Doug Davidoff
I see it time and time again. A company, seeking to accelerate revenue growth and customer acquisition, makes the obvious decision to hire more salespeople. Every time (for purposes of accuracy, 95% of the time) I have the same reaction (as I bring my hands to my head in dismay):
NOOOO!!!!!!!!!!!!!!!!!!!
There’s a simple acid test that virtually any small or mid-market organization can use to determine if the time has come to hire salespeople. The acid test is “Do we have more high quality, right-fit leads than our existing sales team can manage?”
If the answer isn’t a definitive “YES!!,” then DON’T. HIRE. SALESPEOPLE. (YET).
I realize this advice is counter-intuitive. I understand that your board, your investors, hell, even your CEO (if she’s not the one reading this) are not going to like this take. I get that your VP of Sales quantifies his importance and domain by headcount (if some is good, more must be better). Your peers will look at you like you’re crazy, but I challenge you to think about this:
With all the salespeople hired and with all the companies that jump to hire salespeople in pursuit of growing sales; just what percentage achieves sustained success, as defined by faster growth rates, lower sales costs, higher margins and higher profits? If the research on this subject is to be even slightly believed, the answer is not many.
There are a variety of reasons this is not the right choice; here are seven of the biggest:
1. It Unnecessarily Accelerates Cash Burn Rate
Hiring salespeople is expensive. Recruiting, onboarding, training, ramp up, etc. - are just the direct costs associated with the hire. Add on to that the overhead, expenses, technology, management time, disruption and (the biggie) the impact and impression they make on your market. Yup, hiring salespeople is one of the most expensive and 3rd riskiest decisions a business makes (behind the decision of taking funding and decisions about real estate).
When you hire more salespeople too early, you hike your burn rate (or dampen your cash flow for those companies - I see you - who are actually making money). Cash (or direct access to it) is oxygen to a business and if you’re going to use more of it, you’d better be damn well sure that you’ve got the system in place to create more oxygen than you’re using.
Your investors and board will be encouraging you to “Increase your burn!” and they’ll tell you “You’re not spending enough money! We need to move fast!!” While some of this direction may be well intentioned (emphasis on “may”), realize the real reason they’re telling you this. Most likely it’s because:
- They want fast outcomes. While they certainly want success, they’d rather you fail fast (REALLY FAST) than take a bit longer to dial in your success formula. They’re pursuing big returns and they’ve spread their bets across a portfolio and they use a perverse form of Darwin’s Law to thin their herd and focus their efforts.
- Even when you are successful - shit, especially when you’re successful - your burn is to their benefit. If you burn through cash faster, then you’ll need more money sooner and you’ll have fewer options for funding.
2. It Demoralizes Your Top Salespeople
Research from Sirius Decisions, CSO, Gartner CEB and others demonstrate we’re in a sales quota crisis, with almost 50% of sales reps failing to hit quota consistently. I recently talked with a company that employs seven salespeople. Of the seven, two were hitting quota consistently. Despite that, they were about to hire three more salespeople! “Wow,” I thought. I’d hate to be a good sales rep for this company.
A good friend (and fellow entrepreneur) and I were talking about this subject a few weeks ago. He was consistently a top enterprise sales rep (which is about the toughest role to fill) who was having a bad year when he was at 125% of quota. He was telling me the number one reason that he left the companies. He shared with me that as these companies began to get on a strong growth track they went crazy hiring salespeople. His territory or addressable market was then cut. Suddenly he found himself competing with his own company (not his fellow salespeople) for success.
He would get pissed (his words). He wondered why they were spending all of the money hiring salespeople (with 30 - 50% failing) when he could have simply continued to increase his sales. Sure, he realized he’d end up making even more money; but his increased income would be less than the total costs the business experienced.
In the early 2000’s I worked for the DC office of Merrill Lynch’s Private Client Group. It’s probably the best sales organization I’ve ever worked within (they generated more revenue than any other office, many twice their size, with the exception of Merrill Lynch’s flagship NYC office). When I got there, their District Director, Phil Blevins (a legend), shared with me his philosophy to sales teams. He shared, “We worship top producers. If you are one, we will worship you and we will feed you. The primary feeding ground will be the average and low producers.”
Since then I’ve noticed that every great sales organization has this in common. They take care of their top producers. They know how hard it is to get one, grow one and retain them. They make sure they’re fully utilized before increasing head counts.
3. It Actually Increases Turnover
The mis-hire rate for salespeople is astronomical. Large sales organizations hire salespeople “in bulk” because they know for every 10 they hire, if 3 - 4 stick, they made out well. When you prematurely accelerate your sales hiring, you prompt your best salespeople to find more fertile ground and you replace them with lower quality, higher risk alternatives.
Turnover not only wreaks havoc on your costs and internal processes, it frustrates and torches your market. I’ve been on the receiving end of this as new rep after new rep pushes and prospects.
If you follow my friend’s road you’ll see that shortly after he left his company, the company goes from a high-growth mode to a hit the wall mode. The turnover their decisions led to is a core cause of this.
4. It Weakens Your “Growth Core”
I’ve been having a number of deja vu moments recently. Coming out of the “great recession” I would caution companies that maybe their company wasn’t as big as they thought it was. Today, I find myself cautioning companies that despite what they, their investors or their parents think, they may not be entitled to a billion dollar valuation, or $(fill in the blank) revenue.
As I’ll share below, hiring more salespeople attacks specific pressure points in your business. Doing so prematurely forces you to make decisions that create three inherent weaknesses:
- You’re often forced to widen your ideal fit characteristics which puts you in front of a larger number of lower quality opportunities. This results in lower win rates, longer sales cycles and significantly higher sales costs.
- Whether you’re selling a product/service, the need to broaden the market you address causes you to add more to your offerings, (features, services, etc.) which creates significant tech debt, reduces focus and moves you towards commoditization.
- You open a flank making you vulnerable to your competition around the very strengths that put you in a position to pursue higher velocity growth.
The bottom line is the premature move of hiring salespeople makes you less customer focused and that makes you weaker.
5. It Artificially Pulls Resources Towards the Bottom, Making Sustained Growth Harder
This point gets to the crux around the danger of higher (more) salespeople too soon.
Salespeople are, by definition, bottom funnel assets. Growth is caused and enabled by the strength of the top of the funnel. The top of the funnel is to revenue growth what the principle of lift is to flight. The top creates the “lift” that makes sustainable, scalable high velocity growth possible.
When you hire salespeople before you’ve generated the engagement and quality lead volume to support salespeople, you create a pull to the bottom of the funnel, forcing you to make decisions that:
- Drastically increase the risk associated with growth without materially increasing the speed or size of the success.
- Pull resources from generating engagement and understanding to pushing for sales opportunities, which leads to weakening your core (as shared above).
- Reduce the learning and iteration cycles that are so important to accelerating revenue growth rates.
I’ve seen it happen time after time. I deal with clients in this position every day, and because they’ve created this downward pull, it forces them to become internally focused rather than customer focused. Decisions are driven by the need to satisfy the board or serve cash flow needs and they fall out of alignment with their customers. It’s easy to forget, but customers buy on their time, not yours.
6.You Prioritize the Short-term Over the Long-term
Sustainable growth comes from a long-term focus. When there’s too much downward pressure towards the bottom, you lose lift and flight is hampered. Often without realizing, you prioritize the short-term over the long-term. It’s akin to how you feel when you’re absolutely energy depleted and need a zap quickly. Instead of eating a balanced meal that aligns with your long-term health goals, you grab a Snickers bar (or a protein bar to convince yourself you eating something better than candy). While this may work once in a while, it becomes habit.
What’s the equivalent of a Snickers bar for your revenue growth efforts?
- Discounting
- Over-calling
- Over-emailing
- Push for appointments that are appropriate
- Feature and scope creep
I was recently analyzing a business’ growth strategy. They were running at about $5MM with a three-year goal of doing $17.5MM, with a one-year target of $8.5MM. I asked them a simple question: What’s more important to you, hitting the three-year goal or the one-year target? They quickly responded that the three-year target was key.
I then pointed out to them how their strategy, tactics, investments and expenses were prioritizing the one-year target over the three-year goal. The danger with that was that if for whatever reason their assumptions or models were off and they didn’t hit the one-year target, they’d be in a much weaker position and would be virtually unable to attain the three-year goal. Reversing the priorities would create more risk in attaining the short-term target (we actually recommended they reduce their one-year target by $1 million) and would increase the likelihood of achieving the long-term objective.
7. You Burn Your Addressable Market
The actions you take in this situation causes you to burn through your addressable market faster than you should, creating a slew of other problems (most of which I’ll save for another post). Between the artificial activity and push you blow through your target market. When you get to the other side, you’ve learned a lot, you’re ready to adjust and...you’re out of money and your market doesn’t want to talk to you. You’ve been commoditized.
Avoid the Siren Song of Hiring Salespeople too Early
Make no mistake, hiring salespeople to stimulate growth makes sense - or feels like it does. The projections will be clear, you’ll be playing to win and the time to make your move will be now. Hiring more salespeople sooner rather than later makes a great business case - it just makes a bad business strategy.
Instead, invest the money (and the time) to building a strong top and middle funnel. Build engagement, create strong psychological equity in your market. It may feel like it’s a slower strategy, but you’ll scale growth so much faster!