Welcome to the “scaleup founder/sales team merry-go-round”
It’s easy to imagine: a new company, offering a solution perfectly calibrated to the needs of its early customers. A charismatic founder with a network full of useful contacts generating leads. Early days, sales look good. Everyone gets excited and with strong sales, investment follows. The founder finds themselves with an unmanageable in-tray and money to burn, so they hire a head of sales: a competitive (and expensive) talent from one of the industry giants. They bring with them their black book and, for a while at least, things are good.
With the new big hitter in place the founder steps away and the new head starts making hires themselves. But junior sales staff quickly struggle to generate new wins, and at the same time sales from the new head’s black book begin to dry up. As the new hires make little impact, pressure mounts — and eyes point to the underperforming sales team. A merry-go-round of junior sales hires takes place, while the head of sales is themselves replaced for some other experienced campaigner.
When this doesn’t work, the founder decides it’s time to step back in and lead sales again. The founder’s enthusiasm may be enough to boost sales once more, and perhaps things even start to feel good again. But by now the company is on the back foot and ever more reliant on the overstretched founder. The answer? Find another new head of sales and start the cycle all over again — at least until the money runs out!
So, what exactly is happening here, and how does a founder break this cycle? In this blog I’m going to explore what might be going on, and ask what crucial pieces need to be in place before a founder steps back from the sales function. In the process, I’ll be challenging the conventional wisdom that states merely hiring the right person and quickly getting out the way is the answer.
Why can it go so wrong?
I believe the key issue lies in a culture shift, from the founder ‘winning scrappy,’ to putting in place processes and systems for winning through structure. ‘Winning scrappy’ is what I call clinging to every scrap of an opportunity, shamelessly tapping into networks, and going over and above for each potential client. Winning through structure means having a steady flow of inbound leads that convert into demos/trials, that convert into sales, and that can be measured, adjusted, and remeasured time and again (‘the Sales Machine’).
Think about it from the perspective of each actor. The founder will have the confidence and motivation to make a shameless appeal for referrals across their network and beyond. It’s their business, and they’ll be happy to put pride aside to get results. In the situation I described in the intro, the new head will make some early inroads from their network, but will be more cautious overall; careful not to burn contacts through over-persistence. For the newly hired junior sales team, it’s even tougher. Their networks will be smaller, their distance from the product greater, and their passion for it correspondingly lower. Often, with few leads, the company will suggest a cold outbound approach. But for a junior team member, cold calling Directors from FTSE 100 companies is sure to be a dispiriting experience, and this will be reflected in employee churn.
When a company shifts from founder led to team led sales, the move from scrappy to structure can break down in multiple places; here are just four:
- No sales process, or the wrong sales process. Scaleups need a sales process that’s clear and gives the junior team direction. But they also need to be nimble enough for a fast-moving scaleup. Structures parachuted in from a big tech company (often from the newly appointed head of sales), or from a sales textbook, will often just slow things down.
- A lack of consistent leads. Marketing and sales must be joined up. Marketing may well be even more nascent; its responsibilities limited to website updates and convention stands, but Marketing Qualified Leads (MQLs) are often the lifeblood of the Sales Machine and will give a new sales team something to work with from day one.
- Poor team structures. Most people prefer to call someone they know than someone they don’t. It’s human nature. The trouble is, scaleups often make sales teams responsible for new sales and account management. As a result, sales teams will defer to calling existing customers over creating new ones. If they have to be responsible for both functions, teams need to be disproportionately incentivised to make new sales over account management, to make sure both are done well.
- The product is hard to buy. While early customers were sold on the passion of the founder, with resolution for any deficiencies promised in the next release, it’s far harder for junior sales teams to sell that same confidence. The founder needs evidence that the product is easy to buy, so it needs to be easy to demo, easy to demonstrate ROI and easy to implement.
The crucial thing to remember is that there’s a big difference between the world of scaleups — and the world of big tech. If a new head of sales has only worked in a place where leads come thick and fast, the sales process has been refined over many years and the product has been bought many many times over — they’ll struggle to create the Sales Machine needed for a scaleup.
So, what’s the solution, and when should the founder step away?
While it’s easy to um and ah about the right moment to delegate this critical function to someone else, my answer is simple(ish): as soon as possible, but not as quickly as possible. The old adage about haste and speed is true. My thesis is that the founder must be there to oversee the transition, to ensure the new sales manager has built and understands the whole Sales Machine with a scaleup in mind. If the machine isn’t built, or isn’t working, then the worst thing to do is hire more junior salespeople. They’ll be set up to fail – be sure the machine is built before hiring!
I appreciate that this flies in the face of conventional wisdom, which states that founders should hire the right person and then get out their way. It’s easy for business gurus to highlight the importance of ‘giving up toys,’ and letting other people get on with what they’re good at, but the truth is that when it comes to a scaleup, no one knows it better than the founder, and they don’t have the luxury of time, or money, to get this crucial move wrong.
Balancing the empowerment of the new head of sales against ensuring their appointment doesn’t cause the company to falter demands discipline from the founder. It may be that the founder themselves have already built the Sales Machine and can move aside quickly. But in my experience, this is seldom the case; the founder has been too busy scrapping for each sale to put the necessary structures and links in place so must now work with the head of sales to build them.
Here are four questions a founder should ask themselves before stepping away from sales, and the indicators that the Sales Machine is in place:
- Why do prospective customers call? This would seem like the simplest question, but oddly, founders struggle to answer it precisely. If a founder can’t explain in a succinct manner why a prospective customer would call them, then a new sales team will struggle to understand the problem the product is solving for. In this case time should be spent honing a clear message which has traction with prospective customers before new hires are made.
- Are leads coming from personal networks or from inbound interest? Personal networks will only last so long. The percentage of MQLs converting to sales, versus other routes converting to sales, is often an indicator of long-term sales success. Ultimately, each junior salesperson should only be added when there starts to be too many leads for the existing team to handle.
- Are the sales forecasts accurate? If the pipeline always moves to the right, then the Sales Machine isn’t working — or isn’t understood. Prospective customers may give excuses for delays, but the main reason someone doesn’t buy is that it’s not important enough to them at that time.
- How quickly do verbal agreements turn into live customers? If the answer is relatively slowly, then the problem may not be sales but product. The product is just too hard to buy, the focus should be on speeding up the implementation process, not adding salespeople.
If all the answers to the above are positive then it could be time for the founder to start transitioning away from sales. Still, this needs to be a gradual process, to ensure the structures that have made sales work don’t fail in the future.
So, who is our head of sales?
When it comes to recruiting, making the right match can be delicate. At Octopus Ventures, our dedicated People & Talent team offers advice, input and a global network of contacts to all our portfolio companies to ensure they can hire the talent they need. But not every company has the luxury of access to a resource like this.
It can be tempting to turn to a ‘safe bet’ by hiring a divisional head from a large tech firm. But a new head of sales will need to be endlessly resourceful; often, experience in a scaling business which has succeeded (or failed) will be of more use than experience in a senior role at Microsoft.
More than this, a new head of sales will need the capability to hire and inspire a new generation of sales managers within the challenging world of sales in a scaleup. Ask the question; would this sales leader inspire me? A good sales leader is less worried about their sales and more concerned with maximising their team’s performance. If the new head talks extensively about their wins, and blames their team for missing targets, you may just be dealing with the opposite.
They’ll need to understand what it means to be in sync with other divisions around the company. In a high-functioning scaleup, sales and marketing work hand in hand, while sales and product teams will build a constant and open feedback loop to create a product that’s scalable.
None of this lends itself to a personality that wants or needs immediate structure and hasn’t experienced the wonderful but often crazy world of scaleups!
Writing a blog like this is always dangerous. It’s full of generalisations (some sectors and business models will differ), and no doubt some readers will have a difference of opinion formed through different experiences. I’m sure there will be some that feel it’s all about getting the right hire and getting out the way. But while I agree with the sentiment, I’ve seen time and again what happens when this process is rushed which can be expensive or even fatal for a scaleup.
At Octopus we’ve experienced the sales team merry-go-round with our founders and understand that it’s much easier said than done. But founders who can step aside and get it right, without rushing, improve their chances of not having to step back in.
If you agree — or disagree!— and want to share your thoughts on the subject, I’d love to discuss them further. And if you’re raising, and this angle of approach has resonated with you, do please get in contact. You can reach me on [email protected]