By Wilson Huang, business development and go-to-market strategist at ATMOSIScience.
Hiring the first sales rep can be a daunting task, especially for early-stage startups that may not have the bandwidth to source the right candidate, design the compensation plan or simply have the budget to hire a motivated sales rep. My name is Wilson Huang, and I oversee the go-to-market at ATMOSIScience. In this article, I will provide you with some of the most practical tips I’ve learned over my entrepreneurial journey as well as lessons I gleaned from the Entrepreneurial Sales class at MIT Sloan.
Step 1: Identify Your Singular Business Goal
There are many different objectives that your organization may want to achieve, and generating revenue is just one of them. For many early-stage startups, the goal might be to interact with and listen to customers, gathering as much feedback as possible to iterate on their products or services. Other startups may want to increase product exposure while educating the market. For the majority of startups, their objective is to scale revenue generation as much as possible. Keep in mind that every startup may have its own goals, and it’s essential to align all business decisions, such as hiring, operations and sales, with the singular business goal you identify within your organization.
Step 2: Determine Which Types Of Sales Reps To Bring On Board: Hunters Versus Farmers
The two most common types of sales reps are “hunters” and “farmers.” Hunters represent the “hungry sellers” who are always on the lookout for new customers and closing deals. Farmers, on the other hand, focus on cultivating relationships with existing customers, pursuing renewals or upselling to them. The pros and cons of these two types of reps are quite evident. Hunters can drive sales in a short period of time, while farmers can become trusted partners to your customers, receiving valuable feedback in the process. It is crucial for founders to decide which type they want to embody—either a hunter or a farmer—and then hire the other type to complement their skills. Keep in mind that this choice can be culture-defining for your company.
Step 3: Design The Compensation Plan
Before diving into the details of what you’ll include in your compensation plan, familiarize yourself with the following key terms. You can research each term independently to gain a deeper understanding:
• Quota
• On-target earnings (OTE)
• Base and variable pay rates
• 50/50
• Logo
• Club
• Accelerators or kickers
• Claw/clawback
• Draw (recoverable or unrecoverable)
• Spiff
• Cap
• Total contract value (TCV)
Your goal is the quota for the sales rep. The pay/goal ratio represents the rate of pay for your sales rep. Remember the singular business goal you identified earlier, and ensure your compensation plan aligns closely with that goal and the actions required to achieve it. Additionally, keep your compensation plan concise (i.e., under three pages for startups). You don’t want your sales rep to spend excessive time deciphering a complex compensation plan. Typically, a two-page, 90-day plan works well for most startups. As your company scales, an eight-page, one-year plan may become more common.
Here are some examples of compensation ranges for different positions, where the first number represents base pay and the second represents variable pay the employee receives after hitting their target:
• Business development representative: $50,000 + $20,000
• Inside sales: $45,000 + $45,000 → $80,000 + $80,000
• Field sales: $125,000 + $125,000
• VP of sales and chief revenue officer: $125,000 + $125,000 → $300,000 + $300,000
Furthermore, consider incorporating the terms I mentioned earlier into the sales compensation structure:
• $300 for each new logo.
• 30% multi-product deal kicker.
• No cap.
• Clawback for less than 1 year.
• $100,000 accelerator for widgets (specific products) (meaning that once the sales representative sells $100,000 of the product, they receive additional compensation or bonuses).
• Sales incentive travel program (“the club”): 120% net dollar retention.
Most importantly, keep it simple in the beginning.
Step 4: Hire And Measure
If your budget allows, consider hiring sales reps in pairs. This approach enables you to compare the performance of two groups of sales reps with different backgrounds, such as geographical locations and industry experience.
When you’re hiring your first sales rep, it’s essential to focus on hiring for characteristics such as adaptability, strong communication skills and a growth mindset, rather than solely relying on a candidate’s prior experience. While experience can be valuable, these innate qualities can better equip a sales rep to navigate the unique challenges and dynamics of an early-stage startup, fostering long-term success.
From the moment you hire your first sales rep, pay close attention to unit economics. Document all the costs associated with acquiring customers to better calculate your customer acquisition cost (CAC). For early-stage startups, gathering product feedback is often more important than generating revenue. Top sales reps spend much of their time discovering customer needs, which can provide invaluable insights for your business.
I strongly recommend that startup founders take charge of customer success (or play the role of a “farmer”). Nothing is more important than ensuring the happiness and success of your first customers. By focusing on building strong relationships and understanding their needs, you can create a solid foundation for future growth.