Scaling a Successful SaaS Sales Team: Harry Stebbings and Jason Lemkin

When we look at funding environments, say I call it the foie gring of startups, which is especially in Sass. As worries me, because you give a founder million and Suddenly they hired 20 sales reps, 10 in marketing. And they don't have a playbook and they don't have repeatability. Do you see this too? And are you as concerned by it as me? I am.

I don't. I'm not concerned by it.

Huh?

I believe that with help. And this is why you need good advisors. You need good capital. The best founders eventually hire great VPs. Okay? Sometimes they screw up a few VP hires. Sometimes. Oftentimes they'll fall in love with the logo. They'll want someone from Datadog or Dropbox, whoever. Everyone makes that mistake. Maybe your advisors help you avoid it. But the great VPs, the truly great ones, not the good ones. The great VPs know how to spend the money. The mediocre ones fall into a hole. What happens is you hire a mediocre VP of sales and let's say, oh my God, the CEO promised we're going to go from 1 million to 10 million this year. That's what I promised when I raised the money. I didn't promise 1 to 2 or 1 to 3. Even 1 to 3 was the old days, was a lot. I'm promising 1 to 10, right? And we're seeing at least 1 to 5, 1 to 6 all the time these days, Right? So I did the promise. What does a mediocre VP of sales do if there's 60 million in the bank? They spend it all. They spend it. The mediocre ones, a hundred percent of them spend it all. The marketers spend everything. Okay? We see it. Harry. You and I have seen it multiple times. A mediocre CMO will come in. Or just a misfit. A mis. More often. It's a mismatch CMO every. And they'll spend everything on advertising and media. The great ones don't hire crummy reps. The great sales leaders, right? They build amazing teams, right? They just might hire a bigger sales enablement team, a bigger rev ops team to support them than you otherwise would. The great marketers don't spend money on programs that don't perform. So I think this is true. But I blame the CEOs for lowering the bar on hiring for VPs. I don't see them blowing through all the money. I never see it. I haven't seen it.

I think you're right. Definitely. In terms of the best. Always hire the best. VPs that I get you. Obviously one area where we're both very passionate is sales and it's where I get the most questions I think from founders in particular start on the meta, which is like fundamentally, does the founder need to be the person who creates the first sales playbook or can that be distributed to a sales rep or.

A head of sales? Look, I think I would say the majority of B2B companies that are successful that you and I have worked with, Harry. The majority, but not all. The founder has been the first head of sales. My, my first deck of Corn Saster podcast 001 you did with Thiago from Talk Desk. He was the only salesperson through the first 2 million of revenue. That's where I learned. On the other hand, sometimes it's just not you, right? Sometimes you cannot be a great sales rep. And when I look at my second investment back in the day, another unicorn, Algolia Nicholas, who you've interviewed was okay at this, but he brought in Gayton, his chief business officer. Really as almost a late co founder. He was probably employee number one or two because these engineers just weren't great at sales. And it became clearly that the search API had a sales element. If you don't have that DNA, find that great almost co founder like salesperson early and it can work. But hiring that person over Craigslist or over LinkedIn or whatever that will. That's the one that, that that fails. We all believe in this early founder led sales and it's true most of the time, but it's not true all the time. But you sure better found a co founder like person to pick up the slack.

Okay. If you think about the first sales hires, often founders, you say they've built the playbook and they're in a million and error. Say whatever some number they go, should.

I hire a head of sales who.

Brings in the team around them and crafts that team or should I bring two sales reps and build it from the ground up? How do you advise founders in that situation?

Again, we have, we've learned over time there's the scenario that works 80% of the time. What works 80% of the time is they fought. They hire two quirky sales reps and get them doing pretty well, hitting quota or beyond. Often one of them just crazy good, right? And we can talk about what that Persona looks like. And when you've hired two, you're generally ready to hire a VP to hire three through 300. You have just enough of an engine, just enough of a playbook. Just as importantly, a playbook that works that you can start reproducing that playbook from 3:3 to 300. If you don't have those two AES and you hire a VP of sales 80% of the time, it doesn't work because there's nothing for them to work with. And the good ones, and importantly today a good VP of sales usually won't join a startup at that phase. That's one thing that's changed the last five years is the great VP of Sales are waiting for 10 million. The ones that used to join at 1 million. They're all waiting for a 10 million ARR startup today or a unicorn, whichever comes earlier. All of them. But if you possibly can get two performing reps yourself, it's going to make that whole process 10 times easier.

I want to talk about those two reps. You mentioned that. What do we want in those two reps? What do they look like? What are the character types? What makes you go, this is a 10x rap and we want you in our team?

Let's be clear, the 10x reps in the early days are not the 10x reps later. Hopefully they stay forever. The best ones stay, if you're lucky, keep them. Right? But they're different. But I will tell you how to hire them and what they look like because they're two different things. The 10X sales rep in the early days has one and a half criteria. It's really this simple. First, make sure they've sold at your price point at your ACV A sales. If you're a, if you're a 5K ACV startup, do not hire someone from a million dollar a year group, no matter how much you love them. It's the wrong toolkit, right? The toolkit is roughly the same for every startup at a given ACV at a given price point. So make sure they've sold in cloud, in SaaS at your price point. Otherwise don't fall in love with them. The second one, they all the founders screw this up. Harry, would you buy from her? They listen to the buzzwords and they listen to the talk and they do the reference check. But if, Harry, if you've sold the first hundred copies of your product, you know whether you can trust these precious leads to somebody else. And whenever I talk with the founder, I'm out. How did it go? My first two reps didn't work out. I'm like, what happened? And I always ask them one question, would you have bought from them? The answer is always no. But you can give on a lot. You can give on the fact that they were never great, that they were always mid pack. You can give on the fact that they sold at a six tier competitor. You can give on the fact that they never got to 20 million in their whole lives. You can give them a lot of things. ACV is tough to give on. And the fact that you would buy from never works. So that's the criteria. And if they just pass those two criteria, they will work okay. They will work for you and they can stay for a decade. Now I'll tell you what makes them 10x, what makes them 10x, and it took me a long time to figure this out, is that they can change their playbook. 90% of sales reps and this works out. The bigger you get, they sell exactly the same way. Okay, Harry. Hi, this is Jason from 2020 Media. We have a podcast sponsorship we started a hundred thousand dollars a month. Where can I send the PO right now? What? 20 gets beat really big. That actually will work 8 times out of 10. But think about the early days. They go, it wouldn't work. And this and 90% of sales reps, they just run the same playbook again and again. And the bigger your brand gets, the more that works. But the great ones, especially in the early days, they change the playbook based on who the prospect is. And that may sound obvious because as founders we do this intuitively, but it's not how many reps are trained. They're trained in a process and a system. They get really good at the 10 questions in the script. Those early reps can be great. Just if they're at your ACV and you would trust your lead, that's enough, hire her. But if they actually can sell three or four different use cases, they understand the different buying Personas already. That's when the magic just happens. You get the 10x er. And that's the criteria of every top rep at any SaaS company I've talked to is they can completely change the sales playbook based on the prospect, based on the buyer.

Can I ask one thing I find very challenging? It's like quote, quote creation is that how do you advise on the right quota? That is both ambitious and it's hard to get, but also it's not too ambitious where it's just too far out of reach. What's the right balance?

The good news is the, the middle's hard, but the beginning of this process and the end are easy. When you, when you, when you're really early stage your quota should be enough that the sales rep won't quit that they can eat. So you need to make sure that at least the first three to six months, if you're sub 1 million to 2 million in ARR that they get a boost. And often it's simplest to almost give them. I know it sounds can sound crazy sometimes it's almost easy to give them 100% of what they close. If it's hard, right? You close 10k this month, you take home 10k. It's really simple, right? Obviously that's not profitable, but it's almost 100% like they take home 100%. That can be okay for the first three months. You have to train people, you have to onboard them. It's not the end of the world. It doesn't work at scale. But you need to back into it. Okay, here I've hired this new rep, Harry. He's got to make 100k a year. I let me be honest with myself. If he can close 200k, it's so early. That's a gift, right? So I'm going to pay Harry half of what he closes that that turns out to be. If you're don't you have to be analytical. They have to eat. And then at scale we end up at these 3x4x5x numbers which is quotas are an SMB. Usually 3x your full, your, your fully burdened comp, your on target earnings. You ot up to 5x in the enterprise. That's the way it works. 3x 4x 5x. This actually works in the earth like it's. It was all. It's always been 3 to 5x in profits going back to automobile sales. Anything you could sell, right. Cool supplies. It's just because software approaches a hundred percent gross margin, sales reps could keep 3 to 5x. This 3 to 5x work for revenue, not the profit. But that's the way it works. So at scale, if you want to make $200,000 a year as a sales rep, great. In S and P you got to bring in 600 mid market 800 enterprise a million. And then the question is in the middle. In the middle as you. Especially if you have capital or if you don't. Where do you want to bend those rules until you're at scale. But ultimately at some point as you approach ipo, your metrics have to be normal, don't they?

Absolutely they do. My question is also like when you look at enterprise, given the conversion length in terms of the sales cycles. Yes, it's very Difficult to know if your reps are actually good. How do you think?

It's very stressful. How, how the founders know stressful.

What are signs then? When you have a founder that goes, jason, they haven't closed anything, but they've only been here four months. How do you know if they're good?

Yeah, there's a startup I invested in, it's taken a while. They're founded in 2017 and the beginning of this quarter they were at 2 million. Okay, since 2017, this quarter they finally closed a million. So 2 to 3 million in one quarter. Not a single enterprise rep has ever worked out. They keep waiting and waiting. When you're at scale, you know, because long sales cycles don't matter. At scale north of 20, 30 million in revenue, you're lining up so many deals at the same time that long sale cycles don't matter because if you have a hundred deals in flight, it actually starts to happen very predictably. But you need a hundred long sales cycle deals, not Sony baloney pipeline, but actually in flight that are going to close before, before this gets de stressed. And how many startup founders have a hundred enterprise deals in flight? It takes a while. There's really only two answers and it's stressful. There's no great answer. One is I've found that in true enterprise, like real enterprise, the founder is often the VP of sales until 10 million. I've seen this again and again. Now I'm not saying they don't have a VP of sales, but I think in SMB you can be hands off at a million or 2 in revenue as even if you did founder lean sales. I find that enterprise, they're so good at speaking to the big customers, they're so trusted. Harry, we know like we trust him, he, all the customers trust him, Google trusts him, whoever trusts him and, and so Harry is already in every deal until this brand is so established that Harry just gets pulled into the deal. So I actually think to tell founders that are pulling their hair out in enterprise, keep pulling it out because if it's not going to get better, it's just going to get more repeatable and you will be the head of sales until 10 million. And so what that means is the big mistake that I see founders that are true enterprise make is is they just have too much faith in these AES. You have to see more progress, you have to judge it. And even if you have a nine month sales cycle, you have to say four months in, are these deals really moving at the pace they did when I Run them. Are they really working as well? Because otherwise it's fake. Right? It's fake. Energy isn't.

Totally is. The only worry about is like founder dependency. And I think about this with me now dealing with sponsorship management, it's like, how do I extricate myself in the process? Because you don't want to be in every process where it's founder dependent.

What, what would happen to SpaceX if Elon Musk was gone or Tesla? Founder dependency is part of the game. Yeah, I mean it's part of, it's part of the game. Right. I think it's a, it's one of these existential risks for investing too. What if something happens? I got an email over the weekend from a great, literally one of the best founders I've known my entire life saying his co founder is kind of transitioning to an IC role. I'm like, God, that's high risk. That's the high, that's higher risk than losing a customer. Because a founder dependency is a, it's a, it's an existential problem. And you got. Making yourself obsolete is the dream of every founder. But maybe you could only come close. And it's true.

In sales.

When I started doing these Saster events, I would interview all the CEOs out in the early days. I would ask the Jeff Lawsons from Twilio and the Peter Gassner from Viva and I would say, how much time do you spend in sales? Like in the early days before they all, they were all bigger and they're.

Like more than ever.

More. I'm like, really, Jeff, you just went public at Twilio 26. You're a developer focused company. You're spending more time with sales than ever. Yes. Now sometimes that means more time with customers. It's not always prospects. As you get bigger, you talk about 10 year customers. You want to move your time as CEO more to customers and prospects, but it never goes down. And that, I think that's emblematic of this level of founder dependency.

Speaking of the founder dependency, have you ever had it where the founders just tired? We've seen the world change and shift in ways that we never expected. And I think depression, mental health, tiredness, to get chronic tiredness is more and more a problem. Have you ever had it where the founders burnt out and how do you deal with that? Because that worries me.

I would say only 80% of the time. What I mean is one of the very first things I wrote in Saster, literally, probably in 2012 or 2013, a long time ago, was I've been doing this for five years. My startup's doing pretty well. I want to quit. I'm tired. What do I do? And I've updated version that over the years. Literally. Last week I had the conversation with a great founder that almost wanted to throw and throw in the towel. And even though they had over a million in revenue, it just taken a while, right? And mental health and everything, these are important issues. I wish I had any answers there. I'll tell you what I've learned more tactically about this topic, which is one. Every company, every start, every SaaS is good in that you don't have to change the product like every week. It's not TikTok. The competition level is. It's visceral, but it's slower. But you do need to reinvent yourself every four to five years as a product. And the only way you can do that is if you reinvent the team and your strategy every four to five years. And what bails you out of tiredness again and again if you get bailed out, if you do, is that magical BP that you find that is more than a vp, that is almost like a founder. Almost like a founder. And that is the only thing that has saved me over time, and that is the only thing that has saved me even running Saster, is finding someone that would join and own more of it, take over some of that burden. And if you're a founder and you're burned out and you're up to here, but you find someone to take over a piece of it, all of a sudden everything's down here. It's just your stress level and everything drops 34, it's not to nothing. And then you'll realize I should have almost dropped everything to find her, to find this VP that could carry some of the load. And again, when that founder sent me the email over the weekend, the first thing I'm going to talk to talk to him about is, okay, who can we find on the team or outside they can carry some of the load, right? Because the startup's doing great. But you need someone that's going to put some of those concrete blocks on their back and own some of this. And, and back in the old days at Echo Sign, Adobe signup, I had three of those and I didn't appreciate how great it was. I didn't appreciate it. I thought I needed that out of every VP and I. But I only had it out of three of my VPs. And then I realized I was in an event and I was backstage With Wade from Zapier and we were talking about it and he's you're lucky if you have half. I said what do you mean he's you're lucky if half your VPs not only do their job well, but do more than their job, carry some of that load. And if you can even have half of your management team do it, that, that's like magic. And I realize he's right. And so that's what if you're tired, that's what you're missing. You don't have someone to carry the load for you. And people, great people will do that. And that's what's crazy about startups is people get these emotional attachments to them and they will do things they would never do in a big company. Does that mean if they, if they.

Don'T carry the load for you, then they'll make great? They could be good. Does that mean you don't have them in your organization like you could own?

No. I think Wade's point was, look, I'm lucky to have a VP of marketing that hits plan. That's enough. Okay. If you get me the, whatever the goal is, like that's you're going to have VPs on your team that are going to hit their numbers. And that's hard enough as it is. A lot of human beings, especially as you get bigger and it becomes more process oriented, they don't want to worry about the competition and where the company will be in 10 years and the deep future. They don't. And that's okay. That, that's okay. But having even half your management team care 80% as much as you do, that's when you can just blow it out of the water. That's when magic happens. And so I think it gets harder as you scale as these, as you hire process oriented people, but you can find them, but you need them. But if you can find a couple of these before even 20 million ARR, the romantics exist. They're romantics. They're romantics. They're romantics that want more out of life than a salary or even RSUs or equity in a big company. They want more. They want a sense of belonging, a sense of worth out of their company. And you can mock that, but it's incredibly powerful when they get so much value out of creating themselves, out of being a creator, out of the magic of a startup. And if you can harness that authentically, that's when magic happens. When I quit my first so called corporate job to do startups, I actually had no job, no salary, no savings or anything. But it was wanting to be part of something bigger than me that I did it. I don't think that's changed. That's why people join early stage stuff, because it's not rational, is it?

No, not rational. In many cases, I was just unemployable.

Jason, actually, you're unemployable, but you're romantic. And that's what I. When I say this to people, they don't understand what I mean. But these, some of these great early stage in early stage, all almost up to 20 million these days, they're romantics. They want more out of life. They want to be on this special journey and tap the right person that if you're giving them that special journey and they want to be on a special journey and they're great, then they're super great, then they're magicians.

Totally. And if anyone listening is a VP running media companies and wants to help me, then please, you get it.

You get it that you're overwhelmed now, right? And it may take you two years to find that person, which sounds horrible, but when you find that person, magic will happen.