Hiring a Hired Gun for your Startup, by @DaveParkerSEA

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In a series of posts on his blog, Dave Parker, Co-Founder and CEO of Bundled.com, Co-Founder and Board Member of OneAccord Partners, and mentor for the Seattle Founder Institute (which is currently accepting applications here), shares his thoughts on when and how to hire a "revenue generating employee" for your startup.

The original articles were posted in part one and part two here. Below it is republished.

"So, you’re hiring your first Revenue Employee for your new startup, Congrats!

I’ve called this a 'revenue employee' because sometimes it’s often called Sales, or Business Development (Biz Dev) or Sales and Marketing. But make no mistake, this first hire is about revenue and getting revenue traction. It’s not about “strategizing” about getting revenue.

This isn’t about bringing in a Co-Founder to drive Revenue. This is about committing cash, monthly, to a hired gun.

Starting with the timing of the hire:

Do you have a product your ready to go sell? TODAY? This is often discussed as the Minimum Viable Product (MVP) that I have noted in the past or a more complete explanation is covered in the Lean Startup. If you don’t have a MVP in site you should NOT hire this person yet.
Before you hire this person, have you made the first sales? As the Founder you are your own best sales person – if you're a technical person, I know that was a low blow… but it’s true. Also, if you can’t sell the product/services/offering, then a Biz Dev person won’t be able to sell it, no matter how slick you think they are…

Credibility with your investors is not based on your ability to hire (or overpay) a person that used to work at Oracle or Sun - it’s based on actual revenue and sales traction.

Role of the hire:

What skill set and role do you need at this point in your company? Let me give you two ends of the continuum:

A Senior Sales Executive with Enterprise Sales experience who has built large sales teams?
A Junior sales person that can follow a sales script and go bang away on the phones for cold calls?

What type of product are you selling?

Enterprise sale? For a complex and long sales cycle, this is likely an outside sales person, someone with a Rolodex (does anyone even use these anymore?)
Services sale? This will require the ability to crank out proposals. You’ll need someone that has good writing skills and has done it before.
Recurring monthly subscription? This is likely an inside sales person driving leads through AdWords and marketing.

Make no mistake here… someone has to sell the first 10, 50 or 100 customers. Setting up a Google AdWords campaign doesn’t replace a sales effort. Go meet with prospects, cold call them, do a trade show – as one of my mentors used to have posted on his desk, “Nothing happens until somebody sells something”.

This is why you as a Founder need to go sell the first customer (or 5). Because you're going to get the direct product feedback you need to adjust and pivot your idea.

What are the salary expectations?

“Dave, I have a Senior Sales person (who we really need) that is willing to come to work for us for $5k a month to start with a rapid ramp to $180k”. OK, if this is the starting point in your salary discussion, or if you are bringing on a friend who has been making $160k a year in their current corporate job, watch out.

First, as a startup you are going to have conflicting needs for cash over the next few years. If someone has an expectation of making $160k+ at a startup and you agree, both of you are delusional.

Delusion 1: Founder – "But my forecast shows we’ll have a huge hockey stick, we can pay that… as 1% of gross sales"
Delusion 2: Sales Executive – "I can make the same amount I’m making at my current company and get 20% of the stock in NewCo!"

So What is Realistic for a Startup?

First, let’s talk about what do you need from your first Revenue Employee?

Revenue (duh!)
Customer Feedback by selling – not by surveying.

You can have an intern survey perspective customers - you need this employee out selling the product even if it’s “vaporware” to start.
Asking for the order – to pay for the product is different.
NOTE – as the founder your “closing ratio” in front of prospects will likely be twice as effective than a sales person simply based on passion, knowledge of the product, etc. You need to close the first deals yourself – if you think that is beneath you – get over it!

Short Sales Cycle (<6 Months to close)

New subscribers
Subscription Products – feedback will be gained through the product itself: how often customers login, how long are they on the site, do they refer people to it (use the idea of Net Promoter Score as a model, do not try to implement it… )

Long Sales Cycle (>6months to close)

They need to start building a sales pipeline
Are there services you can sell in the meantime?

The net-net here is that you need to know your sales process. What are the steps and the time-line required to make the sale.

Base Salary

If you can’t hire someone that really believes in your company enough to work for stock options, beverages and ramen, you may need to sharpen your sales skills as a founder.

This sounds obvious, but you are in a startup - not an established corporation. Base salary can’t be $100k a year with the hope that the experienced sales person will shorten that sales cycle by half. The sales cycle is most often determined by the product, not the sales person. You should start at $3-5K in base salary per month. You need them to be hungry, not happy, with their base. If they need a path to how they make $150k or more a year, watch out. You don’t know the answer and your forecast is going to be wrong. So set the expectations correctly…

What do you get for the salary? You better get activity:

Work with them to identify the “ideal customer profile” based on the current product – they need to ask for the order now.
How many prospects have they talked to weekly – Prospects – not “customers”. They are customers after they write a check or provide a credit card.
Not planning… not strategizing… not working on adwords… sales activity, calls or appointments

Commissions

To start, it’s OK to do a percentage of sales as a measure for Commissions. Ideally, you need to move to a higher percentage of profit. What should the percentage be? In general you’re going to commit 10% or more of your budget to sales.

For a subscription business – you can pay 100% of the service fee, over the first 2-3 months – NOT THE LIFE OF THE CUSTOMER. You don’t know enough about your business yet to make that commitment.

For Services – you can pay a 10-15% of the services contract. Just make sure you have the final approval over the price, and price it accordingly. You should be able to price it up to cover the commission and the delivery.

Make sure that the document you use to capture the compensation guidelines states that compensation can be changed from time to time. You don’t need to give such a high percentage of sales as the sales process improves and you have customer acceptance.

Titles

Start generic with Sales and Marketing. Don’t “over title”. They are not the VP of Sales and Marketing because they were your roommate in college. If they have done that job before, fine. Describe the role on the card.

What about Stock/Options?

One of the questions I received was that a senior sales guy wanted 20% of the stock pre-dilution, $5k a month to start. If you're taking a salary your stock participation goes down, not up… 2-5% with a one year cliff and three year vesting is fine for someone that is expecting to take cash out… That % goes down with the greater traction your get in the market. If they want to get a greater percent, have them work for free like any other founder.

Have more specific questions? ask away…"

Dave Parker blogs at http://foresttreesbark.com. You can also follow him on Twitter at @DaveParkerSEA.

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