Hiring Your First Sales Person: James Allgrove

The Founder's Guide To Your First Sales Hire

Hey friends! I’m Akash, partnering with founders at the earliest stages at Earlybird Venture Capital.

Software Synthesis is where I connect the dots on software and company building strategy. You can reach me at akash@earlybird.com if we can work together.

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This is part 2 of our discussion with James Allgrove, following the piece on design partnerships. This time the focus is on actionable advice for founders looking to make their first sales hire.

James is an experienced operator and advisor of Seed to Series B companies. He works closely with founders of B2B companies on their go to market strategy, helping them to navigate key decisions like finding product market fit, transitioning away from founder-led sales and scaling their commercial functions. He was previously Chief Revenue Officer at Fidel API and prior to that spent 6.5 years at Stripe setting up their UK business and then New York office. His earlier career was in consulting at Bain & Company.

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Key Takeaways

1. The right time to hire your first sales person is when you know your ICP, are capacity constrained, and understand your sales process well.

2. To identify the profile of first hire you need, figure out where the bottlenecks are (e.g. more pipeline, closing deals) and then optimise for candidates who have experience with your sales motion (consultative or demonstrative).

3. Don’t over-index on past performance - often this is deceptive and doesn’t signal whether they are the right fit for an early stage company. Look for the fit between what they’ve previously sold and your ICP.

4. In the interviews, test for product curiosity and an affinity for the customer. Look for an all-rounder profile that can be flexible across the lifecycle of an account. Use a written exercise to test for their thinking and communication.

5. Have your first sales hire be in person next to the founder, learning from them for the first 6 months at least.

6. Don’t hire two salespeople to benchmark them. You need to first prove the ROI of having a salesperson at all, relative performance doesn’t tell you much.

7. To enable your first sales hire, get them involved in all deals and make them meet everyone in the company in their first month.

8. In terms of compensation, incentivise mostly on equity and at most 30% variable compensation. The right fit for a startup will prefer that mode of incentivisation.

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Timing

When should companies think about their first sales hire as they transition from founder led sales? 

This is a question I get asked a lot, and it's something that I think most companies try and do too early. There are some exceptions when people do it too late, but in general, I think people try to do it too early. I would say you should only hire your first salesperson when three things are true.

1. One is you know your ICP, and you know it well. It has to be quite clearly defined and fairly narrow in terms of who you're going after, both in terms of the type of company and the person of the people you are selling to. The reason for that is because the type of salesperson you need to sell to a small company versus an enterprise company is very different. Likewise, the type of person who can sell effectively to a security engineer is very different from one who can sell effectively to a Chief Marketing Officer. So if your ICP is too broad, and you need somebody who can sell to any size company and any persona, it's going to be difficult to find somebody. 

2. The second is around the pipeline you have and your ability to generate it. You need to be capacity constrained in terms of your current ability to manage your pipeline and close deals. A sales hire isn’t a magic bullet who will suddenly be able to rustle up lots of deals for you so you should only hire when you have sufficient pipeline to hand off to them. This will either mean that you have a lot of inbound leads that they can start to take or you’ve figured out what type of outbound motion works for you and then they can help you to scale it. If that's the case, then you're probably ready to hire your first salesperson because you'll be setting them up with enough pipeline to be successful. 

3. The third thing is you need to know your sales process, at least at a high level. This means you need to have gone through a significant number of deals, end to end, as the founder, to understand and define the sales process. This is important as it determines the skills you will need to optimise for with the hire. For example, how technical do they need to be? Will they be doing a lot of demos or being very hands on and consultative? If you don't know the sales process then you won’t know what profile of salesperson you're going to need. If you don't have enough understanding of the dynamics of your sales process and how to generate more pipeline, then that person might be sitting around not knowing what to do and not having enough to do.

The benefit of having all of these as prerequisites is that you will be much clearer on the skills you need in a hire and the profile you are looking for, which makes your search easier and faster. Once that person starts, you will also have a clear picture of what they need to be doing and whether they are doing it effectively, which makes onboarding and performance management much easier for you, in particular if you are a founder who has never managed salespeople before.

Hiring

Once the company and the founder(s) have determined those things, they'll of course start to recruit. How should they think about identifying the right profile for their company and their ICP? 

There's two things I would think about here. 

1. One is what type of role you need. To identify this you need to look across your entire customer life cycle and sales pipeline and understand where the leverage is and where the bottlenecks in your process are. By this, I mean do you want an SDR because you don’t have enough pipeline, do you want an AE because you have more deals than you can close, do you want a solutions engineer because your customers don’t know how to approach getting integrated? You might end up with your first sales hire being mainly focused on existing business, as you might need somebody to upsell existing customers or retain them or grow the contract value, if that’s where the value and leverage is. 

2. Once you have a clear idea of where there are bottlenecks and or upside from having more resource, then that is usually where you want to add the first resource. Once you have determined that then you need to think about the right type of profile to sell to your ICP and target persona. That means knowing what size of customer you're going to have them working with, and finding somebody with relevant experience with that size of customer, selling an analogous type of product as well as ideally dealing with the types of roles that your buyers are in, or as similar as possible.

When it comes to an ‘analogous product’, there are two axes to consider here:

1. One is, is the sale consultative or demonstrative? Are you doing a demo of a SaaS product, or are you selling some kind of infrastructure like an API or developer tooling where it's less about demoing and more about understanding their real pain points and how the product can serve them. The reason for this is that those are two different types of sales process, so you need somebody with experience in the type of sale that aligns to yours. 

2. The second is, what's the revenue motion of the product? Are you selling large contracts upfront with a big commitment over several years? Or are you selling something that is usage based where the customer is not committing to any spend, but if they use it, then it could grow quite large. That is also two different skill sets in terms of selling. One is getting a big contract done. The other is getting somebody interested enough to at least try the product and then keep them engaged from there. 

The other general principle I have here is your first sales hire should have quite a broad skillset. Whilst you need a clear idea of who you are selling to and how you are selling to them, you will still be learning a lot and be building the plane as you fly it, so you need someone who can help with that. This also provides more flexibility and optionality, as you learn you can evolve their role accordingly and they’ll have the ability to accommodate that.

For example, you might not have a sales deck or case studies. You want somebody who's able to work on fixing those things, building the process. You need somebody with that type of mindset and skillset, not somebody who's a ‘coin operated’ salesperson who's really good at selling, but needs all of the support of the rest of the organisation to be successful. You're not there yet, and so you need to start quite general in terms of the profile and the background, the experience. As you build the team, you can and will get more specific in terms of people who have deeper but more narrow sales experience. 

It’s of course a very different selling environment now compared to 3 years ago. When you're appraising a candidate in the interview process, attribution of performance isn't as straightforward. How much emphasis should you put on past performance? 

If you're hiring your first salesperson, their sales performance in prior roles isn't necessarily that reflective of their abilities in this type of role.

First of all, sales performance is relative to a target. Companies have different philosophies in terms of setting targets. Therefore, saying that I've done 125% of my target isn't that meaningful in itself and so I wouldn’t weigh it that heavily in an interview.

Secondly, the last few years that we've been in have been very up and down for a lot of macroeconomic reasons and so their performance versus quota is not necessarily indicative of their own skill.

The third reason is actually the people who talk about how they perform versus their quota tend to be from larger organisations and therefore may not actually be a good fit for the skills you need for your first sales hire. 

With all that in mind, I wouldn't focus too much on their past performance. It's important that they understand what metrics they were focused on and in general, how they did, but how they could have done better.

In your first sales hire you're looking to first understand how good a fit their background is versus your ICP. And that's some of the things we talked about already, the size of the company, the type of deal they've done before, the general kind of sales process and revenue model, and also the stage of the company they've worked at before.

If you have somebody that's only ever worked in very large companies like Cisco and Oracle, and now they want to work at a Seed or Series A startup, even if they were the most successful person there, they're unlikely to be successful for you. You're much better off going with somebody who knows the drill in this stage of the company and knows what they're getting into and is looking to do that again, as they're much more likely to be successful for you.

If their prior quantitative performance isn’t that indicative then how do you think about skills to test for an interview and how to test them? 

The first is their understanding of the problem you’re solving for your customers and their product curiosity. If they don’t have this, especially if it's a more technical product, then they're not going to be able build pipeline and sell effectively. A strong hire will have a good perspective on that just from looking at your website and having a conversation with you. If you don't feel like they can get there in the interview process, then it's likely going to be difficult for them to get there when they are working for you.

The second is around their profile, as you want someone with quite broad experience, a bit of an all rounder. Usually for your first sales hire you want somebody who's done some sales before but has also worked in other roles within a startup and therefore has quite a generalist skill set. That's going to give you more flexibility, make them more useful, allow you to move around what they're working on, depending on the needs of the company, and crucially for them to be excited about that rather than disappointed.

For customer facing roles, I always like to do some kind of a written project. I think it's very difficult to test how structured somebody is in their thinking and communication without one. Most sales have quite a large element of emailing, so it’s going to be difficult for somebody to be really successful in a sales role if they can’t write and communicate properly. I like to get them to pull together a short document that outlines the type of customer that they think would be a good fit for your product, do a bit of research into how big that market is and then think about how they would go after and sell to that type of company. From that you get a good sense of their strategic thinking, how they structure their problem solving and communication. It can also be interesting to take that into an interview and have a discussion around their project.

Remote or in person

When founders think about the location of this first sales hire, what's your view on having them side by side with the founder in the office versus remote?

I'm quite a strong proponent of having the first few sales hires co-located with the founder(s). If you are ready to hire a salesperson, then the founder will have been doing a lot of sales themselves. So they will be the best salesperson in the company at that point and the new hire needs to learn as much as they can from that person, which is easiest when co-located. You need to be working closely on deals together for several months, a year maybe, depending on your sales cycle, in order to really make sure that that person knows what they're doing. So I think it is strongly preferable to have them in the same location.

If your entire company is remote, then maybe that's an exception. But even then you probably want to try and find somebody that's in the same location or can spend a lot of time in person with you. If they aren’t in the same location then you should still try to spend a lot of time together in person in the first few months.

Benchmarking

Investors will often tell portfolio companies to hire two salespeople at the same time because you can benchmark better that way to gauge performance. What's your perspective on the effectiveness of this? 

I've had this mentioned to me by many of the founders that I've worked with. The rationale being, if you have two, then you can judge their performance better and therefore you can keep the one that's better performing and get rid of the one that's less well performing, or in an ideal world, they're both great, and then you save yourself a future problem of hiring the second one.

I generally don't agree with that as a strategy for a few reasons.

One is that the performance of the salesperson is not just relative to others. It should be thought of as more of an absolute measure. You need to be confident that having a sales team can generate a positive ROI for your business and that the sales people can cover their costs by a multiple of two, three, maybe four times their cost, depending on the margin structure of your product. 

The question you should be asking is does this salesperson create positive ROI for the company, rather than is salesperson one better or worse than salesperson two. They could both be generating too little ROI and therefore you may need to rethink your strategy. Or they could both be generating a decent ROI, in which case you should keep both, even if one is lower performing than the other. So I don't think that this relative perspective on it is really the right way to look at it.

The second reason is that like we discussed, there's a lot of things you’ll need your early sales hires to be doing that’s beyond just selling. So, again, judging their performance against each other isn’t really the right approach. One could have closed fewer deals, but they could have also been really instrumental in building out the sales process or generating leads. For me, that person would still be a strong hire, but on paper, their performance may not fully reflect this. That person is still valuable to you, so you shouldn't just discard them because they have slightly lower performance than the other person.

The third reason is cultural in that your first sales are very important to try and get right. Therefore, I would much rather spend more time finding one great person that can have a huge impact over the long term and in whom you have a high confidence in; rather than spend the same amount of time finding two people, both of whom you have lower confidence in because you wouldn't have spent as much time interviewing them and your expectation is that only one needs to work out. Your bar will, if we're honest, be a little bit lower.

Therefore, I would rather focus my attention on getting the right person and be really picky. That person defines your velocity and trajectory, as well as the quality of other people you can hire onto the team after them. So you need to have pretty high confidence that they're the right person for you and hiring two people is unlikely to get you there.

Enablement

Enablement is, of course, sometimes the difference between someone succeeding and not. What have you seen as best practices here? 

You’re right, if you find what you think is the right person, then that's only half the battle. The other half of the battle is actually onboarding them properly and getting them up to speed and good at selling your product.

To do this, you as the founder have to spend a lot of time with them, teaching them everything about the company, all about the customers, the ins and outs of the sales process. Have them shadow a bunch of sales calls that you're doing and then have them start leading, even then you should remain involved. You shouldn't just hand things off. There should be quite a long period and quite a few deals that you're actually working jointly on. Don't think that just because you've hired somebody that you as the founder, your job in sales is finished. That's just the beginning.

Get them involved in deals. You should probably do this slightly earlier than you and them are possibly comfortable with. If you're in the room and have them lead the call, you can sit there, you can always jump in, so there’s little that can really go wrong. If they don't know something, that's fine. But I think that it's good to actually get the real life practice rather than just shadowing for a long time. They also need to know everyone in the company quite well. So I'd have them try and meet every single person in the company. At this stage you might be 10, 15, 20, maybe 30 people. It's very doable for them to meet every single person in the company in the first month, maybe two months.

That will really help them to be able to get the answers that they need during the sales process around product features, functionality, security, and also create a good product feedback loop for you. They're going to be speaking to all the customers and so you want them to know the people who are building the product and have a good relationship with them so that there's a smooth exchange of information there. It will also help you avoid overselling to customers because they’ll have a much clearer picture of what’s on the product roadmap.

Compensation

The last topic is something you've written about extensively (here and here) - how do you think about compensation? Given that the right profiles will come with more wide ranging sets of experiences, how do you think founders can make sure they attract the right calibre and retain that calibre person?

This is something that comes up a lot and there isn't a one size fits all answer, but I'll give you my general perspective on it.

Firstly, don't go too heavy on variable compensation or your first few hires. You’ll want them to have a fairly healthy equity package, and if they do a good job as the first salesperson, that equity will go up a lot in value as it is primarily driven by the revenue of the company, which is the sales person’s job to generate. Therefore, they already have variable compensation in the form of equity. That isn't true when you're a large company, and therefore you have to have more and more variable cash compensation as you grow. 

Secondly, at this point, you don't know how to build a compensation plan because you don't know what's reasonable for them to sell or perhaps how to define the relevant metrics. So there's no point in trying to over-engineer it before you know what you need to know. Part of their job is to help you figure that out, so you shouldn't agree the compensation plan up front and then they do the things that are in the compensation plan and nothing else. You need it to come at it the other way around. You need to figure out the right process, then you can figure out what's reasonable to put in the comp plan and how to measure it properly.

The third reason is around hiring the right person. The types of salespeople that want very high variable cash comp are usually not the right fit for what you need at this stage. Someone pushing for that will have a lot of sales experience that will maybe come from a bigger company that probably isn't going to be the profile that you need. So if somebody's really pushing you for that and you don't offer that, that's a good sign that it's probably not a good fit for your stage.

So do you have any advice or guidelines on structuring your first plan if and when the hire you are making asks?

I usually recommend you have something like a 30% variable cash compensation element within their contract which gives you the flexibility to adjust that as you go. It is in the contract but you may not set a formal compensation plan until they are 6 months into the role. Instead, you may just want to have an open conversation with them and say; “We've got this variable element, we don't know enough to set it now, so each quarter we’re going to set some goals that we agree are reasonable and the bonus will be tied to those goals. We’ll work like that until we get to a point where we can build an actual compensation plan and then you'll be on it, along with the rest of the team.”

Personally, I think that's a better way of doing it that gives you the flexibility to add and to evolve a comp plan and you don't have to rewrite their contract. 30% is also relatively low in terms of the percentage. In a very well established enterprise type of sales team, you would have 100% bonus versus base. This is good as you also have scope to increase the percentage as you grow, again without having to renegotiate their whole package or base salary. Future pay increases can be loaded into the variable element.

I've then had people say to me ‘if somebody's bringing in a million dollar contract, then why should they not get paid $100,000 as a bonus?’ I see the logic, but I actually don't think that works very well because that incentivises them to sign a million dollar contract that may not be in your ICP, it may not be a customer that you can retain because you don't maybe have the right infrastructure to support them. Closing a deal that large as an early stage company is also an ‘all hands on deck’ moment so why should they be the only ones to get a bonus?

If you've proven that your ICP is million dollar contracts and you know what it takes to close them, and you as the founder have closed three, four, five of them yourself, then maybe that's the right comp plan for you. But if not, then you shouldn't go into this with wishful thinking that ‘if I incentivise them, right, they'll be able to close massive deals.’ So you've got to be very careful about these types of incentives. I would always start simple, I'd start on the lower end and then evolve up from there.

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