From Impossible to Inevitable: How SaaS and Other Hyper-Growth Companies Create Predictable Revenue

by Aaron Ross

Develop Reps Who Are “Businesspeople Who Can Sell,” Not “Salespeople” When a salesperson is an expert who knows how your product can help customers—and when it's not a fit—they will build trust and relationships quickly with the right prospects. There's no better way to quickly ramp a salesperson than to find ways to rotate your new hires around your company, giving them hands-on experience with support, product, or account management. Slowing down their start on full-time selling, so they can get hands-on experience and accelerate time-to-expertise, can speed up their ramp time.

And there's only one problem with that: No matter how well that rep does, you won't learn anything. You need at least two to learn. Here's why: If your first rep does poorly, you'll have no idea why. The rep will blame you, your crappy product, your crappy company, your crappy lack of marketing, which may all be correct. But if the rep is a bad fit, that may be the real reason. You just won't know. If your first rep does well (our experience), you'll still have no idea why. Does the product sell itself? Is it the rep's suave phone skills? Is it your deal size, and are your customers representative of the ones you'll really get in the future? Or is this rep only good at a certain type of customer—and are you leaving other potential customers behind? You just … won't know.

Look, if you've been a VP of Sales yourself for 10 years, ignore this. But most of you haven't built or led an inside sales team before. So you're gonna need to learn. So even if it seems expensive, hire two. To start. Then learn … and go from there. It will be better, and thus cheaper, in the end. And the rule of two can apply to any new function, not only sales.

When you do something new, hire two. With one person, you can't tell if what is and is not working is due to the person or to the process.

Hire the same type of successful sales person. Consistently train them the same way. Provide each salesperson with the same quantity and quality of leads. Have the salespeople work the leads using the same process.

Hire people who show past success as well as people with untapped potential.

Coachability (#1!) Prior success Work ethic Curiosity Intelligence

People always matter, but when you're doing something new, the first hires make an even bigger difference.

Find the job description and download-able hiring guide at FromImpossible.com/recruiting

Set comp expectations. Paul tends generally to advise companies doing big, new things (new products, teams, markets) to avoid commission-based comp plans as long as they can. You can't put together smart commission plans until you're smart about your sales machine, and that can take a lot longer than you want. While you're learning, it's better to pay salespeople a flat amount per month, or with discretionary bonuses, until you have enough experience and data to put together a practical (not arbitrary) plan that includes commissions. If you put a sales team on a commission-based plan too early, when you're arbitrarily guessing at realistic sales and business goals (even when based on other companies just like yours), you're setting yourself up for a no-win situation. One of two things happens: Either: Very rarely, the sales team will blow away the targets and you (or your board) will be upset at paying them “too much money” (although everyone agreed to it ahead of time), then quotas will be jacked up and commissions decreased, thus frustrating the reps … Or: (And this is the one that happens 95% of the time with new products and companies.) The sales team totally misses goals because the goals were unrealistic and arbitrary in hindsight. And the sales team is again left very frustrated, and perhaps financially desperate (never a good thing) if they need at least some commission income to pay for basics like rent.

A bad system will beat a good person every time. —W. Edwards Deming

Until you fix the systems, you're going to struggle getting repeatable success.

Your ability to scale a sales team depends on making everything a system. When salespeople leave for any reason—missed quotas, dissatisfied, bad apple—it means you have “defects” in your system. Your ability to scale a sales team depends on making everything a system.

A commonly accepted estimate of the cost of one lost salesperson is one and a half to two times their annual comp. At two times their comp, losing five salespeople with targets of $150,000 is a cost of $1.5 million.

Common Sales Attrition Causes There can be a million underlying causes behind high sales attrition, but the three most common ones are: Lead generation: The company isn't doing enough to support the reps with quality leads. Specialization: The company isn't specializing at all, the right ways, or going far enough with it. Management: Leadership (mostly the CEO and VP Sales) isn't connected with what's going on “in the trenches,” or is still very traditional or conservative. We love this quote: “People leave managers, not companies.”

identify patterns that lead you to discover the main one or two problems that are causing high attrition. Don't just blame salespeople for failing. What else contributes to the systemic problem(s)? Keep up the one-to-one coaching, and don't let individual salespeople use team-wide problems as an excuse to give up. Great reps with a great (or even good) manager and fair compensation will prefer to stay. People leave managers, not companies. Which managers have high churn, and why? Voluntary attrition should be 0%. Overall attrition should be 10% or less, but not 0%, because no company has perfect hiring and coaching.

The biggest problem Mark sees today in the sales world: sales doesn't care enough about customer success. We talked earlier in the “Seeds” chapter about creating a dedicated Customer Success team, but how do sales comp plans affect customer success? People talk the talk … but when push comes to shove, vanilla sales teams are gonna do whatever it takes to close a deal, then collect a check, and let other teams pick up the pieces later.

Think about this scenario: you have two reps who both closed $1M in revenue this year. Your first rep, all her customers are happy and they're expanding and renewing their contracts because of it. While your second rep's customers are miserable, complaining and churning out. If your compensation model is set up so that both of those reps are compensated the same, you've got a problem. Mark proposes incorporating a customer lifetime value trigger into your comp plan.

Churn and retention are the best indicators of customer lifetime but they take too long to tie to your sales comp. Mark says find an “aha moment” in your product or service your customer completes in the first two months that flag them as an ongoing success. Pay the sales rep half their commission when they sign the contract, and half when that “aha moment” happens. Some popular examples of how a company knew a customer would be successful: Dropbox—when an account has added one device, one file, and one user. Slack—once a team exchanged 2,000 messages. Hubspot—once the customer used 5 out of the 25 available features in the platform. Twitter—after someone followed 30 other people.

Involving your reps in helping redesign their plans reduces comp plan change friction: They had a voice and could contribute concerns and ideas, it reduces surprises, and reps are pre-educated before a new comp rollout.

We all agree everyone in sales has to have commissions and a highly variable comp structure. What we mean is everyone that materially impacts the plan should have some variable comp.

Your VP Product should be incentivized to build the right features, not only to make a great product but also to hit the annual plan. How about a 15% variable cash component, and a 15% bonus for exceeding the plan, and also perhaps some downside for missing it?

Your VP Marketing better have her comp plan tied to the leads or opportunity commits that make the annual plan work. How about a 20% variable cash component? The leads aren't there, she comes up short. But if...

Your VP Customer Success better have her comp plan tied to hitting the upsell, retention, or negative net churn goals. How about a 30%-plus variable component? Watch her sweat the lost ...

Your VP and Directors of Engineering need to build the stuff we need to hit this year's plan. How about a 10/...

Your Controller exceeds our collections goals, and you end up with an extra $300,000 of cash in the ...

Revenue is a concrete team goal everyone can and should get behind.

Later, this may get harder. Later, you may need subordinate goals. But for now, tie a bonus plan for exceeding the revenue plan for all your key hires, of every discipline.

Get them thinking directly about revenue, and it'll help revenue come.

Maybe you're frustrated by a similar thing: Big companies seem to take forever (6–12 or more months) to decide to buy your “no-brainer” service that—to you—they clearly need. However, if you're an early-stage company, you may not realize that you're still figuring out if you're (a) a need-to-have or (b) a nice-to-have with these companies, and need to Nail a (New) Niche. Or, because you had a few fast Early Adopter buys, you may have totally wacky expectations on how fast your big company Mainstream Buyers can make decisions.

Remember: Big companies usually make group decisions, are risk-averse, and it can get complicated. More people involved means longer decisions. When buying something new or important, a big company might take six to nine months to buy with more people involved, more complexity, more systems and teams affected, and less tolerance for risk. The nature of the beast is it's harder for them to buy. So, in selling to them, one of your jobs is not to “sell,” but to help them buy. This often means you need to help the primary person at the company—the one who wants your stuff—sell it internally to their peers and boss(es). One of your jobs is not to “sell,” but to help them buy.

Find a champion and help them sell internally:

Focus on prospects who need you and can buy faster:

Clarify your “Ideal Customer Profile”

Confused prospects say “No.”

Whatever you wrote up to impress your professors or investors just sounds like bullshit in the real world. If a prospect is confused about what you do or how you can help them, they'll say no—even if you know they need your product. You want your prospects to understand what you're talking about, and the best way is not to impress them, but to keep it simple. Maybe you need to do a new set of interviews to help refresh your messaging.

Case studies prove that you're not all talk: Details on how you helped ACME grow from $10 million to $50 million in two years are more concrete than “We can help you grow 500% in 12 months.” References, especially if there's someone in their network who knows your stuff. Can you do some free work for them to prove your claims, rather than have them guess? Start your pitch with a demo or dashboards to show them what they'll get with your product, rather than a long-winded history of your company. Is there a demo or visual you can show, a story you can tell, a picture you can draw, a video you can shoot? Can you get them using your product hands-on—say, with a pilot or free trial? Either can be a double-edged sword. If you run one, don't assume they'll just “figure it out.” Define what a successful pilot looks like, and the steps needed to get there, before you begin.

Number of open opportunities in total and per rep: Measure the total number of open opportunities each rep is working at any given time, and understand how many total new opportunities they should be getting per month—not too few, and not too many.

Number of closed opportunities in total and per rep: Measure total opportunities closed including both closed-won and closed-lost opportunities.

High win rates aren't good, low ones aren't bad.

Deal size: Measure the average value of your closed-won deals.

Win rate: Measure the number of closed opportunities, in a specific closing period, that you won (Closed Won Opportunities)/(Total Opportunities: both Closed-Won and Closed-Lost). This won't mean much unless you can watch it trend, or use it to A/B test reps with similar segments, or compare against companies similar to yours.

The simplest way to start increasing your team's win rate is to find the one or two most problematic steps in your process, and then look both “inside” (e.g., a better demo process) and “outside” the team (e.g., an easier free trial, or simpler pricing)…

Don't assume—investigate.

Look at your sales funnel and understand conversions through every stage through to closed-won. If most reps are struggling in the same area, then don't blame them; it might be something outside their control. Nominate an investigator to find the truth of what's going on.

Sales cycle: Measure the average duration or time (typically in days) it takes your team to win a deal and, ideally, how long opportunities spend in each sales stage.

Especially if you're doing SaaS for the first time (or even the second), the whole idea of charging for “services” may seem anathema. It sure seemed like that to me at EchoSign. If your product is so easy to use that you hardly even need salespeople, why in the world would I need to charge for implementation? For support? For training and engagement? And isn't it a bit unseemly to charge for services? Doesn't it label your product as old-school, too clunky, inelegant, or complex? And isn't the revenue from services a waste? For example, it's not recurring and it's not true ARR. Does it even count? After all, I'm a SaaS company.

Your buyer wants to do the least amount of change management possible by herself.

Both of these are often line-item budgeted at 15–20% of the core contract value for the product. So … You probably can't charge another 15–20% for services and implementation and training for a $99 a month product. Well, maybe you could, but it's probably unprofitable and not worth it. But, as soon as the sale gets into the five figures, consider adding 15–20% for services. You'll probably get it. And plan for charging, and delivering, additional services in mid-five-figure and larger deals. The customers are happy to pay, and in fact, will expect it.

And importantly, this extra services revenue still “counts” as recurring revenue if it's less than 25% or so of your revenues. Wall Street and VCs and acquirers and everyone will still consider you a 100% SaaS company if less than 25% of your revenues are nonrecurring. And you'll get the same SaaS ARR multiple on those extra services revenues: same multiple, no extra work, 10–25% more revenue, extra, nondilutive cash flowing into the business. Don't leave the services revenue on the table.