A Technical Founder’s Notes on Sales Team Management

The arguments in the Fog Creek post sound right, and really resonate with those of us who are engineering/product people. But they don't match the reality of my own experience. At least for the high-cost, high-touch, long sales cycle stuff that I have the most experience with, the best salespeople all want their compensation to be heavily weighted towards commissions. So if you want to hire the best sales reps -- and, just as with engineers, you really, really want to hire the best -- you have to recognize and understand that preference.

But I'd be happy to be wrong about this! In addition to Fog Creek, I remember reading another blog post about a startup that doesn't pay commissions. Maybe a Foundry Group company: Moz? I can't find that post now, though.

Just general curiosity as I am technical and I have no idea how their models work. The three things that I am familiar with are:

1) I give you a small discount of my dayrate in exchange for a slice of equity (low single digit percentages)

2) You are an employee and take a paycut to participate in their vesting schedule with CAP table (the same as 1) really)

3) You are a cofounder and get a solid stake in the company but instead of providing capital as a technical person you are more likely to build an MVP for not much money in exchange for solid double digit percantages or equals pequals in the company.

Whereas their model is completely different and more comparable to real estate agents or similar.

It seems to me that a lot of companies who are at the point where they'd hire a full-time sales staff struggle with their early clients and not-quite-clients. In hiring salespeople, companies are defining themselves as established players with an established product to sell, whereas the relationships with early customers centered much more around being the new guys on whom the buying company is taking a risk and often getting a say in feature development and a discount compared to the competition.

Re-framing those early relationships, especially "with middle managers from dinosaur companies," is a very long and frustrating process for all the parties involved.

I could absolutely see why you'd want to avoid your news sales staff getting sucked into those relationships and instead do what they're fantastic at: parachuting in, developing new relationships quickly, and pivoting those to closed deals.

(Background/assumptions: I do bizdev-ish things for a large tech company. From the tone of the article, I'm assuming that we're talking about B2B businesses with products priced such that the relationship with individual clients takes time to develop.)

(i) First figure out a notional target amount of revenue you would expect a salesperson doing reasonably well to generate over a time period. [1] (ii) Then offer sales role(s) with a base salary and a higher[2] OTE (on target earnings) figure reflecting their expected earnings (including salary) if they hit this notional target. This is what the compensation will be advertised as, and how it'll be benchmarked against rival company salaries (iii) In the simplest case, the salesperson gets paid the base salary plus (OTE - SALARY)/TARGET per unit of revenue they book during the course of a reporting period[3]... As they probably over or undershoot their target by quite a bit, chances are they earn more or less than the magical OTE Common variations on the simple case include increasing the commission percentage for sales over the target (or various other thresholds) to weight incentives in favour of the lowest performer, setting a base threshold so the salesperson doesn't earn any commission at all until they've reached this minimum tolerable level of performance, and offering fixed cash bonuses for various other achievements. Salespeople looking after a mixture of new and existing accounts might find their OTE composed of separate targets for new and retained business with different percentages, or they might have a single target with new sales required to cancel out the losses.

Either way, the compensation is usually calculated based on when the revenue gets booked and paid at the end of the quarter, month or week. So salespeople might get paid before client pays, but they might get paid three months after if they're on a quarterly commission scheme.

[1]Of course definitions of reasonable vary, and any kind of targeting might be more alchemy than science, especially in a startup. [2]Maybe a mere 15% above the base salary (if the sales role is mostly admin and the salesperson isn't expected to boost the figure through excellent work) or it might be more than triple the base salary (typically promoting above-market achievable earnings as an upside for accepting below-market base salary, much like the high-equity offers for developers) [3] the reporting periods is probably a quarter or a month, but possibly weeks for very transactional sales or years for the 4-deals-a-year enterprise roles).

I very much get that businesses live and die by sales--anybody who's been in a startup (much less founded one) does.

But I also get that part of the reason the product sells is because the people working on it are personally invested in the outcome. The engineer trades a somewhat higher salary and lower ceiling for the ability to directly impact how the market and product interact.

It's precisely because sales is so important that I am curious if engineers wouldn't be better served (as well as their companies!) were they treated the same as sales folks.

The fact is that engineers produce value but don't capture it nearly as well, and I cannot help but wonder what would happen if they worked on commission or royalty.