Despite the fact that MIT boasts a top-flight business school, I’ve rarely seen Sloan students, faculty or alumni as members of the teams we mentor at MIT’s Venture Mentoring Service. It’s probably no surprise that virtually all teams are composed of solely of engineers and scientists, after all MIT stands for Massachusetts Institute of Technology.
I’ve learned the hard way how important sales is to the success of startups. Build it and they will come has worked for perhaps 1% of venture-backed startups like Facebook and Twitter. However, creating and selling enterprise products is far different from consumer products. Virality, which is instrumental in acquiring customers in consumer markets, seldom if ever works in enterprise markets. I’m not sure how many of these
all-engineers teams understand that.
Why do you need a director of sales, anyway?
Here’s a great story about the value of sales, told to me many years ago by Bill Warner, for whom I was working at the time. Bill is the founder of Avid Technology, which while becoming wildly successful selling it’s Macintosh-based video editing systems, didn’t take off like a rocket at first. As is typical amongst engineers, the engineers at Avid had no understanding of the sales process and didn’t see why Avid even bothered to have a sales director.
One day, very early in the company’s lifespan, the sales director had gotten tired of how Avid’s engineer’s didn’t value his work, so he decided to invite a few of the engineers on a sales call to one of Avid’s beta testers, a video editing studio in New Hampshire. The group was greeted by the owner of the studio who gave them a tour of the facilities and described the work being done with the aid of Avid’s video editing workstations. When the tour was over the owner, Avid’s sales director and the engineers sat down in the owner’s office to get his feedback on their beta testing of the Avid’s digital non-linear editing system. For about fifteen minutes the owner of the studio relentlessly bombarded them with complaints about the system. When he finally finished all the engineers were slumping in their chairs and staring morosely at their shoes. But not the sales director. He looked the owner in the eye and said, “Thanks for the valuable feedback, Rick. Now tell me, how many editing workstations are you planning to buy?” When the owner answered, “Let’s start with eight” the engineers heads all snapped up to stare at the sales director in amazement. From that day on grumbling about why Avid even needed a sales department ended. (Please excuse errors in my recounting this story, I heard it a long time ago and the details have gotten fuzzy along the way.)
As I’ve written, there are only two jobs in a startup: building a product and selling it. Do you know what happens when an engineer-founder takes on the sales role? You gain a lousy sales person and lose a great engineer! That’s not to say that some engineers, like Bill Gates of Microsoft fame, aren’t good at sales. But unless one of your engineers has sales experience or happens to be a natural sales leader, you must bring on a sales director if you expect to succeed in the enterprise market. (For those firms in the B2C market resources should be first expended on a marketing wizard.)
When do you need a sales director?
Forgive the generalization, but as a rule sales people have very short term goals, “How much can I sell this quarter?” whereas marketing directors take a longer view, “How will we become the leader in our market?” Another general rule: sales people are motivated by cash compensation (short term focus) and marketeers are motivated by equity compensation (long term focus). I liken marketing and sales to handed-ness. Your company need two hands, one is sales, the other being marketing. They need to work together. But few people are ambidextrous, they are either natural sales people or natural marketeers, but not both. At Course Technology, we were very fortunate to have an ambidextrous executive, Howard Diamond, who was our VP of Sales and Marketing
You should start looking for a sales director as soon as you launch your company, if not before. Why? Because it is extraordinarily hard to hire a great sales director. You will need to kiss a lot of frogs in this process. The search could take many months. If you wait until your product is ready to launch you will lose out you on any first mover advantage your might have had. And sales director don’t just sell! They also provide valuable customer feedback to engineering during the product development phase. Sales in the enterprise market – and even some segments of the consumer market – has a very long sales cycle – measured in months. And generally speaking, the larger the company the slower the sales cycle as battleships are far less nimble than smaller craft.
However, sales people can’t sell demos or even prototypes and have no motivation do do so, because a sales director’s compensation is heavily weighted on sales commissions. Which is why ventures often wait until they are ready to launch their product to hire a sales director.
To determine when to hire a sales person you need to understand the lifecycle of a product from the viewpoint of your customers:
- Concept – usually conveyed by a presentation
- Demo – a dynamic way to demonstrate the product concept, such as an animation, a video or very early version
- Prototype – a version of the product that the customer can try out for themselves, but it’s not feature-function complete, nor robust or polished
- Alpha – a version for the key stakeholders in the venture, like Board members, investors, advisors and friends of the company to try out and provide feedback
- Beta – a feature-function complete version that needs a great deal of customer testing to help find bugs, ascertain performance, and find edge cases overlooked in the alpha testing process.
- MVP – the minimal viable product, the first version released to customers
Because sales directors are driven by cash, you will need to have an angel or VC investment large enough to pay at least the sales director’s draw. (A draw is an advance against future anticipated incentive compensation (commission) earnings). He or she might be willing to accrue commissions until the first round of funding, but don’t count on it.
You don’t want to hire a sales director too early (even though you start the search as soon as you incorporate), as you probably won’t be able to provide incentive-based compensation – they have nothing to sell. But you don’t want to hire a sales director too late as you will lose out on the market insights a good sales person can provide to engineering; waiting will extend the time to first customer revenue significantly. Worse yet, by waiting you could lose out to a competitor who gains first-mover advantage.
An important factor to understand is the role the team plays in an investor’s decision to invest or not. The stronger the team – expertise, track record, experience in the market – the less risk to the investor and the more likely you are to land a seed round or even a Series A round. So if you are fortunate find a world-class sales director who could join the team early on, try to hire them, so long as they can support themselves until you land that first round.
How do you find a great sales director?
Great sales directors, like great engineers are probably already working someplace else. However, if a company does an aqui-hire the acquirer is most likely just after the engineers; the company already has a fully staffed sales organization. And venture-backed startups do fail, resulting in sales people being laid off and thus on the market. Your investors, especially VCs, should be able to help in your search, as they have very large networks. Like engineers, a sales person can be a great individual contributor, but will fail when put promoted into a management role. You can’t afford to provide OJT – On the Job Training – to a sales person. Your venture needs a proven sales manager do build your sales organization and who is also great at selling.
In any hiring in a startup you need to lean on your network. That’s one reason I encourage startups to setup an advisory board early in their lifespan. Advisors should have great networks and should be willing to use their networks to help you find job candidates.
To find a great sales director you need to be a great talent tracker. Keep up with the startup world via social media, print media, conferences, trade shows, and informal gatherings. Great sales directors, like great engineers, will have multiple job offers. How to make an offer and how to compensate a sales director are subjects for another post. Keep in mind that landing a world class sales person is like sport fishing, once you get the hook in their mouths is takes strength, experience, and expertise to reel them in.