Growing Your Sales Team

As the yin to Warren Buffett’s yang, he turned Berkshire Hathaway into the most successful investment firm in the world. In his 1995 speech “The Psychology of Human Misjudgment” — which is worth reading and available as a free PDF — Munger said:

If you’re spinning up sales at a company, either as the founder or the first sales hire, your next move is very straightforward. It’s probably also the last thing you want to do:

You’ve got to learn how to sell whatever it is your company makes, and that means doing the job yourself.

I know — the temptation is to jump straight into hiring a team. Especially if this isn’t your first go-around as an entrepreneur or sales leader. But nothing replaces the value of doing the job yourself.

So, congratulations dear reader! If you’ve taken it upon yourself to build a sales function, you’ve already made your first sales hire — you!

The most successful founders and CEOs in the world will tell you the same.

Our team went right to the source and asked Amit Bendov, the CEO at Gong, what an early-stage founder needs to do to build their go-to-market function from the ground up.

“Often, the founder will be the first salesperson, even if they have little sales experience, and that is a powerful thing,” he told us. “While they might not have all of the skills of a great salesperson, a founder makes up for it with passion, commitment, and having a 360-degree picture of the company's vision and product. They will hear firsthand the pain points of prospective customers and feed that into the business and product strategy.”

The other chapters of this book give you everything you need to follow Amit’s advice and start generating pipeline. Use it and run solo for as long as possible. Build lists, set meetings, and close deals. Wait to hire until your calendar is a nightmare and deals are at risk of slipping through the cracks.

From 2010-ish to now-ish, it’s been fashionable in certain industries to divide the responsibilities of your salespeople. Many sales leaders have chosen to organize their teams using the “split model” I talked about in this book’s intro, with half the team focused on setting meetings and the other half focused on closing deals.

The theory behind this model is that by letting people focus on just one part of the sales process, you’ll get a more efficient team. In some cases, that’s exactly what plays out — particularly for established companies with lots of inbound leads, or for businesses that sell big-ticket items into large enterprises.

But for the vast majority of new teams, there’s a better way.

The main issue with the SDR + AE model is it creates issues with the incentives at play in your business. As the sole salesperson, your incentives and the company’s are perfectly aligned: if you help the company grow, you get paid. Hiring a full-cycle salesperson keeps this incentive model in place, and all you’ll need to do is determine what commissions to pay (more on that later).

But with SDRs in the mix, things get complicated. How do you compensate them? If you just pay them per booked meeting, they have no incentive to book quality meetings. That may lead to your AEs wasting time with people who will never buy.

If, on the other hand, you compensate them on revenue closed, that’s bad for the SDRs. An SDR can’t control what an account executive will do in a meeting — what if they no-show, or are rude to a solid prospect? A structure like this makes SDRs feel like they’re not in charge of their income, which is a recipe for disaster when paying people on commission. These salespeople you’ve worked so hard to find and hire will now leave your company for the next opportunity that comes their way.

Of course, there are workarounds for these issues, and many successful businesses have an SDR + AE model. But specializing too early will undoubtedly create complexity, and complexity comes with added cost. That’s why, if you’re making your first sales hire, my recommendation is to bring in a full-cycle salesperson. I’d even go so far as to recommend you make your first three to five hires that way.

At that point, if they’re all closing, you’ll have learned some things about your market that you couldn’t have foreseen. It may well make sense to specialize; you might spin up a mid-market team to work on bigger deals, or an enterprise team to go whale hunting. By then, you’ll have enough data and experience to make the right call.

There are, however, a few exceptions to this rule I’d like to call out.

If you’ve raised venture capital and your investors have convinced you to grow fast even if it means taking a loss, hiring an SDR+AE combo may work.

“When cash is easy and money is flowing, there are certain investments which help you grow faster, even though they do not help you economically,” says Mark Kosoglow, who scaled Outreach.io from $200k to $200MM in revenue.

Because you’re paying two people where you could pay one, the SDR+AE model is almost always less efficient than the full-cycle model. But throwing more resources at lead generation can help you grow faster, even if at a loss.

If that’s a fair trade off for you, go for it.

If you find yourself in the incredibly fortunate position of having a high influx of inbound leads, go and thank your marketing team.

Hiring a team of SDRs to qualify these inbound leads before passing them along to an AE can be a good idea. Many inbound leads aren’t ever going to buy from you, but some of them will — so you have to do something with them.

In this scenario, your SDRs triage your pipeline. Your SDRs will send some folks to support or customer success, turn some away, and pass the good ones to your AEs. In this environment, an SDR+AE combo is almost always better than a full-cycle model.

If you sell to truly massive enterprises, and you’ve already closed a couple of deals yourself, hiring an SDR might be the right move. Why?

Big companies can be very demanding of their vendors, and never start with big contracts. That means you need a “land and expand” strategy where you land a small deal and grow it into something big over time. In this scenario, someone with a lot of knowledge and ability to get things done needs to manage your customer relationships, which means someone else needs to strategize their way into new accounts.

You need someone who can strategize and execute at a high level. In my experience, that means fresh-out-of school newbies are not the ideal hire here. Instead, look for someone who’s been in a closing role before and succeeded, and now wants to break into a new industry. In my experience, this profile makes a great SDR.

This is a hard job. They’ll need to do real research on your prospects. They’ll build org charts, carefully orchestrate their outreach, navigate gatekeepers, and generally pull out all the stops to get you a first meeting.

Making the right hire here will make or break you, and when you do hire someone — no matter their role — you’ve got to figure out how to pay them in a way that keeps everyone’s incentives perfectly aligned.

Most companies pay their salespeople a combination of salary and commission. Part of their earnings are guaranteed, and part depends on how much they sell. The combination of salary and commission earned (assuming a rep hits quota) is called “on-target earnings” (OTE). At the best companies, commission is uncapped — meaning there’s no limit to the amount someone can earn in a year.

The details of how OTE is split between salary and commission are different at every company. A 50/50 split is common. Big companies simply take an above-average income for a given geography and make that 100% OTE.

No matter how you set it up, the most important thing is make sure you’re always incentivizing your team to do things that help the entire business. If your company sells multiple things, this includes making sure your reps are incentivized to sell your newest or most profitable product.

According to Charlie Munger, even industry giants make mistakes here:

Incentive misalignment is rarely as egregious as in that Xerox story. It’s far more common to find yourself in a situation where AEs get paid even if their deals churn after a few months, SDRs get paid even if their meetings are bad, and customer success managers (CSMs) get paid even if they piss off customers.

That’s why you need a payment structure that considers the full customer lifecycle.

No matter how your team is structured, you need to ensure that every person is compensated if they produce a good outcome at the next step in the customer journey.

In practice, this might mean:

• A portion of an SDR’s commission is tied to closed-won revenue

• A portion of an AE’s commission is tied to renewals

• And a portion of a CSM’s commission is tied to expansion or referral revenue

This creates an overlap in incentives throughout the entirety of a customer’s relationship with you. SDRs are motivated to book meetings with qualified prospects, AEs are incentivized to focus on long-term customer satisfaction and not make empty promises, and CSMs are driven to foster customer growth and advocacy.

Many companies don’t do it this way, to their great detriment. It’s important not to overdo this. The majority of your team’s commission must be tied to things they can directly control. As mentioned earlier, an SDR who feels like they can’t control their income will soon be an ex-employee.

Tying a small-but-meaningful part of someone’s pay to what happens with that customer in the future aligns the incentives for everyone on your team. It helps your team members think one step ahead and set their colleagues up for success.

For SDRs, a commission that’s 80% based on meetings booked and 20% based on closed-won revenue may be a good starting point. For AEs, you might start with a 90/10 new revenue vs. renewal ratio and CSMs could follow a similar structure with 90/10 renewal vs. expansion or new revenue from referrals. Experiment to find what works for you.

With AI dominating news headlines and a new version of ChatGPT coming out every few months, you might wonder if you need to hire human salespeople at all. There are already dozens of companies promising an “AI SDR” who can put qualified meetings on your calendar.

In my view, AI is like a calculator — really handy if you have the fundamentals down and use it to save time, but pretty useless if you don’t know what the buttons mean.

Once you’ve figured out what a scalable, repeatable sales process looks like for you, AI may well play a role in your company’s growth. But it won’t replace humans. As Jessica Wan, Director of Client Solutions at Space Matrix, puts it:

If you’ve taken all the steps in this book, you might find yourself the leader of a sales team with a powerful lead generation engine. Congratulations!

You have dozens of open opportunities at any given moment, and a team of motivated people who need your help to get those deals across the finish line. You’re in a tough but rewarding job, and need to master the art of helping others win and close deals.

That topic deserves its own book — and it’s already in the works. Keep an eye out for it. If you liked this, you’ll love that one even more.