We’re already halfway through the year, right? Last week marked the end of June; at least that’s what it feels like. And in the 48 hours leading up to this episode recording, the adjectives used to describe what we implement here at Lift included “fancy spreadsheets.”
Fancy spreadsheets are not on our list today. Rather we’re talking about how to hire for a sales role. Jess wants to get into how to go about hiring salespeople and how to do that effectively.
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[Blackline Podcast] Episode 9: Hiring Salespeople is the Wrong Step for Growth
How do you know that you need to hire a salesperson? How do you know that it’s the right time?
This is a loaded question and one that Jess thought would get a smart answer to. According to Doug, the one that sounds like it makes sense is actually the smart one, and that’s the best way. All jokes aside we need more information to answer this question like the type of company or a specific situation.
Let’s say there’s an existing sales team and you have a hundred sales reps. How do you know when you need to hire a salesperson? Also let’s say the economy is bad in this situation; when headcount matters.
Unit economics answers this question, but what does that mean?
Doug has a philosophy that the juice needs to be worth the squeeze. In good times, Doug believes that salespeople are often hired unnecessarily, but that’s not necessarily the wrong thing to do. If you have a wind at your back and you’re hiring ahead of what you really need, that’s not bad. If you’re in a market that’s growing faster than you are, then over-hiring is not a bad thing nor is it the wrong thing. The unfortunate element is that when you’re scaling up, you’re going to over-hire. With unit economics it goes back to the fact that a majority of sales organizations are underutilized. That’s one of the reasons that people hire an additional salesperson because it’s easier to hire another salesperson that it is to improve utilization.
The problem with that is that inevitably creates greater constraints. It creates bloated cost structures and puts a set point at a lower level of productivity. A typical salesperson a day spends 30-32% of their time actually selling while increasing time spent on admin functions. Prematurely hiring another salesperson because figuring out how to manage capacity and to do things better, that’s where the hard work comes in and where there’s a lot of math.
Growth is earned through good unit economics. That’s why unit economics are on the top of Doug’s head here. What is your economic model? What’s your growth plan? What’s your conversion model? What’s your demand generation model looking like? What’s the theoretical model? What are your targets? How are you doing relative to the model?
At a certain stage when your conversion rate is lower, that’s going to put pressure on capacity. You might have to hire a salesperson, but hiring a salesperson masks a weakness. If you’re hiring because of a conversion issue or because of a model issue then okay. You don’t hire more salespeople when you need more sales. You hire salespeople when you need more capacity and capability to manage the opportunities to manage the demand levels that you have. Every time you hire a salesperson, you are adding cost, attention and resources below the wing. If you want to generate lift and make growth or get on a growth path, then you need to be generating above the wing. Salespeople especially are post-intent costs. Doug might apply them pre-intent, but as it increases partially because it’s a variable cost, it puts more pressure on what needs to come out. It puts more short-term pressure on what you need, so you now have to generate more. As you’re hiring more salespeople, you’re putting more pressure on what’s needed for post-intent opportunities. When you hire salespeople and your economics don’t support it, it’s the equivalent of over-farming and running your machines at 100-110% capacity all the time. If you come in and cut 50% of your staff and run your machinery at 100-110% capacity, in the short-term you’ll look like a genius.
Here’s another way to look at it. If you can generate more demand, then your sales team can manage on the edge. What happens when you give the next sales opportunity to your salesperson who’s already at quota and this becomes a piece on top of it? What happens is it’s a lower cost to you because you’re already covering their core costs, so you only are covering your increment. Now that salesperson is super happy because they just got another opportunity. Whereas, what happens all too often when you don’t have the right unit economics? You hire another salesperson and then you have to reallocate territories or in some fashion put another person in there and now you’ve created competition. What’s happening is you’re putting more and more strain on your system. There is a challenge because you have companies that are funded and you have to meet certain targets to be able to get their next chunk of funding. You have public companies that have to hit certain numbers by the end of various quarters. One of the ways you do that is bring in more end process resources to pull, but now you have to work that much and you get into the whole vicious loop. What you see is net acquisition costs continue to rise. If your model is set up correctly and you have the right signals in place, you should never be surprised when you need to hire. You should never be caught unprepared when you need another salesperson. What this means is you need to always be recruiting.
We see this a little less when getting into larger sales organizations because a 100 person sales organization should have some level of natural turnover for a bunch of reasons. Doug sees a lot of sales companies that have 5-30 salespeople that can’t do something like this for the risk of offsetting their sales team because they can’t lose the salesperson. Those teams would have to start from scratch. You should always be ready to hire a salesperson.
Let’s say you’ve decided to hire a salesperson, what do you need to do to make sure that salesperson is set up for success? What kind of pieces do you need in place for them to be successful?
The first thing you have to do is define success. One element of success is what are the results you’re expecting. Then you need the math to support it. That goes back to the economic model and also reality.. If you say you want this person to bring in 20 sales a year, that’s all? That’s just a little bit more than one and a half a month. But what does it take to generate 20 sales? It could be that you need 200 engaged prospects. If you have 50 then guess what? You’re not getting the 20 sales. Does that set someone up for success? No.
Sales is a process, it’s a dynamic process. It has inputs and outputs and results. What are the key inputs? What is a good at bat? Once you’re able to reposition and reallocate and get everyone coverage, what’s your ramp for that rep going to be? You need to understand what your sales cycle is.
What are some attributes that you look for in a salesperson? What are some attributes that you want to see when you’re interviewing?
Doug wants to see the killer instinct. In all seriousness, that’s a really hard question. Why? It’s like asking who’s the greatest football player of all time? It depends! Doug has met a lot of salespeople and it’s very situational. What are they selling? What’s the condition of what they’re selling? Are we selling for a small company? Are we selling for a large company that everyone in the market knows? It’s going to be a lot different if you call and say “Hi, this is Doug with IBM” over “Hi, this is Doug with Plethora.”
Here’s what Doug would look for. How well do you play poker? The greatest sales interview is one that would be a Texas Holdom tournament. How do you deal with discomfort? How do you deal with things when you’re angry? How do you deal with things when you’re not treated the way you should be treated? Do you hold it together? Doug wants to see how you deal with disagreement and whether they disagree with him. The most dangerous thing about hiring salespeople is you use interviews to hire them. If you're a good sales rep and you’re not a good interviewer, we don’t really have to worry about it. Every salesperson is pretty decent at the interview. Doug’s favorite trick when he interviews for anything now is he starts off the interview by asking what questions they have for him. Jess thinks we have to stop telling that trick because people are much less thrown off by that than they were before it was told.
How is this person going to deal with change? How do they deal with uncertainty? How do they deal with pressure? For Doug, he's looking for someone that is curious, coachable, has a bias to action, has a sense of urgency and can take command. They promise that they’re going to deliver. He’s also looking for someone with the ability to be uncomfortable. If you give him those attributes and they will be successful at whatever they dedicate themselves to.
How comfortable are you initiating in absolute ambiguity, either cold or absolute ambiguity?
How much does experience factor? Do you care if they’ve got a lot of experience? Would you prefer someone who’s newer so they don't have bad habits?
Let’s say Doug’s hiring an SDR and they’re going to make 50 calls a day. He wants to know where this person has made 50 calls a day before because if you’ve never made 50 calls a day, then unless you’re hiring your 15th or 50th person you’re less concerned about that experience. Until you’ve made 50 calls a day, you can’t tell me how you’re going to be making 50 calls a day. One of the best pieces of hiring advice Doug has ever heard was to never ask someone new to you to do something that’s new to them. Experience to Doug is more about knowledge.
There’s an experience when we hire a sales rep, especially an account executive, there’s a level of experience they’re going to need. It’s not that they’ve got 5 years, 10 years or even 15 years. The reason that the hire is going to be so difficult for us is because of the level of experience that we need to be able to have the type of conversation we want this person to have. Where we have too much demand, where we need someone to step in and have that, they need to be able to have a real conversation. They need to have some depth. The danger is, it’s like if they’re in sales, then they’ve either learned a whole lot, they’re not going to lie to it. But if Doug is hiring a new rep in a new role then experience does matter.
- Your economic model should be the driver of the decision whether to hire a salesperson or when to hire a salesperson.
- You should always be recruiting.
- Understand your ramp up time.
The last thing Doug will say on this is you have to know your math. If you want to hire and/or lead sales, you need to know math. To be able to hire or manage sales with a systems and design mindset. A lot of people associate math to equal arithmetic. Arithmetic is certainly part of math, but math is more than arithmetic. That’s why Texas Holdem comes in. If you don’t understand probability, you’re never going to manage your sales team.
Follow Jess, Doug & Imagine on socials for updates on the show or other insights:
Doug Davidoff: Twitter - @dougdavidoff | LinkedIn
Jess Cardenas: Twitter - @JessDCardenas | LinkedIn
Imagine Business Development: Twitter - @DemandCreator | LinkedIn
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Listen to Episode 47: RevOps & Behavioral Science - 3 Key Principles that Effect Business Processes