Jason M. Lemkin advises that after a startup's earliest days you must pay market rates for sales reps so they can meet quotas and afford living costs. He contrasts a bottoms-up model—where compensation is set so most reps hit quota and can ‘eat’ while the company later adjusts plans to become profitable—with a tops-down model enabled by venture capital that allows paying below market temporarily.
Questions this video answers
$150k
$70k base and $80k bonus
$70k
Chapters
At the end of the day, there's two ways you can look at it. First of all, after the very early days, you have to pay market. You have to pay market. There's too many startups, so there are exceptions. And I'm in awe of very charismatic CEOs who are able to convince sales reps and folks to take very low salaries. But even if you can do that in the beginning, it doesn't last. If you want to build 8, 10, 20, 200 sales, you have to pay, whether you have to pay high end of market or low end of market, but you have to pay market. So before you even get there, you have to pay market at least for ot and the sales reps have to eat. So, okay, let's say you decide. Okay, I'm in San Francisco and the OT is 150, but it's going to be a 70 base and an 80k bonus. But no one makes the bonus because it's too hard. They're only making 70k. With 10 years of experience in the Bay Area, what's going to happen? I mean, rent's kind of high here, isn't it? Yeah. So you have to develop a plan where most of your reps are hitting quota, okay. And they can eat and it's competitive. You have to start there. Okay. And you have to backsaw then into a comp plan where the company can make any money. Okay. And so you have to start with people have to eat and be happy and feel comfortable coming to work and not feel like they're gonna get fired for doing a decent job. So that's the bottoms up model. The tops down model is if you raise venture capital, if you have a few extra nickels in the bank, you can play in the beginning.
