.
49:10
It's not going to matter.
49:15
At scale, does it matter? For Mongo maybe. Maybe.
49:15
But, what you care about is how much more can they close and they bring in?
49:22
And then you, that's why you want them to make a lot of money.
49:22
You want them to be rich.
49:26
You want them to take home a lot for a whole bunch of reasons.
49:26
And so, don't freak out about the acronym OTE, what they take home.
49:31
Figure out what it's really going to cost you and would you buy from them?
49:35
And if you would, they're probably going to bring in more than they take home. Right?
49:40
And on the marketing side, in early days, you're lucky if you can find a marketing channel that is that accretive. Amazing. Okay.
49:44
So just to summarize, you start a sales person with, say, 75k in salary and then say 75k in expected sales.
49:53
And they take- Bonus, bonus. Bonus. Bonus from sales, yep.
50:02
Bonus from sales and the the idea there is they take 100% initially of their sales, for the first month or two, just to make it feel amazing. They're making money.
50:11
See how they're doing, don't put a lot of pressure on them.
50:11
And then the plan is, over time, get it to a point where they're bringing into the business four to five times what they're taking home in terms of bonus. Yeah, yeah.
50:24
I set expectations every month or two, or is it every quarter?
50:24
We're going to revisit your comp and quota and adjust.
50:28
If you get it right, you never have to revisit it. Not for years.
50:34
I mean, I'm using the same sales comp plan I have for a lot of years. It still works.
50:39
Listen, you can make tweaks and you've got to listen, and we're all human beings.
50:39
And people, and again, remember, your sales team has to eat.
50:44
They've got to eat, okay?
50:44
And you've got to be somewhat competitive.
50:48
But, there's only so much you can tweak, Lenny.
50:48
I mean, they have to bring, close more than they bring home. Right?
50:52
And so, you can make tweaks at the margin.
50:57
The problem is if you make too many tweaks to this model, you burn up all the cash.
50:57
You're trying to plug a leaky boat, there's no point. There's no point. There's no point.
51:02
And remember, related to this, for a long time, for most folks, unless you're, even if you're hyper funded, you're better off with fewer, better reps than more reps.
51:14
There is a stage when you get big enough where this concept of capacity planning really does matter.
51:20
Lenny, if I got to go from 50 to 100 this year, okay?
51:24
I'm going to add 50 million.
51:24
If each of my reps can do 500k, I need a hundred, don't I? Okay.
51:28
And literally, if you have 20, you mathematically cannot hit the plan.
51:28
So there's a certain truth at scale.
51:33
In the early days, this is a rookie error.
51:33
I'd much rather have two reps, each closing a million than 20 reps struggling to close 100k each.
51:39
Culturally, it's terrible.
51:46
There's no domain knowledge in the company.
51:46
Everyone's miserable, everyone's fighting.
51:50
What you want to do in the early days is concentrate your leads and your best closers, at the same time, bringing new people up.
51:54
But you've got to concentrate your leads to your best closers.
51:57
And that means year two, year three, year four, they should be making a lot of money.
52:01
Lot of money, sometimes too much.
52:01
I remember the first investment I ever made was a company called Pipedrive, which sold for a billion and a half.
52:06
SMB CRM, and I put in the first sales rep there. He used to work for me.
52:12
And the founders got mad at him.
52:12
They got mad at him, because in three months, he was making more than any of the founders. They were pissed.
52:21
I'm like, "Guys, I know we're have different backgrounds and cultures, but this is what you want."
52:26
But it took them a long time culturally as self-serve...
52:26
Because Pipedrive was 100% self-serve at the time.
52:32
They'd never had a sales rep.
52:32
And I put the guy in, and what he did was he went and he looked, all these self-serve customers, he's like, this was the company was about two million revenue at the time.
52:40
And he's like, "Okay, who's bought more than one seat?"
52:44
He just did a reverse sort and he called them.
52:44
I remember he called AOL back in the day and he's like, "You guys have 20 seats of Pipedrive.
52:50
Would you like to buy more for your sales team?"
52:50
They're like, "Thank you very much. We'll take 100 seats."
52:54
And he just went down the list, from the top to the bottom, and he took home 20% of those deals.
53:00
Now that difference, that extra 80 seats at AOL, he brought it in.
53:06
So Kim, keeping 20% of that is a great deal for the company, right?
53:06
But he was pretty good at it and he was the only person for a while, so he made hundreds and hundreds of thousands of dollars when the poor company, the founders were paying themselves 50.
53:20
So your advice there is don't be sad if your salesperson is making tons of money.
53:25
If you architect the simple sales fund we talked about, and they're making a lot of money, you're making a lot of money, and your equity is worth a lot of money, your equity is worth a lot of money. Right?
53:31
When do you make that switch from they're taking home 100% of what they're selling to smaller percentage?
53:40
Look, some people are going to think it's goofy what I said about 100.
53:40
I just view it as a simple ramp.
53:44
I think you do it for one quarter max. One quarter.
53:44
The problem is if you let this go for too long, more than a quarter, if you make it too easy for long a quarter, the problem is the mediocre lean into it too much, and that doesn't help.
53:53
And not only does it not help you, it doesn't help them.
53:58
You don't want to make mishires. They're so damn...
53:58
I mean, you could have a whole podcast only just on mishires.
54:04
It's probably the single most important thing in scaling startups.
54:08
It's not hires, it's mishires.
54:08
It's a tragedy if you mis-hire a rep, but you don't want them there six months.
54:13
It's not good for them either.
54:13
You want to support them, you want to help them find a place where they're successful.
54:17
And here's the quirky thing on the mishires, and this is why that first guy I hired was mid-pack.
54:21
He was less than mid-pack.
54:21
Here's the thing about sales is, someone can be very good in certain sales environments and completely fail in other ones, completely fail.
54:31
It's probably more binary than any other function.
54:38
And so you got to find it before you hire them, but you also got to root it out fast, because those leads are too precious.
54:43
And it doesn't mean they won't go on to another company and be wildly successful, but you could utterly fail.
54:46
And the one related point I'll give, if I had to throw one hint on this first, any of these reps, first 10 and VP of sales, one hint more than anything else, trust...
55:00
got to hire someone whose last product was harder to sell. This is so important.
55:07
This is a recipe for utter disaster.
55:07
If you've, take someone in sales and their last product was easier to sell, they will have none of the skills to sell your product. But, this is the...
55:23
and I'll give you an example in a second.
55:27
If you hire someone from something that was just a smidge harder, a smidge harder to sell, and they come into your company, it's like they're on Mars.
55:32
It's like weight has been released from their feet.
55:37
They learned how to sell a harder product and get it done, and then they come to you.
55:43
And the first example I had, the first SDR I hired was a guy named Sam Blond, who went on to be CRO at Brex, and then now is a partner at Founders Fund.
55:48
We worked together from the very beginning, first SDR.
55:55
And he came, before that, he was an SDR at a company called Intacct, which was bought for a billion, which was online financials. Okay?
55:59
And back in the day, we know what the one thing people didn't want to put in their cloud was?
56:05
Their financial statements, okay?
56:09
It just wasn't trusted that.
56:09
There are some things you would trust to the cloud, like A CRM, but they'd be like, "These are my crown jewels. I can't put these..."
56:13
So he went from desperately trying to convince folks to move a business process to the cloud. They had no interest.
56:18
And he came to us, and it was hard, but it wasn't that hard.
56:21
And he instantly was number one.
56:25
He went from SDR to SMB-AE to mid-market AE to director of sales, to head of this whole sale...
56:31
Because, I mean, there are many reasons he was great, but he came to me and I said, "Sam, why are you crushing it when everyone else here is struggling?"
56:34
He's like, "This is much easier than Intacct."
56:39
So hire someone like that and don't make...
56:39
No matter how much you like them, the sell me this pen thing will control for it a bit, okay?
56:47
But, when we give, we give, we give in the hiring process.
56:52
We never give what we want.
56:52
Be very, very careful if the last product was easier to sell. I love this advice.
56:57
What is a heuristic that the last product was harder to sell than yours?
56:57
What tells you that that's probably true?
57:02
Be very careful if it was more technical, very technical.
57:07
Some folks can go from a business process sale.
57:07
They can go from selling a Gong or a sales software and outreach, and they can go sell a complicated API to VPs of engineering or VPs of product, but most can't. Okay?
57:19
So more technical is a tough heuristic.
57:19
More competitive is a positive.
57:26
What really works, Lenny, is if you hire someone from the number four in the space and they did well.
57:32
You take someone that was number four in the space and then you're number two in the space?
57:39
You think number two's really hard because number one's crushing you?
57:39
But they're at number four in a space where no one can tell the difference between these products?
57:43
That's a great one, right?
57:47
So a space that's more competitive, a space that is a positive, more technical.
57:55
The other one related to technical, on the pure B2B side, is much more complicated business process.
57:59
I see folks fail in B2B when they've sold us...
57:59
Yeah, it's hard, but they've sold a simple business process.
58:06
They go to something that's got a lot of integrations, a lot of complexity, and a lot of business process change, and they just melt because it's too complicated. They just melt, right?
58:16
There's a company I invested in, it's doing over 20 million today.
58:21
And for some reason, to simplify what they do, which is pretty complicated, they called it the Gong for X. Okay? The Gong for X.
58:27
And it's great to get a VC meeting and a few other, but it's not even on their homepage, okay?
58:32
It doesn't really make sense.
58:35
And the CEO had me listen to this senior sales exec he hired, and the only thing he could tell the prospect was that they were Gong for X.
58:41
And the prospect kept asking, "Well, how does this deep integration with this business process flow and Zendesk works, and how does this go over to Salesforce?"
58:50
He's like, "Well, we're Gong for X."
58:50
That $600,000 deal was lost. Right?
59:00
But, maybe that works in some space, right?
59:00
And Gong's hard to sell today, too, don't get me wrong.
59:04
But you see my point, it's just that simplicity, it's too complicated, right?
59:04
And I know it's not the perfect heuristic, other than this technical thing, but the technical one, man, trust me.
59:13
Too many B2B type reps melt in B2D. They just melt.
59:13
They just, selling to VP of eng is a different...
59:25
It's the same beast, but they don't suffer fools, do they?
59:25
Not the VP of engineerings I'm close. They don't suffer fools.
59:29
I haven't heard this term, B2D before, business to developers. To developer, yeah.
59:36
I imagine that what it stands for. Oh, interesting.
59:36
Haven't heard that term before.
59:36
Okay, let me zoom out a bit and I want to move on to a different topic.
59:39
But before we do that, so we've talked about kind of these early days of hiring your first two reps, getting your VP of sales to help scale out the team.
59:48
To give people a sense of where this goes, as the business scales, what does the org evolution look like?
59:53
You have these two reps doing sales on their own, then you have a manager.
59:58
What does it look like over the next couple phases of the sales org?
1:00:03
Look, to simplify, there's rules of eight.
1:00:03
So in sales, I'm actually not sure what the tip of heuristic is in product, because product teams are leaner, at least I hope.
1:00:13
I like it when they're leaner.
1:00:13
But the thing about sales is there's no efficiency.
1:00:13
If you have a sales-led motion, half your company is going to be in sales at 10 millionaire, half your company is going to be in sales at 50, half your company is going to be in sales at 100.
1:00:27
One of the tough parts of the software model is that there's no, there's actually almost anti-efficiencies in sales.
1:00:31
The public companies are actually less, they have the higher CACs than startups, believe it or not, because they have so much market penetration.
1:00:37
So you're going to need a lot of people.
1:00:42
And it's rules of eight, eight SDRs, outbound reps need one manager, eight AEs, eight sales execs need a director above them.
1:00:48
And then when you really scale, eight directors.
1:00:53
You don't really ever going to have eight directors, but eight directors could have a VP or eight reports.
1:00:56
And so there's rules of eight.
1:00:56
If you want to build an organization on it, it's all rules of eight.
1:01:01
For a while, for SDRs, thinking this was this high velocity entry-level position, people pushed it to 12.
1:01:06
But the more folks I talk to today, the more I hear, everyone's reverted to eight.
1:01:13
I'd rather have fewer SDRs, having better conversations.
1:01:13
And so it's just, you can build your whole org with eights.
1:01:18
That is way too easy of an answer.
1:01:18
So the idea there is you hire this VP of sales, then you hire six more sales reps, AEs. So what happens next?
1:01:30
You hire another- Got to start hiring managers. Manager, got it. Yeah. Yeah.
1:01:33
And then you scale eight more reps.
1:01:33
And once you have eight AEs scaled, you almost always are going to start, a VP's going to already...
1:01:39
A good VP of sales already be hunting two directors. Two directors.
1:01:45
Whether they're just split up normally, whether they're east, west is a classic way.
1:01:45
Another way, you might have smaller and larger customers.
1:01:50
That's pretty standard, right?
1:01:52
Commercial and enterprise.
1:01:52
But a good VP of sales, once you have, she or he has eight reports, will be bringing in two directors, or maybe two VPs if they're an SVP.
1:01:58
There's a lot of title- ...
1:02:02
directors or maybe two VPs if they're an SVP.
1:02:02
There's a lot of title inflation today, which doesn't bother me nearly as much as a lot of other things we've chatted about.
1:02:04
I don't care what your title is if you'll actually do sales or do work, but yeah, we need to bring in managers at 8:00.
1:02:12
And folks that can, also, a related point is, a lot of founders were, "When will my ...
1:02:18
" I really love my head of sales, but she's a stretch.
1:02:18
Most of them should be stretches.
1:02:25
If you hire the seasoned one, they're not going to work, so for 95 out of 100 of us, our first head of sales should be a stretch VP of Sales.
1:02:29
And what that means is, usually, they were a director before that or a senior director or sort of a VP, okay?
1:02:33
But you should be cautious about hiring your first VP of Sales for their first third VP of Sales gig.
1:02:38
They're not willing to do the job anymore.
1:02:42
You need a stretch and it's worth it for their career growth.
1:02:42
It's worth it for their personal growth.
1:02:46
It's worth it for the equity, right?
1:02:46
So you're going to hire a stretch.
1:02:49
That's an important tip right there.
1:02:49
But then, you're going to be a little worried, how far can Lenny go? How far can ...
1:02:54
I love Lenny, but he was a director for two years before this, and this is his first rule, and he did so good last year, but I'm worried Lenny's going to break.
1:03:07
I'm worried Lenny's going to break.
1:03:07
And related to this quote, the simple answer is, Lenny will break if he can't source those directors under him.
1:03:12
You can scale forever as a sales leader if you can hire better managers under you.
1:03:18
And it's true of any functional area, but what you'll see in sales is, you'll see your stretch VP of Sales drown when they never can hire better managers under them, They'll end up doing some weird internal promotions, which you want, you want to do internal promotions.
1:03:35
My rule is you want to promote 50% from within and hire 50% without for your managers, but if, really, the only people you can promote are just junior people on your team, you can't find leaders, you can't scale.
1:03:47
I do see this happen too frequently is, a first time out of sales, does it, and then, they're like, "Here are my managers, Lorraine and Jason, but they really were just reps for two years and they don't know how to do it."
1:03:57
So you have a whole bunch of people who don't know how to do it.
1:04:01
That's when the organization cracks.
1:04:06
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1:04:10
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1:04:22
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1:04:51
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1:04:55
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1:05:01
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1:05:11
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1:05:24
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1:05:24
There's these terms that we throw, around account executive reps.
1:05:27
It might be helpful just to give people a sense of what does this actually mean when someone's an account executive.
1:05:31
Is it that they're just sitting there calling and doing sales directly?
1:05:34
Whatever the key terms are for the roles or the title might be helpful to quickly summarize.
1:05:39
Yeah, I think the two ones that are probably less obvious for folks that are new are SDR, Sales development representative, and AE, account executive. Okay, great.
1:05:49
And SDR is, generally, although I wish it wasn't, it is generally an entry level position, often fresh out of school, generally paid on the order of 60K to 80K, OTE and SaaS and US-based SaaS, and their job is to email for dollars, dial for dollars, and in many cases, to screen, to screen inbound leads.
1:06:08
It's entry level, and their job is to pass on a lead to a sales executive, an account executive, an AE.
1:06:15
Not all companies have SDRs.
1:06:15
It's a longer topic, but pretty much all the best teams have some type of SDR function now because we've learned we want to specialize.
1:06:28
We want openers opening and we want closers closing, so that's the rough idea.
1:06:34
SDRs are openers in some cases, and account executives are the more seasoned folks closing.
1:06:38
And it varies, compensation from account executives that are US-based could be anywhere from like 90K to 200K, depending on, that's with base and bonus split at 50/50, depending on whether they're hunting tiny deals or big ones.
1:06:50
That's the way an account executive works.
1:06:50
And I think what doesn't happen today ...
1:06:55
Those are the acronyms, SDR and AE.
1:06:55
I think people can figure out VP of Sales, that's vice president of sales.
1:07:01
I think a thing that's gone on in the industry that founders expect now because there's so much discussion of it on LinkedIn and social media, but I haven't found work, is that an account executive will magically be full stack.
1:07:09
They will do outbound themselves, they'll go use ZoomInfo and Apollo and develop a list themselves, they'll manage that outbound list themselves.
1:07:21
If they don't have enough inbound, in their free time, you know what they'll do, Lenny, in their free time?
1:07:26
They'll just do more outbound.
1:07:26
You know what sales reps do in their free time?
1:07:30
Today, they sell real estate or courses.
1:07:36
If you want a tip, for founders, I know you want this full stack AE, and they do exist when they're micromanaged in certain high performance sales organizations, but they don't exist in real life. They're specialized.
1:07:46
Most AEs, they want to be closers, they want to be handed a lead, a contact me, a lead.
1:07:51
They want to work the lead and close the lead, and you hire some SDRs to help generate more demand.
1:07:55
Those are the basic acronyms.
1:07:55
What's hard for most founders, here's the tough part, most founders have enough stamina to manage a couple of these AEs, these account executives, these folks who work the leads.
1:08:10
Most founders do not have the stamina to manage 10 kids fresh out of college that need to be micromanaged on an hourly basis to call leads.
1:08:16
Very, very few founders themselves can manage a team of SDRs, but if you can, it's like a superpower. That was really helpful.
1:08:28
I did not know what exactly these terms represented, and when you're hiring those first two reps, they should be at the account executive level. Yes.
1:08:36
And they'll do some outbound and they'll do some of this SDR work.
1:08:36
It's just, ultimately, people end up specializing.
1:08:40
What is the title for someone above the account executive? Is it Director of Sales? Yeah. There's really no ... It's a meta topic.
1:08:50
I wish there were another career path for these ICs.
1:08:50
This does exist in product, it does exist in engineering.
1:08:55
It should exist in sales, but the truth is it doesn't.
1:08:55
There is no senior SDR for this outbound.
1:09:01
And for this AE, this person closing, yes, you can go more enterprise and make more money, but there isn't really a senior AE track, but there should be. It's unfortunate. It should be.
1:09:12
Too many of these folks are looking for, they look to go into management for promotion when what they really should look for is to be a super IC, and it's a shame that more folks don't try to implement a super IC role in sales, but that's basically what the career path is in management.
1:09:27
And that's why another tip, another mistake that founders often make is, they hire the number one account executive at a hot company to be their head of sales.
1:09:38
It's not the same skills.
1:09:38
Most sales executives should not be managers.
1:09:45
They don't want to be managers.
1:09:45
They want to be individuals.
1:09:45
They want to be highly paid individual contributors, these days, that mostly work from home and make a lot of money working 30 hours a week.
1:09:53
That does not naturally breed great management skills.
1:10:02
I want to shift directions a little bit and talk about product and sales.
1:10:02
A lot of listeners of this podcast are product managers or founders building products.
1:10:10
How involved should product managers be in sales.
1:10:10
And vice versa, how involved should sales be in the roadmap and what's being built?
1:10:16
I think, in the best run B2B organizations that I've worked with, and my own as well, the great, at least the head of product, the VP of Products, are deeply involved in sales.
1:10:31
Deeply involved in sales.
1:10:31
Deeply involved in sales.
1:10:31
A company I invested in that's just crossing $60 million, they just had a meeting with who will be their largest customer.
1:10:43
And the head of product who was there at the board meeting is like, "Thank God I was there because what they want to do with our product, we sort of do. We sort of."
1:10:54
Now, the product does do it, but what they want to basically do is deconstruct the product.
1:10:59
They don't actually want to use the backend and analytics and some other pieces, but they don't really need the front end of the product.
1:11:03
If the head of product hadn't been there, that deal would've been lost. It would've been lost. An AE doesn't know that.
1:11:07
Even if an AE did know that, a sales rep did know that even.
1:11:13
If the VP of Sales didn't know ...
1:11:13
A VP of Sales would not be empowered enough to stand up in a meeting and say, "I know what you want.
1:11:17
We can launch tomorrow on this and, in 90 days, we'll tweak the UI so it does exactly what you want."
1:11:23
You want that in your big deals.
1:11:28
If you have that magical VP of Product that truly owns the roadmap, owns it and has the gravitas for that meeting, they become like the mini CEO in these meetings.
1:11:39
A lot of CEOs, at scale, I've talked to, I was just talking with Daniel Chait at Greenhouse, he does this, they're over $200 million, when they have that head of product, they divide and conquer with the big customers.
1:11:47
And the CEO can do some and the VP of product can do others.
1:11:52
And sometimes, the VP of Eng, if they're very producty, can also do that role too.
1:11:52
Sometimes, you get these three weapons.
1:11:56
In the old days, sometimes, your VP of Customer Success could do this, but unfortunately, and I know this is going to trigger some people, I don't see customer success stepping up for this pseudo product role anymore and I see them shrinking more and more into process.
1:12:10
But that magical VP product, they give you that scale, that CEO level scale.
1:12:17
Can a product manager or a director do that?
1:12:17
In my experience, the best ones, absolutely.
1:12:23
The mid-pack ones that are working on the color of the pixel, I'd rather not have them in the deal.
1:12:30
You have to be utterly fluent in the product, the entire product.
1:12:30
You have to be the one that knows how to connect the pieces that don't ought to always connect themselves, and you have to have the gravitas to work with a large customer, to make commitments.
1:12:42
That deep knowledge and commitment, it's hard below the VP level, but if it does exist, I love it.
1:12:49
They become one of the greatest strategic weapons of a B2B company is bringing the product team, because the VP of Sales never quite goes that deep and can't make the commits, and the CEO can't be everywhere.
1:13:04
The bane of many product managers' existence is the flip side of sales is involvement in product.
1:13:10
Do you have any advice for how you've seen the best SaaS companies handle requests from sales going into product, how product teams should think about requests from sales and making that work?
1:13:20
I think this one is so simple and I'm surprised people make it so complicated.
1:13:20
I know we all release 28 times a day, but the reality is, software still goes on quarterly release cycles no matter what we say, okay?
1:13:31
Your customers cannot process 88 releases a day, okay?
1:13:36
The maximum a customer can process is two big releases a year and maybe quarterly, so let's simplify.
1:13:41
That's how customers think.
1:13:41
Forget about how we build software.
1:13:46
Every quarter, give your head of sales a certain budget, whether it's story points or 10% of the pie chart, however you do it, give them a budget.
1:13:51
And when you do this, things will radically change then.
1:13:57
They radically change because even the best VPs of sales, they change the wind.
1:14:02
On Monday, what they really need is the HubSpot integration.
1:14:02
And they're like, "Oh, my god.
1:14:08
We weren't going to do that for two years, but I guess we could change everything on Monday," but then, on Wednesday, a new prospect comes in and, "We need SAP, but we just spent two days spec-ing out." You need SAP.
1:14:17
And then, on Monday, it's Salesforce, right?
1:14:17
And it's not that sales isn't honest, it's just, the big deals, the big ones always, the tail's wagging the dog and it burns out the organization.
1:14:27
Even with the best sales leaders, I find it burns out, especially because the stressful deals, they overreact, and as good as they are, they're not product people, so they don't really know how to prioritize and force rank.
1:14:36
If you say, "Okay, Lenny, my VP of Sales, great.
1:14:40
HubSpot, SAP, whatever you want, you've got 10% of the budget, you've got a hundred story points, whatever metric or heuristic you use, but you've got to decide now each quarter."
1:14:50
And if you want to change during the course of the quarter, if you want to disrupt our whole engineering product team, you can do it, but understand there's a high cost, and the later you do it in the quarter, the less successful it's going to be because we already started the HubSpot integration.
1:15:02
Not only will it demoralize the team, but we're going to run out of ...
1:15:06
You already used your budget.
1:15:06
I just don't see enough product leaders being objective here, saying, "Listen, here's your budget. You get it, period.
1:15:12
No one can take it from you.
1:15:16
I guess the CO can steal it if she really wants to, but it's yours, VP of Sales."
1:15:20
And they will do the low balancing across their team. They will do it.
1:15:20
They will listen and they'll say, "Maybe I don't need that HubSpot integration after all. Maybe." Right?
1:15:32
Because what a VP of Sales should be doing is taking ...
1:15:32
The CO has to look five years into the future, product has to look about two years into the future, and you really can't ask a VP of Sales to look more than 12 months into the future because that's where they're next on the line, but a good one will load balance feature requests across the year and they will listen to all the ...
1:15:51
Because they'll actually be in sales, they'll actually be in deals, and they'll be listening and they'll realize, look, even though we're going to lose this deal to HubSpot, I've gotten four SAP requests the last ...
1:15:58
I'm going to take that bet.
1:15:58
Even if I'm wrong, I'm going to take that bet.
1:16:03
You got to give them that ...
1:16:03
And you got to talk about it every week and say, "Look, here's your budget, Jane.
1:16:07
Here's your story points, your whatever, your 10%.
1:16:07
This is what we're building now for you, objectively, and this is what we're currently planning for the next two quarters.
1:16:16
Would you like to change the ones for the next two quarters?
1:16:16
Because we haven't committed any code yet, and if you really want to change what's in process, you can.
1:16:20
Otherwise, it's going to be hyper disruptive," but you got to at least pretend to be objective, for sales.
1:16:29
If you're too emotional about it, you break the organization.
1:16:29
You've got to say, "Listen, I know we've already written 80% of this upside integration.
1:16:33
If you really need us to put us on the shelf and drop everything for a million dollar deal, we're a startup, we'll do it.
1:16:40
But understand, just, is this really really what you want?"
1:16:40
And if you involve them every week as a stakeholder, magic happens.
1:16:45
But I don't see the VPs of Product that I work with, I know I'm not in all the staff meetings, but the meetings I'm in and the board meetings, I don't see this back and forth happening.
1:16:55
This might be the same exact answer you just gave, but say you're a PM and a salesperson comes to you, "Hey, we're about to close this deal.
1:17:00
We just need this one feature.
1:17:05
Can we just get this on the roadmap?
1:17:05
," what's the best way to help that sales person understand why it's not happening, help them feel like, "Okay, I get it"?
1:17:09
Is it exactly what just said?
1:17:13
"Okay, we could change everything.
1:17:13
Here's the story points you have this quarter."