Sales Compensation for the Expansion Stage: Rewarding and Retaining Early Sales Leaders
Keeping your early sales champions motivated while implementing a longer term sales compensation strategy
I took a few weeks’ off from my Sales Compensation Strategy blog series to focus on wrapping up my team’s quarterly goals and our Q3 projects with the portfolio companies. There is a lot of work in ensuring that internally our Labs teams are achieving the goals we have set for the quarter, and that we’re well on our way to accomplishing our annual goals. But there is even more work involved in aligning our goals with our portflio companies’ via our projects, and then assessing our impact over the past quarter and planning for the coming one.
So I can very much understand the dual sense of excitement and pressure many sales team members and leaders at our portfolio companies and other expansion-stage technology companies feel here at the end of the quarter. There is definitely going to be some hectic dealmaking, last ditch efforts to close deals to hit the quarterly quotas, even focus on renewing and upgrading existing customers whose contracts are about to expire. This is doubly hard for expansion-stage, venture-backed companies because they naturally have very aggressive sales growth expectation and are also typically fighting bigger, more established competitors.
Which then brings me to the last topic of my discussion on sales compensation strategy for the expansion stage: how to reward and retain top early sales leaders.
As in my previous post, there are some distinct issues that come to a head when a company exits the startup phase and enter the expansion stage:
- It needs to grow its sales team and establish a real management structure over the sales team, which tends to grow into one of the largest groups of employees in the organization. The managerial challenge of technology sales at the expansion and growth stages are formidable and the company’s survival really depends on getting the right level of leadership.
- Promoting an early sales person who has been successful (most often one of the early sales people) can be a natural strategy, but it is one that’s fraught with risk. While the newly appointed leader learns his or her way around sales management the company meanwhile has to bounce back from losing a full-time deal maker. The new sales leader may not in fact have the right sales management skills to succeed in the long run, thus creating even more risk for the company’s growth.
- Bringing in a new veteran to lead the sales team is what many VCs would advise their portfolio companies, but the company might risk losing its early successful sales people who find their aspirations for sales leadership thwarted.
- The new stage of growth also typically requires higher quotas or larger deal sizes, and therefore more challenging sales opportunities. Commensurately, to continue to retain and motivate the sales people, companies need to evolve their sales compensation plans, as well. They might become more highly leveraged with commission, for example, or the top sales people can be granted equity to ensure their long term interests align with the company’s growth.
- Another challenge with retention is that many early sales leaders are the Renaissance Reps — talented Jacks of all trades who can effectively run a 1-man sales force with minimal support. However, it is very hard to keep finding more and more of those reps to help the company growth. At some point, a more scalable, less individualized sales organization needs to kick in, and the early sales people might not find the new environment most suitable for them anymore. Of course, there are many examples of founding sales people who grow with their company and continue to lead their team successfully through all the growth, but there are just as many cases where the startup VP of Sales fits into the expansion stage as well as a round peg in a square hole.
There is no perfect, textbook answer to this very thorny issue. In our portfolio companies, we have seen both successes and failures around early sales leaders in many forms. Here are my humble thoughts on the right strategy to anticipate and resolve these issues:
- Plan for it at the start of the venture: If you do have a chance, think of the long term when deciding on the first few sales hires or the co-founding sales leader. Think of the type of sales organization that ultimately works in your target market, and look for those who are flexible enough to adapt with the company as it finds the right model and the path to growth.
- Confront issues early on: Because sales is the lifeblood of a growth-driven company, it is essential that sales problems are addressed early on. Closely monitor the sales organization and strategy, and detect early signs of issues that signal the need for change. Do not ignore these signs in the name of focus on “growth”.
- Be transparent: It is important to be transparent with the sales team, clearly conveying and explaining the growth strategy, their strengths and weaknesses, and the long-term plan. Because strategy evolves so quickly at the start-up and expansion stage, it is important for the management team to over-communicate, to make sure everyone is on the same page. Even a slight perceived lack of transparency on a change in strategic direction might have a huge impact on the team, especially early employees.
- Be decisive: The expansion stage is also that crucial stage when the company solidifies its core teams, their culture, and the foundation of future development. Getting the right people on the team and in the leadership roles is what the senior management team alone can and will have to do. Given we have seen so many ways sales management can falter so rapidly, it does not help if the issues are identified, but the major changes are not implemented with a true sense of urgency.
Please check out my other blog posts in this series on Sales Compensation Strategy at the expansion stage:
- Part I: Common challenges in growth stage sales compensation strategy
- Part II: Encouraging bread and butter deals over elephant hunting with the right incentive structure
- Part III: Controlling costs while maintaining aggressive growth