How to Hire a Great First VP of Sales

and grow this to over $100 million and make just about every mistake you could building a SaaS business. And what I want to talk about today is perhaps the mistake that most of us make, probably by my, you know, non-statistically significant study, 70% of us make, which is not hiring the wrong first VP of Sales. That's— if I give you one bit of advice and one learning from the mistakes I make, which I'll share as a case study, and the mistakes my peers and friends make, is if you can master maximize the success for this hire for your recurring revenue business, this is probably the number one best thing you can do to accelerate your business once you have a smidge of something, right? Once you have a little bit of traction. And yeah, that's my background. Now, I did sell EchoSign to Adobe. I ran their web business service unit, which did $180 million last quarter. And now, I just invest in SaaS companies. That's all I do. I don't want to learn anything new. I don't want to do like biotech or like— well, the assistant thing is pretty cool. Where is that? That was pretty entertaining. Yeah, yeah. Make the revenue recur. I'm interested. But I don't want to do anything. All I want to do is like practice what I learned and sort of do better at it. And then we have this community SaaStr. Hopefully some of you have seen it. But we get about 700,000 views a month and 1,000 pieces of content on Quora. And, you know, if it's helpful to you, it's got everything from, you know, how to build the sales comp plan, how to think about hiring a VP of marketing, how to hire a customer success team, just everything, everything that I learned, I just decided to share everything back, 'cause after we got acquired, I had nothing left to hide. So with that, let me kind of— let me just walk you through and let me step back. Who has— who's got a startup that's sub-$1 million in recurring revenue? Okay, that's good. Who's between $1 and $10 million? All right. And who's over $20 million? It's relatively small. Okay, well, you can help. We'll do it together. So let's step back. The one— —so generally what happens is 95% of us SaaS founders, while we may have done some sales in our career, we're not classically trained in sales, right? There are a handful of us, but most of us are either from engineering or product backgrounds, and it's pretty rare that a VP of Sales comes out and founds his or her own SaaS company. More power to you. And so the number one, one of the maybe top 10 mistakes everybody makes is they want to hire this VP of Sales too early, right? They get this thing going, they build this really cool product, I've got Amy going, I've got 5,000 I've got 100,000 people on it, but I'm only doing $10,000 a month in revenue, right? Like, that's great, but that doesn't even really pay for one engineer fully burdened, and I've got 4, right? And I don't know anything about sales, and I'm kind of doing this thing. I got to hire the first VP of Sales like tomorrow, right? And the number one thing that I think I'll tell you is unfortunately, for better or worse, it has to be you. You have to be the first VP of Sales for the simple reason that if you— first of all, well, two simple reasons. One, you can't attract anybody good when you're that early. A VP of Sales wants to make money and want to make a lot of money in their stock, but they want to make coin. And anyone that's good is not going to join your company at $5,000 or $2,000 a month. It's just not going to happen. Sometimes you may have to do that and we'll chat about it, but you're not going to get anybody good. Two, if you hire too early, you don't have a recurring process. Until you have a recurring process, you can't drop someone senior and have them accelerate it. So it's got to be you, right? And here is going back in time, here's kind of how I built up our user count. You know, in the beginning it's you, then what a lot a lot of us do and that I do is you hire a few reps yourself, you figure it out after you've made the first sales yourself, and then once you've got something, ideally at least maybe a million in revenue, a million and a half, what I call the initial attraction, then actually you're probably ready for that VP of Sales. Sometimes you'll hire it a little earlier than that, but we'll chat about it, but really structurally you're just not ready. You're gonna have to hack it and make it happen until then. And my one sort of tip I want to go into so that when you do make this hire you do it right is whatever you do, have 2 reps that are performing well before you hire a head of sales. If you only have one, you're not running an A/B test, and you really have no idea why this one rep is doing well, right? If you look at any SaaS startup, in the first couple reps, they always find one guy or gal that's just amazing, right? Just killing it. They're closing, they're booking a million bucks a year, and then the next person's doing $200K, and then there's 4 guys that can't close anything, right? If you don't have 2 of those, you really don't know what's happening, right? It's not that that person's like so amazing or such a magician, right? But you have to create a repeatable process if you're gonna scale up a sales team. So whatever you do, hire 2. And they're not that expensive. There's a lot of angst when you don't have a lot of money hiring sales reps. Don't forget about two things. You don't get your bonus unless you close revenue, right? And salary vests, right? So whatever that salary is, you only have to pay half of it if they don't earn their bonus, and you only have to pay a twelfth of it a month. Reps are not expensive if they perform, and in fact, if they close almost anything, they're creative. They make you money. So hire— whatever you do, don't hire one, hire two. Sort of my number one tip in the early days. And then let's step back. It's you, you've got two reps, 2 reps performing, maybe a third that's doing okay. You're getting a little bit of traction, you've got to half a million in revenue, a million in revenue, and you're ready to bring in a VP of Sales, okay? And if you haven't made this hire before, and most of you haven't, let me tell you the, probably the most important thing to understand, what this job actually does, okay? And notice what the last one is, closing revenue, okay? The number 5 on the top 5 things list that a VP of Sales does is close deals, okay? I'm not saying they don't close revenue, okay, as a VP of Sales. But let's step back a minute. 3 reps on your team already, okay, doing whatever revenue, 4, and you want to triple your revenue. You're gonna need 8 to 10 reps just to hit the plan in 12 months. Your VP of Sales' number one job is getting 8 to 10 great people on your team. Not 8 to 10 mediocre people, not 3 people at the bottom that waste your leads, but getting 8 to 10 people on your team. So this is the number one job of VP of Sales, right? And what I'm sure you've seen if you manage any reps is the performance is divergent. So if that VP of Sales does nothing else but increase the quality of folks on your sales team as measured by revenue per lead, you're going to see amazing things happen. Okay? And so number 1 is recruiting. So I'll get into this in a minute, but when you're recruiting a VP of Sales, if nothing else, ask them, "Who did you recruit at your last company?" Right? "Who did you hire?" If this person did not successfully hire at least 3 to 4 good reps, Even if they're young, they're not a VP of Sales. Okay? If they inherited a team that was somewhat successful, they didn't recruit any of them, they're not a VP of Sales. Maybe you'll take that risk, we'll chat about it. But if they don't know how to do this, they can't really take your company to the next level. Okay? And I can't tell you how many SaaS companies I've worked with that hire some super smart person, 160 IQ, sorta managed 6 people at their last company, didn't really hire any of them. You know how many of those make it to like $3 million in revenue? Zero. Okay, if you can't recruit a team, you can't do the job. So that's number 1. Number 2 was, if they may not be selling, but they're backfilling, right? If you haven't worked with a great VP of Sales, they've got 3, 4, 10 people under them. They know every deal, at least every deal that's of any size. And so what they're doing is they're seeing the mistakes they make, they're focused on where they can help, they're bringing resources in, whether it's from product or engineering or their own skills, and they're backfilling that team. So they're managing all the deals, they're just not necessarily closing all of them. Then last, tactics, right? How do we get more revenue out of the company, right? Your customers, you're thinking about that all the time. How do I get my deal size up? How do I increase pricing? He or she'll think about that. Strategy actually comes down the page. When you hire a VP of Sales and all they want to talk about in the interview is strategy, strategy, strategy, I'm not sure they're a closer, right? But it is important, right? How eventually, how do you go from maybe a $5K a year product to $20K a year to $100K a year? How are you going to do this strategically? And again, last, creating and selling deals him or herself. Because if you think about that math, so you've got a VP of Sales doing $1 million a year, you want to increase your revenue to $3 or $4 million, there's no— if you have him or her carrying a bag for too long, it's not going to work. There's too many people to manage, right? And so, I may have this right here, you know, one of the other classic mistakes people when they make this hire, especially because they worry about money, and we all worry about money until we get to about $10 million in revenue, and then money doesn't matter anymore. At $10 million in revenue, when you hit initial scale, there's so much momentum in the business, whether you're VC-backed, a lot of VC-backed, a little bit, whether you're self-funded, it doesn't matter. At $10 million, you can fund so many people, but until then, money matters. But one of the best, biggest ways you can waste money is making someone a player coach for too long, 'cause they gotta bring these people in. You can do it for a quarter, right? Prove 'em out, have 'em hold a quota, but if you've got this person holding a quota on their own, as an individual contributor, in addition to the team for a year, you're wasting this person's time. So, anyhow, this player coach is another sign that maybe you're hiring someone that isn't that seasoned or experienced. And just, you know, one more insight on when to make the hire. We chatted about not doing it too early. Classic mistake is hiring someone before you have a repeatable process. I don't have a repeatable process, I want to hire Linda to create it for me. Linda will not succeed 9 times out of 10. You've got to have a repeatable process. But just as importantly, this is what I see all the time, honestly, if you wait even one month after you have a repeatable process, you're losing money. Let's imagine you get here, you're doing $1 million in revenue. Let's pick a number. Let's say you've got 200 leads a month coming in, whatever the number is, 50, 100, doesn't really matter. As soon as you bring this great VP of Sales in, and I'll show you this in a minute, your revenue per lead will go up. You'll make more money off those leads. So if you don't have that hire ready to go the minute you get initial traction, you're flushing, you're at least sub-optimizing those leads. Best case. Worst case, you're wasting time. You're wasting your life. You've got to get from like 1.5 to 10 as fast as possible in SaaS, and you need this resource to help you, right? So, too early is a disaster, like 98 times out of 100, but too late, you're wasting your life as an entrepreneur, right? And we'll chat a little bit more about that. And what it really means if you think about it, we talked about how getting a really great VP of Sales, you know, on month 3 is impossible, but it takes a long time to recruit someone that's good, okay? Let's imagine I'm at, you know, I'm at some hot SaaS company. I'm a VP I'm making $400,000 or $500,000 a year. Why am I gonna join your company? Okay, it's a cash-driven business. Not only am I making $400,000 or $500,000, but I have a great team. Right, I like my team. If you've worked in a sales, with a great VP of Sales, they create great teams. They like to stay together, they like to work together. Why would they come to your company? Well, there may be good reasons, right? Maybe that company got acquired, like RelateIQ. I mean, those resumes are a-flying already. There may be other reasons, but the thing is, even when that happens, that person's gonna take their time. Right? If you've hired like a VP of Engineering, impossible hire, but when they love something, they jump, right? They jump. They get 20 great offers. There's a million startups who wanna hire great VP, but they'll get their equity and they'll just go and make it happen. The VP of Sales has a strong incentive to wait, right? 'Cause they want cash and equity and it's a high risk— it's a high risk change for them. So my point is, as early as you are, you may not be here, you should be pre-recruiting this person. You should be meeting with as many potential VP of Sales candidates as you can, because this may be a 6 to 12 month hire. Okay, it's brutal. It may be a 6 to 12 month hire. So don't wait. One other point I want to get in, and then I'll talk a little bit about my mistakes. This you'll learn as you see more and more with almost— with so many startups. A mediocre VP of Sales is a cost center, right? Think about this math. I hit $2 million in revenue, and here's an average of what the OTE is for VP of Sales, and you know, $300,000, that's an average OTE. And certainly, it can be a lot more expensive than that. That's bonus plus base, right? OT. And you're like, $300,000? Man, that's a lot of money, right? And it turns out a mediocre VP of sales that's just closing the deals you would have closed otherwise, but taking $300,000 out of your own pocket is clearly a cost center. It's a frustrating, painful, expensive cost center. But a great VP of sales, and I learned this when I went from my crappy VP of sales to my great VP of sales. The first one was a disastrous cost center. The second one, he made me money $60, okay? And a great one's VP accretive, is accretive, and the simple reason is they'll raise your revenue per lead. They'll take those 100 leads a month, 200, 1,000, and you'll figure out what your leads are closing without this great VP of Sales. They're closing $70 per lead, $7,000 per lead, whatever it is, and a great VP of Sales will increase that, okay? He or she will increase it because he or she knows how to close. They know how to ask for the maximum amount of money per deal without pissing off the customer. They know how to ask about budgeting. They know how to get the deal on this month, this quarter, right? So it does close and your revenue per lead will go up. And if you're at $2 million in revenue and this VP of Sales increases your revenue per lead 10 or 20%, he or she more than pays for herself right there. Forget about any other changes, right? And what I learned this, and I'll show you in a minute, my first VP of Sales, I raised our, what used to be called the Series B, now it's called the Series A. A lot's changed. And I raised my $5 million bucks and I went out and I hired my VP of Sales from the big tech company, and I'll show you the chart in a minute, but things just went off the rails. It was terrible. I called it my year of hell and I'll show you I'll show you a chart. Things went off the rail. And there was this little event, like, I don't know if anyone in New York remembered, like Lehman Brothers went under, like there was a lot of drama going on that year. So it wasn't really clear what the root cause at the time was of our revenue decline, right? And I only understood it with hindsight. It was clear, and I'll talk about this in a minute, it was clear within 30 days he was a mistake. And that's my failure as a CEO, not his. It was clear in 30 days and I kept him. And what happened was, under him the revenue per lead declined. When it was me and my 3 reps, I don't remember what our revenue per lead was, but when I actually tracked it and went back, it went down 50%. Okay? It turned out, and I'll show you this chart later, our leads, even through Lehman Brothers, there was no deceleration in our leads. Our leads just kept going up and up and up, but if the revenue per lead goes down, what happens to the net revenue, right? It decelerates, right? I hired my second VP of sales, who was one of my customers. He was the first head of sales from LinkedIn. Within 60 days, he had doubled the revenue per lead. Okay, how did he do that? Did he create a great outbound program? No, there's no time in 60 days. Did he stuff the funnel? No, it's 60 days. He brought great business processes with him, and he brought 3 reps his first week. He brought 3 of his best reps from LinkedIn. They came in, they didn't know my product, they didn't know its flaws, they didn't know anything, but they knew how to close in a competitive environment. In 60 days, he doubled our revenue. So this is the whole thing. And talk about accretive, within that, we were cash flow positive within 6 months. Okay? So, that's as creative as it gets. So let me just summarize this quickly and go on to a little bit more. But why— we hit most of this, but why will it increase the revenue per lead? I know I hit this, but if you haven't lived in it, let me explain to you again why revenue per lead will go up with a great— not a good, but a great VP of Sales, right? They'll do a few things certainly better than you will as entrepreneurs. Entrepreneurs, founders, CEOs, they're great middlers. Sellers. They're great people when the email comes in, "I'd like to buy your product." We're all really good at demos and passionate about our product and we know all the features and we know how to demo everything, but we're not always that good at getting the check on December 31st. If you've ever worked with a great VP of sales, you'll see this amazing phenomenon. December 31st is the best day of the year. Why would that be? Think about it as a buyer. I was a VP in the Fortune 500 at Adobe. What incentive do I have to buy anything on December 31st? There are some budget issues, right? But is there any way I'm gonna deploy that product the next day, right? I'm on vacation. I'm not even in the office, right? I mean, nobody at Adobe worked the last 2 weeks of December, right? So how do you do this? This is the magic of sales, right? They know how to ask. They know how to get the close to develop the relationship. They know how to hire people better than you, right? Better reps equals more revenue per lead, right? They know how to scale, right? They'll bring in— like Brendan brought in 3 people the first week, right? They know the amount of headcount that you need to drive the revenue. And what they'll do is they'll position you the right way upmarket, right? As founders, as founder CEOs, 8.5 times out of 10, we underprice and underposition, okay? Because we come in and we're like, the last thing we wanna do is not close a lead, right? All in the early days, probably until you're like $10 to $20 million in revenue, every lead is precious, especially to a founder, right? I mean, I remember at EchoSign when we got Google and Groupon and Facebook, like all these cool names, I'm like, whatever you do, these have to close, right? I mean, I wanted the 6-figure deals, but you lose Facebook, man, you're fired, okay? Right, I just, whatever, we just, we got it. "how to get Facebook." And that's great, right? We get the brand and we get second-order revenue and referrals. We should do that. But what it often means as founders and CEOs is we're not great at optimizing the maximum amount of revenue and also pushing this and pushing it up market. And your VP of sales will do all of that and make it more fun. Right? And so all of this together, like this is great. What it will do is increase the revenue per lead. And as long as you're even at $1.5 million in revenue, whatever that OT, the on-target earnings, the total amount you pay him/her, as you can see in the math, he or she will pay for themselves. Themselves. And we hit a lot of this. Too late, don't take 20 months. The one thing, and I'll touch on it a little bit, but this sort of middle of the paradox, right? There's sort of two mistakes that we often make with VP of sales. One is we want to hire the person out of Salesforce or pick your big company, right? That sounds like something that's great. We want the domain expertise, we have a similar customer set. You know, first First of all, don't forget Salesforce is a $5 billion company now. Okay, it ain't a startup. And we know that the odds of a big company guy coming from a 5 or coming— we know that the Oracle VP doesn't work. Salesforce is the same as Oracle today. Right? So we get over-attracted to the name, and maybe we end up making someone that's too heavy a hire. This is a challenge. Right? Or the tough one is do we give on experience? Right? I want to chat about that. My real point, and maybe my Salesforce story got me a little off point, my real point is with VP of Sales, you're probably not going to get the perfect hire. The perfect hire is, you know, we all want rock stars, whatever trite term you want to use. Maybe you'll get that in your VP of Engineering, your VP of Product, possibly your VP of Marketing. But the problem with your VP of Sales is that super great guy that's good at going from $30 million to $150 million, he's not a good fit for you. Maybe that person that kind of hacks it from $0 to $1 million, which maybe needs to be you, they're not going to be a good fit for you. So what's the trade-off? We'll chat about that a little bit, but the one thing I'll I'll tell you is you can't get the perfect candidate, right? And if you get the perfect candidate on paper, like this guy from Salesforce, probably not very good, right? 'Cause you can't have it all. And let me explain to you how to get as close to that as possible, but just a couple quick things. Why do we all, why do 70% of folks hire the wrong VP of Sales? I'll tell you about why that in a minute. They hire at the wrong stage, the wrong type of person, but maybe the real reason we do it is because we gotta get it done. Right? We're getting to traction, we've got $1.5 million, $2 million in revenue, we're like— it's just like me after I raised that Series B, Series A, whatever it was. I got to get it done, right? I just raised that venture capital, I got this obligation, I got no VP of sales, I haven't even met a VP of sales, like, I just got to get this done. And so we make a bad hire, right? And we all do this, and I've made bad VP of sales, I've made bad VP of engineering, I've made a few others, but I think actually of all the bad hires you can make, VP of Sales is the worst because it's far worse than no hire at all. Right? At least if you hire a horrible VP of Engineering, which is terrible, but as long as the rest of the engineering team agrees on that person, he or she will probably write a little bit of code, right? You'll get a release or two out and then it'll be a disaster. Explaining, and I never read it until after we acquired. I couldn't bear, right? And I assumed it said I was incompetent, right? Which, you know, I wasn't competent to hire him. Like, agreed. But actually, when I finally read it when we were cleaning out the desk, to move to Adobe headquarters, it actually said, "It's not my fault, it's Jason's fault because the company wasn't ready to have a VP of Sales. None of it's my fault because it wasn't ready to have a VP." So whose fault? It's not his fault, the company wasn't ready. It's not marketing's fault, you don't know whose fault it is. So this is just— the bad hire is a disaster because everyone will blame each other. The leads are— they all say the leads got worse, right? The leads are crappy. There's no more good Googles and Facebooks. It's like— it's just Amy and she can only pay $5 a month. It's great, as cool as the company is, these are like crap marketing game crappy leads, right? And so you end up with this marketing against sales leads thing, and it's just a disaster because you're the only one as CEO that will really know like who's right here. So you can't make this bet higher. And then let me just— last, this is one of the most important kind of charts. It's a little complicated in SaaS that I think informs the whole revenue cycle. But as you start to get a SaaS business going in the second and third and fourth years, right? It's hard to feel this in the first year. You'll realize that the whole thing is about about second-order revenue. The whole thing— because first of all, these customers you get in the first year, and I'm colorblind, I'm sorry, you close this customer for $10,000, but then they renew in the second year, they renew in the third year, they renew in the fourth year, they renew in the fifth year, but then they do more. They upgrade. If you treat them incredibly well from both the sales and the customer success perspective, they'll buy more from you. If you make them loyal, if you make them truly, like, attitude-ally loyal, if you make them love you, they will buy more, right? And then, not only that, they'll refer you to their friends, right? And then they'll quit their job and go to another company and they'll bring you into their company, right? The second order revenue. But if you have a bad VP of Sales and that long-time relationship starts off bad, and I track this later, you don't get any of this, right? They don't buy— they only buy the absolute minimum that they have to, right? It's like United Airlines, you know, I'm stuck in the frequent flyer program, but I'm not buying anything from United. I'm not going to buy a car from United. I'm not going to buy jeans. I mean, other "that's it, the minimum I have to." Right? They're not gonna buy anything. And you're certainly not gonna tell your friends to fly United. So, it's not just the revenue loss that I had with the bad VP of sales, it was all the customers he closed were unhappy. Right? And I lost all these downstream effects in years 2, 3, 4, 5. Right? And this is the power in SaaS. Right? I realized once we got to even just $4 or $5 million a year or so, but it had been a little while, I realized we could grow 80% a year with no sales. I don't mean with no salespeople. What I meant is we could grow 80% a year just with leads from the existing base buying more and referring us to more people and building the brand. We could grow 80% without any outbound or any sort of complex lead generation stuff, just from the base. But if you misinvest in that, like, you're dead. So, I'm a big fan of overinvesting in customer success as a function. We won't chat about it today, but no matter how great your customer success team is, if your VP of sales isn't great, it's gonna ruin that relationship from the beginning. Getting. So again, just a quick reminder, I know we did this story, I'll skip ahead to it, but why then after all that mess were we able to double sales in 90 days? Upgraded the team to closers. They worked the first week, they didn't know the product. What you'll see if you hire a VP of sales and you have a team, and if you don't see this, it's trouble. If you hired a VP of sales and he or she keeps all the reps you have, that's trouble. People, because they know that they're not all great. If you have 3 or 4 folks on your team, the bottom person, like, "You're not a sales manager." They can't be that great. I can tell you if they say they're all great, I'm keeping them. Or if they— this is even worse— if the VP of Sales says, "I need to keep all of them," you know he or she can't recruit. They never do that. The good ones immediately analyze the team, go over the weaknesses with you, and immediately make changes, whatever it is. Sometimes it'll even be a promotion, but if there's no change changes, it's tough, right? So what Brendan did is, actually there was, you know, he took the best, probably the best guy on our team at the time, or the number 2 guy, was just an SDR. He was a junior sales rep just cold calling and qualifying deals. He immediately made him head of SMB, right? Within a year he was head of enterprise. Now he's VP of sales at Zenefits. He manages over 100 sales reps. Okay? So, you know, you gotta see motion up or down on this chain, okay? And then one last, couple things that I know if you see in a VP of Sales when you hire them that's worrisome. Pipeline. Oy. You know, I mean, you work at a billion-dollar company, like pipeline's really important. Okay, show me the visuals, do the analytics. If you're at a startup, right, for me pipeline is a sign of failure, right? How much revenue are you gonna close this month? I don't need to see the charts, and I don't need to see $7 million next to Comcast, or $12 million next to whoever, right? 'Cause that stuff's all crap. Like, it doesn't mean anything. And what I learned is the mediocre VP of Sales sales in an early-stage SaaS company, talk about building the pipe, building the pipe, and then the pipe doesn't close and it's not my fault, it's— the sales cycles are getting longer, right? The good ones, there's no pipeline, right? It's just what's the MRR addition I'm gonna do each month. And when Brendan came in, we never discussed pipeline again, at least not for a long time, not till we were at $10 million, right? And one last one, and how we doing on time? We doing alright? Yeah. Another flag, and what Brendan did— my first VP of sales could not handle competition. Competition, right? As soon as our competition was in a deal, he folded. I can't compete. You know, oh man, oh, the competition's so much better. I lose, I quit. You know, the Jason and the engineering product guys can't build a good product, right? And you know what? Maybe it's true, right? But the great ones embrace competition. They love to win, right? And it's a game, right? And maybe they give up on some deals that you really can't win, but all of a sudden our win rate went up, our real win rate. You embrace it, it's a game, right? —so, and I've interviewed so many VP of Sales candidates for so many companies since then, and yes, maybe you're in a space that has no competition, like, and we laugh at that, it is true. Most of the folks at Salesforce, places like that, they don't really have the type of competition. It's hard to be a rapid salesforce, but, 'cause you gotta force people to close and buy when they don't really have any reason to buy this month or quarter, but they don't have to embrace competition. But if you have competition, and 90% of us do, A VP of Sales that doesn't embrace it, it's not gonna work, right? But he did, and all of a sudden we closed more deals. And then maybe just a couple last points on this. This is the mistake I alluded to before that a lot of us make. But there really are, I kind of made up these 4 stages of VP of Sales on the way from nothing to $100 million. The later ones, actually, you probably can find, right? I call it Mr. Dashboards, right? They're managers of managers. Managers, right? They manage managers, or sometimes managers of managers of managers, and they're really good at hitting the refresh button in Salesforce and getting the reports and talking about pipeline, and they're really good at selling up, and they usually look pretty good in a suit, but they don't sell or even— they've only managed managers, so it's too far away, right? So you gotta be really careful of that person. At the other end, this is the hire I hope you don't have to make, but sometimes you do. I call this person the evangelist, right? This is someone who's actually that sometimes you hire between zero and a million that's never built a sales team of any size, right? And we often make this hire and they're super smart and evangelists like they really— they've already studied your product to the nth degree before you meet them and they have all these great ideas, but it's like it's a little too producty. You know why? 'Cause they're really just an evangelist, right? They're just like you, but probably not as good. Sometimes you do need to hire this person 'cause you're burned out and you need leverage, but this person will be gone by a million and a half in revenue. I can tell you 9 times out of 10, the person person that's totally smart, 160 IQ, loves your product, can talk to them today but has no experience managing a team or closing, they'll be gone in your company here, right? And so anyhow, there's these different phases. I call 1 to 10 Mr. Make It Repeatable, someone that comes in, they bring in the 3 to 4 to 6 reps and they build this up to 10, and then there's a different category, Ms. Go Big, but my real point is if you hire someone that's 2 stages above where you're at and bring them in, high chance of failure. Failure, right? I think you can risk doing one stage above. So in other words, if you're doing $1 million, right, I think you can risk hiring someone that's only done $10 to $50 million, right? It's a risk because they haven't done your stage, but eventually they'll get there, right? Two stages is too much, right? And if they haven't done your stage, like the evangelist, 100% chance of failure, right? So maybe it's sort of the one-stage risk that you take is one type of risk to take, or the other type of risk to take is someone that's more junior than you you want. You're gonna hire a Director of Sales masquerading as a VP of Sales. And there's the trade-offs there. I think that generally works as long as they've at least hired 3 or 4 good people. At least they can do that piece. But in any event, whatever you do, you have to realize the same person may not make it all 4 of these stages. So kind of last couple points, but when you're going to make this hire, let me— and I even have a script that I put on the blog blog, but let me just tell you the key things that you can do to screen, and I screen a lot of candidates, and I don't even need to know the product or anything to figure out whether they can do the job. First, I look for, because this controls for almost everything, have they sold at next year's target ACV? Okay, because let's say your product, ACV is annual contract value, what your product's priced per year. If your product today is say $300 a month, okay, and that's great, but next, but you're starting to get a few bigger customers and your goal next year is to do $20K $20K deals, $20K ACV deals. If this person has sold at $20K, he or she will have developed the skills necessary for your company, no matter what it does. $20K, there's different bands, sort of a, you know, there's the very bottom of the market, you know, freemium, self-service, you know, there's just, if you have salespeople, there's a certain set of skills there. It's really just pushing it through the process. You know, at $3K to $5K, there's this kind of transactional thing, it's quick sales cycles, a lot of people, a lot of volume, there's a set of skills there. The sort of $20K to $40K thing is sort of consultative. And then as you get into the six figures, you can get on jets a lot. 'Cause you can have a lot of people not closing a lot of deals. And so what types of outbound versus inbound do you use? What types of people do you hire? How do you think about qualification, SDRs, and price points in sales operations? We can talk about all this stuff in sales, but it turns out you pretty much sell products at a given ACV the same way. So if you love this candidate and they're the greatest person in the world and your product's going to be $5,000 a year next year and they worked at SuccessFactors in the enterprise $500K a year group, do not hire them. No matter how smart they are and how many people they— they do not know how to sell your product. But next year's target ACV, I can guarantee you 90% certainty they have the skill set they need for you. So this is almost— that plus tell me the last 3 or 4 reps you successfully hired, those 2 questions I feel like I get like 90% of what I need in a hire. Then we talked a little bit similar, you know, are they comfortable and competitive? How do they think about outbound and inbound? You'll learn about that. And then we talked about it, 'cause this just goes to hiring, who are the first 3 people you'd bring with? And I gotta tell you, this question, like, you're gonna wanna hire people that fail this question. Again, going back to it, don't make this mistake. I mean, a friend of mine's got this great SaaS company, just hit $2 million. Jason M. Lemkin. I'm an advisor investor since zero. I told him not to hire the VP of Sales. I mean, I love him. And he's gone 'cause he failed this test. Tell me the first 3 people you bring with them. I don't know. I don't know anybody to bring with me. Right? A great VP of Sales always has at least a couple of people that worked in their last gig that whatever they do, they want to go with them. Right? I mean, LeBron James, Mike Miller, right? How much did he just lose going to the Heat? Right? LeBron's going to bring every— they want to go back. It's not that different. The great reps want to stay with their own little LeBron, and if he or she works somewhere and he doesn't have at least 2 people that he doesn't even have to email or talk to, you can just tell, if there's not, it's hopeless. There is no chance. So this solves these sort of interview questions. This solves for recruiting, and this kind of solves for whether it's going to work out at your company size so you don't accidentally hire the greatest person in the world but the deal size is too big, they won't have your skill set. These two can control for everything. And then the last tip I wanna give you, this is, I alluded to this earlier, don't overvalue domain expertise, right? Sales is sales. My guys came in from LinkedIn to EchoSign, they didn't know anything about our product, and within the first week the close rates went up. Was that because of domain expertise? No. It's 'cause the deal size was the same. They knew how to close customers, enterprise customers at the same deal size. They knew how to talk to them, they knew how to talk about, talk business process language, The bigger the deal, the more you talk about business process. The smaller the deal, the less you talk about business process. They had this and they knew how to do it. So don't, don't, everyone does this, oh, you know, this person's out of real estate, like I gotta hire this guy, the one guy that was really smart at Yardie or whoever it is. Don't hire, you know, that'd be great, but only if they meet all the other criteria, right? Then you give extra points for domain expertise. But the problem is we all get too excited about that. About this. We all get too excited about the company that looks and feels like the company we want to be, but it doesn't mean they have any of the skills to sell what we need to sell. And I don't think the product matters. I literally don't think it matters. Yeah. 2 minutes? Yeah. So just real quickly, one quick thing I want to say, and I'll end here, and we can open up to questions. I alluded to this before, this is the last tip. If you do all this and you still make the hire, you're going to know really fast. Let me tell you, I learned this myself, and now I've learned I've done it like 20 times in a row. Believe it or not, you will know in just a few months. In fact, you may know in 30 days. You will know 50% of the way through your sales cycle. Let me just walk you through the math and then we'll break for questions. Say you have a 60-day sales cycle, right? And you had nothing before, you had the crummy VP of Sales before. You come in, you've got this set of leads, you've got this set of raw materials. Whether you're doing poorly or well, if that person can't come in and increase the revenue in one sales cycle that comes out of them, it is hopeless. There is no excuse because either they're going to do a better job with what you have or not. I can tell you, I can tell you even the stories from the last year, if this doesn't happen, it's just hopeless. I saw this magic happen in 60 days with my VP sales doubling revenue in 60 days. Don't give them 6 months. Don't give them 9 months. We all make mistakes. If it's not there in one sales cycle, don't listen to the excuses. You've just got to kill it and find the next person. [Speaker:MALE #2] Yeah. And when I call, so I call, I try to target VC-funded companies. I've been amazed by the number of casualties among the VP of Sales. Yeah, 70%. Getting kicked out. Yeah. And when I asked the board, I've asked a bunch of them, they never say, well, they couldn't recruit people. They tell me, he was not able to put that right process in place. He did not organize that thing. Like, I call it the gene-closing machine. Yeah. They say they were never able to. They think they're making a— Yeah, 98% of VCs don't know what the hell they're talking about. They have no operational background, and they think the fancy resume produces results, and they churn through VP of Sales. They're wrong. Right? Yeah. They lack of ability, not of recruiting. Yeah. They lack ability to put together a process. Why couldn't you put together a process? How hard is it to put together a process? You put together a script, right? You buy some tools, you hire some people, you close. I think it's just the wrong person, right? They're under founder stress, right? They have these VCs, and you know, I'm in one myself now, and they gave into it. They didn't— they made the wrong I don't know if that— They don't blame themselves, they blame the VP of Sales for not putting the right one. No, it's the CEO's fault for hiring the wrong VP of Sales. Yeah, any VP of Sales that could work at this stage, and you have crummy— I mean, we all have crummy processes when we're more early, right? Here's the thing that they'll do. It goes back to my point. Whatever your processes were before, a great VP of Sales will improve them, right? And when they improve them, what will happen? Your revenue per lead goes up, right? I can't predict exactly how much. When the revenue per lead goes up, it clicks, right? It's so easy to come into a company with $2 million revenue, 4 reps, and the CEO who's never sold, and make things better, right? Just, you know, like track the leads, call them back, right? I mean, I'm investing tomorrow in a company doing $2 million revenue, I put 3 of my guys in, okay? 80% of leads aren't even called, okay? What do you think is going to happen in 60 days? Boom! Okay, that's a process. Call the freaking leads, right? And what did he do? He already brought in 2 people in the first week. I just got the picture when I was coming here. He brought in 2 people and they will call 100% of the leads. That's not the most sophisticated process in the world, right? But it'll go up. So the VC's wrong. Sales reps more than anybody I know learn by osmosis. They listen to each other's calls. They listen, they watch it, right? Training's great. You have to have training. A sales team that sits together in the same room open style performs better. So yes, you want them together. And we talked about the VP of sales sales wants— or once you have managers, they want to jump into the deals. So the manager needs to be— sit physically, in my view, within their team. The— especially unless the deal sizes are tiny. I mean, if you're selling a product that's $20 or $30 a month, there's different things we could talk about. The one that's— and that usually ends up being okay. The one that's tougher, and I've seen it with companies in New York selling outside of it, and I've seen companies outside of New York trying to sell into fiServ and media and ad tech and other spaces, is can I have the VP of VP of sales being in a different office than the CEO and the VP of product and the VP of engineering, right? And so obviously that's a bad idea, right? If you've worked with a successful VP of sales in the early days, you'll realize that they're an extension of your product team, right? They go out, they talk to the customers, they get different types of feedback than the VP of product and the CEO does. They yell at the team because these feature gaps or they lost the deal. I could've closed this $300,000 deal "Only we were in Romanian." Right? And it's kind of true. And that doesn't work if you're not together, right? And the great VP of Sales and the early sales reps are a key part of the product team. So that's a bummer, right? But you can't have it all, right? I think my uber learning is it just raises the bar because what I found is the really good VP of Sales candidates know this and they want to be very close to the CEO. The CEO. It's a risky job, and the great ones don't really want to be in a different office than the CEO. Forget about what's bad for the company. And so that one I find is the biggest struggle, right? Because at an Uber level, we all end up with distributed teams at some point. Sometimes we have a distributed team on day one. Sometimes it's 10 years down the road. So you're going to end up getting there. But the great ones want to be close to the CEO. So I'm struggling to solve that one. Yeah. Can you break apart a little a little bit, the kind of, when you know you've got a repeatable process, like what are the tea leaves there? Like how does that look to you when it's time to hire that VP of Sales? I know I've got a repeatable process. What are the— Yes, well I think, so I'll tell you a few drivers of it, but I'll just give you a quantitative answer. As long as your deal size isn't like $1 million or more, it's about $1.5 million in revenue. Okay, at $1.5 million in revenue, you've probably got at least 100 customers, 50 customers, you've got a statistically significant number of customers, you've been at it for a little while, okay? And usually when I— and this is exactly when I felt it, but I've talked with 20 or 30, 50 SaaS founders— as you get to like a million, you start to see it, but it's not quite there. And when you get to about $1.5 million, you just see, I've got this, I can start to see that this many leads per month, however I get them, outbound, inbound, leftbound, rightbound, I start to see that this many leads kind of does produce this amount of revenue. I'm not totally sure why every deal gets closed, right? There's a lot of black art to— the script may not be perfect, but I kind of start to realize that if I get 100 leads a month, I'm going to get $100K in new ARR or whatever. And so for a variety of reasons, $1.5 million I would say is when it is, right? It may be earlier, and if your deal size is really high, maybe you're doing doing all 6-figure deals, so maybe you need to be a little bit— you need a statistically significant number, but that's when it kind of magically— and you'll feel it. Yeah. How do you feel pre-that point, but you're trying to get some process, some better scripts or some approaches to some consultive help? Somebody who comes in, spends a week or two, goes through the cycle a few times. You're not ready to have the VP of Sales, but something that you guys can— Never seen it work. Sounds like a great idea. I think what— I'm being sort of binary, but not quite facetious. Let me tell you how I answer that and then come back and address it. What I do think is important, when you hire those first 2 sales reps, okay, here's my one tip for these first 2 sales reps. This will work. One, they have to have some experience. Later you can hire all different types of people. Later you can hire kids fresh out of junior college or whatever you want, high school, you can import them from Chile, I don't care what you do. But the first 2 have to have a couple years of real SaaS experience. Experience. They don't even actually have to be— let me get to the second point— they don't even have to be top of the heap. They just have to have— they at least have to be mid-pack, and the first 2 reps have to be people that you would buy from. Later, you will find out you are nothing like your average customer when you get bigger. You're just like your average customer in the beginning, and then later the universe will change. You will get more middle America, and you will get more this, and you will get more that, and if you try and hire reps like you, you will fail. But if you would buy from the first 2 folks, then you know you can trust those leads, right, these precious leads to this person, right? And if they're at least mid-pack, they don't have to be great, and you would buy from them, then— and then because they have experience, they will bring at least rudimentary processes in. They have used Salesforce, okay? They may not know how to use Marketo, but they can maybe set up HubSpot for you. They could probably buy a purchase list if they have to and email it, right? I mean, they they at least know enough, probably more than you, but if the first two have no experience, you're kind of dead in the water. And those consultants come in and it doesn't work. Like, "Well, I'll help you close some customers. I'll do it 100% on commission." They work for about 5 minutes and it's hard because you're new and they go away. They give you some script, but they don't really— they're not responsible for revenue numbers, so they don't really iterate the script. You can't listen to 2 calls and do a good script. You have to do 20. That should work. It could work, but I've never seen it work. But the way I do it is make sure those first 2 reps have experience. At least 2 good years. The first guy I hired, the first rep, and he made it all the way to the end of last year, he made over $800K last year. He did great, he had a lot of equity. I mean, I hired him, both his parents were doctors, super smart guy, worked in his garage, not fully dressed. That was his shtick, okay? But super smart, I mean, and he had like 5 years of experience. It was SaaS, it was mid-pack, he was not top of the heap, right? But super smart, loved the product, I trusted him, and he knew enough to get everything going so I didn't have to be that guy, right? Yeah, go ahead. How do you think about sales reps for companies with a much lower MRR? Well, here's what I've learned, and I've shared the math. I think that if you have a— let's step back. If it's about $300 a month, or say $3,500, $3,600 a a year, that works. Simply put, it works. Do the math. I close 10 deals a month, I bring in, that's $36,000 a month, that's $400K a year, I take home $100K-something in OTE, the math works. So $300K is well proven. I call it the WebEx model. That's what WebEx optimized around. That's what a lot of— actually, if you look at Boxes, Boxes has a lot of big deals, but you know what they're at? I assume it's average, not median. Their average deal size is like $3,800. It's WebEx again. I had a lot of $3,800 customers. So that works. The thing about $3,800 is it has to be almost all inbound. It's too hard for most products to make outbound work. What I learned from that one guy that got promoted really quickly is if you're hyper-efficient, you can make it work at $100. Because instead of closing 10, you gotta close 30. And your average rep cannot do that. It's too many demos. I mean, how many demos a a day, can you do 12? No, you can do like 2 or 3, right? I mean, when we have Amy, we could do like 4 or 5, okay? But without her, like, you think these sales reps don't have EAs? I mean, it's so much work to set up 3 demos is 3 hours, plus you need a half hour to prep and get your computer ready and schedule the thing. I mean, so how can you, how could you possibly close 30 deals a month doing 100-something demos, right? But it is possible in a very high-velocity market. Below $99, it starts to become basically, you know, supported customer success— customer support, right? Zendesk does it. Zendesk has sales reps down to $10 a month. They're stay-at-home. They're mostly stay-at-home parents, moms or dads that work part-time, and they make— but they make very little money. And because they're stay-at-home, they work harder than you or I would for that amount of money. But that's pretty, pretty uncommon, right? The real answer for most of us, gotta drive your deal size up. You got to get to at least $100 $100 a month, right? But if you believe your deal size can get to like $300, and it's at $30 a day, it's cool. It's just an investment, right? Then I wouldn't sweat it. Yeah, anybody else? Main differences between the SaaS and perpetual licensing, because you kept emphasizing the SaaS piece. Well, I personally, I believe that, I mean, at an existential product level, who cares? It's just a different way to sell it, right? The real problem today is you can't raise money, you can't IPO, you can't get acquired for perpetual license, so you're dead in the water, right? Ignoring all that, what's the difference, right? I mean, come on. I mean, you know, perpetual license model with a 30% services contract no one wants to pay for, right? I mean, you know, so in theory, there's no difference. The reality we know when we build these models, there is a reason That's the reason Wall Street wants recurring revenue. When we build these models, once you get out to year 3, 4, 5, it's much more money, right? So I think just structurally, because you can't— because you can't— it's hard to IPO, it's hard to get acquired, it's hard to recruit people, right? Because young people don't want to do— like, it's just— I mean, maybe there's a follow-up question. I see everyone that I talk to— I was just talking to a company doing $80 million, mostly perpetual, that's all going through the switch. to try an IPO, I just see everyone switching, right? I mean, I was a senior vice president at Adobe. When we were acquired in July 15th, 2011 at 3:01 PM, Adobe was doing $4 billion, almost all, you know, 75% perpetual, right? Stock price was at $28, $4 billion in revenue. Today, you know how much money they're doing in revenue? $4 billion. That's like 0% growth for all those years, and I think stock price is at $80. Okay, why? Like, it's all recurring, right? So I, you know, try to change, 'cause that's just the right— I mean, I have no, like, religious or visceral views, but the world said we don't want it, right? But look, you know, but to not be binary, and then we could break or wrap it up, take a look, Storm, you know, where I'm a partner now, incubated this company called MobileIron that IPO'd a couple months ago. Big success. MobileIron's a SaaS company. Look at it. It's half perpetual, half SaaS. SaaS, right? The truth is you just want to be SaaS-y, right? It's like services, professional services. My learning on professional services is you're an idiot if you don't charge for professional services. You know why? As long as it's 20% or less of your revenue, you get full credit for it, and all the customers will pay it. They'll all pay services, right? They'll all pay for scanning the paper documents in. They don't mind, right? They don't care, $25 grand to do this, $50 grand, whatever, right? As long as it's not more than 20% or 25% of your revenue, you still count as a SaaS company, Right? So do a little of that, try and switch some of the perpetual to recurring, mix it up, look like MobileIron, I think you're okay. That's what I would look at. Yeah. One more? Anyone else? Yeah. You mentioned when you brought on your new, the good VP of sales, that he brought with him a certain, you know, sort of set of processes. Can you just comment on sort of what some of those basic processes were that he put in place? Boy, I gotta tell you, and Brendan's my brother, I mean, I love him, right? I don't think he brought any processes. In place. I mean, we came in, we had Salesforce, we had Marketo, we had a lead scoring system that was built. It was primitive back in the— because lead scoring was not as sophisticated. And all he did was he changed who got what leads routed through Salesforce, and that's it. There were no process changes. He did change the script, right? I mean, but I would say script and lead routing were the only two things that I saw that were changed, right? Maybe for a long time. So what were the previous guy doing wrong? The previous guy came from a company that was doing $700 million at the time. He did not know how to work in a startup, 'cause he came from Salesforce, which was my fault, not his, right? And he wasn't— and because of that, he couldn't understand what types— 'cause he had 11 people in sales operations and 4 sales engineers supporting him. So he couldn't even understand what some of these things you need to do, because it's all handed to you. It's not that he didn't work worked very hard, but there's so much infrastructure around you that he had no idea what processes to put in place. Even when he tried, for example, I mean, he tried a lot of things. He tried to put together an outbound team for us. We didn't have any outbound at the time. It's a good idea, but he'd never done it before. He had no idea how to do it. It was a disaster. This outbound team never outbounded nothing. I mean, they never brought in a single deal. So he just hadn't done it. So you can check that you can say these things, but if you haven't done done it, you can't do it for the first time at your startup. It's asking too much. Yeah. All right. Thanks everyone. We appreciate the time. So let's give another round of applause to Jason M. Lemkin. [FOREIGN LANGUAGE] So as I mentioned, we're taking August off and then we'll be back