Why A Sales Quota Should be $5 Million Per Year—And Zero Base Salary

Base Salary = Obsolete

Last week, the CEO of one of the hottest security startups in Texas visited and wanted to know how to set up his early market sales force. His product, while still in stealth mode, has won three Fortune 50 logos and one of the 3 largest telcos—as their means of cyber security for their enterprise-wide mobile phones and devices.

Two of these three firms are paying him for further product development.

He has no sales reps, no marketing department, a web site with 2 pages.

During our 90-minute visit, his phone rang 4 times with calls from VCs, all of whom were trying to invest in his firm. He did not take any of the calls, because he is firmly committed to selling his way to his first finance goal, not getting eaten alive by VC dilution.

Since this is a real situation, here is a summary of my comments, which I believe he will implement in some fashion:

Do Not Get Sucked Into the Weak Rep Model:

This is the crazy model that says you hire reps on top of reps, on top of reps and you use detailed metrics to make sure they are sending out hundreds of emails a week, cold calling strangers, hosting expensive event after event—-all just to get someone to say, “yes, I will buy something—just please leave me alone!”

Mindless activity for the sake of metrics.

This model often consumes 40% -65% of the revenue of a company. Those costs are borne by founder equity dilution.

That is senseless and the only way you can justify throwing bodies and money at a sales challenge is because nobody taught you a better way and this is how your boss did it before.

My advice was to hire one or two reps, who worked for startups, not for Oracle, VMware, SAP or any of these legacy companies as those reps are just order takers. They cannot sell a new product into a competitive market with only a few resources requiring imagination over metrics.

No large base salaries.

If a rep is good, he or she has made enough to make their dough on what they kill. If they need a big base, they are not any good for a startup, it is that simple. A salary around $40k to $60k is tops and I recommend no base, just expenses and 15% starting commission—to 30%. That attracts talent, not order takers. And working with really talented people is a lot more fun and requires far less infrastructure.

No VMware candidates will call–and headhunters will leave you alone.

Set your first year quotas around $4 million to $5 million—because that is only 4-5 sales of your offering and you have a pretty strong pipeline already.

Choose territory management over account management—and understand the difference.

The difference is between the “strong rep” and “weak rep” model. The typical enterprise tech firm hires the “usual suspects” who have worked at a half dozen previous tech firms in related industries. They have “inbound marketing” spam generating machines that drive lots of low quality activity but few if any good leads. Thus, the need for 5 to 10 times more reps than you would need in a talent rich, strong rep, territory management sales force. If you choose “weak reps” you need lots of them.

A good rep runs a territory like a franchise. Let’s say the rep has 15 states, a large physical territory. That rep does it all—aligns the strategic partners in the territory, identifies the 15-30 key profile prospects, identifies who are the key players in each account, how to get to them when nobody knows your name, uses one prospect to influence another (great reps know what I mean, average reps are confused here), leverage daily events/news to have tailored communication with the top 25-50 key influencers in the territory.

There is a mysterious fact that comes into play here: a great rep can be, not 5x or 10x better than an average rep, he or she can be infinitely better. A great, strong rep who can run a large territory without the useless, expensive infrastructure of a typical well-funded (diluted) enterprise tech company, can change the trajectory and even the destiny of a raw startup.

And they are so good, the great ones do not want a base salary. Doesn’t get better than that.

You implement the “campaign sale” on a territory scale. I recall once visiting with 2 EMC reps and laying out a “campaign sale” at Houston food service company and they had no idea what I was talking about. When I went over integrated messaging, across 4 influencer partners, all leading to the same decision cadence, they just looked confused. They booked millions of dollars a year at this account and had never met the CIO. But, I bet they could do great forecasts, make Salesforce.com dance, and they could give great QBRs. (quarterly business reviews, that’s another story)

Ask a VMware rep or Oracle rep about how to launch a raw startup, and you will just hear “…so how many leads does your marketing department send me?”

You should plan for a rep to be in the territory for several years before you split it—or if the growth is there, you have him/her build a team in their image as they continually grow revenue at 10x what a traditional, order taker rep can do. It is a franchise, treat it like one and it will produce like one.

A good enterprise rep, using territory management, not account management, can drive $20 million or more a year in sales for your company. They are not doing it with $10,000 sales; they are doing it leveraging partners, building recurring revenue relationships, running a business, not sitting through daily forecasting meetings. (I never believed there was such a thing then I spent some time at VMware—there actually is).

Great territory managers even do their own events with industry analysts—something that would make most marketing bureaucrats wretch—but it is far more effective than having such analyst meetings driven by centralized marketing. (Another post on that later). Much later.

As our lunch progressed, he asked me about staffing for such a sales force. My answer is you hire one or two people, one of which is your sales lead—but they are both out selling every day. You do not need a VP of Sales, VP of Marketing, VP of BD—all of that is taken care of in the territory. It is an inverted sales structure and it works every time it is tried.

But it takes talent, not mindless metrics driven by mindless sales monkeys who send out emails nobody reads all day so they can be measured properly.

Over several years, one will move to more traditional structures, no doubt.

You, or those who come after you, hire the typical sales VPs, they hire the usual suspects, the company becomes uninteresting, the great reps leave and the VMware, SAP and Oracle types show up. Headhunters call–hourly.

But, you are gone by then—with ALL your equity because you did not take early dilution.

And you get to enjoy your life as you figure your next startup.

There is a better way.