Gabriel Luna-Ostaseski's sales team at Calfinder had just hit $8 million in revenue. They were feeling good about their process — like they had finally hit their stride — and the numbers were looking good. “There was just this shared feeling of, 'Hey, let's hit the 'Go' button on this thing,” he says. And they did — they scaled the team from 6 to 24 reps in thee months on a bootstrapped budget.
At first, things looked promising. They doubled and then quadrupled the number of contracts they landed each week. But then it happened, what Ostaseski now calls the 'Oh Shit moment' when they realized a few cancellations were turning into many. “It literally started to feel like a tidal wave behind us. Churn increased by 2x. We didn't catch on to the churn and we stopped paying attention to how we were selling things.” Ultimately, they had to shrink the team back down the six. But many lessons were learned.
Ostaseski leveraged all of this knowledge to build his current company, Upshift Partners, one of the first programs ever designed to help companies scale sales efforts. No one is immune to mistakes. At every stage and size, different pitfalls emerge, but the most dangerous time comes right before serious growth. “The most common mistakes are made by companies who have their first customers, have raised a round, and want to take it to the next level. Post-validation and pre-scale, you can run into big problems.”
In this exclusive interview, Ostaseski shares the patterns he's recognized supporting sales teams of many shapes and sizes, the seven major sales sins he sees committed every day, and how startups can survive them to achieve long-term success.
During your validation (or product-market fit) phase, you'll take any customer that comes your way. Some may be friends and family. Some may come in from preliminary marketing efforts. You may not be very organized to start, and that's okay. But you better get focused once you start to think about scale. “You need to focus on fewer customer segments and verticals when you first start to grow,” says Ostaseski. “Optimize those. Replicate how you close deals with those before you go after others.”
Especially at early-stage companies, the inclination is to sell to everyone that could possibly use your product. You assume you want the broadest possible market. But this is difficult, especially for B2B companies that have to invest a lot of time in every sale. To determine which verticals you should pursue first, Ostaseski recommends asking the following question: Which customers have the most urgent, pervasive and costly needs? Basically, which of your prospective buyers need you the most right now? Focus only on the customers or segments that fit all three criteria.
If you already have a good number of customers — anywhere between 50 to 1,000, depending on your business — you should look for common themes. Are they all in the same industry? How long have they been in the business? Do they share any other attributes? “Typically you'll find similarities in your top 10 customers and bottom 10,” says Ostaseski. “Stop trying to boil the ocean and start targeting customers that have the exact same attributes as the current top 10 that came to you more organically.”
This data also comes in handy when your sales team is ready to break into adjacent verticals. “Let's say that your top 10 customers are companies with 200 to 500 employees, mostly new media companies,” he says. “Look at markets and companies that are similar but also a leap forward. I wouldn't immediately jump to targeting companies with 1,000 to 5,000 employees. I would try to stay close to what we already know works."
Amazon started with books. Ebay started as an auction site for collectors. Any company with a huge amount of breadth has to find that first beach head to build their business on.
Ostaseski understands the pressure founders feel to branch into new customer groups as fast as possible, but he cautions against overzealous speed. “The challenge with trying to expand immediately is that you're going to burn so much cash in the process exploring other markets, that by the time you figure it out, you might not have anything to sell them. Startups have a very defined amount of resources — both time and money. If you go wide, it requires much more time and much more money.” You also risk bringing in customers that will churn, which is incredibly dangerous for early stage companies.
At his last company, Ostaseski went through four VPs of sales before finding the right fit. The problem was that they were builders, not architects. It's an easy mistake to make, since he estimates about 93% of sales leaders are great at execution but bad at higher-level blueprinting. What you need, especially before you enter growth phase, is someone who can develop repeatable blueprints and put them into practice.
“You want someone who is process oriented, and who has already done this multiple times,” he says. “You're looking for an operational architect, but the first step is being able to tell the difference between someone capable of setting you up to make 1,000 deals and someone who can deliver 5 deals a week. You want the former.”
A qualified sales architect is able to design a process flow that is easy to follow and that surfaces bottlenecks and problems before they eat into business or become systemic. A builder, on the other hand, is going to try to hit the ground running and make sales as soon and fast as possible. You may feel good about hiring a builder because they'll land a couple of big sales right away, but either they won't be able to recreate it, or they won't be able to teach you how to do it. Without something you can replicate, you can't add more people into the mix and increase predictability the way you want.
If you're fortunate enough to hire an architect, their primary concern should be establishing a system that prioritizes transparency. “If you don't have thorough visibility into every deal, there's no way to tell what's working and what's not,” Ostaseski says. “You can write the best sales script in the world, but you'll have no idea how to iterate on it to make it even more effective.”
A good architect will draft an initial playbook for your sales team — everything from a phone script to email templates, pitch decks, and CRM practices. Ostaseski is partial to Salesforce when it comes to logging sales, but the point is to know what's going on and being said at every step in the sales process so you can optimize each individually. “The reality is that your playbook will probably change 40 times, but unless you have a good data and measurement system set up, you're just going to be making anecdotal changes, and you'll have no idea if they truly improve results.”
This is one of the biggest mistakes Ostaseski sees early-stage companies make — and one he made himself as an entrepreneur. “I built scripts and would talk to customers, get their feedback and then change the script without any other validation. It was based solely on opinion or how I felt that day. You need the data to really know what you're doing.”
To distinguish true architects during the hiring process, you need to rely mostly on their past, proven experience. “It's like if you're interviewing an engineer who says they also do design. You want to know exactly what they've worked on and see examples. If a builder says I'm an architect, maybe you've found a diamond in the rough, but they need to be able to show you that they took a company that was at the same exact stage as yours and consistently grew sales. They need to be able to walk you through every phase of the methodology they put in place.”
Proof of experience at the same stage of company is key. Someone who has built a winning sales script for a company with 400 employees is very different than someone who excelled at a startup. This is very important, or the techniques the person brings may be a total mismatch for your needs. Of course, finding this fit can be very difficult. According to Ostaseski, not being able to find an architect to lead sales is one of the biggest failure points for startups. It's worth the time and money investing in someone with a great track record.
Recognize the difference between traction and sales. You have to get all of your existing sales people profitable and your system very repeatable before you bring on more headcount. It's nearly guaranteed: All the problems you have now will be magnified when you bring in more people. Things like scripts, measurement, top-line metrics should already be solidly enshrined. According to Ostaseski, it's shocking how many companies don't wait for these milestones to start onboarding like mad — including his own.
“There are a few factors here — the first is the funding environment. When you raise money, there's a certain expectation that usually comes with it that you're going to hit a certain level of revenue or customers. This attitude is built into the ecosystem at this point. There's a lot of pressure. As a CEO, you feel like you could lose your job if you don't move fast enough,” he says. “Then there's this blend of ambition and naiveté that's common to early founders. It's what enables us to do the crazy things we do. 99% of startups fail, but we have the audacity to say, 'Not us.' There's a ton of internal pressure to succeed now, not later.”
Combine your need to do your absolute best with pressure from people who have given you money, and there's this drive to beat deadlines and grow beyond capacity.
When Ostaseski looks back at his own experience, growing his sales team from 6 to 24 before they were ready, he thinks to himself, 'Wow that was pretty stupid.' So what should he have done? “We had a proven system at 6 people. It fell apart at 25. We should have proven it at 10, and then 15. Each of those stages is different, and I'm sure we would have found problems we didn't know about when we were 6.”
In this context, 'proven' means several things. It means signing customers that are worth at least twice as much as it's costing to acquire them. It means having a repeatable, auditable sales system established. And it means everyone is producing on quota. You should be able to predict whether adding two people will produce more results with a pretty high degree of accuracy. These criteria are a must before even moderate growth.
“Once you add more people to the mix, you're able to see whether your current assumptions hold true. If you add 2 more people, do they trend in the same direction as everyone else?” Ostaseski says. “What I've found is that running a 6-person sales team is extremely different than managing 15 people, which is very different from 25, 50 and 100. If you skip even one of those steps — like I did — you'll get punched in the face for it.”
Do not spend cash on things that don't either drive revenue or improve efficiency. $5 million can seem like a lot of money, but it goes really, really fast, Ostaseski says. The one thing he's learned from experience: Start bringing in revenue as early as humanly possible. It's a vital validation point, and the sooner you can break even, the less jeopardy you'll be in down the line.
Because he's always bootstrapped his companies, Ostaseski has seen how important it is to spend money on revenue-generating employees. “If I had a choice between hiring a personal assistant for myself or another sales person, I would always hire the sales person. If I had the choice between hiring a designer or a sales person, I would hire the sales person,” he says. “Finding people who can generate revenue is very difficult, but they are absolutely necessary. Growth and revenue are how companies are measured. I think this often gets forgotten — people think you should add sales at the end once you've built a product. I strongly disagree. The earlier you add sales people, the greater impact they'll make.”
If it's possible for you to start selling from day one, you should do it, he says. As soon as someone pulls out their checkbook or credit card, or says yes over the phone, you have validation that someone is willing to pay for what you're doing. This isn't to be underestimated.
Don't risk building a beautiful secret before you know if anyone wants it. Get out there and sell it.
This includes selling before you actually have a product to give people. “Especially if you're a B2B play, if you have a concept and a sketch and/or a prototype, that should be enough to get started — as soon as someone wants to buy it, you know you're on the right track. Let's say you identify a pain point you think people have — maybe it's pervasive and even urgent, but it's not costing them anything. You could wind up spending 3 years of your life building a business only to find out that no one wants to pay for it.”
It happens all the time. As a sales team grows, the best reps start collecting responsibilities. The same people are searching for leads, emailing them, conducting demos, closing deals, managing accounts — way too many things for one person to be really good at. If you took 30% of that work off their plate, you'd end up getting 30% more performance out of them.
“If you ask anyone whether they'd rather make cold calls to new business or talk to existing customers, they'll always say the latter,” says Ostaseski. “So, it stands to reason if you have someone doing many different things, the tasks they don't like doing will never get done. When you break these responsibilities down into pieces, you create more accountability and transparency. You know what everyone is doing and how it's impacting the growth of the company.”
Very early-stage companies may be an exception to this rule. When you're in the validation phase, it's sometimes necessary to have everyone doing everything. But when you transition out of this phase, you need to create a new type of assembly line that can scale. “Start breaking apart roles and increase specialization. Ask yourself things like: Is this person in customer acquisition better at building relationships with new or old customers? Depending on the answer, they go into account management or closing deals.” You can start building decision trees to make these calls for every rep on your team.
“You generally want to find junior people, maybe just out of college, who are super ambitious to fill your business and sales development roles. That's a lot of the heavy lifting at the top of the funnel,” says Ostaseski. “But this will allow your seasoned sales people to focus 80% of their time on demos and closing. They shouldn't be the one doing research and lead gen.”
Once you have roles defined, you can start to measure their success. You can build quotas around their specific responsibilities and establish metrics to determine how effective they are and how much capacity they have. In order to optimize every link in the chain, you don't just want to know what people are doing now, you want to know what they are capable of doing in a particular role.
Another important key to success is making sure the hand-off between each of these people is seamless. If it's not, customers can get frustrated with having multiple points of contact and not knowing who to go to with what question. You want them to flow through a very defined pipeline. “This is why it's so critical to seat people next to each other if they are constantly passing customers. And you want to keep your eyes peeled for drop-off. Let's say a junior person is passing qualified leads to a sales executive for a demo. If those appointments start falling through the cracks, then that hand-off needs to be improved. The same thing is critical when you're passing a closed deal to a long-term account manager.”
A very clear, crisp introduction needs to be made to the next person in the chain. “You should have an automated email that says something like, 'I'm so excited to introduce you to X. She's really the expert when it comes to product demos for companies of your scale. She's absolutely the right person to talk to next.'” You want to bring energy and confidence to your message so that customers don't feel like they're being shuffled around or start to lose confidence in your expertise.
“It's very common to hear even experienced sales leaders say, 'Hey we should go after these customers — I have a good feeling about them.'” The quality of these types of observations gets diluted as you scale. The bigger you get, the more you need to ask, "What do the numbers say?" What does the data say about who you should be targeting? You certainly don't want to start judging your sales reps' performance based on hearsay and other people's opinions — you want to see the hard facts about what they've been able to do, Ostaseski says.
“Just 5 or 10 years ago, most people would make decisions based on intuition. But then we had the Lean Startup guys like Eric Ries and Steve Blank come in and bring structure and say, 'No, actually there's a process here, and data you can use to make your next move.' This doesn't mean you shouldn't do what you believe is right, you should just be as informed as possible. The problem is people relying on 10% and 90% gut. When it comes to sales, it should be the other way around.”
Let's say you walk into a company that just raised its seed round. They have a few sales reps and are doing around $30,000 to $50,000 in revenue a month. If you were to ask them about their ideal customer profile — who they should be going after — you'd probably get a different answer from everyone. If you ask them who they should go after next, they might have ideas but no solid data to back them up. What they should be saying is "When we look at our top 10 customers and our bottom 10 customers, they shared the same four attributes, so our ideal profile should fit these 5 criteria. Here's a list of companies that do.”
Ask most salespeople why people buy something or don't, and they'll tell you based on their last 5 conversations, not the last 500.
“Emotion can often lead you in the wrong direction. When I decided to scale my company from 6 to 24, that was an emotional decision. My ego got in the way of doing the analysis and looking at the attributes of our target customers. If we had done that, we would have had a much narrower focus, and wouldn't have taken the spray and pray approach that ended up backfiring on us.”
Even very late-stage companies lack complete transparency around parts of their funnel. They don't have context. They can't see trending across reps or time. They have no way to look at every stage of their funnel by sales person over time. They can't pick out bottlenecks or identify people who are kicking ass at a particular piece of the puzzle. As a result, they miss out on huge opportunities.
“There's a lot of smart people that let this happen, so to be blunt, I think it's about laziness,” Ostaseski says. “Stuff like straightening out reporting and ensuring visibility takes a lot of time and focused effort. If you don't make that investment, you're going to be flying blind.”
It's largely about setting the right priorities upfront. “If one of your company's values is that data drives decisions, then you'll always look for ways to get more data to make more informed decisions,” he says. “What kind of information do you need to know to make sure people are as successful as they possibly can be? How can you create windows into each part of your process to get this info?”
Baseline, to scratch the surface of this potential, companies should be tracking the following (benchmarks depend on type of company and size):
Traffic to the site (this should be the very top line number).
Conversion rates — how many people coming to the site fill out the form to learn more? How many of those people become qualified leads?
How many leads come through your system over a certain amount of time, and how many are qualifying in that same period?
How many qualified leads are we demoing to?
How many completed demos are we closing?
What is the average order value?
What kind of churn rate are you looking at?
Have we been able to grow revenue from existing customers faster than we're losing customers?
It's important to note that a lot of companies do have these numbers on hand already — either in their CRM or an Excel file. They may know that for every 25 demos they tend to close 10 deals, but the context is missing. What made successful demos work? Why did the others fall through? You need detailed reporting to truly make informed decisions.
“The analogy would be if you were to look at the stock market, but you only got to look at today, or a slice of this week or month. How could you tell how things were comparing to each other over time?” Ostaseski says. “When I look at sales metrics, what I want to see is what is happening over time but also who was involved. That's what enables you to spot problems as well as things that are going better than planned.”
The first thing you need to do is get everyone in the same role doing the same thing the same way at the same time.
Establishing consistency across the board is invaluable. If everyone is doing the same things the same way at the same time, you can see a spike in something, or you can see when something dips below average. This is the clearest way to see whether something has changed with a person on your team. Are they doing something different from everyone else? Is it good or bad? Should everyone else be doing it?
“When you can model things, you can also see the benefits or costs of solving a problem,” Ostaseski says. “When you run a startup, there are always 1,000 fires to put out. Which one can you put out to have the biggest impact? Having these sorts of analytics will allow me to say, 'Okay, what if we increase the conversion rate on our site by 10% with everything else remaining the same? How would that change our business? Is that big enough to go after versus increasing top-of-funnel growth by 10%? You can see what drives more revenue so you can focus all your energy on solving that one thing. If you're flying blind, you'll find yourself trying to solve 5 or 10 issues at once.”
As Ostaseski readily admits, running a company is one of the hardest things he has ever done, and for the most part, he got kicked and slapped around — more than he would have liked. “Now that I've seen what it takes to be successful, I feel like I have a responsibility to be vulnerable and share the mistakes I made,” he says. “Otherwise there's this total false ideal that winners have all these secrets that they aren't sharing. If none of them ever shared, then we'd all be flying blind.”