When to hire a VP of Sales

As I mention in an earlier post, companies evolve and need different types of management with different profiles as they grow.  A clear kiss of death that I have seen more often than not is hiring a VP of Sales too early.  Here is the typical scenario - you just signed 3 or 4 customers in a couple of different verticals and you feel that all you need is some bodies on the street to grow your business.  On top of that, you figure that you want to hire the senior guy first so he can bring in his own troops.  Hiring a VP of Sales too early can cost you dearly.  Here are a few reasons why:

  1. VPs of Sales need to make their comp.  Typical salaries range from $150-200k plus performance equaling a total package of $300 to $350k.  Most VPs of Sales will try to get you to guarantee the first year or at least the first couple quarters of compensation to offset the risk of working at such an early company.
  2. All VPs need people to manage which means your VP of Sales will want to hire a bunch of reps to grow the business.  The experieced enterprise direct sales reps will cost you $80-100k base plus performance of up to $150-175k total comp.  Once again many of the best reps will want to get some guaranteed draw for at least a quarter or two to get started.

What ends up being a situation where you expect to bring on a performance-oriented sales team becomes one which many of your new hires get guaranteed comp for a couple quarters.  The burn rate added to your company almost doubles overnight with these heavyweight sales guys with no leads to go after and no mature product to sell.  In addition, over time the sales team will get frustrated if the product is not ready for primetime and they will be out looking for a new job in a couple of quarters making all of this effort a very expensive experiment.  Hiring a VP of Sales is not a commitment to hire one guy, it is a commitment to bring on a team, one that will not be cheap.  Before you make this commitment, make sure you are ready.  As you can read from an earlier post, when you ramp your sales efforts is critical.

Do more with less and be careful of ramping up sales until you have a repeatable selling model.  In other words do not hire too many sales people and send them on a wild goose chase until you have built the right product, honed the value proposition, identified a few target markets with pain, and can easily replicate the sales process and model from some of your customer wins.

Many of the best companies I have seen have taken the bootstrapped approach where the founders of the company act as the initial sales team to close a few deals, to learn about the customer, and further refine the product.  Yes, this can only last so long as everyday out of the office or with customers means another day not developing the product.  That being said, rather than hire a VP of Sales first, I would encourage you to focus on generating leads and hiring a sales rep or two to follow up on them.  This way you can take a smaller step to refine your sales model and product before going big.  Remember don't hire a VP of Sales to only have them hunting for dodo birds.

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This post was written by who has written 358 posts on BeyondVC.

13 Responses to “When to hire a VP of Sales”

  1. Matt Jul 6, 2006 at 10:55 am #

    Good post. Though having been both a VP of Sales (currently) and an enterprise sales rep, your top end is low for sales reps. An equally important additional piece of data would be sales quotas. Obviously, there needs to be a return on the individual sales persons efforts. It can’t be too high/unattainable, I’ve seen that too many times as a silver bullet from the CEO to improve top line, when often there are other issues at fault.

  2. Ed Sim Jul 6, 2006 at 11:06 am #

    Great points. Hiring a VP of Sales too early usually goes hand in hand with having an unattainable sales quota which means frustration for everyone involved.

  3. Matt Jul 6, 2006 at 11:21 am #

    I can, especially if sales forecasts and the resulting quota aren’t really based upon ‘real’ numbers. Real being a dangerous word, but building a forecast that isn’t quota multiplied by number of reps divided by 12 months = our monthly sales projections. A hybrid bottom up/top down is more appropriate such as we need to have this amount of monthly revenues, to do that an rep can make so many calls per day that yields so many meetings per week, and assuming (arbitrary) 30% of those meeting will result in a demo/POC, and from that 30% (arbitrary) will result in deals in the pipeline and assuming a 40% (arbitrary) close ratio means we need to have x number of sales people on staff. CEOs should also plan on a sales ramp and factor this into the forecast model as well. If you are selling anything new to the market, a different approach on an existing product, and are a startup, assume that won’t see much the first 6 months from an *experienced* rep. There’s a lot of learning that happens especially when the VP is new as well as the sales reps.

  4. PRoales Jul 6, 2006 at 11:23 am #

    What about a VP of Marketing? Or not even a VP but just having a guy dedicated to marketing full time at a startup?

  5. Matt Jul 6, 2006 at 11:25 am #

    Something got cut from my comment above… oh well. This is pretty basic stuff, but I don’t think most entrepreneurs build revenues like that, it’s more the “I need to have $500,000 the first year”. I used to be guilty of this sin as well…

  6. Matt Jul 6, 2006 at 11:28 am #

    A marketing guy.. it depends on the industry. IMHO. In some industries it may be a waste of money, and the VP of Sales would be better suited, but in others, it’s an absolute requirement. In most consumer related industries, you need to have one. In B2B technology industries, I’d say definitely not, a waste of capital.

  7. Ed Sim Jul 6, 2006 at 11:34 am #

    Agreed. Once again it is hard to build that level of sales forecasting detail when you do not have a repeatable selling model and are just in the discovery phase of what works and what does not. This is just a further example of the forethought necessary when thinking about bringing on that VP of Sales, making the investment to grow that team, and understanding what value and revenue that will ultimately yield for your investment. if you blow your wad too early, you may not have a second chance

  8. Howard Oliver Jul 10, 2006 at 7:59 am #

    Hi:

    We are retained by some of our clients to do aspects of the VP Sales and Marketing role – before the company can actually afford a full time person. It is a good investment. We do the PR, support trade shows, help with the marketing planning and coach/facilitate sales and business development.

    Our skill set is perfect for the role. We know how to sell and close, write and are up on all the new online tools.

  9. Bikram Kumar Gupta Jul 10, 2006 at 9:54 am #

    I saw this in the last company I worked for. Having jumped from my stable job to a start-up and pretty excited about it as well…when I landed there, I found Sales head (with team), Marketing Head (with team) ready, with the first release of the product planned 8-10 months ahead. But no Product manager…the requirements were defined and dictated by Engineering Architects.

    I left after 5 months. Their products was shipped 10 months later. The state of affairs changed one year after the release. upper Management (Engineering, sales, marketing) were laid off; because of no real business. I know that the product was good with a low-cost offer, though not separate from crowd.

    Your post gave the clear clue as to what went wrong.

  10. Dr. Phil Francis Aug 25, 2006 at 12:08 pm #

    We are a rapidly-growing IT company in the business of providing integrated Internet tools that enable companies manage their marketing, sales/service, operations, distribution, finance & client relationships,effectively. We are the leader in this new industry.

  11. Chaz Jun 15, 2007 at 10:01 am #

    any good articles or advice about when it is the right time to hire a VP of Sales? thx

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    Vice in Sales

    Ed Sim makes a lot of good points in his When to hire a VP of Sales. I would particularly like to comment on the following statement:
    In addition, over time the sales team will get frustrated if the product is not ready for primeti…

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