I very much enjoy the time I get to spend with Vinod Khosla on both a personal and professional level, and always come away from our conversations with a nugget or two of business gold. Last year he shared with me his idea of “free growth” for a company. At its core, this means getting the new members of your sales team to produce more revenue than what they cost the company by way of cash. This, ideally, is accomplished by having each sales rep deliver more revenue than their cost in their first 12 months with the company. Not only will that revenue balance out the operational expense, but it will also add to the growth of your business. This helps us manage the one thing which is critical to all in an early stage (or even growth stage company) – cash burn.
As with most of my best ideas, I take what I have learned from the brilliant minds of others and pass them off as my own to my team (said tongue-in-cheek!). I took the idea back and worked with our teams to implement it. One year later, we have seen tremendous success and free growth is now the cornerstone of all hiring, territory planning, enablement, and management objectives.
My colleague Mick Charles, VP of Corporate Marketing & Enablement, helped implement this at MemSQL, and has captured its execution and best practices in the following post. I hope you find some value in it for your business as I did for mine.
– Raj Verma, Co-CEO of MemSQL
Free Lunch: No; Free Growth: Yes
I often ask my team members on our new-normal video conferences what they miss most about the pre-work-from-home era at our company. A common response is that they long for the free lunches we served at our home office, and I have to say that I couldn’t agree more. Not only was the food delicious, but it also catered to the varied tastes, cultural influences, and dietary sensitivities of all our employees, and there was the freedom of not having to think about lunch plans at 11:30 every morning. Lastly, of course, there was the free part…I mean who doesn’t want something for free? What I really miss, though, is that 30-minute break in the day where we came together as a company and were able to share stories, thoughts, and ideas over a healthy meal. So in the absence of our communal lunch and learn sessions, I thought I would use this forum to share some ideas I’ve been contemplating as we all try to do more with less and try to find that “something” to help move our respective companies forward. What if that something was free growth for your business?
We’ve all been told that it takes money to make money, especially in the world of start-ups and venture capitalism. In order to achieve the desired result of significant valuation for your burgeoning company, you have to invest in engineering, manufacturing or development, infrastructure or supply chain optimization; whatever it takes to get your product or service to market at scale. And the name of the game is getting the maximum boost in minimal time. But there can be a way to make money without spending any…technically anyway. The market will always go to the operators – those who know how to tune their go-to-market engine for increased horsepower without burning excess fuel (read cash). If approached with the proper amount of planning and diligence, followed by flawless execution, it is possible to drive additional revenue for your business as you scale your sales reach with zero impact on your burn rate. To me, that sounds like free growth!
So how do you grow your business without spending any money? Over lunch one day, Raj shared with me a concept that he calls “Rep Revenue Neutrality.” By definition, this is the point in year one of a sales rep’s employment where he or she has essentially paid for themself by booking revenue equal to the amount of cash the company has allocated for their annual employment (fully-loaded cost). The revenue offsets the cash burn, so, therefore, it doesn’t cost the company anything to hire that person…and there’s an added benefit. Let’s say you hire ten new reps and their fully loaded cost is $400k each (salary, commissions, benefits, etc.). They would need to generate a total of $4m in the first year to reach Rep Revenue Neutrality. Now that $4m may not have done anything for profitability, but it is new revenue and therefore added to the growth of the company while cash burn remained the same. And the idea of free growth is really just that simple. Now comes the hard part: getting your new hires to Rep Revenue Neutrality as quickly as possible.
There are five basic tenets to free growth. I will dig deeper into each of these, as well as introduce the notion of the “Process Carousel”, another term coined by Raj. If there is one thing that is non-negotiable when it comes to monetizing your business as quickly as possible, it’s the notion that everyone must adopt and adhere to your sales process. You will be hiring sellers who have been trained in every methodology out there and who have their own way of closing deals. It is critical that they follow the process that your go-to-market team has outlined, and your front line managers must enforce this on a regular basis. For now, let’s keep it high level and just cover the concepts of Territory/Account Planning, Recruiting/Interviewing, Onboarding/Enablement/Ramping, Account-Based Marketing, & Instrumentation, and why these are the essential elements to drive Rep Revenue Neutrality in the shortest amount of time.
Before you begin the hiring process, you need to identify the accounts you want to target in each territory and what skill-level salesperson you will need to sell into those accounts. This is called market segmentation, a process that will help you become laser-focused on who your audience is and how to properly reach them. Instead of trying to sell to everyone in the market, only enter into cycles with the companies that have the highest propensity to buy your product or service. This will allow your new salespeople to get on the board much more quickly and at a higher value. It will also assist with hiring the right people as you now know what experience will meet your requirements. For example, you don’t need someone with an extensive background in selling to the financial services vertical if the territory is comprised mostly of manufacturing or retail companies. Group the accounts into territories and the territories under managers in the most efficient way possible. The closer a rep is to their customer base, the more time they can spend in front of them delivering your value proposition.
Speaking of your new salespeople, talent acquisition is an essential part of your business and the key to quick success. Over my 25 years of enterprise software sales experience, I’ve found that in-network hires always seem to work out the best, which makes sense since they have been field-tested by those who are recommending them. Last year MemSQL hired thirty-nine new employees and all but seven came from internal references, and they were able to hit the ground running. That’s not to say there’s a dearth of talent outside of the network, but when trying to achieve free growth, time to value is of the essence. Don’t be afraid to ask tough questions during the interview process even if they do come highly recommended. Throw them a curveball, put them on the spot, don’t give them a pass. Since you already know the accounts that you are hiring this person to cover, ensure that they have the necessary relationships that will allow them to get high in the organization quickly. Ask them for names of the people they know and then validate those are the contacts that will lead to early success. We have also implemented a cognitive aptitude test and personality assessment as part of our hiring process, even for in-network candidates. Selling your product or service may be quite different from anything they have been successful with in the past. Take the extra steps necessary to ensure that each hiring decision is made with the most information available to you now in order to avoid the painful process of reversing that decision in a few months.
It goes without saying that once you have hired your new reps, you need to expose them to your selling methodology and internal processes as quickly as possible. Getting them trained and properly enabled to sell within the first three months will give them every opportunity to reach this target within the first year. Remember that there is only one process for them to follow…yours! To assist with this, I highly recommend an extensive certification curriculum through a digital learning management system (LMS). Our company has implemented a 30/60/90 program to get our reps ramped as efficiently as possible in all areas of our business: product, go-to-market strategy, competition, and sales methodology. The LMS is not a substitute for the full immersion training that the front line managers and enablement team provide, but it is a great way to reinforce essential concepts in a self-paced manner and includes quizzes to ensure that the concepts are fully understood by the learner. As a matter of preference, I find that essay questions, as opposed to multiple-choice, will allow front line managers to properly assess progress. Providing a digital badge or banner that the reps can use as part of their signature block, or some other recognition for successful completion of the coursework is a good way for the new hires to appreciate the importance of this training.
Empowering your new hires to market directly to their accounts using ABM technology and techniques will result in getting valuable meetings scheduled more quickly. Not only can these tools be used for automating mass emails and sequencing other touchpoints, but they can also be used to measure the effectiveness of broader marketing efforts by providing engagement metrics and heat maps. This allows new reps to focus their efforts with prospects who are showing increased interest and therefore a higher propensity to purchase sooner. The rep who will reach revenue neutrality as quickly as possible is the one who will do the hard work of prospecting and cold-calling on their own, instead of waiting for something to be handed to them. This is another good area to focus on during the hiring process. There are plenty of capable candidates who understand the value of making that initial touchpoint into their account base on their own, and these are the ones that you want working for your company instead of the competition.
So how do you know how these new hires are tracking against the defined metrics in order to reach free growth? You instrument all of the processes so you can monitor and measure their progress on a regular basis. If someone is underperforming you have the ability to intervene and course-correct before it’s too late. The old adage of people doing what you inspect versus what you expect has never been more relevant. Make sure that everyone understands they are being observed, reviewed, and rated against their peers. Present the dashboard on your weekly sales management calls and hold managers accountable for their role in helping their new team members reach the goal of Rep Revenue Neutrality. It’s in the nature of every quality sales professional to have their name be at the top of any list, and not settle for mediocrity. If they don’t have that bone in their body, then they probably weren’t the right hire in the first place.
Most of what I’ve just described is quite possibly already part of your business plan and overall sales execution strategy, so it really just comes down to having a maniacal focus on quick wins and getting to that break-even point in the shortest amount of time. I would add that these steps must be completed in the proper order if you want to achieve the desired result. A quick anecdote to illustrate this point: prior to 1955, when you went to eat at a restaurant there was a simple process associated with your visit. You would sit down at a table, place your order, food would arrive, and then you would pay after you finished eating. Ray Kroc took that simple process and turned it around to provide a faster result: order your meal, pay, receive the food, and then sit down to eat. Placing those four steps in a different order gave birth to the quick-service restaurant industry, currently a $12B global industry.
Similarly, the sequence to this free growth strategy is very important and could be the difference between enjoying quick service or hanging around waiting for the check. Last year, MemSQL increased sales rep headcount by 20%, adding an extra $500k to cash burn. Those reps accounted for more than $1.5m in new ACV, exceeding the neutrality metric. Thank you, Vinod, for the free growth.