Sahil Mansuri: belief

Transcript context

…ur quota, the more money you make. So you would imagine that if someone sold 1.5 million, they wouldn't make 300K, which would be 20% cost to sale. They might make 400K. That's pretty common in sales. So this person who closed $1.5 million in business from 15 deals ends up making $400,000 and they get taken on a free trip to Cabo because they made President's Club and they're put on the leader board and the CEO of the company gives them an award at the end of the year and they are heralded as the pinnacle of all things that are sales. The VP of sales says, "Wow, I can't wait to clone 10 of you." That's how sales teams are set up, right? Then you have sales rep B. Sales rep B only closes 12 deals for 1.2 million. So they still exceed quota, but they only exceed quota by 20%, not 50%. That sales rep ends up making let's say 250K. So they make $150,000 less money. They don't get to go on the trip to Cabo. They don't get the award at the end of the year. They're not the ones that are celebrated or championed and they're seen as a good performer but not as good as team player A. That all makes a lot of sense in a world in which companies are really focused on top line growth. Nothing is more important than the amount of ARR you're making and how fast you're growing and investors are basically demanding that you go 3, 2, 2, 2, which is common parlance for if you make 5 million this year, you should make 15 million next year, you should make 45 million the year after, and then you can slow down to going 90 then 180. This is how VCs often think about funding SaaS companies. They look for this 3, 3, 2, 2 sort of multiple growth on ARR, new business ARR. That's how the world used to function until six months ago. Then six months ago, all of a sudden the music stopped and capital got expensive and everybody started being like, "Whoa, wait a minute. We should think about things like net dollar retention and we should think about what renewal rates look like and we should think about how efficient you are at acquiring customers." All of a sudden, profitability, efficiency, retention came into focus as everybody realized that unprofitable growth was no longer going to be rewarded because you couldn't just keep spending in order to acquire customers. Acquiring new customers was going to get harder so retaining the ones you had and making sure they were happy was actually far more important. So let's go back to our example. So team player player A who closed 15 deals for 1.5 million, poster child for the company, got $400,000. Let's say out of their 15 customers, 10 of them churn next year and only five of them actually end up renewing. How much does that affect player A's compensation, their performance, their celebration, et cetera? Doesn't affect them at all. Make no difference. 99% of SaaS companies are set up this way, right? Every SaaS company of, with very small exceptions, HubSpot, monday.com, there's a handful of them, except for very few SaaS companies, no difference to the salesperson's performance. It's seen as a failure of customer success. Other people get blamed for it. Sales rep, no change in their comp work or their success. ew SaaS companies, no difference to the salesperson's performance. It's seen as a failure of customer success. Other people get blamed for it. Sales rep, no change in their comp work or their success. Meanwhile, sales rep B who closed fewer deals, 12 of them. Let's say all 12 renew, and not only do all 12 renew, but let's say that three of them actually are so happy with the product and service that they're willing to be featured on your website as the folks that you advertise. Let's say six of them are actually willing to be references. So they help you close even more business by getting on the phone with prospective customers and are willing to actually advocate for your product. Let's say that not only do they renew, but four of them actually upsell because they're so happy they end up spending more and they sign multi-year contracts and whatnot. How much did that affect sales rep B's performance? Do we go back and revise and say, "Well, wait a minute. Actually sales rep B's customers were way better and actually we should probably have rewarded sales rep B because they actually had done the homework of finding the right clients instead of just shoving product down people's throats." No, none of that happens. Again, that kind of made sense up until six months ago, but it makes no sense today. So sales comp plans are stuck in the stone ages. They're stuck in the world of Glengarry Glen Ross, Boiler Room, Wolf of Wall Street, get the dollar in through the door, Matthew McConaughey [inaudible 00:30:45]. That's where sales comp plans are. What we haven't done is built a modern technical sales compensation plan that actually aligns the needs and incentives of the business, the customer and the rep. So I think that for a while there, I mean, I've been writing and talking about this for years, for a while there it fell on a lot of deaf ears because no one cared. People care now because all of a sudden for the first time, all of the things that we're talking about around retention and renewal rates and stuff are coming up. So I would say that my general advice to companies is to say what are the metrics that matter and ensuring that those metrics are the ones that your sales team is rewarded for. I also call into question the notion that your sales team should have a 50-50 split on compensation. By the way, that doesn't just extend to the sales team. That's often how the VP of sales is compensated. So your executive, your chief revenue officer, your VP of sales who sits at the same table as your CMO and your CFO and your COO, that person also has a 50-50 split in most cases. Sometimes it's 60-40, but it's very rarely 90-10, which is what it is for almost every other executive on your team. So salespeople get labeled as coin operated and mercenaries and all these other adages because the way we compensate them, the way we treat them, the way we measure them is in a mercenary sort of way. Again, I would call on founders and VCs and executives to rethink that and to instead come up with compensation that aligns the incentives, again, of the customer, the business and the rep and the leader. n, I would call on founders and VCs and executives to rethink that and to instead come up with compensation that aligns the incentives, again, of the customer, the business and the rep and the leader. So I think that setting up a longer horizon where if the customer you sign up today ends up renewing tomorrow, the rep should get a kicker on it. We should look at what the overall renewal rate is of the sales rep comparing it of course to the renewal of the rest of the business. If one rep is doing a better job of qualifying the right customers upfront, they should be rewarded for that. So things like that I think are missing from sales compensation and I'm excited to see them come to the front this year.…

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