Reka Forgach
August 1, 2021
As a startup, it can be extremely challenging to envision a timeline for building a sales organization. At the outset, you have no idea if a market even exists for your product, and if it does, how big it is and how you will reach them. Initially, you’re the company’s first salesperson, figuring out your product-market fit and testing the viability of your product at once.
At the same time, thinking about sales early as part of the growth of a company is an important first step. If you dig too deeply into product and engineering and put sales off, you run the risk of starting too late - and someone getting there first. At the end of the day, sales and engineering are what builds your company.
So let’s dive in, how should you start thinking about sales?
While each company has its own nuances, there are two rules of thumb that can be attributed to your general sales mindset, in order to set the pace of your sales growth. Robert Byssz, previous director of corporate sales at Telekom and Philips weighed in on when sales should enter the picture.
Once you’ve got enough customers in your pocket that you can safely say your product is validated and you’re gaining momentum, it’s safe to say you should start thinking about sales. At this point, you can state with confidence that people are willing to buy your product, and that you’ve developed a winning method for selling your product.
“I always say that there is no better salesperson than the founders,” explains Robert. “Their enthusiasm compensates for the lack of sales knowledge.”
Now that you’ve won some customers, you should have some idea of how your product fits into the current market. This means knowing how it’s differentiated from similar products and why buyers would choose your product over a competitor. Determine your competitiveness in support, pricing and features and dial in which aspects of your offering are most important to buyers.
“In the beginning what startups need to do is constantly take notes about what pitch is working, what argument they are using, and what process they are following. Then they can write a sales process and bring in a sales person - most startups do it early.” explains Robert.
By scaling sales, you’re starting to build a sales machine that you can later exit out of. At this juncture, you’re no longer a founder selling in order to fundraise - and thereby you’re no longer basically ‘selling yourself.’ Instead, you’re shifting your sales mindset over to a process that sells concrete product outcomes, in a repeatable process that can be done by any sales pro.
Once you’ve committed to building out a sales organization, there are a few key phases you need to define and confirm, including:
Here’s a breakdown of the options you traditionally have at hand in each of these areas, to guide your thinking as you go about planning your sales organization.
The first step in organizing your sales strategy is understanding and defining sales channels. There are three major types of sales channels:
When you’re planning your sales strategy, focus on one channel. This is so that, first and foremost, you don’t spread your sales team too thin, and also so that you don’t generate channel conflict.
For example, if customers can buy directly from you, but also from a distributing partner, they will be confused and you might be hurting your own revenue.
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How you go to market is loosely determined by your market segmentation. From a sales perspective, the cost of sales increases as you move from consumer and small biz to enterprise.
To align your sales strategy with your channel strategy, determine where you are in the market and select the sales channel that corresponds. As a consumer brand or small business starting out, sales budgets are likely non-existent as the economics won’t work out.
To determine how you should divide your budget between marketing and sales, you can use the Sales Engagement graph as a helpful framework.
As you start up, choose where you are on the X-axis, to determine how much money you need to spend on an individual sale. If your product is consumer-oriented, most of your budget will likely fall to marketing, in order to raise awareness and grow traffic. Freemium products should include the freemium pricing tier in their marketing budget. In these cases, you likely won’t even need a salesperson to close a deal.
Choose one and move forward.
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Sales increases the dollars on a per customer basis. The amount of money you can earn as an organization with a sales team grows with a sales team.
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It takes time for a sales team to understand how to sell it - how a customer buys, the productivity of a person and the organization. This unpredictability makes it difficult to determine who to hire.
In the initiation phase, when you’re working out all the variables, you’ll need someone who’s technical, able to work as a one-man-band without a sales engineer or marketing department.
Once your team has grown to a few sales people and break even, you’ve hit a transition phase. Finally, you’ll hit the execution phase when you’ve hit 3x the loaded costs. At the top right of a productive sales team, companies can reach 5x the loaded costs and define a repeatable sales strategy.
At that point, you can hire a salesperson who works according to a script and the defined cycle - working with marketing support and resources and dedicated territories. The teammates who work well in the first phase usually don’t work well in the execution phase, and vice versa.
Think about where you are in your company’s life cycle, and hire accordingly for the salespeople’s skillset.
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Sales development reps provide account executives with a quota of relevant leads, known as ‘sales qualified leads’ (SQLs). This starts with a clear understanding of your ideal customer profile (ICP), which helps narrow down the types of people or businesses that could get the most value from your offering. You’ll continue to refine your ICP as you learn more about customers, evolve your product, and grow into new markets.
Effective sales development is fundamental to scaling. If you’re limited to your own network, or if you believe cold outreach is scarily impossible, then you’re going to find it hard to massively grow your customer base.
An account executive’s objective is to work with leads and help them make the right purchase decision, hopefully resulting in a sale.
Prospects rarely go from ‘interested’ to ‘signed’ in one step, so AEs work with the concept of a sales pipeline — a research-based series of discrete steps along the way to the sale.
Once the contract is signed, the customer is introduced to their Customer Success Manager, who will help them set up the product and get value from it. Onboarding a product into a company is no easy feat, especially if a large number of people are involved. CSMs assume the project manager role.
CSMs can also cross- and up-sell existing customers, which leads to the holy grail of growth: positive churn. This sounds strange at first — doesn’t churn measure how you lose customers? If the amount spent by existing customers increases faster than you lose accounts, your sales might grow even without new customers.
The amount the sales forecast brings in reflects your company valuation and the amount of investment it will get to put into engineering, marketing and sales.
The more accurate this number, the closer the company is to going public, this is a critical aspect to get right. Getting this right increases in importance as the company gets larger. Once public, stock prices are largely predicated on future projected earnings.
Bottom-up forecasting relies on pipeline, number of salespeople, sales quotas, sales ramp, and new hires. The top-down view includes market size, product readiness, board input, and top-line growth. Aligning bottom up resources with top-down forecasting is important for hitting achievable sales goals that aren’t too low.
The total quota must be greater than the company plan, at least 20% higher so that you have overage in case anyone leaves or doesn’t meet their sales quota.
In order to maintain a motivated sales organization, maintain that the Total Quota is not more than 20% of the company plan, so that the sales representatives can reach their quota and commissions and not be disenfranchised.
The first part of managing a sales organization is building a capacity and understanding for forecasting. This is important, not only to hold salespeople accountable, but also as a basis to manage the company.
Balancing growth and burn is impossible without forecasting. If the forecast is low, you want to reduce burn - if it’s higher you want to increase burn. The accuracy of these numbers is super important. Forecasting is a balance between art and science.
Transparency is the most important factor in forecasting accurately. If the data and information is false or ‘sandbagged’ (under forecasting and over delivering), then you’ll manage the company badly - reducing burn and reducing potential. Overshooting means you take up the burn and you miss the forecast, your expenses have increased without meeting the sales mark.
Make people write down truthful information about sales, otherwise the forecast will be inaccurate.
Once a company goes public or gets into an IPO flow, forecasting is the most important thing you can do because Wall Street is banking on the accuracy of the predictions, the predictability of your company to hit the numbers they say they’ll hit.
There you have it, a brief overview of the main areas of sales to think about as you start building your organization. What does your sales organization look like? How do you put these topics into practice?
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