It's Not About Me. It's All About You.

Google “common salesforce stage names.” You’ll find a bunch of articles that outline the basic sales process. Depending on the assumed annual contract value (ACV) of the article, you’ll typically see a list that looks something like this. The lower the ACV, the fewer items in the list.

Prospect

Marketing lead

Marketing qualified lead

Sales accepted lead

Sales qualified lead

Opportunity

Discovery

Online Demo

Onsite Demo

Negotiations

Proposal

Legal/Procurement

Closed Won

Closed Lost

This stage naming convention is not useful. It tells the selling organization very little about where the customer is in the buying process. The are a few problems:

1) These stage names are a series of actions the account executive (AE) has done with/to the customer. More importantly, these stage names do not reflect where the buyer is in their decision making process. If a deal is listed in Discovery, the selling organization knows the deal is still early in the sales cycle, but that’s about it. “Discovery” doesn’t indicate anything about the customer. These stage names do not highlight the problems the customer is facing in making a decision.

2) The more complex the sale, the less linear it is. This naming scheme attempts to force a non-linear sales process into a linear progression.

3) There is no consistency in the naming. In English class, we were taught that lists need to be consistent. A list of 6 items shouldn’t include 3 verbs, 2 adjectives, and a noun. This isn’t about being grammatically correct, but rather highlights that there is in fact something wrong with this naming convention.

The Right Approach

It’s called the Enterprise Integrated Sales Process (EISS). Full disclosure: I was taught the bulk of this by my good friend and mentor, Jim Banks of ShadeTree Technology. Although it’s designed for larger ACV sales, the frame of reference is usable for lower ACV opportunities. The stages are:

1) Awareness

2) Recognition

3) Determination

4) Justification

5) Acceptance

I’ll walk through these in reverse order because the key to the sales process is to reverse-engineer the deal from the end to the beginning.

Acceptance — an opportunity moves into Acceptance once every requirement from every stakeholder in the buying organization has been addressed. This includes legal and procurement. If all redlining has been finished, IT has approved security requirements, budgets have been allocated and approved, fee schedules set, use cases validated, and workflows understood, then the only remaining step is to initial paperwork.

In many organizations large and small just getting the signature can take days. Those few days are the Acceptance stage. By moving an opportunity to Acceptance, the AE is signaling to her company that every obstacle has been overcome. Nothing that was foreseeable can stop the deal now.

There are instances where procurement organizations will lie to the AE and a deal will move back to Justification from Acceptance. This should only happen when truly every foreseeable requirement was fulfilled, and then out of nowhere, something comes up at the end. “[Competitor] just offered us a price that’s 25% less than yours. If you don’t match it, no deal.” It’s unfortunate, but many procurement organizations are designed to do exactly this to vendors.

Justification — this is typically the longest stage of the sales cycle. An opportunity graduates from Justification into Acceptance when every foreseeable requirement for every stakeholder has been fulfilled. An opportunity moves into Justification from Determination when all of the requirements to close a deal are known. Thus, to move to Justification, an AE needs to understand the requirements of:

Approver — the person who literally signs the check. This is typically a procurement person, or in some cases, the VP whose budget is paying for the solution.

Decision Maker — typically the VP whose budget is paying for the solution. The DM and Approver can be the same person, although this is uncommon.

Recommender — these are people the VP looks to in assessing the solution. These can be Directors, or they can be SMEs. There may be a few Recommenders in a deal.

Influencer — like Recommenders, but they have less clout with the DM. This can include business analysts who help build business cases, or lower ranking SMEs who sit in on demos. There can be more than dozen Influencers.

IT — Although you could categorize IT as an Influencer or Recommender, they are an organization that almost always has its own unique of set of technical challenges that other Influencers and Recommenders don’t. As such, IT warrants its own role and in SalesForce. Note: if you’re selling into IT organizations, this this doesn’t make as much sense as most of the stakeholders are by definition in IT.

Legal — again, a functional group that AEs always have to deal with. Make sure that AEs know who these people are and what they want in a deal.

Procurement — again, a functional group that AEs always have to deal with. Make sure to know who these people are and what they want to see in a deal.

Each stakeholder in the buying organization has her own thoughts and views of the solution they’ve been asked to evaluate. Very few of them will directly shares their views with the AE. But most of them will share their opinions of the seller’s solution if the AE asks. The imperative of the Justification stage is to ensure that no one in the buying organization has any reason to object to the seller. NONE. If anyone has a reason to object, the deal is likely lost.

In order to fulfill everyone’s requirements, AEs first have to figure out what people want.

Determination — this stage is all about diagnosing. The AE has to 1) figure out who all of the stakeholders are, and 2) what their requirements are. This is an explicitly divergent problem, whereas Justification is a convergent problem.

“Here are the 12 people you’ll need to engage with. John makes the decisions around here. He needs to see a 25% ROIC and 12 month payback period to do a deal. He will rely on Sally and Bob’s judgement about the real value you can deliver. John will work with Jim and Jane on building a business case. And he’ll turn to Janet in legal, Nancy in procurement, and Dylan in IT to get their blessing. Here’s everyone’s contact info. Oh, and Nancy will be the one that signs the check. I know you care about that.”

That has never been said in the history of sales. AEs have to uncover all of that information and more.

During this stage, AEs need to rely on their Champion inside the buying organization to navigate. The Champion will be involved in Justification too, but the bulk of the work the Champion will do be in Determination.

Recognition — A deal exits Recognition when the AE has asked her primary point of contact these 2 questions:

1) “Will you be my champion? That is, will you help me navigate your organization and understand the pitfalls and processes that we’ll need to work through together?”

2) “If it’s not going to work out, will you be the first to tell me so that we don’t both waste our time?”

When the champion has agreed to those criteria, a deal moves to Determination. Recognition is about selling one person. The remainder of the sales cycle after Recognition is about selling the rest of the organization.

The most common reason deals fail in Recognition is when the contact in the buying organization says “let me get my colleague involved for a demo” before the two questions above have been asked. This almost always results in failure. Why? Because that statement implies that AE’s current contact isn’t Champion material. Champions by definition need conviction in the solution they’re bringing into the organization. Without conviction, there’s no Champion. Without a champion, there’s no deal.

Most contacts that a sales organization is talking to at the Recognition stage have never championed a project through before. They rarely understand how their organization buys solutions, or even that champions need to exist to shepherd deals. This is why question #1 above is so important.

Question #2 is just as important. This will be the first time that anyone from the sales organization expresses vulnerability to the buying organization. This is a crucial moment of trust-building. It also creates a commitment from the champion to be honest with the AE.

Awareness — Awareness means that at least one person from one side of a transaction is aware of and interested in the other company. For inbound leads, Awareness translates to unqualified marketing leads. For outbound sales efforts, Awareness-stage deals are all untouched, qualified prospects. A deal moves to Recognition when one individual from each side of the deal has expressed interest in the other. At this point, the sales organization has to convince this person to be the champion.

Note: most sales organizations will transition account ownership from an SDR to an AE when a deal moves from Awareness to Recognition, or after the 1st or 2nd conversation in Recognition.

The Power of EISS

So why is the EISS naming-scheme so much better than traditional naming conventions? Because these stages tell all parties inside the selling organization what’s going on in the deal. For example, is it more useful for a CEO or CFO to see “Demo” or “Determination” as the stage for a given deal?

“Demo” is a meaningless term. Demos can happen in Recognition, Determination, and Justification. But Determination means that there’s a champion, and that the AE is trying to figure out who else needs to be involved. With that information, the CEO/CFO can ask hard questions such as “What is the background of the SME/Recommender on this deal? Has she led prior technology implementations that impacted this population of employees?”

Another example. If an AE has listed as a deal as “Negotiation,” the natural inclination is to ask about the terms that are currently being negotiated. But this is the wrong first question about any negotiation: “Have we (the selling organization) diagnosed every issue and requirement possible, and fulfilled the key requirements to ensure that the customer realizes the potential value of our solution?” If an AE lists a deal as “Determination” but begins talking about pricing, that’s a red flag. How could the customer possibly be willing to pay the maximum possible price if the customer doesn’t yet know what the real value of the solution is?

One of the most challenging aspects of sales is to orient EVERYTHING through the lens of the customer. This post just touched on one component of view: stage naming. Terms like “Demo” and “Negotiation” are actions that the sales organization does with the buyer. But those actions don’t represent where the buyer is in their buying process. The EISS provides the framework that sales organizations should use to map all actions and descriptors through the eyes of the customer.

How To Run A Weekly Sales Forecast Meeting

This post will outline how to run a weekly sales review meeting. These guidelines are intended for B2B SaaS startups with < $10M ARR.

Why run a weekly sales forecast meeting?

Some may think that running the same, repetitive meeting each week is a sub-optimal use of time. After all, as long as everything is in SalesForce, and SalesForce is always up to date, why spend an hour each week reviewing what’s in SalesForce?

A VC once told me “sales is sloppy.” I’ll never forget that. In most sales organizations, this is true. Sales professionals, without strict and rigorous guidance, rules, and infrastructure, will devolve into haphazard mercenaries. Sales organizations, like all organizations, tend towards entropy. The weekly sales forecast review meeting is an explicit fight against the natural tendency towards entropy.

Sales is 90% science, 10% art. The weekly sales forecast meeting will force everyone in the company — the CEO, CFO, VP Sales, VP Marketing, VP Customer Success, VP product, and sales reps — to be honest with everyone else about the state of things. This will reduce entropy, and inform decision making throughout the company. Most importantly, it will force sales reps to be honest with themselves.

Who should attend?

VP Sales — this is the VP Sales’ meeting. She should “own” this meeting. More on the VP Sales’ role below.

CEO — she should be providing the highest level of accountability, and be thinking about the implications of every word said on the other functions of the business

VP Finance — she should be asking hard questions of the sales reps to ensure that the company is on track to achieve its goals. Sales reps should be prepared to answer the 4 key finance questions for a given deal: 1) when will the deal close 2) how much revenue is at stake 3) what is the probability of closing 4) what are the payment terms?

VP Product — she is probably not necessary when the ACV is < $50K. But when the ACV exceeds $50K and there is explicitly some level of customization delivered to each customer, the VP Product should be blessing each deal for product/customer fit. This can happen outside the scope of the forecast meeting so the VP Product may not attend every forecast, but she should be coming 1–2 times / month.

VP Customer Success — she needs to know exactly how many deals are closing in the next 30/60/90 days, and what those customers are expecting. Sales reps need to be prepared to discuss any idiosyncrasies that the customer success organization needs to know about.

VP Marketing — she needs to know where the big deals are coming from. And she needs to be prepared to ask the AEs questions about their deals to learn and incorporate those learnings further up the funnel. The forecast meeting won’t be the discussion forum for the VP marketing to dive deep with AEs, but the discussion in the meeting will prompt further discussion afterwards.

Account Executives — they should be ready to report on each deal for all of the stakeholders above.

Agenda

Since this is likely the only forum in the company where you have the sales team, VP Finance, VP Customer Success, and CEO together, it’s natural to want to review new processes and procedures for the sales organization during this meeting.

Don’t.

This meeting should operate under military-grade in discipline. The cadence should be rhythmic. Introducing open-ended, question-induced, discussion based content will ultimately take away from the purpose of the meeting: reducing entropy in the sales process and all of the downstream effects on the business. All procedural matters can be handled after the forecast meeting, or in another forum, but never before.

The agenda of the meeting should be as follows:

VP Sales: “The revenue closed so far this month is $A. The target for this quarter is $X. We are (not) on pace to hit the target this month. The revenue closed so far this quarter is $B. The target for this quarter is $Y. We are (not) on pace to hit the target this quarter. The revenue closed so far this year is $C. We are (not) on pace to hit the target this year.”

While stating the above, the VP Sales should display cumulative revenue charts on a dashboard (I prefer InsightSquared).

There are a few reasons for the strict nature of the above. It will force the VP Sales to own the numbers each week in front of her most important constituents. Every second of every day, the VP Sales needs to feel the pressure of the upcoming weekly forecast meeting. She will know she will be grilled on Friday each week if things aren’t going according to plan. This is a great source of accountability. Next…

VP Sales: “Next we’ll briefly review deals that have been closed since the last forecast meeting.”

Every opportunity discussed from this point forwards — closed and open — should already be open in a unique tab in Chrome. Each tab should have the relevant summary view to highlight the key information that is being presented.

For each deal that’s closed in the last week, the AE that closed the deal should recap the following info: date closed, relevant financial information,, did it close per the original forecast, if not, why not, what problem does the customer perceive, why does the customer perceive us as the best solution, why do they feel a need to act now, and how will they measure success? For deals > $50K, there are likely idiosyncrasies for each deal. In those cases, the AE should also highlight those idiosyncrasies, as well as any unique customer expectations.

This should not be the first time anyone in attendance has been informed of this information. Everyone who is attending this meeting should have already been sent the SalesForce link shortly after the deal closed. So why review the past in the explicitly forwards-looking, weekly forecast meeting? To give AEs a chance to shine. After the deals-that-have-closed recap, the remainder of this meeting is existentially about grilling AEs and calling BS on what’s in SalesForce and what they say. It helps AEs to have a few seconds of fame before being grilled. Next…

VP Sales: “Next we’ll review the pipeline on a per deal basis, in the order of forecasted close date through [end of current quota period, ideally monthly, but maybe quarterly]. The AE who owns each deal will present the opportunity.”

For each opportunity, the opportunity owner should state each of the following: why buy?, why us?, why now?, forecasted close date, forecasted $, probability of closing, use case/industry (if relevant), stage, the roles of the individuals involved, and the diagnosis/prescription for each individual (more on that below).

What do I mean by the diagnosis/prescription for each individual? In any sale involving multiple stakeholders, each individual has a set of requirements that must be completed before blessing the purchase of your product. First, those requirements must be understood (diagnosis). Next, the AE must satisfy those requirements (prescription).

There are a few universal in the enterprise sales process. You may add some of your own:

Approver — the person who literally signs the check. Sometimes a VP, but usually in procurement

Decision Maker — usually a VP. Can be the same as the Approver.

Procurement — other individuals in procurement who are not the final approver

Legal — other individuals in legal who are the final approver

IT — self explanatory

Recommender — a subject matter expert who the VP relies on. This is not a business analyst or IT person, but someone somewhat senior who will likely use the product daily and will have strong opinions about the capabilities of the product and the usefulness for the organization

Influencer — business analysts, lower-level recommenders

3rd parties — consultants like Accenture/Deloitte, if applicable

Every deal must have an Approver, Decision Maker, Legal, and Procurement person explicitly identified. The other roles are optional, though usually helpful. Typically, the more of them an AE has put into SalesForce, the more real the deal is. (Note, SalesForce’s default UI for role-management for opportunities isn’t great, but it’s highly functional and gets the job done).

For each role in the opportunity, the AE must outline her requirements in order to move the deal forwards. It should be assumed that anyone whose criteria haven’t been met has veto power.

Meeting Rules

Everyone should come to this meeting preparred. That means the VP finance has reviewed pipeline dashboards and YTD revenue numbers prior to the meeting and has flagged which deals concern her. The VP Customer Success has flagged deals in which she has questions. etc. And most importantly, AEs must know the exact status of each deal they own. They should know answers to every question above without needing to look in SalesForce, even though they’ve already answered every question above in writing in SalesForce.

The content outlined above is extensive by design. A small minority of organizations have the discipline to make it through all of that content in one hour. Those that do are exceptional.

In addition to preparation, there are two other unbreakable rules: no names, and no anecdotes. It’s incredibly tempting for AEs to simply ramble on about a deal. “Bob told me he’ll get back to me next week about X, Joe said that I satisfied his requirements, and I’m going on site next week with Joanne to review and satisfy her requirements.” To a CEO that has a million other things going on, that is 100% useless information. Who are Bob, Joe, and Joanne? What are their roles in the buying process?

The rule of no names and no anecdotes forces clarity. Rather than naming people by name, AEs should reference individuals involved in the opportunity by role. This provides clarity to everyone at the table what’s going on in a deal. And rather than discuss anecdotes about travel, dates of phone calls, and myriad details, AEs should be forced to state everything in abstract terms. This brings clarity to the sales process. Consider the following two statements:

“I’m currently working with Sally and Lisa at Acme Corporation. Sally is really concerned about [problem]. I’ve talked to her about it and think she’s happy with us. She really likes [feature] that solves [problem]. I don’t see why she won’t support us in the buying committee meeting. Lisa on the other hand is a real prickler. She keeps giving me new hoops to jump through, and Bob supports every hurdle she throws my way! The most recent is [other problem.] I had a call with her this week to review it, but she was rushed and had to jump off after just 5 minutes so we rescheduled for 45 minutes next week. Don’t worry, I asked her explicitly if she can guarantee 45 minutes next week and she said yes. I may pull in [VP Product] and [VP Customer Success].”

Or

“There are two recommenders on this deal. Both are Senior [job title] and have been with the company for 10+ years. Both command respect from the decision maker, and the decision maker will not move forward without both of their blessings. One recommender has expressed concern about [problem], and I have explicitly outlined why [feature] solves that problem. She has agreed that this feature adequately address her needs, and that she will support us in the buying committee meeting. The other is very concerned about [another problem]. I will know whether our current feature set addresses her needs by [date], and will coordinate with [VP Product] and [VP Customer Success] accordingly.”

Every AE will naturally tend towards the first statement rather than the second. Why? Because AEs spend most of their time talking with people. AEs are “people persons.” The 1st example is a “people person” response. The 2nd is refined, abstracted, pure sales-reporting statement.

The 1st example is nearly useless to busy executives. There is no context for the actual diagnosis and prescriptions discussed, and way too much detail about the inner workings of each. The 2nd example provides all of the right context, and frames every piece of information in a light in which the rest of the organization can understand what’s going on. The VP Marketing can see threads across customers about features that are worth highlighting more earlier in the sales cycle. And the VP Customer Success will begin to draw out the success criteria for the opportunity.

Conclusion

Running a weekly forecast review is unintuitive at first. Everyone attends the meeting with her own agenda, at least to some extent. AEs often feel it’s a waste of time when the info already exists in SalesForce. But the meeting is just as much for AEs — to keep themselves honest — as it is to report to the organization. The VP Sales has to manage all of the constituents in this meeting closely to keep the meeting on track. It will tend towards entropy if not managed.

The Four Types of Sales Professionals

Sales professionals create value in the mind of the customer. Period. They don’t persuade, they don’t trick, they don’t deceive. They create value, regardless of industry vertical or deal size. But sales professionals create value in different ways. In this post, I’ll outline the 4 fundamental kinds of sales value creation. Many sales jobs will not perfectly fit into one of these categories. However, all sales jobs can be predominantly characterized as one of the following.

Order takers

These people are technically sales professionals in job title, but they create only marginal value in the mind of the customer. They exist to answer the phone (or worse, fax), enter information into a system, and process payments. They don’t really sell in the traditional sense of the word. Order takers do not exist in startups. Order takers exist in commodity businesses in which both parties have long understood exactly what’s being sold, the value of the product service, and have an intuitive sense of the price. They also exist when startups grow up into real companies well after they’ve achieved Initial Scale at ~$10M ARR and are on a clear path to $100M ARR.

SalesForce is a great example. Although SalesForce offers a self-serve option, they employ hundreds (maybe thousands?) of people who deal with SMBs who are paying just a few hundred dollars per month. These sales people aren’t doing any selling. The SalesForce brand is selling itself. These sales people may answer some questions about billing and some features for customers, but they don’t carry quota, and they aren’t doing any material value creation in the mind of the customer.

Airlines are a great example of a commodity business that employs order takers. Airlines still employ thousands of people who answer the phone and place orders into ticketing systems. Big companies know that order takers are purely a cost center. The brand and the marketing has done all of the value-creation in the mind of the consumer, so the order taker is left purely as a cost center. As such, most airlines actually charge customers an additional fee to place orders by phone as a way to encourage consumers to buy online, where no human cost is involved. Airlines have literally decided to pass the cost of order takers onto consumers.

Similarly, SpareFoot, an Austin company, just shuttered its call center. Why? They removed the 800-number from every page of their website and instead drove traffic to online self-serve channels. When they flipped this switch, they obviated the need for 84 call center staff. Assuming a fully loaded cost of $50,000 / employee / year, SpareFoot just added $4.2M / year back to the bottom line. That’s a huge profit lift considering that SpareFoot is orders of magnitude smaller than SalesForce or airlines. Just imagine how much money those companies spend on order takers.

Volume Players

Volume players can be easily confused with stereotypical sleazy sales people. Some volume players are indeed sleazy, but many aren’t. Volume players are used car sales professionals, people who try to sell magazine subscriptions over the phone, and Sales Development Reps (SDRs) who sell low annual contract value (ACV) products. Examples include Yodle, MainStreetHub, andOutbound Engine. All of these companies sell to SMBs and their price points don’t exceed $300 or $400 / month. These companies probably have SDRs and Account Executives (AEs) in the sales cycle, but their business is really just a numbers game. They employ some order takers, but most of their sales staff are dialing for dollars.

The beautiful thing about volume players is that the sales cycles are short and relatively easy. They typically have a low conversion rate, which is exactly why volume players are volume players: they have to make up for low conversion rates in volume. The low conversion rate isn’t the fault of the sales professional; rather, it’s just typical of low ACV customers. Volume players create value in the mind of the buyer, but the purchase decision is in many cases made on a whim (easily characterized by 1-call closes), or made through the lens of “I’ll try it for a month, it will only cost a few hundred bucks, and kill it if it isn’t working.” There’s nothing wrong with that thinking through the lens of the customer. If the product works as advertised, then everyone has won: the customer has extracted value from the product/service, the company has provided value, the company has generated profit, and sales professional has earned her commission.

Volume players live and die by the rules of the system. The VP Sales and sales ops leaders design the system, and the volume player SDRs and AEs live in the system. They thrive in it. The rules are clearly defined, comp plans are crystal clear, every objection and concern has already been considered, everything is mapped out in SalesForce/SalesLoft, and there is almost no ambiguity or material decision that needs to be made at any point in a given sales process once a sales professional is trained and up-to-speed. It’s easy to identify the best volume players: they work at companies that have optimized the system to a teel, and they more than double their base salary with variable comp. They are looking for structure and support from their employer so they can focus on creating value in the mind of the customer without any distractions.

SDRs who sell high ACV products are often volume players as well. However, they only operate at the top of the sales funnel, and can afford to think in terms of volume. AEs who sell high ACV ($50K+) products are…

Magicians

Magicians create material value in the mind of the customer where there was once no value. That’s why they are magicians. They create something out of nothing. This is real enterprise selling. It’s also by far the most difficult form of sales. The best magicians take home $1M+ / year after taxes.

Magicians sell novel, high ACV products. That means magicians only really exist in enterprise technology sales. Very few other products fit that mold.

The 1st step to becoming a magician is to develop a deep understanding of the customer. Magicians learn everything they can about their current customers’ existing processes, workflows, and problems. They become industry experts. No detail is too trivial.

The very best magicians don’t want to figure out the basics on their own. They expect to spend the first 30 days going through rigorous sales training that has already been devised and laid out for them by the VP Sales and sales ops leadership. Early stage CEOs are by definition magicians. They have to literally figure out all of the consumer’s paint points, and what messaging resonates with them. Overtime, the CEO will work with sales leadership to extract all of the information from the CEO’s brain and turn it into a magician-factory, AKA a sales training program.

There will be a phase from $500K — $5M ARR where the sales training system isn’t fleshed out to support the best magicians. This is the hardest phase in which to hire magicians. The best magicians will know exactly what kind of supporting infrastructure they need. They’ll figure this out with just a few questions:

1. Have you built out a full customer lifecycle map with all of the relevant stakeholders, the the key concerns and objections they have, and relevant materials to overcome those objections?
2. Do you have half a dozen case studies on the website of customers who are paying $[median ACV * 1.5]?
3. What are the top 2 reasons VPs buy the product?

Real magicians know that if the company can’t answer these questions (and many more) in two sentences or less, the infrastructure isn’t ready to support them. They know what they need.

The phase between $500K and $5M ARR is tough. The CEO sold the first $500K haphazardly. That’s standard. But as the company passes $1M ARR, the CEO will need help. The CEO can’t maintain 15% m/m growth as the numbers become ever-larger. But real magicians won’t join because they know they won’t make as much money as they will if they stay at their current, larger, more mature company.

Finding people who will become magicians but aren’t yet is incredibly difficult. They have to be smart enough to think on their feet and adaptable, they have to understand the customer, they have to learn real enterprise selling, they have to know they will lose deals simply because the company hasn’t encountered all of the variables yet, but not yet far enough along in their careers to have comp expectations > $250K. That’s a very fine needle to thread.

Over the last 30 years, the sales process has become increasingly value-creation focused. There was a time (so I’m told) where $10M deals were sold based on relationships. This is by and large not the case in enterprise technology anymore due to any number of factors: the cloud, free information on the Internet, social media, technology maturity, etc. Today, magicians conduct enterprise sales.

Note, magicians come by many names: enterprise sales professionals, consultative sales, etc.

Relationship Based Selling

This is “old boys” sales. This involves wining and dining customers, playing golf with them, and doing anything possible to spend time with the customer. Per the Benjamin Franklin effect, if someone spends that much time with another person, how can they not like one another?

Relationship based selling is by and large gone today in enterprise technology. But it still exists in many other industries including real estate, pharmaceutical, and med device. These sales processes only work for high ACV items because the cost of maintaining the relationship is high.

The worst examples of this exist in the implantable med device industry. I have met medical device reps who are proud of the fact that they pick up surgeons’ dry cleaning. This process is being curbed by the growth of value analysis committees in hospitals, but it is still prevalent in in healthcare, where sophisticated med device and pharma companies charge copious amounts of money to insurance companies to justify ridiculously inflated sales costs.

Relationship-based sales professionals are easy to spot during the interview process. They’ll ask early on what the T&E budget is because they are used to abusing generous big company T&E policies that are designed to support relationship based sales. They probably have gone over the T&E allocation a few times, have been scolded for it, and as such are particularly worried about how many $100 dinners they can purchase for themselves on the company’s dime. Moreover, they aren’t typically that interested in really understanding the customer’s problems. They are just more interested in being nice to the customer and being her best friend because that’s easy and worked for them in the past. Relationship-focused sales professionals will probably come to the interview with a superficial understanding of the problem the company is solving and how company’s solution goes about solving it. Why? Because they expect the system to teach them what they need to know, and then they expect to go out and just spend time with customers and get customers to like them. They will lack the native motivation to dive deep into the industry and become experts.

The Deception of Positive and Negative Growth Percentages

Growth and decline percentages are deceiving in the startup universe. Many don’t recognize all of the implications of exponential growth and the associated hiring challenges. This problem manifests most commonly when a startup begins to achieve product/market fit and Initial Traction (~$1M ARR). 

When a startup is growing 10-15% m/m on the path from $500K - $1M ARR, the startup is adding $50-$100K in ARR each month, or $4-8K MRR. 10% m/m growth isn’t bad, but it’s not great. Great startups are growing > 15% m/m as they pass $1M ARR, and the Select Few are growing >25% m/m.

But what many fail to recognize is how the math scales. At $1M ARR, growing 15% m/m requires adding $150K in ARR, or $12.5K in MRR each month. Thus, from the time a startup achieves $1M ARR, they should hit $1.5M ARR in 3 months if they want to maintain 15% m/m growth.

At $1.5M ARR, 15% m/m growth means the startup needs to add $225K in MRR each month. So the startup should grow from $1.5M to $2M in just over 2 months, or 33% faster than the prior $500K in ARR.

This math isn’t particularly difficult to understand. But many underestimate just how hard it is to accelerate growth as the numbers get bigger. There are tons of startups that get to a point of adding $100K in ARR each month. 10x-ing that - adding $1M in ARR each month - requires real thought and and planning. Jason Cohen of WPEngine describes this problem very well. At a rate of adding $1M ARR each month, it will take 100 months, or more than 8 years, to achieve $100M ARR. Growth has to accelerate.

How does all of this tie to hiring? As startups add multiple customer acquisition channels, hire more than 2 sales people, and generally scale, startups need to invest in infrastructure. All kinds of it. This means marketing automation, sales automation, and customer success automation - collectively customer lifecycle systems and processes - to accelerate growth. There should be minimal innovation around these disciplines: innovate myopically. But startups need to hire the right people so that they don’t have to innovate in these disciplines. Tech/product focused founders rarely have expertise setting up customer lifecycle systems and processes. They should bring in the people who have implemented those processes before, and empower them to do it.

Those people are going to be more expensive than many founders naturally think. I remember the first time I looked at what an amazing VP Customer Success costs after raising a Series A. I couldn’t believe it: $150-$200K and .5%-1.5%. Great VP Sales can go much higher. But the great ones are worth their salary 10x over. Because they will make the startups’ customers happy in a way the founders otherwise never could, and those customers will fuel the best kind of growth: word-of-mouth (WOM). Not only does WOM scale incredibly well, it scales well inexpensively, driving down CAC and ensuring that startups don’t compromise the fundamental law of startup growth (fantastic post). That amazing VP Customer Success will drive down CAC and drive up LTV, ensuring the startup stays venture-fundable as it scales to $100M ARR. The amazing VPs are worth any amount of cash and equity to acquire.

The situation is particularly amplified for companies that are doing $1-2M ARR and are 4+ years old. If the product/market fit is tight and the market opportunity is real, then that means the startup needs serious customer acquisition help across all fronts. If there were any top notch marketing or sales people around, they probably left because they didn’t have the help around them they needed to drive revenue growth. And so now the company is left with B players without strong customer acquisition and customer success leadership. Those companies are the ones that most need to find a spark  to rethink the entire customer acquisition process and ignite growth. Those people will be expensive in cash and equity terms, but if they are any good, they will be worth their cost 100x over. As Jason Lemkin of SaaStr loves to say, salary and equity vest (and equity has a cliff), so the cost of being wrong is relatively low given the slow growth rate anyways.

Hiring becomes even more important when thinking about growth given the time cycles involved. Hiring great executives takes months, and onboarding takes 30-60 days, so founders need to have incredible foresight to time VP-level hires right to ensure they maintain an exponential growth curve. That means in many cases it will take 6 months to hire and onboard great VPs. So that means that startups should start looking for their first great VP hires between $500K - $1M ARR. If the startup is growing is 15% m/m and it takes 6 months to find and onboard the VP, then the startup will be at $1M-$2M ARR - or double the revenue of when the search started - before the VP is delivering material value. This is not intuitive to founders who, up until this point, have been able to tweak almost anything overnight other than the product fuel growth. It’s not naturally intuitive to think that a single thing - hiring an executive - will take 6 months. Exponential growth can be deceiving.

The flip side of thinking about growth - which is theoretically unlimited - is thinking about a fixed pie. And this is where percentages are really deceiving. When discussing negative percentages - revenue declines, accelerating burn, etc - it feels like the pie is being eaten… because it is. These are fixed pie scenarios. All of a sudden, 15% of the pie is gone. It feels like crap because psychology dictates that humans strongly prefer loss aversion to gains.

The problem that many entrepreneurs make is applying the same fixed-pie mindset and applying it to growth percentages and thinking about equity value. Positive and negative percentages need to be thought through opposing lenses: negative percentages should be thought of as a fixed pie that’s being eaten, while positive percentages need to be thought through the lens of infinite growth. Companies can become infinitely large - see Apple and Google - so the real dilemma isn’t how to minimize losses, but how to maximize growth. All decisions should be made through the lens of maximizing growth, even if material costs are incurred. Startups can always grow more than they can lose (unless gross margins are negative, in which case the business shouldn’t exist). Invest in that growth, even if it feels expensive through a fixed-pie lens. 6 months later, it will feel like a bargain when looking backwards through an infinite growth lens.

Understanding the Millennial Mindset

As I read this Fortune piece that outlines how and why millennials are investing with robo financial advisors (eg Wealthfront, Betterment) in place of traditional financial advisors (eg Schwab, Fidelity), I couldn’t help but think about the broader divide between the mindset of millennials and prior generations.

The Internet has completely changed everything.

I was born in 1990. I began using Google when I was 9. At the age of 9, I learned that I can access any piece of information for free, instantly. I remember trying to access Encyclopedia Brittanica (Microsoft’s online encyclopedia in the days before Wikipedia), and I was confused why they charged so much money — hundreds of dollars — for what I thought was a free commodity: information. I asked my Dad, someone who built his career on the Microsoft stack (Microsoft made their money charging for software; Google made their money giving software away for free), why the information was so expensive. He told me that it was expensive to pay people to curate the information, and that the only way Microsoft could justify Encyclopedia Britannica’s existence was to charge for access to that information. I didn’t like his answer because I loved the ease and simplicity of Google search. But he was right: humans are expensive.

Then Wikipedia emerged in 2001 and systematically dismantled Encyclopedia Britannica and all of the other online encyclopedias. Since then, Internet economics have come to dictate that all information should be free. I am no longer the in exception in thinking that information should be free and freely available to everyone. The vast majority of information is already freely available to the public, and the public has come to expect that information should be free. For every company selling proprietary information, there are a dozen tech startups trying to dismantle legacy information arbitrage businesses.

This is the difference between the millennial mindset. When my father was growing up, he had to turn to a financial advisor to manage his personal capital. He had to go to a doctor’s office and wait in line to seek medical help. He had to call a travel agent to not only book plane tickets, but to even find out when flights were departing. And he not only had to interact with others to get this information, he had to pay for information (the cost of information dispersion was built into cost of the service). The people whom he spoke to had to draw salaries. Millions of businesses were built, some large, some small, that just sold access to information. These were information arbitrage businesses. Internet economics destroy information arbitrage opportunities.

I grew up assuming that I could access everything for free. When Encylopedia Britannica tried to charge me to learn about nature, I was confused. This is the root of the millennial mindset: that I can learn anything about anything on my own and be reasonably self-sufficient. Most millennials know that they aren’t physicians and that they aren’t sophisticated money managers, but they also know intuitively and intrinsically that these services shouldn’t be as expensive as they were because at their core, these are just information arbitrage services. Paying for information doesn’t make sense to millennials.

The Internet is the most democratizing technology ever invented, and my generation has absorbed this in a way that most others in prior generations have not. This is the millennial mindset.

PS, the Internet is the most capitalistic invention since the invention of capitalism itself. One of the core tenets of capitalism is that consumers have complete information of what they are buying — the quality of the product, the price, prices for competitive services and items, etc. The Internet empowers consumers by reducing the cost of information to $0. Capitalism fuels the millennial mindset, and the millennial mindset fuels capitalism. It’s a beautiful, virtuous cycle.

PPS, there are still many legacy businesses predicated on information arbitrage. They are most heavily concentrated around the government: tax advisors, FDA consultants, etc. I suspect we’ll see these services democratize over the next 30 years, but it will be a slow, long haul.