III. Building a Sales Org - Jacco van der Kooij

Speaker A: Jocko, could you please say a few words about yourself and your company?

Speaker B: My name is Jocko Vandercoy. I'm the founder of Winning by Design and at Winning by Design we help companies scale their business between 1 and $100 million. We've helped companies above that. But what we're looking for is go to market strategies. When a customer for example, above $100 million says like hey, I want to launch from my enterprise business SMB market and entry into SMB market, that's where we help.

Speaker A: So we're trying to build a sales organization for a startup. How does a typical sales structure of a SaaS company look?

Speaker B: If you look at the life cycle of a company, they're going through a variety of different sales structures. Many companies start building that sales structure from the beginning and then as uh, they go along and as they develop, a new block gets added to it, a new extension, a new layer and so on. What I've looked at and as an engineer, as you may have, go back to my uh, history in Philips engineering, I build things with the end goal in mind. So I look not at the beginning and start adding blocks. I start at the end and then actually work my way back and say like we kind of like know when a company is at a billion dollars what the sales organization looks like. They have probably channel relationships. They probably have like multi tier SMB, mid market and enterprise. They have field sales inside sales. So we know very well how that looks like. And then if I go back, what would it look like at 500 million and 100 million and a 50 million and a 10 million and 2 million I work my way back. And by doing that that means that if I start them moving forward, my sales organizations are str to become a sales organization for a billion dollar company. If I structure and I uh, look at how these companies, what is the pure fundamentals? I find that sales organizations generally always have the same key ingredients and I'll give you a few examples. The base foundation is the culture of the company that often is broadened by the founders of the company at the startup, by the CEO of a company at larger forms and by the people that work for that company. They built a culture. Culture is often, if you want to change that, we're talking about pure change management. It can be very destructive if you don't do it right. So we assume that the culture is in place right now. Not much we can change from a sales perspective. Second thing that we build on top of that, we believe that process is the first Layer on top of the process, understanding what the right process is. We then need to use tools to execute parts of the process that can be automated. On top of the process, we're looking at forms of people. What are the skills that the people bring to the table to execute the tools in order to help the process? We then enable the people to enforce the skills. And at the top of the pyramid, what we call the organizational structure. Now this creates a pyramid shape. And we believe that if you build out these forms, all layers will scale accordingly with it. Now, there's two additional things to keep in mind. One is data. Data is like the glue between all these blocks. Every block interacts with each other between data and the structure grows along a methodology. It's the infrastructure realm. So as the shape of the pyramid is methodolog and as the glue between all the building blocks is data, the different layers are process, tools, skills, enablement and organizational structure.

Speaker A: How should the founders build the right process?

Speaker B: The process is built by primarily looking at how to do the things. Right now from a process perspective, we're looking at what we call a customer centric process. And a customer centric process is different than traditional sales process that it doesn't look at as a sales process. A customer centric process looks at it as a buying process. Since most people hate being sold, we believe that we as organizations need to stop selling with the mindset of we are selling something to the customer. We need to start with a mindset of we're helping customers to buy. Now that's a start of a different process. Second thing that we do, we need to understand that the process is not much more than a number of activities performed in the right order to such an extent that if I perform those same actions, I get approximately the same result. If I do that, then I have a process. A process can also be an ISO 9000, uh, process. Uh, but that is way too advanced. In many cases, we're simply in many of the marketing and sales processes, we're talking about five or 10 actions as a part of a process. In order to create a customer centric process, we need to make sure that we're talking to the right customers with the product that we have to sell to them. Um, now the product in this case is a solution and to make it customer centric. If I have a solution, I need to find people who I can help with that solution, which essentially is people who have a pain or who we can identify that to have a pain. Now, it doesn't need to be that the Customer knows that they have a problem. Sometimes we can identify customers and say, like, hey, let me tell you, you have a problem. For example, somebody may not know that they have lung cancer, but if we see them smoking, we still will be able to sell them. On the idea of you have to stop smoking because you one day may die from lung cancer. One is called consultative selling in which you realize you have a pain and I'm helping you discover it. And the other is provocative selling where you may not know you have it and I'm telling you you have it based on the symptoms I see you are displaying.

Speaker A: You've mentioned that the process is when we're taking the same steps in the right order and coming to the same outcome. Could you please elaborate on the steps or actions that we need to take

Speaker B: when we talk about the actions in the process? It's a specific way of doing things. So take for example a discovery call. One of the common things that we do in Sal have a discovery call with a customer. Now in the discovery call, I need to learn about the customer's problem. I need to diagnose that problem. In order to diagnose, I need to ask questions. And so one of the skills that we can train as part of this is we can train people how to ask questions in the right order and the right kind of questions. The right kind of questions, for example, are closed versus open ended questions. A uh, closed ended question may drive a customer to a conclusion, whereas an open ended question will allow the customer to take it into the direction they want it. By asking them in the right order, I can create a conversation. So for example, I can ask a client how many people they have working for them and they say, oh, I have 12. And then I can say, how many people are you hiring? They say, I hire another 12. And then I can determine. It sounds like you're hiring a lot of people, you're doubling your organization. May I ask why? Two closed ended question followed by an open ended question. Now in this case a close ended question, we categorize that as a question to which a simple answer is substituted. The close ended question truly is a yes or no. But if we ask a customer what is your favorite color, Then we still think that consider that as a closed ended question because they will say blue or red or brown or something like that. Now what I can do now, uh, by creating a conversation, I can learn something. Now here's the difference. Just to give you an idea on how far you can take this, I asked the client how many people Are you hiring? And in this case the client answered with 12. What if I already knew that? Because I looked at social media, I looked at the hiring plan, I looked on LinkedIn and I saw that they were hiring. I can say I noticed on LinkedIn that you're hiring. Correct. Now I'm displaying my knowledge. Then the customer says that is correct. And says, I also noticed that you have 12 different requisitions open. Did I get that right? And the customer says, actually it is not 12, we open two more, it's 14. Right now we call that level of questioning where you integrate the fact that you have done research and it elevates you as a sales professional. These are specific things that you can train, specific skills that you can train a sales professional and particularly young professionals, first, second, third jobbers in their industry. Obviously when you're a 25 year sales veteran selling enterprise solution, this comes natural to you. And often it has not been trained. You just picked it up because of the years of experience. The challenge we have in SaaS is that we cannot afford these more experienced people, which often are at a significant higher rate. What we can afford are, uh, the younger, first, second, third jobbers. But we need them to have that experience. And by creating this level of, dissecting this level of skill set down to the fundamentals and then teaching this young generation these fundamentals is truly how we can have them excel in sales.

Speaker A: You've described the first level, the process. Could you please walk us through other uh, levels?

Speaker B: The next level is tools. And what I mean with tools really is technology ways to do parts of the process automated. For example, an automated process in emailing could be an emailing tool that IRA can send sequences of emails that can integrate it with phone calls integrated with social media and so on on. It allows for me that when I put a customer in what we call a sequence to execute that sequence. And for example, if I have a webinar coming up three weeks from now and I want to invite a customer to come over, I may want to write that particular prospect, 2, 3 kind of email saying we have a webinar, would you be interested? Number one, two, a new speaker, uh, on the webinar was just announced. Um, number three, the previous webinar that we had was this. Please find attached. And so if I provide this sequence of emails and I have to, you know, invite hundreds of people if, if I don't have a tool, it would take me a lot of effort. But with today's tools I can automate this process. If I do it the right way with additional value to the customer. If I don't do it the right way, this turns into a spamming nightmare. The next layer in this period is referred to as skills. Let me give you an example. If I have the process and align, uh, the process as with harvesting a wheat field on a farm and if I then use technology that can accelerate and automate this and I use for that like a tractor and in this case a tractor that can harvest, which is called a combine machine. And a combine machine can harvest entire fields in a matter of like in an hour or two hours if the tractor driver is not skilled to operate combine machine. And in order to harvest the wheat field at the right time, I can completely destroy the entire harvest that was grown with love, tenderlove watering and so on. And this is what the skill level entails. When we talk about operating today in a modern world, we give our new generation often a great amount of new technology, but we do not give them the idea a which process that they're executing and B how to operate the tool accordingly. And I could argue we don't even give them the training, C what the impact of it would be and what responsibilities they have to avoid that they abuse that level of technology. The next layer beyond skills level is the enablement. And with the enablement level we are thinking, and if I use from the previous example we're sending emails out, then what I'm really looking for is like what is included in those emails now for example, we know that emails work way better if instead of selling and asking for a meeting, we start educating and providing information such as data metrics about particular markets. And in order to do that, the sales professional needs content. And content is really the fuel of a sales professional. They'll use that essentially to make the cold outbound call. Content is what the client wants. It's insights that the company has gained and surrenders to its customers to help educate the client. We are a big believer that in order to be competitive you don't need to outsell your competitor, but you need to out educate your competitor. That means that the enablement through content and tools is of utmost key. The enablement material that we're looking for are primarily that kind of content that educates a customer, helps them become smarter about the problem that they're having and the solutions that are out there. And the final layer, the final layer in here is the organization. And what we look at from an organizational perspective is how do we structure our uh, resources correctly in a way to tackle this in an effective and efficient manner. For example, client acquisition cost. If it takes me a thousand dollars to acquire a customer who brings me $5, then that is just not good business. Now historically we look at unicorn models and for many people in the world the unicorn model are the ideal scenario. And although those organizations are wildly successful and we all know about and love their products very well, they are very hard to copy. Well, we believe that those companies will in generally be successful just on the success of the product itself. But that is only one in a hundred. One in five hundred. That doesn't mean that the other 499 companies need to be an absolute failure. Those companies simply need to adhere to a more proper organizational structure. Now the organizational structure follows what we call a go to market model. For example, if you sell a low dollar figure product at 5 or $10, it won't make much sense to send a field salesperson to every customer. But also the other part is true. If you're selling a quarter million dollar security solution, then most likely you're not going to get the customer editing and credit card information and buying it online in a self serve model. This indicates that there are different go to market models. These go to market models today range from freemium with a self serve option, all the way through a two stage, what we call SDRAE organization where a sales development rep sets up a meeting followed by an AE who closes it. And at the far end of the right we have the enterprise, the field sales model. A person who travels into the field meets with the customer. These different go to market models have very different structures. If you sell a very technical solution, you may add a sales engineer to it. If you sell in a high velocity market, it may have an advanced uh, solution of for marketing, it may have a web chat so that customers can self service them. And if we go all the way down and close to the consumer model, it may be a complete self serve model including self education, YouTube videos and so on and so forth. The go to market model dictates the organizational structure that you have in order to implement the process so that people can use the right tools, we can train them on the right skills and we can prepare the right enablement material.

Speaker A: How do we apply this system to a startup?

Speaker B: If we now apply this system through a growth cycle and we're looking at the different growth stages, we really recognize three different growth stages. Growth stage number one is establishing what is called minimal viable product. It is achieving a product that by itself delivers value to a customer. It can Impact the business. It works operationally. Correct. But the integration of different products may still be non fully utilized, not fully flushed out after minimum viable product. The next stage is product market fit. Product market fit requires a few elements. Number one, customers must be willing to pay the value of the product in order to achieve the impact. Now many in this first phase may sell to their, the friends in the business, people who have expressed this to them. And so we have established that you need to have approximately coming out of this phase, you need to have 1 to 2 million dollars in revenue. In order to avoid that you have and between 10 to 20 customers. Now that is a wide range and a wide range of customers which primarily depends on the dollar value of the product. Obviously if you're selling a $10 value, then achieving a million dollars is a far bigger stretch than if you're selling uh, a $500,000 product value. So there's clearly there's some metrics involved in there. But let's say that coming out of product market fit, you sit somewhere between 1 and 2 million in ARR and you have at least 10, but if not 20 to 30 customers. And if you're larger focus, you may have like 1,000 to 5,000 single user licenses for like let's say 20, 30, $40 license per month. Now that is part one, part two, and this is very important. This part one is well understood, well documented by people before me. The second part I found is way more critical today and that is can you sell this at an effective price? For example, product market fit previously did not include client acquisition cost. Client acquisition costs are the cost of the marketing and sales organization that get amortized over the customers that have previously been secured. Now if I'm selling a $20 license per month and I have to send a field salesperson to make this work, then clearly I cannot scale that. Now why are we including this client acquisition cost as such a critical part of product market fit? Because at the end of product market fit, many companies get their A round in funding and their first run that they do with the A round is invest in more people and hire more salespeople. But if you are unable to understand what the right kind of go to market is at this particular point in time and you start investing it in that area, you often find that companies start to hire wildly like 10, 15 salespeople, marketers and so on, and they can scale. The funding of the A round was there to generate the scaling, but the scaling model was not proven yet. The product may be proven, but to Go to market was not proven yet. And so in order to create this, we add to the product market fit that you must have identified a scalable go to market model as you enter the go to market fit mode, where funding helps you scale that to a scalable level of 50 to 100 million.

Speaker A: If we think of a startup, let's say with two founders, when would be the right time for them to hire the first dedicated salesperson?

Speaker B: When we start, founders are in general the first people to sell. And what we see when they sell is that they often understand the problem very well, that the client experience, because they were part of it. Often they were a former either client or they have done something that they were very familiar with the problem. Now, very obviously being the founder and uh, you know, many cases the first coders of the product, they essentially know the solution extremely well. So they know the product and solution very well. Knowing that makes them an excellent salesperson from the get go. Because when they talk to clients, they have no sales skill, but they talk eloquently about the problem that the client is experiencing and the solution that they're offering. Now the first salesperson comes on board and as the founder hires the first salesperson, they think magic will happen because if I can sell, certainly with a sales professional, we must be able to sell even better. This, however, is not the case. In many cases, the first salespeople are not really successful because they do not have that depth of understanding of the problem, neither the solution. They still need to learn that, and they do that by creating value propositions, which is in a nutshell, what this founder has established. But they put that in short sentences and values that can be provided a little impact that each solutions provide. That takes a while. That can take as much as one to two years to fully flush that out. In this particular point in time, you often find that founders are uh, losing their patience with that first salesperson. You hear them saying, it's like I hired a salesperson who cannot sell. The first salesperson therefore should not be perceived as a salesperson, but in many cases should be rather be perceived as a business development person. Their role is not to close more business. Their role is to extract from the founders what is really successful in selling and learn to create that in a form of a value proposition and so that it can be digested by more and more clients. This is the reason why that first salesperson often is more of a business development person.

Speaker A: How do you set goals and compensate this first sales development person?

Speaker B: The goals you set for a Business development person can be very different. It can be based on market entry, it can be based on setting the amount of proof of concept. If you're selling a deep security solution into the enterprise market, it can be set on a number of discovery calls, it can be set on the number of uh, on the seniority of people meeting. But setting it solely on the revenue generated is often recipe for failure. Compensation for these people is really challenging because most of the compensation comes historically from risk reward base, which in other words is base and variable. With a variable rate, higher the risk, the higher the reward. In order to do that, if you adhere to that model, you not only should compensate in this world for like 1x if they are on target, but you should reward them in an accelerated manner once they surpass their original goal. That way they can earn their risk back. Alternatively, since they're a business development role, you can lower the risk. And now Instead of a 6040 comp plan where 60% is base, 40% is variable, I can now go to a 9010 model where 90% is base and 10% is variable. The lower risk model gets me more of a business development role. The higher risk model, 6040 gets me more of a sales hungry person who really wants to go out and hunt. Now if you have a solution that is easy to sell, then the hunter model, the more risky model, drives the business model more. But if you have like a technical solution that needs to be sold to the right client at the right time in the right way, then you're better off with a lesser risky solution, A um, less leveraged model which is 90 10. So that the business development person in this case takes more time and effort to learn about the customer and to sell the right customers with the right solution.

Speaker A: When do you hire the second salesperson and how does the sales organization grow from that point?

Speaker B: The second person and the third person are often when you hire them, are not needed to double the sales but are uh, needed to support that first salesperson. So for example, if I have identified a good person in the enterprise segment, I may add a sales development rep for the them. And what I do with that person is I make that top salesperson more effective and more efficient. Now effective is associated with winning more of the right deals and efficient is associated with making sure that it costs me less effort. If I have a sales development rep helping me A identify the right clients and B set up meetings, identify the organizations by setting up meeting, they make me more efficient by helping identify the right clients through research online, through LinkedIn, they help me become more effective. This way I can leverage my existing successful enterprise rep in a more effective and efficient way.

Speaker A: Does it mean that the sales development rep is primarily focused on leads?

Speaker B: A sales development rep is not just a person who looks for leads. And here's the reason why. If we look just for lead, then every customer would feel like they'd be hunted. The key role of a sales development rep is to educate people in the market on either the problem or the solution. Therefore they seem to uh, often and the best sales development reps appear to be more of coaches or more of trainers. They are helping teachers, they're teaching the market. These are all concepts that you see that can happen for example online on a LinkedIn profile. Instead of reaching out and pestering people on the LinkedIn profile if they want to meet, we recommend that a professional sales development rep educates client by publishing articles on the LinkedIn profile, by gathering and nurturing particularly. And so what they learn is they take the content of well renowned sources and learn how to funnel that into their market. This way they are creating added value on them as a sales development rep. In many cases they don't have acquired the knowledge yet to create that content. So in this case they purely have to curate the content of people have uh, been in industry and understand the industry better than them. This level of creation of content and delivering of the content and adding research to helping the account executive, uh, and research is a great role for the sales development rep. How many account executives

Speaker A: would want SDR support?

Speaker B: The ratio of sales development reps per E is a function of many variables. Some of these variables include the price of an SDR and an ae, the price of the product, the region that they're selling, and so on. Let me give you an example. In generally if I have an SDR and let's say I pay this SDR in the Bay Area $50,000 and let's say I set them up in a one on one environment with an AE at 100 to $15,000. That means that the total cost of this is $200,000. Now what we know if the cost of $250,000 and what we know is that they can win deals. And let's say that in order for those deals I need half an onboarder to onboard all the deals that they're winning. Now I spent, now let's say half an onboarder at 100,000 divided by 2 is 50, I already had 200. I now spent give or take $240,000 a year on this if I now calculate this out and say, like, hey, if I divide this, we know that the specific magic number is what we call 40%. If this team costs more than 40% of the revenue they bring annually, then we know that the proposition is, you know, scientifically, as a data driven model, is not a wise model. Now if I divide 240 by 0.4, I come out to $600,000. So now it's in order to be in a SaaS business, in order to run an efficient and effective model, they need $240,000. They spend in order to secure $600,000. If I divide $600,000 by the product that needs to be sold, 600 divided by 20,000 as an annual contract value, mean I have to sell 30 products a year. If I divide 30 products by 12, 12 months a year, then we come out to approximately what is that, two and a half projects per month that needs to be sold somewhere between to three. Now an AE in today's world needs to secure between 2 to 3 deals at $20,000. Seems reasonable. If those 2 to 3 deals are uh, won at a win rate of 1 in 5, then the SDRs need to develop somewhere between 10 and 15 leads per opportunity in order to make that SQLs. That gives me a proper workload. In this case, the SDR to AE ratio is one to one. However, if the market is more stubborn or more premature, I may need to add additional SDRs. And you know, if I need additional SDRs, I may go into two SDRs per AE or I, uh, may, you know, have one SDR per two AES. The difference really here is how soft is the market? If the market is super soft and there's lots of opportunity, 1 SDR can often serve as many as 3 to 4 AES. If the market is really tough, competitive wise, then you often need multiple SDRs. And I have seen organizations who use two SDRs per AE to help that AE become efficient and effective.

Speaker A: What KPIs do you use to measure performance of SDRs and account executives?

Speaker B: Historically, the KPIs we used in order to measure performance was a volume metric based on efforts. So for example, a volumetric on effort means how many calls did you make? How many revenues did you secure? How many MQLs did the marketing campaign deliver? How many MQLs were coming from web webinar? These are all volume metrics and they often start with how many volume metrics. Although they are indicative, they are not necessarily super helpful because what they do is they require working Harder to get more metrics. They indicate if I work only as twice as hard, I should be able to get twice as much. Now we come out of a world that uh, many of us have been taught on working harder. I myself as a boxer, you do more push ups, more sit ups and so on. More, more, more. You study more, you read more. If you go to church, you gotta make sure that you know more of the verses. More, more, more. However, today's generation is not raised that way. They're waste on working smarter. And working smarter is essentially trying to find a more efficient way of achieving the same result. What we look at in today's world is we can no longer work on results and effort, but we also got to work on, on what essentially is the efficiency in order to establish that. So in this case if I target an SDR and say like hey, you need to send out a thousand emails and I give them an email Automation tools It is no problem to configure a tool to send out a thousand emails with a single email by Monday 10 o' clock, it's done. So if I really want the volume metrics based on how many emails they sent, they could be done by Monday 10 o'.

Speaker A: Clock.

Speaker B: That doesn't mean I got the result out of that. What I want, wanted, what I wanted all along was started a conversation with the customer. That conversation should be a product of how many calls and how many emails did I have to send in order to get to that conversation. Because I need to be able to learn about the skill that if I need to work for two weeks to get a single meeting with a customer who converts at a 20% rate into a win in order to secure a $2,000 deal, my quick gut check says that that probably is not efficient. If I use that same effort in order to close a $200,000 deal. My quick calculation on the back of an app can shows like yeah, that's probably really worthwhile. These are indicative of that efficiency metric and conversion metrics play a key role in identifying KPIs and that what we are looking at today, KPIs in volume metrics, how many calls and how many emails pretty soon won't be enough any longer to establish if a company is ready to scale.

Speaker A: As the company grows, we can't just continue adding SDRs and uh, account executives. There should be some sort of structure.

Speaker B: Right when we started to combine one sdr, one AE and half a csm, we created the pod. This POD is the combination and what we really want to Think founders of is this is a self sustained model that now works this pod. At this case, the example that I gave a 200 to $40,000 a year of expenses which generate $600,000 of revenue. Think of that as a one piston engine. Now I can do two things. I can try to pour more gasoline into the engine and see if it went faster. I can increase the quota. When I do that, I actually disrupt the relationship between the sdr, the AE and the csm. This piston is already working very effectively. Let it be. Instead I'll launch a second piston. In other words, I launch a second pod. And in that pod I hire an additional sdr, an additional ae, an additional cs. Now what I do in this pod I have three new people and that's risky. So what I'm going to do is I'm going to promote my SDR from part number one to become the AE from part number two. I hire a new SDR for part number one and then I let my AE hire their additional team. And so now I'm launching a second part with already a stable person who have learned a little bit about the system and who can coach that second part. Essentially I'm duplicating. I'm splitting off the second sell and I'm now having two pods. As my revenue grows, I can go from two to three to four pods. These pods are all self sustained and they all work along a few basic metrics. One of them is the cost of the pods should never exceed 40% of the revenue that they're generating. The second thing is these pods need to establish within a certain time frame and let's call it 90 days to achieve a run rate of 80% of quotes. A run rate of quota doesn't mean that they need to be at 80%, it just means if they're on day 90, they should be. If they continue that pace for 12 months, they should end up at 80% of quota. If they fall behind, then I have to investigate what's wrong. Were they not properly taught? Are they in the wrong market? Second, what I need to look at them is, is the configuration still the same? So for example, if I have my pot number one, my first piston really selling well in the pharmaceutical market and my second part is operating in a different market, let's say in the transportation market. What I may find is that the transportation market is so much more beneficial that instead of using like only one SDR and one ae, the sdr, ah, generating so many leads, I may move that part to 1 SDR. And 2 AES. That doesn't mean that my first pod in the pharmaceutical market is behind quota and doesn't know what they're doing. No, that one was conditioned for that market. Let it be. And so many sales leader goes like, no, no, no, they are underperforming. Again, look at how the others are performing. You do not know. These markets operate very differently. And so they require in this case a different pod structure. As I keep growing, I may even assign pods to a market that turn not to be a viable market. And so I may say it cost me too much effort. It takes me 60 to 70% of my revenue in order to secure the revenue in this market market. If I come to that conclusion in the seventh month of the year, then why should I continue to keep going that direction? I can shut that pot down in that market and use the same pot and launch another market. If you think of that concept, what we started to understand is that what we can run with these pods is what we call sprints. And what a sprint is that we rotate one of the pods very quickly, let's say every three to four weeks to a different market and they focus on that particular market for three, four, five weeks in a row. We rotate them through three, four, five different markets. So by the time we come mid year, we have an idea which markets are very soft or we can sell them in. We can do that because we have realistic data. We see the conversion rates. Now what we can deploy in the wake of this first pod, we can deploy our future pods more effectively and efficiently because we know where the market really is based on the data. We call these sprints. Sprints, for example, can be used towards a trade show. If you have a big trade show every year, you can say, hey, I'm going to deploy a specific pod only for three months to do nothing but populate a trade show with meetings to follow through and convert on that trade show. Historically, many of us are very much focused on regional driven sales professionals. You have to be in that region. Every deal in that zip code goes to that person. Although that is a reasonable model for a lot of organization, it is not the only model. There are different models and as I indicated with this example of sprints, companies early on in 1 to 2 to 3 million dollars really benefit from that part structure when they can test out markets. Obviously when you're in the 50 to $100 million range, you know your market. There's other ways of achieving that. And at that point in time, a regional deployed model will be Already the norm. You have an east coast and a west coast team, a European team. In Europe you probably have country teams that can tackle uh, individual markets. But really early on in the 2 to 3,4 million dollar range. This pod structure may really help you navigate into the right markets for your company.

Speaker A: How many of such pods can a company have and what's the structure above them?

Speaker B: The structure of the pods in generally is about four to five people at most. It doesn't grow much bigger because at that point in time the effectiveness of the pod starts to dwindle as multiple people create multiple communication. You can't keep them focused on all on one market anymore, anymore. Now you can combine multiple pods and have them report into a single vp. So a VP of the west coast could have three pods in different vertical markets and vertical markets. What I mean with that is healthcare and transportation and so on and so forth. Or the VP of sales could have three pods, north, uh, south and mid. So these are like several ways on how you can differentiate who the pods report into. They generally report into the person horizontally into a person that holds revenue responsibility. Now as I said earlier, the responsibility in these pods is threefold. In this case an SDR doing sales development, rep and AE doing the selling and a CSM doing the customer success. So in a matrix style organization, although the parts all revenue wise reported to the VP in an other layer, we may think that all CSMs are being uh, reporting into the CSM manager. Now what's the difference between the CSM manager and the VP? The VP's responsibility for sales is primarily focused on generating the revenue. Whereas the CSM manager primarily responsibility is to make sure that the CSMs have the knowledge, have the tools, share best practices with each other and they're optimally in a way they are the position coaches of a football or a soccer team team. They coach on a specific position, whereas in the captain on the team is more like the team pod. The pod leader who's keeping everybody in check. And the coach of the entire soccer team is the vice president of sales or the vice president of revenue, CRO acquisition and so on and so forth.

Speaker A: What's the right time to hire a VP of sales and how do you select the right kind of debt?

Speaker B: There are as many opinions about this as there are VPs. I would say we have seen many things fail so I can say a few things about the failure. Failure number one is hire a VP first. First and particularly if they come from a big company. When you work at a big company, you in Generally have an idea that you really, really understand sales very well because the infrastructure is so supportive. You know, when I worked at Philips, I remember showing my Philips business card anywhere in the world opened doors for me. People wanted to talk to me and why? Because if I'm a startup and I could claim Philips as my customer, that had a huge value as a VP of Sales, you really want to work for a startup because you feel like, oh, I got my name, I got my actual, I'm so good, good. And then you go to this, you want to work for this young startup, you want to change the world. And as this VP of sales starts in this young company, they come to the realization that not only there is no infrastructure, that they actually have to create that infrastructure. No, you're not getting a person who write a pr, you have to write it yourself. No, you have to get on the phone call, you have to make your own travel arrangements, you have to, you have no admin, you have no, none of this. And so the amount of effort required sees them often fill because they do not understand that this was part of the job. They were told about it. Yes. They thought they understood it. Yes. But once it takes place in day, day out life, it's really, really tough. That first VP of sales is often one of the two persons. One, they're really good at closing big deals. Now the reason why a VP of sales who can close big deals in beginning is really useful, it's because, because you need to get to the 10, 20, 30 customers as you may recall from before. Because at that point in time I need to skill. I need people who can bring in those 20 to 30 customers and that often are those first skilled salespeople who come in. It doesn't matter too much what you pay them. Obviously you don't want to pay them a millions of dollars. I uh, get that. But whether you pay them like $180,000 a year or uh, $220,000 a year is not going to make a detrimental impact on your cost per plan. It however is making a detrimental impact if they can do that job. So we often encourage people not to look too much at the cost picture, but more look at the benefits and the gains and the impact they can have on your company. That first VP of sales, when they come in, you always want to make sure that they have the ability to bring other people along with them. If a VP of sales cannot bring one or two good candidates right away with them, it is very indicative of the challenge that you're facing. And when I say cannot bring me with them, I don't mean they have the promise. And a year, two years from now, somebody will come with them after the VP of Sales has proven to be successful. What I mean with bring them with them is VP of Sales starts on a Monday, interviews a new candidate in a few weeks with the CEO in the first two, three months. Immediately new people are flowing into the company that that VP of Sales brings with them. Not just from the current or the last job, but maybe from two, three jobs ago. You need top talent early on and you do not have the time to hand select everyone out there as a CEO. It is an absolute requirement that your first VP of Sales brings this top talent with them because he or she already knows them from the previous jobs. What this means that one of the key roles of the VP of Sales is that they need to learn how to build a team. Now here's a common misunderstanding. The common misunderstanding is when I bring in a recruiter, we're going to use a recruiter for role A and for role balance. I want to make sure that everybody understands that the role of recruiters early on is extremely critical. If you are having a 500 person company, you're adding 10 people. The role of the recruiter is significantly less than if you're having a 10 person company. You try to get to 50. In this case, you cannot start educating every month for every role in the company. A brand new recruiter on what the culture of your company is and the person you're looking for in the day and age, so on. We recommend often that as the VP of Sales is building their team, team them up with a top notch recruiter in that specific field. Educate them. The role of the recruiter is not to fill the job that you currently have open. The role of the recruiter is to find top talent. And even if it's out of sequence, say like look, I know you're not recruiting for a top ie right now, but I got just one who stopped by and she is amazing. Often for VP of Sales, you know, flipping a role, whether you hire a CSM first or an AE first, if you have a top notch csm, you know, flip that role, take them that three months earlier, why not? And a good recruiter can have insight and help you find the right talent when it's available right then and there. Otherwise you'll always be chasing that bogey.

Speaker A: Can you speak a little bit about customer success managers?

Speaker B: The role of the csms is misunderstood. The role of the CSMS should be perceived as one of the following. I'm going to sketch a little bit of a picture down here. Over the years, we've always paid salespeople more. And when you dug down it, you sometimes got the answer, you know what? Why are we paying salespeople more? Why is that? And they said, because they're closer to the money. Well, in SaaS, salespeople are not closer to the money than the CSMs. It is the CSMs M who generally are closest to the money. A few weeks ago, I was dabbling with a person about CSM compensation, and this particular, the leader of that had trouble increasing the compensation of the CSM, let's say, from 100 to $120,000. And I looked at it and I asked, well, what kind of quota is she carrying? $9 million. And I go like, um, what's your average, uh, salesperson over there in the team? And what did they make? And he goes like, oh, they make $150,000. What's the quota for a new salesperson? Let's say it's, um, five deals a month or something like that, right? At $10,000, $50,000, blah, blah. And I go like, okay, so you're willing to pay, hey, that person for who win, like 1 or 25 10k deals a month, 150k. But John willing to hold the quota of $9 million and increase that. And he says, yes, but it's more important to win deals than to grow them. Um, I'm like, well, let's take a look. If we look mathematically at the engine, if you look at the mathematic formula that wins the deal, it essentially is not an additive model, as so many of us will perceive, but it is a model of conversion. Uh, rate times conversion rate times conversion rate. In other words, leads times conversion rate equals MQLs times conversion rate equals SQL times win rate equals win times average price equals revenue. If I multiply this, what essentially I have is called exponential impact. A small improvement on each conversion rate will lead to a significant result. Now, we believe that one of those conversion rates, in this case the close rate of a deal, is so important that we're willing to proportionally compensate that person way more than any other part of that function. It is because it has an impact. Now, that impact of the entire formula is mathematically a multiplication times. If we do that multiple times, we get an exponential impact. Now let's take a look at the mathematical role of customer success. If I have a customer success role on a monthly contract, then a monthly Contact and let's say um, on average every contract, lifetime value of that contract is two and a half years. That means 30 months. And if the customer renews every month, I got so to call 30 periods. Well, the impact of a customer success manager on 30 periods is what's referred to as compound impact. In this case the compound impact is to the power of periods which was 30 months, months. So if I get it right, and the customer success manager can improve just by being involved in a deal, you know, let's say on a monthly basis, 1% to the power of 36, the impact on the profit of that customer success manager by far exceed that of the impact of the ae. Mathematically this is well known. Hence the reason why all of us fear the interest on our mortgages. And if we look at Amazon and how much we increase our purchase every every month, we fear of the compound impact of that year over year over year. Yet as we look at who is responsible for that inside an organization, most organization not only struggle at first to recognize that later on they struggle to apply in the same way the amount of resources to those folks. And with resources I don't only mean the volume but the quality of resources. And quality of resources meaning generally that you have to pay more for them. The challenge is because primarily at the fundamental level, SaaS was done as a form of as follows. If I bought a solution, let's say a software solution at a million dollars, I then created 20% upgrade and service contract on top of that, which gave me two million dollars over a five million dollar period. What companies early on realized, what if I take that upfront cost out of it and I only paid a renewal contract 20%. And so what they started looking at what if I only pay a fraction, I paid over multi years. Well, in these original support contracts, customer serving organizations, sellers never invested deeply into call centers, never invested deeply in the post sales support. This was a small organization in the corner that was doing renewals primarily in month 11 day 28, sending out renewal and expecting within 30 day payments. Never that was deeply invested. That particular culture is so deeply ingrained that still today we perceive as the value of the customer success manager that of subservient to the sales role. Whereas we look at the mathematics of it, it by far exceeds it. It is one of the role of M, the person who manages compound impact versus the other, the person who managed a single conversion rate and that of the close rate win rate rate.

Speaker A: Could you please discuss inbound and outbound sales?

Speaker B: The difference between inbound and outbound is a product of the go to market model and it is closely associated with contract value. So for example, if I sell a $5 value, then I probably have an inbound model. If I sell a $250,000 value, I probably am um, very much in the range of an outbound model. Where we see that things start to flip is right between $5,000 and $50 thousand thousand dollars. Below $5,000, I'm very dependent on a self service, minimally assisted. As soon as I enter $5,000, I'm probably in what we call the inside sales rep world where both the leads are generated and closed by one person. You know, like ah, an early on salesperson. But at that price you probably need to win five or ten deals every month. As I go through that, I'm probably entering the salespot area. As I described earlier earlier, one salesperson sets up the lead while the other one closes it. But those pods structures often become ineffective when they start to approach $50,000. And there's a reason why at the higher ACVs you're selling to multi tiered decision makers and often senior decision makers. The role of the SDR no longer is considered valuable at solutions that are that complex because as soon as they are faced with a question from the person who they get on the phone or an email, they have to jump to help. It's not an easy to answer question because the solution is more complicated. That means that the role of the SDR is diluted, that is often not well perceived by the buyer and therefore they discount. They do not want to talk to the SDR. You see this disengagement starting at the low 20s, mid 20s. But as soon as you approach $50,000, it's pretty clear these organizations no longer work. The structure of the SDRAE organization no longer, longer works at that price. We enter the world where the ae, the account executive is learning from existing clients, as is constantly introduced by existing clients at trade shows into new clients. The network is developed. Now let it be clear that the $250,000 solution often still has a reasonable amount of RFPs being sent to it, considered an inbound model. And let us also be clear that every now and then, then a, uh, $10,000 solution still may require, uh, several people calling on phones and making cold calls. Absolutely. The truth, what happens here? This is all a function of what is your market, who is your buyer, what's the price of your product, and so on and so forth. A very, uh, simple example is a company we've represented that sells electronic logging devices to trucking companies. When you sell to trucking companies, you really quickly establish that trucking companies actually have somebody at home picking up the phone phone because they're often operated by a married couple, of which the husband drives the truck and the female operates the office at home. And the husband in a successful business may have two, three, four other truck drivers driving under the similar license. So calling that particular person on the phone is easily achievable in that market. The product of the price may be $20,000, but the phone call still works. That is because that market is suited for it. At the same time, if you currently sell a $20,000 solution to a CMO, good luck making outbound phone calls. Good luck making cold emails. Sell to anybody in the marketing and sales tech world. And your return rate, your engagement rate of customers significantly subdued.

Speaker A: How do sales and marketing teams work together?

Speaker B: The best way for sales and marketing departments to work together is to first establish the right data model. And what they establish with this is like where are we going to measure what is the definition of an mql? What is the definition of SQL? Where are they coming from? And where do we see successful conversion rates, not volume rates. I am not looking at I need 2000 more because I rather have a hundred more SQL that convert at 50% then you give me a thousand that convert at 1%. And so I'm not just looking at the volume, I'm looking at the quality of them as well. That needs to be a function of both marketing and sales working together. First establishing what an MQL and SQL is and then establishing what a healthy conversion rate is. Step one is often done, but step two is often left out.

Speaker A: You mentioned MQLs and SQLs. Could you please elaborate on those?

Speaker B: Well, what we found is that leads are not all generated equal, similar to in the sales process. In sales process process we go through stages. For example, an opportunity may present itself. Then I have a discovery call and it becomes a qualified opportunity. After a qualified opportunity I write a proposal and then I submit a proposal which is then the next stage, followed by a negotiation stage and followed by a form where I achieve commitment with the client. Now what we do is these are uh, stages. So too are uh there stages of leads. And so if I define a lead stage, then it starts in generally with a process where a prospect is a client who I think they resemble. They are a fit to what I believe could be a customer. Now for a prospect to develop, I need to start a conversation, an engagement and Interaction which can be a download, they can contact me and so on and so forth. And so what I'm going to do is I'm going to generate awareness among those clients who I think are prospects. I'm going to generate awareness about either the problem or the solution. Now as they learn more about it, for example by a webinar or they download the white paper, they become what we call a ah, marketing qualified lead. Not necessarily do I have to have had in person contact with them, but they have learned about us and there's a metric that they have identified themselves with something like an email or a phone number. Following that from an MQL to an SQL is then what I use. I need a human in person contact. What I'm specifically looking for is an email exchange or a phone call or a web chat or a text message where we exchange a notice that you downloaded it. Can I interest you to learn more? Essentially the moment in time that the client is ready and willing to take a meeting with you where we're going to discuss their needs to see if the solution that we provide is the right fit for them in that point in time they become an ask you. This is where they are ready to accept the phone call. Often this is also recalled as the discovery meeting. This has become so important that most companies in their approach have their SDRs ask for a meeting. Are you ready to meet? We have to educate and know that no customer wakes up in the morning and says, I hope I have a uh, day full of meetings. Meetings by themselves mean nothing and therefore the question of the SDR to ask for the meeting is the wrong question. If I change that in, for example, I notice that you have a problem on your website and you downloaded a white paper. I noticed that you have this specific issue. Would you like to talk to an SEO specialist? Now you're asking for a meeting, but the objective is clear to the client. I'm going to talk to an expert on SEO. And therefore the client responds because you lead with value, not with the meeting. In this case, the SQL is that the client accepts the meeting with the expert. Expert. As the client steps into the discovery call, both the expert as well as the client exchange certain questions and answers. And they're trying to help each other to learn what the true problem is. In this case, at the end of this call, both learn that the problem that the client is having can be solved by the solution that the provider offers. And that follows then in what we call a qualified opportunity, where SQL is in the sales terminology, equal to an opportunity. The outcome of the discovery call verified by an expert is then a qualified opportunity. That qualified opportunity enters the pipeline and is referred to as t equals 0 of the sales cycle. At that point in time, I start measuring the sales cycle to which commit is achieved. When I'm looking at the sales cycle, I also start, uh, measuring down here what is called the close rate. The close rate is, is the amount of deals that is needed to win a single deal. The win rate is how many deals were won versus lost. And so if I have, uh, 20 deals in my pipeline and I won four, and I lost six to a competitor, then that tells me what the win rate is. If it took me 20 deals to win four, that equates to a conversion rate of 20%, then the close rate is 20%. Every deal won, I need five qualified opportunities in the pipeline. These metrics and the definition of these metrics really help all of us out to communicate clearly with each other. Where does something occur? And it allows us to exchange against benchmarks in the industry. So we can compare one particular close rate of a company at $20,000 ACV against another close rate of another client at a $20,000 ACV. The whole nature of this is to understand where is the problem in your sales acquisition in this case, and how can we help solve that? This idea of conversion metrics allow us to compare two conversion metrics against each other. For example, if I, uh, compare the conversion rate of the close rate, and I compare that against the churn rate, and I see that if we're wanting 50% of the deal with an annual contract, but on that annual contract we are facing 30% churn, then I can quickly come to the conclusion we're closing the deals too fast and we're churning too many of them, and so we're probably closing the wrong deals. And so now I need to bring my close rate down probably to the range at a $20,000 price to about 20%. That point in time, as I start bringing it down, you see that my churn rate starts coming down to what is becoming the industry Standard for a $20,000 contract, somewhere between 66 to 7% on an annual churn. Now both metrics start to come into the benchmark of a healthy business. If I don't standardize my business on these and I start defining my own metrics and my own data points, I cannot compare where I'm at. And therefore, I have to learn myself where I'm wrong and where I'm right. And it takes me a lot longer in order to establish that this is the reason why we recommend and why I've written a book, Sales as a Science where I specifically talk about standard framework that we can all communicate along and provide specific Benchmark for different ACVs, different annual contract values so you can have a first start and you don't have to redo what we have already been doing over the past five, six years.

Speaker A: Jack well, thank you very much for a great interview.