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This article is by TalentBin Co-founder Peter Kazanjy (@kazanjy), based on his upcoming book on sales for startup founders and other first-time sales staff. TalentBin was acquired by Monster Worldwide in March 2014.

When TalentBin first started to take off, and we realized how fast we needed to build our sales team, we made a landmark choice: Instead of hiring seasoned sales execs out of the powers that be in the recruiting world (think CareerBuilder, Indeed, and so on), we focused all our energy on landing new, hungry grads out of high-caliber universities like Stanford, Berkeley, UCLA and more — with preference to athletes and others who had demonstrated grit and success on a team. We also looked for proactive junior staff out of companies like LinkedIn who were ready for the next step, but not afforded the opportunity.

The difference this made was clear. This fresh blood was willing to go after new waves of customers instead of focusing on maintaining and renewing existing contracts. And, like TalentBin, they were all about making the case for bold, innovative solutions to recruiting challenges. They weren't entrenched in existing tools and ideas. But this recruiting strategy wasn't obvious. It's something my co-founder Jason Heidema and I discovered through experience and iterated on until we found a formula for bringing aboard energized, motivated salespeople who produced.

Below, I provide a window into this process, why it ended up being so critical for us at TalentBin, the mistakes I've made and seen other organizations make, and — most importantly — how to find and close the candidates that will make or break your ability to sell your product.

Quality is King

Once you know your initial go-to-market strategy is working, it's time to add more people. You increase the number of humans so you can increase the number of calls, emails, demos, deals. Sounds like an assembly line, and it partially is, but humans are more complicated than that so there's nuance to the construction of this revenue factory.

That said, if you're able to land intelligent, self-directed humans, the results can be magical. There's a “rich get richer” flywheel mechanism when it comes to sales hiring — high-caliber folks do great work, leading to better business outcomes, creating a more engaging work environment, which helps you bring on more awesome people. This article is all about making this scenario apply to you.

It's hard to overstate the importance of hiring successful sales people early. Especially if you're in a business where your biggest cost is opportunity cost. If this is the case, then every week you don't have another rep making calls to qualified accounts is another week where your competitors are locking in your customers. And, if your startup has yet to turn a profit, you're racing against time before you run out of money. Landing attractive sales metrics stands between you and your next round of funding.

Bad sales hiring is the death knell of young startups.

A lot of people may think that a bad rep will only cost you three months of salary before you fire him. It's way more than that. It's the dozens of demos that a good hire in his seat would have been doing, leading to 20-30% conversions. It's all the deals that a quality sales rep could have been closing that now belong to your closest rivals. You won't get another shot at them.

Sales hiring is, quite simply, mission critical. The ability to attract, hire and onboard successful sales reps and execs is an enormous competitive advantage, especially if you're up against ossified incumbents saddled with legacy sales staff and bloated overhead. Sales hiring is your chance to pull away from the pack. And the more repeatable and sustainable you can make this process, the faster you can sprint.

Okay, so now that you get the stakes, what do you do?

Scale by Specialization

Specializing your sales staff fosters greater expertise and efficiency at every stage of your deal flow. But at the very beginning, you need to load up the top of that funnel with tons of market development help. You need people who are there to get appointments on the calendar.

Once your lead-generation function is ramped (you'll know because you won't have enough time for many follow-up conversations), you'll need account executives. Account management can stay on hold until you have enough customers approaching renewals to make it worth your while.

Hone Your Hiring Profile

Not to be confused with a job description, your hiring profile is a set of personal and professional attributes that define your ideal hire. I used this tool to grow and refine the sales org at TalentBin, and later to expand that to thousands of reps at Monster post-acquisition. So, now I can say with some conviction: Your sales staffing should have the same rigor as your engineering staffing.

This is pretty controversial. For decades, people have perceived salespeople as fairly fungible, coin-operated, cannon-fodder for your march into the market.

Hiring salespeople who barely clear the bar and then firing them when they don't just doesn't work anymore.

The opportunity cost of this approach is just terrible. Which brings us back to the hiring profile — your best weapon against mediocrity and missed deals. Let's take a closer look at the characteristics that make for the ideal salesperson.

Raw Characteristics

If there's one thing you should hire for, it's intellectual acumen, a high “figure shit out” quotient with the ability to grind. A nimble mind is required to change with the dynamics of the market, to unpack business models and the economics of prospects, to grok the competitive landscape and new features. It doesn't matter if you have the smartest, hardest-shipping engineering organization in the world if the folks who take it to market can't do those efforts justice.

You want to select for sales staff who can comprehend your entire ecosystem and pinpoint where your solution fits in, who can update their mental models as your product evolves, and who can execute at high tempo without distraction.

For the sales leaders I coach, I've boiled it down to a sort of cheat sheet:

When hiring for market development staff (that first offensive line), these raw traits are probably enough. You're most likely drafting people straight out of college. It can be rewarding to promote these rookies up the chain of command, but sometimes you need experience on your side. As you start to hire more senior staff, other attributes become important.

Professional Characteristics

I'm going to start with the red flags here, because I feel like I've seen and made too many mistakes when looking for the right professional experience.

Now that you know where to exercise caution, here are some professional characteristics you should prioritize:

Documenting Your Hiring Profile

Once you have a sense of who you're looking for, write it down! Just like TalentBin created a profile for the young, hungry recent-grads and junior sales staff that went on to deliver most of its wins, other companies can do the same. Here are some examples of what a good sales hiring profile would look like for some well-known companies:

Meraki
Meraki pulls high-impact sales staff out of IT value-added reseller (VAR) shops. Within those small IT consulting orgs, which are largely undifferentiated from one another, sales professionals have to hustle hard to beat the competition. Beyond that, because they're dealing with customers that typically lack IT leadership, reps need to act as consultant in addition to selling, walking buyers through what they need, why, and how to implement it. IT resellers constantly see new technologies, so they develop the ability to understand customer pain points and pitch solutions. Lastly, most VARs need a high level of inside-sales execution in order to keep efficiency high and costs low. All of these characteristics are aligned with Meraki's needs.

Yelp
Yelp is on the other end of the spectrum. Because of low average contract values, a massive market of hundreds of thousands of small to midsize accounts, and a relatively uncomplicated value proposition, its sales team is built for high activity and transactional sales cycles. This is the perfect environment for a lot of junior go-getters who are fresh out of college and willing to make hundreds of calls a day. While having intimacy with a local merchant's business pains is helpful, reps don't need to have a high level of selling expertise or technical know-how. The hiring profile is one of scale and cost reduction. Drafting recent grads out of regional colleges with degrees in the humanities, business and communications fits this need. Using this profile, Yelp built its Tempe call center with Arizona State grads.

As you work on your hiring profile, spend time considering examples like these in your particular space. Once you've decided what you're looking for, document it in a manner that can easily be shared with potential candidates. You can borrow from it to create a job post, for instance. It can be as basic as a Google Doc that you can share with a simple link, like this.

Before co-founding TalentBin, Peter Kazanjy served as director of product marketing at Sharethrough and senior product marketing manager at VMWare.

Source to Match

Now that you have your profile, let's talk about how to go out and find it — or how to get it to come to you. Some hiring sources make more sense earlier in your company's life. Some offer higher-quality candidates than others. These are the sources to consider as you start to scale:

Staffing Agencies

When you’re hiring your very first “real” sales staffers, agencies can be a great source of hires. Staffing agencies are set up to provide you with ready-to-go, qualified candidates who are seeking new roles, and for this, they typically take a fee of 20%–30% of that candidate’s first-year salary. While 25% of a $60,000 base salary for an account executive is substantially more costly that a job board posting or even a staff referral fee, there are some benefits to this approach.

You can target a sales-specific staffing agency, like TheLions in San Francisco or Betts Recruiting. They usually get first crack at the best talent. Awesome candidates stay in touch with recruiters that can get them in front of the next best thing — so agencies have “hot lists” of pre-vetted candidates at any given time. That said, it's vital to emphasize the profile you're looking for so they know what to send you. If you get some candidates that don't fit the profile, drop the boom fast to correct course.

Agency recruiters have unique challenges. They really want to get butts in seats as fast as they can, because that's how they make money. This makes them a great asset, because speed is also of the essence for you, but if they have the wrong idea about what you want, they'll shove many less-qualified candidates your way. You're responsible for maintaining your filter. Just because someone came from an agency doesn't mean you shouldn't thoroughly screen them as well.

Eventually, referral recruiting will be your prime source of hires. But when you're first starting out, you have no one to jumpstart this network effect. Agencies are a good alternative. It also means that you should be looking for people who do bring a high-value network with them that will lead to future hires. For example, a candidate coming out of a SaaS org that's peaking could be a future funnel of talent out of that company.

Staffing agencies can also provide good insight into compensation. Take note that they'll always try to maximize an offer to earn a larger percentage, but they also have a pinpoint accurate sense of what different roles should be making. This is one of a few tricks you can use to maximize your results with an agency. Others include:

Once you hit a point where you have enough base staff to draw high-caliber referrals, you'll likely not need agency help as much. But it does take some time to get this spun up.

Referral Recruiting

Referral recruiting is simply the lowest-cost, highest-quality source of hire that you can leverage.

First things first: Make sure your staff has access to recruiting marketing materials — like job postings, for starters. It doesn't have to be sexy, but it needs to be available as a hyperlink that can be emailed, texted, tweeted and shared on Facebook. Here’s an example, and here’s another one. Additionally, you’ll want your staff to be intimate with the hiring profile that you’re looking for. Just as you articulated that clearly to staffing agency recruiters, you now need to communicate it to your own staff.

Second: You'll want to have a referral-recruiting bonus in place. Depending on the seniority of the role, you can probably do something between $2,500 and $5,000. The goal of a referral bonus isn’t to keep recruiting top of mind for your staff; you generally won’t be able to get your folks to constantly think about recruiting, because they have their own jobs to do. That will have to be your job. The referral bonus is there so that when someone does fall into the lap of one of your team members, they’ll work hard to get that candidate across the line.

Lastly: You need to continually remind your staff about your hiring needs. The number one way to keep this front and center is to bake it into recurring team meetings. Note the open roles and the successes you've had to date. It takes some elbow grease. I highly recommend sitting down with your staff and walking through their LinkedIn and Facebook connections, flagging those who fit your hiring profile.

Celebrating referral victories is vitally important. You have to prove to people that this approach works. So when a hire gets made from this source, spread the news and be vocal about it.

More on proactive referral recruiting in another First Round Review article here

Job Boards

The ding against job boards is that candidates on them are looking, so they must not be any good.

“Passive candidate recruiting” is fashionable these days, and has led to job boards getting unfair grief. There's an assumption that candidates who are looking are only looking because they’re not talented enough to be promoted where they are. While there can be some truth to this, that doesn't mean that it's true of all people you meet this way.

I'd say this is especially not the case in sales, where people are active networkers, career-minded and more likely to hop around. They're typically on the lookout for the next good opportunity. So don't discount them. Moreover, candidates coming through job boards are highly motivated, and thus more likely to make it all the way through the hiring funnel, provided they meet your criteria.

You'll have to be particularly mindful of screening these candidates. Do not chew up unnecessary time running poorly-qualified people through your interview process. When you write your job description and hiring profile, call attention to what your required skills and qualifications are and what would be nice to have. I also recommend providing insight into what your screening process looks like. This will excite the right candidates looking for a challenge and weed out those who don't want to do the legwork.

Job boards are also a good gauge of how effectively you're marketing your positions. If you aren't getting enough resumes through this channel, some fine-tuning may be in order. If you're getting a lot of unqualified candidates this way, you may have to dial up the rigor of the position to appeal to higher-caliber folks. Generally, if you're getting a dozen or so solid resumes a week from a posting, you're in good shape.

Direct Sourcing

You can use common candidate databases like LinkedIn or talent search engines like TalentBin to seek out and proactively qualify candidates. On one hand this is great because you can go after the exact characteristics you want. On the other, this takes a lot of time and work and the people you source may not be looking for a change. It's actually a lot like sales — you build a lead list and reach out.

At the earliest stages of your hiring ramp, this is probably not the best route. Direct sourcing is a good tactic if you have a recruiter on hand to help you. Here's some detailed advice I have about working with recruiters to get results. In the meantime, I'll give you the Cliffs Notes.

Tip 1: Salespeople are on LinkedIn constantly. They use it for prospecting and learning about their prospects. They spend as much time on it as they do in their CRM or email. For this reason, they tend to have extremely up-to-date and well-appointed LinkedIn profiles, often with direct contact information. Effectively, you can screen via search query. It's worth it to shell out for LinkedIn Recruiter and hone your search terms.

Tip 2: Don't just type in “Sales, San Francisco Bay Area.” Instead, use a combination of specific titles and companies of interest, like: “market development” OR “sales development” OR “business development rep” AND “LinkedIn” OR “SimplyHired” OR “Indeed” OR “Box” OR “Salesforce.” And don't forget your industry's acronyms. These reps are just as likely to turn up by searching “MDR” OR “SDR” OR “BDR.”

Tip 3: Contacting these candidates shouldn't be hard. Sales professionals definitely see their inbound LinkedIn messages. Only use InMail as a last resort. Email and phone are preferable. And, because salespeople are typically open to new opportunities, they'll often post their personal email and phone too. Make use of that in your outreach. It will increase your hit rate.

Tip 4: If you run into candidates who aren't actively looking to make a jump, try the “sell, screen, sell” approach. Start the conversation with them in selling mode to get them excited about the role — until they tell you,“Yes, I would like to go through an interview process.” At that point, you should run them through the same screening process you use for everyone else. There are a lot of salespeople working at large established companies who would love to switch to a startup but turn out to be absolutely terrible. I can't tell you how many LinkedIn AEs failed our basic written test at TalentBin — typos, grammatical errors, the works.

Do you want this person to be your first line of offense with clients? Don't be a place where bad candidates jump before they're pushed.

Screening, Interviewing, Closing

While sourcing for the top of your hiring funnel can stock your pipeline with higher-probability candidates, your screening, interviewing, and closing process is what will maximize your conversion rate to hires.

I find that a lot of organizations don’t know what they’re looking to achieve in the screening and interviewing part of the hiring funnel.

I boil it down to this: The screening and interviewing process exists to authenticate that would-be candidates have the characteristics required for success in your sales org. “Authentication” is the key. While experience at a prestigious organization, a degree from a compelling school, or a shiny-looking resume may be potential leading indicators of success at your organization, you still need to prove it. Once you have this proof, you need to close the candidate on working at your organization. All the steps in your screening and interviewing process should support that goal.

Screening

Don't let hiring be a huge time suck. Use an asynchronous approach to screening early in your pipeline. It puts the time cost on the candidate and gives you a better sense of their abilities. For instance, I'm a big fan of screens that involve the production of some lightweight work as the first step.

In particular, I favor the written screen. It's not an essay test, but rather a series of a dozen or so open-ended questions. I instruct people to spend no more than an hour on it, and I keep the questions light-hearted and pithy. Some of my go-to questions include:

What am I looking for in a written screen? The ability to communicate clearly and persuasively is critical. If you can't explain — with a beginning, middle and end — something you built, or your favorite bar, or how a deal went sideways, you're going to struggle to explain a product. Also, those who can't demonstrate attention to detail where it's specifically called for will fail to do so in their day-to-day work. If someone can't be bothered to tell the difference between there, their and they're on a test, what will their emails to prospects look like?

Written screens allow me to take an offramp as soon as it's clear someone isn't making the cut. Contrast this to the standard approach of setting up a 15-30 minute phone call that requires aligning calendars. Plus, it's much more difficult to end a call early when it’s clear it’s a bad fit than to stop reading a written response.

Senior staff may be biased toward the traditional hiring workflow. Be prepared for this. You may be tempted to skip written screens for more senior hires based on their pedigree, but don’t you dare do it. Senior experience at a legacy organization can actually be an indicator of all kinds of bad behavior. If a would-be senior rep is insulted to be subjected to the same screening approach as junior candidates, how do you think he or she will react when you try to coach them? How will they adopt new processes? You want a candidate who is excited by the rigor of your hiring pipeline.

One last thing on written screens: Your system doesn't have to be complicated. We use Google Doc templates that get duplicated and shared with each candidate. We give them editorial rights, instruct them to complete the questions at their convenience, and to email us when they're done. The time savings and insights surfaced through this screen can't be overstated.

Another good screening tool is a mini homework assignment involving account research and voicemail pitching. At the end of the written screen, I ask candidates to leave me a 30-second voicemail pitching TalentBin as if I were the head of recruiting at Airbnb. This requires the initiative to internalize TalentBin's value propositions — as well as qualifying Aribnb as an account.

With this kind of assignment, you can tease out different levels of execution. Some candidates will abstractly pitch TalentBin. The tier above will research Airbnb and their hiring requirements to tailor the pitch.

As a twist, I don't explicitly provide my phone number — but it's in the signature of every email I send. Candidates who easily sniff it out get bonus points. Those who have to ask, don’t.

I've seen other approaches too, like providing written GMAT questions to be completed ahead of an interview. This adds some rigor, but I'm partial to a “guerrilla” screening test. By making a task seem more simple, you're inviting candidates to do what comes naturally to them — and that's what you want to surface.

There's also video interviewing, where standard questions are asked while the person is recorded to be watched later. I have to admit, I'm not too bullish on this idea. It just time-shifts the traditional interview without surfacing new insights. Ability is a much more important thing to validate early.

If you feel like you're missing something in the written screen process, I recommend supplementing it with a quick, 30-minute call to capture more information. It can be very helpful for understanding if the person has the characteristics in your hiring profile. I like to use this time to authenticate their intellectual acumen by discussing funnel optimization and asking them to take me through a lead-generation and sales funnel they're familiar with. They may draw on their current job or even a lemonade stand they had when they were 12. Regardless, I try to hit these key questions:

I try to ask these in rapid fashion to see how the person keeps up, how detailed they get in their answers, and if they're able to apply a problem-solving, scalability mindset to their example. Then, I switch gears to see how fast they tackle challenges:

As I like to say, 'If you were the king or queen of the world, how would you solve this?'

That's an important question. If the candidate is coming out of an org with a fixed set of processes, they may have a bit of tunnel vision. This is their chance to break out of that. Figuring shit out by any means necessary is required on an early sales team.

I try to get through all of this in less than 20 minutes. If it's a successful exercise, I want to devote the last 10 minutes to their questions and at least partially selling the job.

You can also throw some behavioral assessments into your phone screen process. For instance, I occasionally like to purposefully “miss” inbound screen calls (I always have candidates call me to test punctuality), so I can see what their voicemail sounds like, how long they wait to call me back, and if they email me immediately. All of this speaks to proactivity and persistence.

To capture all the value from a phone screen, you should record the conversation (using a tool like ClearSlide) or take detailed notes. The least you can do is jot down five minutes' worth of bulleted notes grouped under “green flags” (points in favor), “yellow flags” (things you weren't excited about), and “red flags” (concerns). This way, you'll have data to come back to further down the process or when comparing them to other candidates.

A mock presentation screening is another way to go. When it comes to market development staff in particular, written and phone screens are usually sufficient to progress a candidate to an in-person interview. But, when you're focused on customer-facing roles, you definitely want to do a presentation screen.

A lot of sales leaders half-ass this test, asking people to do things like “sell me this pen.” This is silly. I'm dealing with sales professionals. I want to learn about the solutions they're currently selling and their competitors. I want to see if they'll do quick research to give a fully-formed presentation.

I either ask the candidate to tell me what prospect I am, or I concoct a profile of a prospect to inhabit (like Airbnb). I tell the candidate to treat me like a prospect that has agreed to a demo and to run the process from soup to nuts the way they would in real life. This means sending me a calendar invite, complete with whatever screen-sharing software they want to use, executing a 30-60 minute presentation and demo, and following up with a proposal.

Because this is essentially a mock funnel pass, it's incumbent on you as a hiring manager to pay attention to all parts of the sales and presentation process looking for both excellence and soft spots:

I’ve done this dozens of times, with folks from Groupon, LinkedIn, Indeed, website hosting businesses, and payroll software businesses. And while I haven’t been the perfect prospect every time, that’s almost a feature of the process. Candidates should know what the key characteristics of a prospect would be and guide me as necessary, which is a good thing to do with a sale, regardless.

Based on the outcomes of this process — after comparing all my green and red flags against the hiring profile — candidates will either progress to on-site interviews or we'll end the process there.

Interviewing

So, we've now been through a ton of screens — a written test, a phone call and a mock pitch. We've invested a lot, and that should shape the in-person experience. At the same time, we've actually saved a lot of hours by not engaging face-to-face too early. On-site interviews are notoriously time intensive for your whole team. Guard your team's time against wild goose chases by doing the heavy lifting yourself during the screening process.

A candidate shouldn't be coming on site unless you're already pretty damn sure they're a hire. Otherwise, you're pissing away your people's time.

These interviews should be reserved for finding out anything you may have missed. You're also getting your team's perspective and building consensus around the validity of the hire. If you're running an org that's mission-driven, passionate and bought-in, your people will want to interview any new additions. There are several ways to achieve these objectives.

Team interviews: You should have specific goals for every staff member assisting in the interview process. For instance, at TalentBin, we have our sales ops manager interview on tooling adoption and technical understanding. We have one of our most socially intelligent reps interview on team culture fit. This allows me to spend my time running the interview process and selling the candidate on our mission and team dynamic.

Every member of your hiring loop should have questions and interactions scripted so that they're applying them to every candidate the same way. Sit with them to set up these resources or set them up yourself. Even a Google Doc that can be “copied” for every new candidate is fine.

On top of that, interviewers should have a consistent way to record the outcomes of their conversations. Again, I like the green-yellow-red flag method, followed by a summation: strong hire, hire, unsure, pass, strong pass. The rationale of their decision should be bulleted. At this point, I'm usually just looking for red flags, and they should be rare (or else you have issues at the top of your screening funnel to address).

Let's say the interview loop gives the hire the green light. We like to do one last pass with the rest of the sales team anyway during a group "cultural interview." This looks a lot like the team taking the candidate out for a beer.

The Social (“Beer”) Interview: This could also be a coffee interview of course. Regardless, it serves a few purposes. First, it allows the broader team outside the hiring loop to interact with the candidate and look for culture fit and red flags. And second, it does it in a way that's far more efficient than having them all meet one-on-one with the person.

This helps cement a feeling of transparency so the candidate can believe what I and others in the org have been telling her. I also get to leverage my existing, high-quality staff, who are great to be around. This can definitely help in the offer process if there are any sticking points or a competitive offers.

Just because this is casual doesn't mean the outcomes shouldn't be documented. In this case, I require all participants to give me their feedback in standard green-yellow-red style and summary format. Again, I'm focused on red flags. At this point, we'll either end the process with the candidate or offer them a role.

Deciding Between Multiple Candidates

Ideally you should be running a parallel process with multiple candidates to fill the roles you have open, and biasing toward filling your pipeline to ensure full classes of staff to onboard.

As a result, especially if you do a good job filtering at the top of the funnel, you may end up with more candidates at the bottom of the hiring funnel than headcount allotted. So how do you choose?

The good news with sales in an early-stage market is that it's largely a greenfield – lots of customers to go after. On balance, it's far worse to have accounts going uncalled than extra salespeople who may initially consume salary but quickly become value-positive.

If you have extra folks who made it through the funnel and meet the bar, hire them. Having more rainmakers is a good thing.

Offering and Closing

Once you've fully authenticated your candidate, it's time to step on the gas. The sort of high-quality staff you're recruiting will not be on the market for long. If you let excitement cool, things will be harder for you. A candidate may choose another opportunity and all your work could be for nothing. Dillydallying sets the hard work you've done on fire.

If you aren't sure about someone, then pass. “If there's doubt, then there's no doubt” is a helpful way to think about it. This is why recruiting, like sales, tends to be a volume game. When you hire someone, you invest substantial time and energy onboarding them. This person will be a walking reflection of what you think of your sales culture. You will be filling their pipeline with opportunities and bluebird deals. If you don't think the candidate in front of you is worth this investment, pull the ripcord and wait until you're sold on someone.

Compensation

This is a key part of any offer discussion. You need to know what you're paying first. You can't decide based on what the candidate asks for or has earned previously.

The better way to think about this is that there's a market for this type of labor and it has a rate. There's also a certain value that you're going to be able to get out of your hires — this will go to quota and commission. If the mechanics of your market and solution tell you that your average deal size is $10,000 and that a sales rep can close five a month, netting you $50,000 in bookings (and you’re targeting a 20%-25% cost of sales), you can't be paying that staffer more than $10,000 a month base and commission. This makes talking to sales staff targeting $100,000 base and $200,000 on-target earnings a non-starter.

That's  why I like to look at analogous roles at similar companies. For TalentBin, I looked at LinkedIn's SDR and AE teams for guidance. It's generally pretty easy to surface compensation specifics at these benchmark companies either by asking agency recruiters or using tools like Glassdoor or PayScale.

Typically, you'll see a 50% base - 50% commission split for new-business acquisition account executives with more of a 60 - 40 or 70 - 30 split for market development and account management roles.

Variable compensation is heavily linked to the concept quotas, but quotas are a double-edged sword. On one hand, they help focus minds and efforts. On the other, they can make revenue achievement the only metrics that matters, obscuring the “up funnel” work being done to stock the pipeline and eventually close sales. Those metrics are just as important to monitor, even if they don’t show up in the quota per se. So relying on quota to solve all ills can be dangerous. Use it for the former case. Not the latter case. That’s what your CRM and reporting is for.

No matter what success metrics you use, the key is that unrealistic goals will lead to unhappy sales staff who will soon look for new jobs, leaving you without an engine for revenue growth. Any smart salesperson will want to know what percentage of their colleagues are hitting their numbers.

Don't tell a prospective hire that she's going to make $200K by hitting goals that are impossible to achieve. You'll lose that hire.

Adjusting compensation is a balancing act that forces you to retool as you go. Let's look at how the numbers play out for two major sales roles:

Market development reps: Compensation for the people who make your appointments depends on what you're selling. High-end, high-ticket software companies have a hard time getting in the door. This function should be compensated at a higher rate at these orgs. But an MDR at a company like LinkedIn, Box or Salesforce in San Francisco will be making a $45K to $55K base with on-target earnings (OTE) of $65K to 75K. A company like Workday may pay more like $50K base with a $75K OTE. The $15K to $20K variable compensation here is based on the number of appointments set and held.

Account executives: This can be a little more complicated. But generally speaking, for account staff who are acquiring new business, you'll see a 50 - 50 split between base and variable compensation.

Greater deal sizes will mean more expensive AEs. To benchmark off a San Francisco SaaS AE, you'd be looking at something like $50K - $60K base, with an OTE of $100K - $120K. At a company like Workday, this would probably be $100K base with a $200K OTE.

Quota and commission can be challenging with AEs. Once you know what a “natural rate of execution” is, and thus what a reasonable goal is, it can be straightforward to set quota. Usually you don’t want your entire cost of sales to be more than 20% of your revenue. So if you’re shooting for a $100K OTE, with $50K variable, that AE will have to bring in $500K of bookings a year to keep the cost of sales under 20%. That would mean that a commission rate of 10% would be fine in this situation, and you’d expect $42K of bookings a month, or else the rep would be let go.

This sounds good, but it's contingent on you setting numbers that are clearly attainable. Job candidates will want to know that they are. Conveniently, since your CRM will be excellent, you'll know what your win rates are and how many opportunities a typical rep gets a month. You'll be able to show that either you or others on your team are hitting their goals and making commissions.

There’s another approach popularized by Jason Lemkin, founder of EchoSign, who likes to hedge against potential low performers and bad hires by pushing the risk onto the rep. That is, he suggests allowing reps to make very strong upside when they execute well, provided they have covered their own costs. More on that here.

The broad strokes of Lemkin's strategy look like this: Offer a competitive base, say $4,000 per month, or whatever the best alternative is at a comparable company. The only wrinkle here is that reps don’t start making commission until they cover their own costs. That is, they have to bring in $5,000 (or whatever 125% of base is, to cover benefits) before there is any commission. Then, once they cover that, they make 2x the commission.

And there’s one accelerator: Pay 25% for cash upfront. This creates a large incentive for reps to do upfront deals, because cash is king when you’re a startup — it’s money you don’t need to take from a VC. Importantly, though, you only pay that commission upon receipt of cash, not signing of the contract. You don’t want to be cutting a $10,000 check to a rep for a $50,000 deal that's paid quarterly. In that case, he gets his 20% of each paid installment. If the account becomes a bad debt, that’s on him.

However you decide to structure compensation, you need to have a unified plan that is based on market rates and the economics of your business, not gut feel.

I like to discuss compensation only after the interview process has ended. If it pops up earlier somehow, I reinforce that we pay competitively for well-defined roles and we'll dig into specifics as soon as it's a clear fit on both sides.

Equity: Part of the attraction of working at early-stage companies is the opportunity for equity upside in the event of an exit. This is typically a meaningful portion of the compensation of engineering and other non-sales staff. With sales, it can be more mixed. Generally speaking, sales is compensated with cash commensurate to the amount of revenue that's made. That said, there's value to instilling an “ownership” mindset in your employees, especially eventual managers.

Closing the Deal

I recommend a two-step process here: A verbal offer via phone followed by a formal offer letter once I know the hire is interested in going forward.

If you don't want to proceed with a candidate, just say the team discussed and concluded it wasn't a fit. Unfortunately this is a litigious world, and in my experience, you don't want to go deeper than that. Even if a candidate tries to dig, politely let them how much you appreciated their time and end the interaction.

If you're making an offer over the phone, this is the point at which you discuss compensation. I like to volunteer what we pay first and the rationale. Some hiring managers ask candidates what they're looking for first to see if they can get a deal, but I find that it kicks off a conversation that isn't grounded in the economics of your business.

When it comes to negotiation, I generally prefer not to do it. If the compensation being offered is principles-based, and backed by strong market comp and business economics rationale, then I prefer to state why an offer is fair. There's a large supply of qualified sales professionals in the market, and compensation battles aren’t worth making an exception.

If you’ve done a good job on the interview process up to this point, and your team left the candidate fired up to work with a bunch of great folks, she take it. In that case, you can proceed to discussing start dates, and send over your offer letter. Other times, the candidate may want to mull over the offer before agreeing, or may come back with a counteroffer. That’s fine as well, but I generally prefer to get verbal agreement before sending over an offer letter for signature.

I prefer that the offer letter not be used as leverage against a current employer to drive a counteroffer, or a competing offer from another suitor organization. I simply say, “I only want to send over an offer letter if you’re going to sign it, so will you accept this offer when I present it?”

After You Close

Once you have a signed offer in hand, move as fast as you can to generate and maintain momentum.

Don't leave too much time before the start date. It's also good to group new hires together in classes of 3, 4 or 5 reps at a time. It creates a support system, camaraderie and greater organziation.

Use whatever time you have before the hire starts to set them up for success. That usually entails:

Sales hiring is truly the engine of your organization's revenue success. You need to treat it as such — methodically, aiming for maximum quality of people who are well matched to your needs and strategy. If you don't give it the time and attention it needs, you're sabotaging any chances you have at winning your market.

Photography by Michael George.

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