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When it comes to growing a startup, there seem to be a lot of hard and fast rules that founders are taught by investors or successful founders about fundraising, product, and scale. However, there is one important question that seems to generate a lot of debate and confusion: when does the founder move from running sales to hiring someone to take over?
There is a lot of complexity and nuance around this question, not the least of which hinges around the type of product you are selling and the market that you are in. For example, if you are entering a market that has competition, it stands to reason that you can much more quickly validate product market fit, because in essence, someone else has already done it for you. Whereas if you are entering a new market or have a completely novel concept, it stands to reason that there will be a lot of hiccups and road bumps around product and how to sell, things that you want to iron out before bringing in an expensive sales hire.
The other big factor to consider is the opportunity cost of the founder’s time. The reality is, while most founders are not particularly good at sales, they still often wind up as the best sellers of the products they try to deliver to the market. Why is that? Well, for starters, they generally needed to have conducted a lot of market research prior to building the company. In a way, they are an expert on their field and probably much more knowledgeable than most customers about why it should matter to them. And if you are a founder, you need to jump through a lot of hoops to get something off the ground, so you learn organically about the nuances of the market, the potential partners, competitors, and roadblocks – the types of things a new sales rep will not understand unless they just so happen to come from the same industry. Even then, they probably will still need to spend months of onboarding in the new company to become comparable to the founder in terms of domain expertise.
This means that opportunity cost for the founder’s time is pretty important. In the end, you don’t want to remove your founder as the salesperson unless there is a compelling reason to do so. Compelling reasons include, but are not limited to, tasks like fundraising, team-building, or more simply put, trying to be the face of the brand by traveling to industry events or to meet with customers and prospects as an overlay. As mentioned before, there are plenty of cases where this is not a factor at all because the founder is too socially inept to deal with customers. In those situations, the need to bring in sales talent becomes dire much sooner. For now, let’s just assume the founder does a good job of selling.
One of the silliest things I have heard as advice in this realm is that the founder should reach $1M in recurring revenue before hiring sales. I am not sure who is giving this advice but it’s apparently quite common based on many founders I have worked with and spoken to. This logic is faulty for a variety of reasons. First and foremost, recurring revenue says nothing about product market fit and the scalability of the business. You could sell $1M in revenue, but if those customers are not sticky to the platform and they are a high churn risk (or if indeed your churn rate surpasses something like 10% in the world of SaaS), then you do not have a business that venture capitalists would deem scalable. What this means is that no one is cutting a check for your business and therefore putting more “gas on the fire” would actually be detrimental. Making the investment in sales would be making an investment to increase your burn rate unnecessarily in a business that will go down in flames.
The other reason I find a revenue target to be silly is because every business is cut from a different cloth. Some businesses have a $500,000 average contract value. Some businesses have a $5,000 average contract value. In the former scenario, it requires signing up two customers to reach the arbitrary threshold of $1M that allows us to hire sales talent. Is signing up two customers really sufficient evidence that you have something that can grow? Perhaps if it was two customers out of ten customer conversations, you might argue for it (though the data would still be limited). But what if it’s two customers out of one thousand conversations? Wouldn’t that tell you that there are problems with your sales process and/or product that warrant fixing before adding more resources?
I think a superior answer is much more principled, and it is contingent upon two conditions being met.
The first condition that should be met for a founder to move from founder-led sales to a full time sales hire would be achieving product market fit. The way you achieve product market fit is by having leading indicators of retention (90% or greater). Now, in most SaaS startups, the founder can’t wait years to find out the customer lifetime value of each customer, let alone whether they will renew year to year. Instead, they will use some sort of leading indicator around the customer’s stickiness to the platform – how many users login per day, how long do they spend on the platform, how many transactions do they make, or something to that effect. This all comes from the Mark Roberge (former HubSpot CRO) school of scaling a business.
There is a lot of trial and error in this. You may initially have poor product market fit. That’s actually not a bad thing. As long as you have a growth mindset, you use the feedback to iterate and generally the early customers have an understanding that they are some sort of “design partner” whose job it is to work with you to build a market-ready product. Your early adopters should be progressive and forward-thinking, eager to help you learn and adapt.
The second condition that must be met is that there must be a compelling event for the founder to step away from selling. At the end of the day, I am not convinced founders should be tricked into hiring expensive sales talent unless it is truly a blocker for growth in the business. Obviously if the founder is incapable of being organized to follow up with prospects or is just downright awful at talking to people, you might reconsider the aforementioned strategy. But a competent founder is your best sales asset, and will often be brought into sales conversations even in later stages of growth as a tool to move deals across the finish line. So if you are going to take that person off the front lines, you better have a good reason to do so.
The best way to quantify this is to measure the opportunity cost of the founder’s time versus the cost of a replacement. Good sales talent will run anywhere from a few hundred thousand to half a million dollars a year. If the company has achieved product market fit and now wants to move on to go-to-market fit – the stage where they try to achieve unit economics that allow them to scale – perhaps it wants to raise a Series A. The opportunity cost of the founder’s time at that point is actually millions of dollars, and that’s before considerations around the speed in which the company can hire and grow. In that scenario, it would be a no-brainer to hire sales talent.
So to summarize, there are a few things to keep in mind. First, every situation is different. Your ACV and your sales process will partially tell you if you have something scalable, but ultimately it comes down to product market fit. Secondly, make sure there is a compelling event for the founder to step away and that the opportunity the founder is pursuing is equal or greater to the cost of their replacement.
Jeff Kirchick 