The distribution build-out is probably where more venture capital (usually Series A and even sometimes Series B) gets consumed (and often wasted) than anywhere else. My blog “How Not To Blow Your Capital on the Distribution Build-out”dives into that question in some depth, as well as how to know when it’s time to start scaling in earnest. Once it is the right time to crank up sales, though, there are several approaches one can take. For SaaS companies, the one I favor is the “sales pod” approach.
A sales pod is a group of three sales reps brought in and trained together, to sell the same product to the same target audience, with the same positioning/message, sales aids, etc. The idea is to get some team diversification, allowing you to take the human variable mostly out of the equation, while spending as little as possible to achieve that objective.
Before you launch the initial pod, several things must have occurred (usually on Seed round capital):
- Founders have led the initial sales effort, developing a rudimentary understanding of the market and what the ideal or target customer looks like, validating that the MVP is actually viable, compiling sales objections and responses, and testing initial messaging that seems to be working.
- Referenceable customers are in place to support the new pod’s efforts. This usually means between three and six customers live on the product. Sales people are much less effective when they have no references for prospects to examine, which means more capital gets burned to reach the same sales goal.
- Rudimentary sales tools are in place, based on the prior experience and testing.
- A basic CRM system is in place (avoid overkill here – you are still learning — quick and easy to use is the goal).
- The CEO or sales leader has some idea, based on the previous experience acquiring the initial customers, of what kind of experience the ideal sales person should have.
There also needs to be a real effort made to design some sales training for the new sales pod. Hiring even three sales people is an expensive proposition. Every effort should be made to ensure they are as productive as possible, and know everything the organization has learned to date.
A/B testing should be minimized at this point. You are striving to test repeatability of the rudimentary process you have reached pre-pod. In effect, the first pod IS the “B’ test. Don’t introduce variables that might mask your understanding of what the ideal rep looks like, and whether you do indeed have the basic selling formula figured out.
Other considerations at this point are a) lead generation for this new pod, and b) technical sales support. Lead gen is a function of available capital, and the specific sales model being employed. There is a wide range of sales models under the SaaS umbrella, from Freemium/Trial Download/Self-serve with inside sales follow-up, to sophisticated expensive outside team sales. If the capital is available, marketing dollars to drive downloads, or a lead gen rep to handle in-bound calls, make cold calls and to schedule appoints should only help the productivity of the new pod.
Technical sales support too, is a function of available capital. My preference is for founders and product folks (product managers and developers), to handle technical sales support during this phase. There are still plenty of learnings to be had for this group, at this early stage. If a sales engineer is hired to support the pod, preference should be given to someone who has the skills to capture lessons-learned and start building the training regime for future sales engineers.
Typically, if the sales rep hiring is somewhat on target, one person will do very well, perhaps significantly outperforming expectations and even the founders’ efforts. Another will perform somewhere around average to slightly below expectations, and a third will fall well below expectations, and will probably be let go.
At some point, a second pod should be hired, using the learnings from the first pod to inform the hiring criteria and the definition of the “ideal sales rep”. The timing is a bit of an art, and a function of how well the first pod has done in funding the company with customer vs. investor dollars, and how much capital you have available. Usually the first pod has closed some new customers, some meaningful learning and refinement of the sales process and message has occurred, and there seems to be repeatability in productive sales activities, if not actual closed business. Another iteration of the sales training should be done, with the experiences of the active reps folded into the training.
If you are really learning, you should see a somewhat better outcome with the second pod. One rep performing above average, a second performing at average, and a third performing slightly below average, although they might not ultimately make it.
Then, rinse and repeat. With the launch of a third pod, you are at a scale that should be producing clear repeatable actions that result in the desired outcomes. Two reps are probably gone, but you now have more “experienced reps (4)” than newbies (3), and they should be generating around $250K MRR. The actual numbers will vary based on type of product, ASP, sales model, etc. — your mileage will vary!
Once the third pod is up and producing, you have the core foundation of the sales team, and can start adding new pods or even multiple pods as you can afford it, and it makes sense.
A point on leadership. I’m of the opinion it’s not a great idea to bring on a “Sales VP”, “CRO” or whatever during this phase. It sets a lot of expectations that are likely going to be unmet on both sides – Sales VP and CEO. Rather, I like to see the CEO lead this effort, if they have any level of prior sales exposure (directly or indirectly), or to make one of the members of the first pod a “sales leader”. The sales leader can have the opportunity to grow into the VP role. For now, though, its shirt sleeves rolled up, and every person hitting the streets with the same sales quota. Once you have three pods up and running, and a firm idea of what a repeatable sales process looks like, what the ideal rep looks like, and have a core of productive sales reps, a seasoned VP Sales/CRO can come aboard to drive the scale-out to a large effective sales organization.
So, the whole point of this approach is to have enough reps (e.g.: data points) to reduce the human variable in the equation, while keeping costs contained, until you know enough to deploy a larger sales force that will be productive quickly, and not burn more capital than the revenues it brings in. At that point, raising the next round of financing (typically series B), becomes much, much easier.