|By Barry Shamis, President, Selecting Winners||<< Back|
|Imagine this situation. You are competing against two other firms for the same piece of business. One firm is the 900-pound guerilla in your market and the other is a competitor of about the same size. You have the best technology, the big company has the most market share and brand recognition and the third competitor has the lowest price. Who gets the business?The answer is extremely predictable. The company that gets the business is the one with the best salespeople. Good salespeople win more deals regardless of the circumstances. Are you going to win the next time you find yourself in this position?
The best opportunity you have to impact the productivity of your organization is every time you make a hiring decision. Good hiring decisions propel you to success. And, all the managing, coaching, systems, training and technology CANNOT help you recover from a hiring mistake.
Over and over again we see examples of companies with inferior products, over-priced products and poor reputations win the business. Why? Because they have the best salespeople. The enterprise software market is as competitive a market as you are going to find. If you want the edge in this battle, upgrade your sales force and you have the best chance of succeeding.
Most sales organizations suffer from the 80-20 rule. You get 80% of your revenue from 20% of your salespeople. This applies to hiring as well. For years I have listened to sales managers talk about hiring five and keeping one good person. This is a terrifically costly way to do business. Let’s translate some of the costs so you can see just how much this flawed strategy is costing you. Here’s an example:
You hire John to sell in your Seattle office. After a month it doesn’t look good. After 90 days it is really bad. At six months you give up and let John go. This problem is even worse when you have very long sales cycles as we see in the software world.
This all too familiar scenario happens time and time again. Unfortunately, you get lulled into believing that all you lost was six months of salary and benefits. Nothing could be further from the truth. In addition to salary and benefits you lost six full months of sales opportunities, management time, administrative costs and training costs. And six months in the software world is a lifetime!
And these are just the obvious costs. Some of the hidden costs you may not have considered are vacancy costs, replacement costs, customer costs, separation costs and employee morale costs. The final cost is loss of competitive edge. Just think of all the deals you lost because you were outsold. (Visit www.salesrephire.com to use the Real Cost Calculator to determine your real exposure)
Let’s look at a salesperson with a $60,000 base salary and an annual quota of $1,000,000. Salary and benefits for six months cost $39,000. It cost you $10,000 to recruit the person. You spent $5000 on training classes and materials. And those are just the hard dollar costs.
Your soft costs begin with lost opportunity. If John had been successful, how much revenue would he have generated? You have to add 50% of your annual quota to the total for lost opportunity. (Cost $500,000)
How about your time? Would you have been more productive using your time working with someone who was generating revenue? (Cost 15% of your annual compensation ($45,000) Make sure you add separation and administrative costs. (Cost = $6000)
And the two real intangibles in this equation are employee morale and customer cost. Your good employees resent having a non-performer on the staff. It makes them look bad and they have to work harder as a result. And, there is cost with your customers as well. They have to deal with a sub-par person, which can sour the relationship. (Cost: What is the cost of one lost customer?)
Your cost of one hiring mistake is roughly $605,000 without counting the cost of low employee morale or lost customers. And here is the really sad part, if you do make this hiring mistake; you have to do it all over again doubling all the numbers! How does $1,210,000 for each hiring mistake sound?
Now you can see why the “hire a bunch and keep a few” staffing strategy is a mistake. The good news is you are on your way to fixing the situation as we speak. The first step in upgrading your sales force is to recognize the problem. Next, you have to put a great recruiting and hiring process in place that gives you the highest probability of hiring top talent.
A great way to get started is to invest in your education. The more you know about recruiting and hiring good sales people, the better chance you have of building a winning sales team. Reading books and attending workshops will help you expand your knowledge base. If you are not expanding your knowledge base, when you compete against someone who is, the outcome is fairly certain.
You have to start by knowing what you are looking for. This sounds so simple but is at the heart of most hiring mistakes. Begin by outlining your sales cycle. Understanding the mechanics of your sales cycle is crucial to understanding the type of person who will be successful. Just because a person was successful at another job does not mean they will be successful on your job.
At each step of your sales cycle, what behaviors are necessary for success? The answer to this question is the key to building an effective performance-based success profile. Build a list of all the behaviors necessary for success on the job.
Here is an example of how this works. Do you sell your software product to senior executives? If so, the ability to establish credibility at the executive level is critical to success on you job. Here is a list of behaviors we have found to be essential in selling enterprise software:
These are the behaviors that separate the top salespeople from those just collecting a paycheck. Imagine if you could field an entire salesforce that exhibit these behaviors!
Now the question that I am sure is swimming through your mind is, “How do I figure out if the person sitting across the desk from me behaves this way. Let me start by saying if you rely on gut feel, interview behavior and the person’s track record you are doomed to fail. That’s right, these typical measures are not the best way to predict success on your job.
There is a more reliable and much easier way to get the information you need. Simply get examples from the person’s experience where they had an opportunity to demonstrate these behaviors. And find out what they did. Here’s an example.
You would ask:
Who was the most senior executive you met with during the ABC sales cycle? At what point in the sales cycle did you meet with this person? How did you get the appointment?
How did you prepare for the meeting?
Hopefully you can see from this line of questioning that if the person knows how to establish credibility at the executive level their answers will be full of examples. This is just one example of many that you should get during the interview.
Once you realize the economic impact recruiting and hiring has on your business, you’re ready to take the steps necessary to get on track. You just can’t leave your recruiting and hiring to chance. Recruiting and hiring top sales talent has to be your top priority.
Barry Shamis is the President of Selecting Winners and the author of the best-selling program, How To Hire The Perfect Salesperson. You can subscribe to Barry’s highly acclaimed newsletter, The Sales Hire Score at: www.PerfectSalesperson.com.
I was treated with suspicion last year at an industry event in San Jose when a venture partner expressed surprise that our firm was in fact expanding – despite the economic slowdown. Every other search firm seemed to be downsizing, he said. His expression changed from one of surprise to recognition after glancing at my name tag, however.
“Sterling-Hoffman…You’re the guys that recruit sales executives for software companies?”
“That explains it. We fired every VP Sales in the portfolio last month.”
I did a double-take and pressed him for details; surely he was exaggerating, I thought. (We weren’t doing that well!) But he stood by his story, and asked for a business card – which I happily handed over.
When I relayed the details of this conversation to my associates, none of them seem surprised. All of their clients seemed to be holding their VP Sales directly accountable for failing to make their revenue numbers. It’s become almost cliché: with the CEO forced to admit to the board that the company will miss target next quarter, the immediate question is: what are you doing about it? After some preamble about the state of the market and certain ‘unforeseen circumstances’, out it comes…. “We might need a change in sales leadership.”
Of course, there are plenty of occasions on which a ‘change in sales leadership’ is required simply because the current sales leader is incompetent. But incompetence alone cannot account for the sheer volume at which VP Sales candidates are being turned over. What amazes me is just how many VP Sales candidates in enterprise software are able to offer positive references from the very CEO that ordered them out of the company in the first place. During the reference validation stage of a recent search, our team encountered just such a scenario. I pushed the CEO to explain – off the record – why he was willing to provide a ‘thumbs up’ when he himself had terminated the candidate only 3 months earlier. This particular CEO was refreshingly blunt: “Because he got screwed for being in the wrong place at the wrong time.”
So what’s behind the witch hunt?
The most common story heard around Sterling-Hoffman’s war room is that of the ever present disconnect between the product visionaries (aka techies) and VP Sales. The former believes that his or her team has created technology worthy of permanent placement in the Louvre, while the latter simply relays the message that “this isn’t what our customers want.” Of course, the truth is somewhere in between. Sales executives are often far too eager to modify their PowerPoint presentations in order to coax money out of the CIO’s purse. Given free reign, business intelligence tools become perfect for supply chain automation and the answer to ‘Does it have X feature?’ is always an enthusiastic ‘yes.’ Similarly, technologists are often loathe to give up the fantasy that their creation is already the next killer app. (‘If only the stupid customer would use it THIS way…’).
A second explanation may be that board meetings that take place after a failed quarter have a tendency to be like murder trials: the first order of business is to assign blame. It’s usually not until after the task of assigning blame is complete that the really productive work of fixing the situation begins. Given that achieving revenue goals is literally written into the sales executive’s job description, they become easy targets. Especially for newly hired CEO’s under pressure to demonstrate to the board that some form of action is being taken to get the company back on track. In a moment of rare candor, one CEO confessed a shocking story: he had terminated his VP Sales purely to create an alibi against future missed revenue targets, which he viewed as inevitable given market conditions. The absence of (and resulting search for) a VP Sales would provide a distraction for the board and buy some time during which he hoped the market might turn around.
Whatever the cause, nobody disputes that the costs of a revolving door in sales leadership are profane. Any duration for which a company goes without having a competent executive to drive the sales process is too long (with one exception to be discussed in another article.) Further, each change of the guard at the VP Sales level is followed by inevitable turnover within the sales organization itself. When a new VP Sales is finally hired, a ramp up period of 2 – 6 months is customary; and of course, replacing the individual contributors that followed the incumbent sales leader out the door is an entirely new project that can take up to 3 months in and of itself. I could comment on the additional costs of retaining search firms to backfill the openings but out of loyalty to my own, I’ll stop there.
The goal of this article, then, is to offer some insight into how software companies can increase the chances that a new executive hire will actually succeed. It is simply not enough anymore to coach a CEO or entrepreneur to ‘hire the best people’. The phrase has been repeated so many times, in so many ‘how-to’ books and keynote speeches, that it almost sounds silly. This article is not for CEO’s that seriously believe they’ve managed to build a team of only A+ players. This article is not for venture partners that believe their portfolios are staffed with superstars. It is a fact that the vast majority of companies currently in existence are staffed with average management teams. Why? Because by definition, only 10% of executives can rank within the top 10% of their field or function. It follows then that 90% of the CEO’s and/or executives in any industry must automatically be less than exceptional. Business leaders that are open to accepting this logic should find some value in the following paragraphs, as I am convinced that executive turnover can be reduced a great deal by executing on a few basic strategies.
1) Take the ‘Jeet Kune Do’ approach to Executive Search.
Jeet Kune Do is a martial arts system that was originally created by Bruce Lee, based on the premise that each battle is unique and therefore calls for a customized approach. In other words, the ‘correct’ fighting strategy is a variable – not a constant. This principle is also embedded within Geoff Moore’s high tech strategy classic, “Inside the Tornado”, which states repeatedly that the correct strategy during one phase of the technology adoption life cycle is the wrong strategy during the next.
The correlation for venture investors seeking to hire a CEO, or for a CEO seeking to hire a new executive, should be obvious: the skills or temperament required to win at one stage of corporate development are completely different than the skills / temperament required to win at another. Further, the vast majority of executives do not morph accordingly; they have neither the patience nor the inclination to remake themselves every time their employer’s business model changes. Most executives prefer instead to join another company where the business needs more closely reflect their existing skillset. There is nothing wrong with this sort of mercenary approach. It provides our industry with optimized specialists. Executives come preconfigured, in a sense, for dealing with very specific types of business problems. I spoke with Tom Kippola, Managing Partner at the Chasm Group, recently and he summarized the point as follows: “An executive who enjoyed tremendous success in the tornado does not necessarily possess the skills required to succeed in a pre-chasm scenario.” This is why software companies that use personal income history to measure the success of a VP Sales candidate often make terrible hiring mistakes. Is a VP Sales candidate that achieved W2’s over $800k per year with Oracle in the late 90’s likely to be a star in an early stage emerging technology venture? Not likely.
The key is to identify the competencies required to succeed given market conditions and then evaluate executives accordingly. For example, if your company is competing on customer intimacy, I would suggest placing domain expertise (regarding the technology, vertical, or both) at the top of the list. If, however, operational efficiency is the name of the game, domain expertise becomes less important. (For further elaboration on optimizing operational models, see “The Discipline of Market Leaders” by Michael Treacy and Fred Wiersema.)
All this begs the question: what should a CEO do if he/she is not yet certain of the appropriate operating model? I wish the answer were as simple as ‘Don’t Hire’, but every company needs to start somewhere. If you are unclear as to the operating model, then you are by definition unclear as to the required competencies. Any hiring decision made under these circumstances is nothing more than a crapshoot. Assuming you manage to convince an executive to take the gamble, just be truthful about the fact that it is in fact an experiment – and be prepared to offer a reference if things don’t work out.
2) Think M&A: Hiring is like Acquiring.
Most experts agree that success in M&A has more to do with integration strategy (post-transaction) than with valuation on the front end. Similarly, whether a new executive succeeds or not will depend in part on the process used to integrate the new recruit into the existing team. Most investors and CEO’s focus the majority of their time on analyzing any given candidate’s skillset – and seem to lose interest after the offer has been signed. This is perhaps the single biggest mistake that search committees make. Why? Because every company has it’s own unique culture. Many executives have spoken to me about feeling as if they had to learn an entirely new language just to fit in. The key to successful integration lies in helping the new executive learn your company’s unique language as quickly as possible.
The best way to do this is for the CEO to proactively create opportunities for the new executive to learn about and bond with the other members of the management team. Over the first six weeks, we suggest that a new executive spends six hours with each member of the current management team. If there are six executive team members, this means that 36 hours of the new addition’s first six weeks will be dedicated to the integration effort. (If you’re thinking that this will be tough to sell to your management team, you’re right.) So for those readers already starting to cringe, you may wish to skip the rest of this section.
Here goes: 50% of the integration time your new executive spends with the other managers must be focused on personal bonding. For example, one of our clients created a ’20 questions’ orientation session that required each executive to share their life story with the new hire, and vice versa. It is particularly easy for left-brained executives to dismiss this exercise as too ‘touchy-feely’, but consider: One common characteristic of quality relationships is the extent to which both parties are comfortable being blunt with each other about their thoughts and feelings. This lack of pretense emerges because once two people have connected personally, their insecurities tend to be marginalized as neither feels the need to maintain a facade. The best CEO’s will readily admit that direct, blunt communication (one former client referred to it as ‘straight talk’) is a critical part of organizational success. It follows then that the best way to foster a ‘straight talk’ environment is to ensure that the relationships between members of your executive team are at least stronger than the relationships that each individual manager may have with his/her direct reports. (See Pat Lencioni’s ‘The Five Dysfunctions of a Team’ for simple yet brilliant elaboration on this concept).
3) Get Granular about Defining Expectations.
Expectation setting is a necessary and critical phase in any relationship. Too often, however, CEO’s (and entrepreneurs in particular) rush through this phase or skip it altogether because they want the early stages of the relationship to be smooth and pleasant. This is why the opening weeks or months of a new executive’s tenure are often referred to as the ‘honeymoon period’. During a VP Sales search we conducted earlier this year, I encouraged the CEO and top seeded candidate to engage in a discussion regarding mutual expectations. The conversation went something like this:
CEO: “Well, the first thing I want is good communication. It’s the most important thing…I want to know what’s happening every day…”
Candidate: “Every day? Really?…” (hesitating)
At this point, sensing that the candidate had become uncomfortable, the CEO backed off from his ‘extreme’ position of wanting daily updates and closed by saying, ‘I think you know what I mean – I just want to be kept in the loop, and things will be fine.’
Actually, things would not have been fine. I interrupted the conversation immediately and forced both parties to explore the issue of communication further. As it turned out, the candidate was particularly sensitive to ‘micro-management’ and had once changed jobs (years ago) because his boss was a ‘control freak’. Further, interviews with other members of the CEO’s management team (conducted by Sterling-Hoffman during the discovery phase of the search project) identified clearly that the CEO was very much a hands-on manager who enjoyed being involved with his team day to day. None of this would have come to light, however, had I not insisted that both parties define expectations to the n’th degree.
What is important to note is that the CEO mentioned above had an initial reaction (to back off) that was quite natural. Consciously or subconsciously, his goal was to diffuse a possibly tense situation before it began. The mistake, however, is in assuming that tension is always a bad thing. Consider: the exchange described above occurred during a formal job interview – typically a low pressure, genteel affair. Day to day business operations, on the other hand, are anything but. If the CEO and a potential VP Sales are unable to engage in productive conflict during the interview process, how can they possibly hope to deal with conflict situations that are sure to emerge in the course of growing an enterprise?
Getting granular about defining expectations also means going much further than simply communicating the expected results. It is not enough to tell your VP Sales that the company’s targets are $10m per quarter, and then walk away and hope the job gets done. I am well aware that management bibles advocate communicating the expectations and then leaving people alone to figure out the ‘how to’ component. However, to do so (in my view) is like handing your four year old child an encyclopedia and telling the infant that you ‘expect’ it to be completed in 3 months. But wait, some will protest. Shouldn’t a seasoned executive already know ‘how to read’? If I hire the right person, shouldn’t they be able to hit the ground running? The answer is yes, with regards to functional tasks. But NO, when it comes to organizational dynamics.
Idiosyncrasiesmatter. That is why a CEO needs to discuss not just what the actual objectives are, but also the strategies & expectations for how those objectives are best pursued. If ‘communication’ is important, drill down on what ‘communication’ means to each party. What amount of detail does the CEO require about each executive’s weekly activities? Is the VP Sales required to provide reports on the facial expressions and dietary preferences of each influencer in each prospect account? Or is a simple pipeline report with probability rating enough? The devil, as they say, is in the details. Shed light on as many individual and team idiosyncrasies as possible, and the chances of a new hire succeeding will go up dramatically.
4) Test for Self-Awareness & Emotional Maturity.
Self-awareness is the trump card; it is what allows a new relationship to remain strong under pressure, over extended periods of time. A candidate that is self-aware is able to regulate his/her own emotions, confront mistakes, and make productive use of external feedback. This means less wondering about where the new team member’s head is at during conflict situations, and less worrying about whether they can take it when you tell them what you want changed.
How does one evaluate emotional maturity? The question requires far more than a paragraph for appropriate elaboration (the topic has served as the foundation for entire books). In general, try to look for candidates that have long inventories of their flaws and shortcomings. The more self-critical the candidate, the less you’ll have to worry about how the person will react when you deliver negative feedback in the future. The ideal candidate should expect more of him/herself than anyone else expects (which is why I prefer hiring first borns – but that’s another story.) You might also try administering psychometric testing; the Myers Briggs tool, for example, is favored by a number of well respected business minds, including Pat Lencioni (Founder of the Table Group) and Dave Beirne (General Partner at Benchmark Capital.)
The irony here is that only CEO’s who already possess a high degree of emotional maturity are able to evaluate it in others. Overall, the best advice I can offer is to obtain the assistance of someone who is knowledgeable in the field. If you are planning to retain a search firm for the position, make sure question the lead consultant’s domain expertise with regards to the topic of emotional maturity and how to test for it in candidates. If you are conducting the search independently, consult with a business psychologist to obtain some basic guidelines. Expertise in this area is not easy to find – but it is certainly available to those that bother to look.
5) Hire slow.
Many executive search projects I’ve been asked to turn around seemed to have been driven originally by a sense of desperation; as if every minute the position went unfilled was taking the company closer to it’s death. Of course, a sense of urgency is important – and was particularly so in the bubble years. However, the cost of hiring the wrong executive can be far worse. Our instructions to every member of a search committee is that they are required to arrive at a ‘yes’ or ‘no’ decision after the interview. If they cannot decide, we count that as a ‘no’. In fact, if a member of the search committee says they want ‘more information’, I often secretly count that as a ‘no’ as well. This often drags the process out, but the effort is well worth it. The problem is that boards often seem to harbor a collective fear of discarding too many candidates, as if the opportunity becomes less desirable with each candidate they reject. Entrepreneurs in particular seem to derive a tremendous sense of gratification from trying to close a candidate; asking them to postpone making an offer after presenting the company story is like asking an avid hunter to load a rifle, take aim at a target, and NOT squeeze the trigger. The challenge of course is to at once overcome the tendency to hire for the sake of hiring, yet keep in mind the fact that there is no such thing as a perfect candidate. Quite paradoxical, I realize, but such is life. The point is that the first step in reducing executive turnover is to do whatever is in your power to make the right decision in the first place.
Far too often, CEO’s blame themselves for having failed to hire an ‘A’ player. In my view, this attitude is quite flawed. The challenge is not to hire all ‘A’ players, but to build an organization out of the best possible talent that is realistically available to you within the timeline your company must execute in given the window of market opportunity.
Given that the available talent pool is always in flux, a CEO must find ways to win even if his/her individual executives are average performers. Since there are no perfect brides, the real question when evaluating a VP Sales (or any other executive) is: does this candidate have enough of what we require such that it would be possible and cost effective for us to bridge the gap? The goal of this article was to recommend strategies for 1) Structuring the hiring process so as to minimize the gap between what the company needs and what the candidate has to offer, and 2) To better equip CEO’s with strategies to help bridge this gap when it does make itself known (as it inevitably will.)
After all my talk of executing with mediocre performers, readers are no doubt wondering whether I would ever approve of terminating an executive that seems to be failing. Put it this way: if you are already thinking about terminating one of your executives, it is probably too late to implement any of the measures I’ve described above. It’s like physical exercise: by the time you’re at the end of a life without it, it’s probably too late to hit the gym and start reaping the rewards. Further, the other side of the ‘hire slow’ principle is: ‘Fire Fast’. I am absolutely in favor of terminating underperforming executives and moving on (particularly if it means you’ll be retaining our firm to do the replacement search.) But by and large, I would suggest to CEO’s that a great deal of time and energy can be saved if sufficient energy is invested towards helping a new executive hire become successful after the honeymoon period is over. As a final thought, I would urge readers to consider a point brought to light in the book by Pat Lencioni that I referenced earlier: A CEO’s best chance of winning with a group of average individual executives is to build an ABOVE AVERAGE team.
“Sales people are RANDOM,” says a friend of mine whenever I discuss my firm’s area of expertise. Like most engineers, he views sales people as highly irrational, emotionally unstable beings who’s only real value consists of cold calling and building PowerPoint presentations. I patiently explain that without sales people, there would be no customers, no revenue, no profits. Without sales people, there would be no one to tell the world about why your algorithm is better than someone else’s.
“Random,” he scoffs. My friend, of course, studied mathematics at one of the world’s top technical schools. He is always giving me books on ‘pi’ (as in 3.14, not ‘apple’) and I am beginning to think that ‘Random’ is his shorthand for ‘stupid’.
Random, however, is an apt term – both for describing sales executives and the process used to hire them. In essence, random means ‘hard to predict’, and identifying quality sales people remains one of the most challenging hiring tasks for software companies. Most CEOs and venture partners that I’ve spoken with will concede (either immediately or after some debate) that despite all efforts to extract patterns from the chaos, there is no one formula that works all the time. Many are adamantly against hiring templates of any kind and believe firmly that it’s all about ‘gut instinct’.
I’ve changed opinions several times over the years regarding the value of gut instinct when making a hiring decision. Years ago, I was decidedly against relying on intuition – primarily because my research on the subject revealed that most ‘gut feelings’ are the product of subconscious processes, which in turn are the result of personal early life experiences. In other words, when I have a positive gut feeling about someone in an interview, it could very well be due to the fact that the person reminds me of my father, or myself, or even a comic book character I enjoyed reading about as a child.
In fact, the same concept applies to romantic relationships. That feeling of butterflies that we have all believe represents the sign of true love and having found one’s soul mate? It is actually the result of key buttons being pushed in our fragile psyche by the object of our affection. Most psychologists will readily admit that it is entirely possible to make someone fall in love with you – for the sake of romance, or for the sake of getting an offer letter. This is why Executive Recruiters will prepare their candidates for interviews by providing crucial data about the personal lives (favorite movies, books, music, family background) of hiring managers or investors that will be evaluating the candidate for a position. This is also why I recommend to clients that they spend extensive time with candidates on the PHONE before meeting the candidate in person (more on this in another article.)
Not that I am discarding ‘gut’ as a tool in decision making – it would be hypocritical to do so given how I’ve made hiring decisions at Sterling-Hoffman in the past. My only purpose here is to point out that one’s ‘gut’ can be unreliable, and therefore gut feelings should be carefully scrutinized.
Which brings us to the topic of hiring templates. With regards to Sales Reps, most top tier ISV’s nowadays have resorted to defining a strict set of criteria that candidates are required to meet before they are considered for an interview. Commonly, they include something along the following lines:
- W2’s over $200k for last 3 years
- No more than 3 jobs within the last 10 years
- Closed at least 3 deals valued at $1m+
- Achieved or Beat Quota consistently for last 5 years
While the specific details may vary from company to company (perhaps including details of a specific vertical the candidate must have a rolodex in), the gist of it remains the same. Candidates get exasperated when told they do not qualify for a position because they’ve ‘job hopped’, or failed to make quota at a startup. “Is it my fault that they ran out of capital 3 months after I started?” Internal recruiters or HR people are rarely interested in the stories behind the resume, however. Most are simply acting on clear directives from the line managers – having been scolded one too many times for submitting low-quality resumes that do not pass muster. And of course, such directives are then passed from the internal recruiters to external headhunters, and the message is cascaded once again.
The problem with such narrowly focused templates, however, is that the stories behind the resume are actually what count the most. 90% of all startups will fail in their first 5 years of existence. By definition, then, the vast majority of people that accept a position with a high risk startup will end up with a very clear failure on their resume. Does this mean that such candidates are incapable of performing at a company that is further along in it’s lifecycle? Hardly. If anything, I believe the willingness to have gambled one’s career on a high risk venture displays a measure of courage that is to be commended. Most hiring managers recognize this, of course, but do not trust their internal recruiting staff to properly assess a sales executive’s strengths and weaknesses beyond the very strict criteria noted above. And unfortunately, our research at Sterling-Hoffman indicates that candidates are increasingly being hired based on their paperwork, and less and less because they demonstrate real competency. (Please note: I am not speaking here of candidates that have changed jobs six times over the past 5 years. There is a distinction to be drawn, I think, between courage / entrepreneurial spirit on one hand and job hopping driven by dotcom-era greed on the other).
In any case, we are left with a dilemma. What are hiring managers to do? Millions (if not billions) of dollars of value are created or lost due to key hiring decisions. While there is no shortage of literature on hiring strategies, I will attempt to add a few (possibly contrarian) ideas that hiring managers & investors may find useful. Given that our firm’s core competency is recruiting the VP Sales for enterprise software companies, I have been privy over the years not only to insights from CEO’s and Venture Partners on how to hire the company’s chief sales officer, but also to various opinions from our candidates regarding how to evaluate software field sales reps aka individual contributors.
1) Accept Chaos
Several years ago, I was introduced to the philosophies of Bruce Lee, who theorized that the majority of martial arts were impractical specifically because the variables in a combat scenario were infinite and ever changing. In other words, a martial art designed to help deal with large, powerful opponents would be ineffective when used against a small, quick opponent. In response, he created a new martial art: Jeet Kune Do (‘The Way of the Intercepting Fist’) – and his philosophy holds much relevance to high tech business strategy. Specifically, the qualities that made a sales rep successful in the bubble are NOT the same that would make a sales rep successful today. Geoff Moore recognizes the same principle in his Chasm/Tornado books, indicating that what is often the ‘right’ strategy given one set of market conditions is the absolute wrong strategy in another. It follows, then, that the ‘right’ talent in one scenario becomes the ‘wrong’ talent in another; smart companies will recognize this fact and re-evaluate their hiring templates accordingly.
2) Figure out why you’re winning BEFORE building a sales organization.
I credit a friend (who also happens to be one of the most highly respected software sales executives in the world) with enlightening me on this very critical point:
It was common in the bubble for software companies to conceive of their sales strategy in territorial terms. The most important task of a VP Sales was to hire enough high quality sales reps to cover every major geographic territory, so that no potential marquis customer would fall through the cracks. “We can’t risk our competitor getting there before us!” Understandable sentiment. And this certainly correlates to Geoff Moore’s ‘landgrab’ strategy for tornado economics. However:
Jim Maikranz, former SVP of Sales at SAP America, (the same software sales deity referenced above) convinced me that this strategy is intrinsically flawed – particularly for startups. “How many sales reps does it take to make a software company profitable?” he once asked me rhetorically. Answer: ONE. At the time, out of respect for headhunters everywhere, I politely asked him to keep his opinions on this matter to himself. But the logic cannot be denied. Jim was not merely recanting the overused silicon valley cliché: ‘Hire only A players’. Rather, he was questioning the wisdom of software companies that choose to add the cost of a direct field sales organization before they understand the nature of the battle they are engaged in. It makes no sense to hire multiple sales professionals in the field before you’ve quantified (as much as possible) the messaging, qualification process, actual customer segment, etc. Sales is still about process; you need one (a repeatable process) before you can grow revenue.
I would also suggest that sales managers who seem overly tied to a business plan calling for immediate and aggressive expansion of headcount may be more concerned with their personal careers than the company’s well being. Put bluntly, a VP of Sales may very well be worried about explaining precisely what he/she ‘achieved’ at your company when interviewing for their next position, and therefore push an aggressive hiring plan so that they can lay claim to having ‘built’ something later on. Executive Recruiters in particular are intensely focused on ‘growth’ numbers – often screening candidates out if they cannot lay claim to having grown an organization by revenue, headcount, profitability, etc. Shrewd sales executives will know this, of course, and attempt to tailor their resumes accordingly. (Of course, the very best recruiters will dig beneath the surface – seeking the stories behind the numbers – but they are few and far in between.)
The fact remains that CEO’s should be weary of sales managers who seem driven to expand the field sales organization ahead of gaining solid customer traction.
3) Domain Expertise matters. (A lot.)
I recently visited the CEO of a supply chain software startup to discuss a VP Sales search. After some discussion, he commented that I was making too big a deal out of the need for ‘domain expertise’ because between him and and the VP Services, the company had all the domain expertise necessary. Yes, I agreed, his existing team were clearly experts in supply chain.
But, I thought privately, WHO will be doing the selling?? In the case of early stage software companies, the VP Sales is rarely being recruited for his ability to manage a worldwide sales organization. The immediate priority is to acquire customers. And while the economy may be recovering, all anecdotes I have been privy to indicate that the current selling environment is still incredibly difficult for enterprise software companies. Gone are the days of being able to cold call a CIO, rhyme off a series of buzz words starting with ‘e’ and successfully book a meeting. Gaining priority on the CXO’s agenda in today’s market requires an intimate understanding of his/her personal universe, not to mention the organization’s business problems as a whole. Once again, this applies especially to early stage software companies, who face paranoid customers’ fears (often rightly so) that this newest visionary vendor may not be alive in 12 months.
Bottom line: When hiring a Sales Executive in today’s environment, domain expertise is critical. (The more senior the position, the more fundamental this point).
4) Pedigree is overrated.
It is common knowledge amongst recruiters that the quickest way to peak the interest of a hiring manager is to quote the names of ‘pedigree’ companies when discussing a candidate. By ‘pedigree’ companies, recruiters are generally referring to the ‘gorillas’ – market leaders that have a recognized brand not just in their particular category, but in general. For example, applications companies will generally look for candidates that have come from Siebel, SAP, Peoplesoft, etc. Infrastructure companies may prefer candidates from the likes of BEA Systems, IBM-Tivoli, BMC, Veritas, and so on. The reasoning here is not entirely flawed. Market leaders offer superb product and process training, and particularly for smaller companies desperate to show immediate progress, it makes sense to hire sales reps that can hit the ground running. Further, at the executive level, ‘pedigree’ candidates add credibility to a corporate story and can be a factor in raising additional financing.
More often than not, however, I believe that ‘pedigree’ is valued out of fear, rather than logic. In other words, it is easier to deflect blame for poor hiring decisions if the hiring manager or recruiter can say, tongue in cheek, ‘Well he was a star at Siebel!’ Once again, I am reminded of Bruce Lee. The skills required to succeed at Siebel (or any other market leader) may be significantly different from the skills required to succeed within your organization. Further, it should be common sense that selling software for a market leader is EASY – relative to selling on behalf of a # 2 or # 3 player, never mind a startup in a new category. A market leader’s position gives it immediate access to every RFP, and places it atop every shortlist. So is it wise to hire a candidate that was trained in an environment where customers were easy to come by?
For this reason, I am beginning to suspect that sales executives who have climbed the ranks at smaller software companies are more likely to perform when the economy is suffering. They tend to be comfortable ‘street fighting’ for customers, and aren’t easily deflated when a prospect says ‘no’. Further, they are used to coping in an environment that lacks an intricate support infrastructure, and generally accept lower base salaries than their pedigreed counterparts.
5) Million dollar deal sizes are NOT mandatory.
Primarily because most companies aren’t pushing forward with projects of that scope right now. The norm is for most CIO’s to go with smaller initial rollouts, refine the processes, and then examine the value of purchasing additional licenses. (There are exceptions of course – but most market watchers would agree that the trend has been towards smaller rollouts). The central point here is that candidates should not be eliminated from consideration purely because they have failed to close deals at a minimum level. Repeat: the stories behind the resume are what matter. (Of course, a tele-sales rep used to selling shrink wrapped tools at $5k per deal would not be considered for a high end enterprise sale.)
It may also help here to comment on the assumption behind a hiring template that requires a sales rep to have closed million dollar deals before being considered for a position. The theory is that deals of $1m+ are highly consultative in nature, require navigation and evangelization across multiple departments and functions, and usually involve selling at the C-level. Once again, this assumption is not without merit. That said, I would much rather hire a sales executive that has had to struggle to sell $500k deals for a startup, than a sales executive who closed $1m deals for Siebel in 1998. I would wager that orchestrating a smaller deal for the startup required as much of a consultative process (if not more) as the larger deal for a gorilla.
6) Standardize the process.
This point may appear contradictory to the majority of my comments above, but rest assured it is not. Hiring templates do not always work, but as always we must be careful not to throw the baby out with the bathwater. Every software company should have a standardized template for hiring sales professionals if for no other reason than such templates help in identifying patterns over time. Far too many hiring decisions are made informally, with offers being extended because the hiring manager and candidate discover good ‘chemistry’. Especially when sales professionals are involved (I imagine technical readers are snickering right about now).
My own preference insofar as a template for sales reps is concerned is to initially screen for three quantifiable items: domain expertise, multiple customer references (at the level you plan to sell to), and at least one successful stint with a company that was # 3 or # 4 in it’s category. The balance of the decision will be based on a set of particulars that will vary from company to company. No doubt that readers will have their own ideas and preferences regarding which top level criteria matter most. Please send me your opinions on this topic – I’m eager to hear your stories. Or, for advice on how to build a template for your company, try www.selectingwinners.com – the founder, Barry Shamis, has a special competency at helping software companies figure out how to screen for the very best sales professionals and has come highly recommended to me several times.
As a final comment, I would urge all readers to be cognizant of the fact that there are no easy answers. The industry is littered with consultants who attempt to quantify best practices in an attempt to find the one true success formula. Saavy executives recognize that there is none; which is why freshly minted MBA’s will so often admit that the first thing they had to learn upon entering the real world is to forget what they were taught in school. I too have suffered frustration at my own inability to arrive at a perfect evaluation process over the years; I’m a search guy, I thought. Isn’t this what I do? How do I know if we hire this guy or not?!
I voiced this last question recently to another close friend, himself a former superstar VP of Sales with Siebel. His answer? “Follow your gut …”