As the first hire for Cloudflare’s enterprise sales team, I had the privilege to see tremendous growth. Along the way, I made many mistakes: mis-hires, poor channel execution, wrong segmentation decisions, etc… What really helped me make better decisions was talking to leaders in other companies to hear how they wrestled with similar problems.
I recently hosted a dinner matching CROs from a few tech unicorns with early-stage founders. Everyone brought a few problems they were grappling with and, in small groups, we worked to solve each other’s problems throughout dinner. Here are a few topics that come up for early-stage founders.
Without much data to accurately triangulate an achievable quota you don’t want to grossly under or over, pay sales people. How do you set the early quota? A few creative solutions were suggested:
Experimentation and knowledge sharing is key when you’re still developing the sales process and learning how to sell. If someone develops a repeatable use case, marketing material, or best practice you want to incentivize open sharing and avoid optimizing for the individual.
A team based quota puts a financial incentive behind being a giver. The downsides of a team goal are: (1) a free rider problem, and (2) top performers can have their compensation weighed down. As the company grows the team goal starts to break because at scale you can’t influence all of your peers, but in the early days, it can be an effective tool if everyone buys in.
Instead of measuring sales reps performance on a dollar amount, measure it on new logos. Early customers who provide validation and a reference for the business might be more valuable than any revenue number. Many prospects don’t want to take the risk of being the first major customer.
Logo quotas can also be useful in scaling startups. One company mentioned they had great traction in the SMB market and a good sales team but were struggling to acquire enterprise customers. They assigned logo quotas to a few sales reps to penetrate the enterprise segment. Those reps didn’t have to worry about contract value, but instead just focused on winning enterprise customers.
What percentage of reps should hit quota?
This was a hotly debated topic. Two-thirds was the number many sales leaders in the room advocated for. A recent SalesForce survey found that only 42% of sales reps expected to meet quota. Yet one unicorn said in the early stage of building a sales team having 80% of reps attain quota created a winning culture. You may end up overpaying, but the upside is reduced attrition for foundational early hires and building a culture of success. Later on, when scaling from 10 to 100 reps you can raise the quotas, and balance the reward system by juicing the accelerators.
Creating an outbound culture when inbound leads are flowing is hard! Yet it’s crucial because those leads may dry up, or as the sales team grows there aren’t enough inbound leads to distribute. So how do you get an inside sales rep to outbound? A half-measure solution is to put a higher incentive on outbound sales, but not everyone will buy in. A full-measure solution is to set an outbound contact quota with a penalty for failing to meet it. One suggested lead distribution rule was, “We will round robin all inbound leads, but if you don’t send 10 outbound daily emails you lose your spot in the round robin.”
Low salary, high commission
One unicorn mentioned they pay 11% of the ACV in commission, and 22% once the sales rep is in uncapped accelerators. They thought this would be a great way to test the market and see how much a sales rep could sell. However, it worked so well they decided not to adjust it. Further, if they did change to a quota-based system they risked lowering compensation from benchmarks sales reps had already reached. With too much cultural inertia to radically alter the comp plan, they were stuck with this model. When you’re trying to figure out how much your team can sell this is a good model, but you may get stuck with it.
Management by objective is a graceful way to incentivize foundation building. A portion of variable compensation can be tied to fulfilling a vital business need (signing up new channel partners, installing a CRM, or obtaining case studies). These aren’t instantly revenue-generating activities, but allow you to focus on laying the essential foundation for future team success.
Quotas on direct vs channel
MBOs were particularly useful for a startup that was moving from a direct sales model (sales reps selling to the end customer) to a channel model (another organization reselling your product). Sales reps who were selling direct were asked to start selling through recently signed channel partners. If a sales rep was selling $x in the direct model, they couldn’t match the same production through new resellers who weren’t used to selling the product. The job to be done for establishing the channel was enabling reseller partners with training, getting early wins, and convincing sales reps in the reseller organization to believe that your product can be sold. If this is the job in establishing a channel, MBOs incentivize the right behavior and are more effective than mapping a quota to a sales rep in a nascent channel. Using MBOs as a portion of variable compensation protected the new channel sales rep as they built the training programs and laid the foundational work that was essential for a successful partner model.
“Enablement: Who should produce the content, and how should it be distributed?”
At startups, there is more work to do than there are people to do it. Without a clear enablement owner organizational superstars step up to fill the void and write the white paper or build the sales deck for the new product. Someone recognizes a need, and so they create it. There was a range of opinions on this topic. It’s no surprise that when Miller Heiman surveyed 500 organizationsabout enablement best practices on content creation and distribution there was also a wide diversity of results.
Who knows what should be used in a sales deck better than the salesperson themselves. Once the material is created how do you train and distribute? All it takes is for one self-interested sales rep to keep their knowledge to themselves so they can outperform others and they’ll break a collaborative culture. This is where a team goal incentivizes distribution of materials. In theory, those materials should live in a wiki or central repository. One scrappy suggestion that came up was using a group email, firstname.lastname@example.org, to share any new insights, useful material, or ask the team a question on an objection or use case they were struggling against.
One scaling startup suggested that when new products are launched the product manager should own the enablement training, and support the first few sales calls. They know the product better than marketing. A stronger incentive could be to put sales quotas on the product managers. The downside is that if PMs are evaluated based on sales they will avoid experimental products where the market is unproven. Leaders should be thoughtful around creating other measures of success for PMs beyond revenue to encourage them to take risks.
Subject Matter Experts
When a scaling startup starts to rollout new products learning how to sell them all is challenging. A terrific enablement suggestion was to train the sales team to achieve 3 certification levels. Get everyone at level 1 (they know what the product is). Have a few people at level 2 (they can talk about it for an hour without being found out). Get a regional level 3 SME who is the expert on the product and can be a source of truth for everyone else in the region.
“This was therapeutic,” was a phrase I heard after dinner. When you’re in a startup and things are moving fast, it’s hard to know if you’re making the right decision. You read books, blogs, and make your best judgment. When you’re wrestling with questions like scaling a sales culture, hiring, firing, compensation plans, and enablement I can’t think of a better way to make a more informed decision than asking your peers who are fighting the same battles.