Mark Roberge: The Framework for How Startups Should Scale into the Enterprise -Stage 2 Capital|E1176
12 Jul 2024 (2 months ago)
Intro
- Mark Roberge was a consultant for HubSpot when it had only a few employees.
- He eventually joined HubSpot as the fourth employee.
- He gained valuable skills in identifying and building champions, understanding political dynamics, and dealing with procurement and legal issues.
Entering the World of Sales
- Mark Roberge's entry into sales was accidental.
- He was torn between marketing and sales but chose sales because it offered higher earning potential.
- He joined HubSpot as a consultant and eventually transitioned into a sales role.
- Selling marketing software at HubSpot allowed him to learn about both sales and marketing.
HubSpot's Early Days: Customers & Funding Status
- HubSpot had acquired around 40 customers and had a revenue of approximately $200,000.
- Brian Halligan, the co-founder and CEO of HubSpot, recruited Mark Roberge as a consultant to help with the company's growth.
- After a few months of working as a consultant, Roberge was offered a full-time position as HubSpot's first salesperson and sales leader.
- HubSpot was preparing to raise $5 million in funding from General Catalyst.
- HubSpot's early sales strategy focused on inbound marketing and content creation to attract customers.
- The company offered a free version of its software to generate leads and then upsell customers to paid plans.
- HubSpot also relied on word-of-mouth marketing and customer referrals to grow its business.
- HubSpot's sales process was designed to be consultative and educational, rather than pushy or aggressive.
- Salespeople were trained to understand the customer's needs and pain points and then offer solutions that addressed those issues.
- HubSpot also emphasized the importance of building relationships with customers and providing excellent customer service.
- HubSpot tracked a variety of sales metrics, including lead generation, conversion rates, and customer lifetime value.
- The company also used customer feedback and satisfaction surveys to measure the effectiveness of its sales efforts.
- HubSpot's sales metrics helped the company to identify areas for improvement and make data-driven decisions about its sales strategy.
Transition Tips for Founders Moving to Team-Led Sales
- Founders often struggle transitioning from founder-led sales to team-led sales.
- Founders tend to prioritize experience in selling a similar product to a similar customer when hiring salespeople, which research shows does not correlate with success.
- Founders need to learn how to assess sales skills in potential hires, which is challenging and requires expertise.
- Founders should seek advice from experienced advisors who have hired salespeople in the relevant domain.
- Founders may not be able to create a comprehensive sales playbook on their own, but they can contribute to key elements.
- Founders should work on defining the buyer journey, ideal customer profile, and general value proposition.
- A professional salesperson can then take the playbook and add details and strategies for cold calling, appointments, discovery calls, tailoring pitches, handling objections, and negotiations.
First Sales Hire: Prioritizing Deal Size or Customer Category Experience
- When hiring the first salesperson, prioritizing deal size over customer category experience is more important.
- A candidate with experience selling million-dollar deals to hospitals has the necessary skills to sell million-dollar deals to banks, such as identifying and building champions, understanding political dynamics, and dealing with procurement and legal.
- A candidate with experience selling $10,000 deals to banks lacks these skills and would require more training.
Essential Questions for Hiring Sales Reps
- Assess candidates' ability to ask open-ended questions, follow-up questions, and qualify and quantify needs during role-play scenarios.
- Look for coachability and self-awareness in candidates.
- Provide positive feedback and areas for improvement after each interview.
- Observe how candidates respond to coaching and if they can improve upon repeating the role-play.
- Consider the time it takes for some candidates to show improvement and assess their progress over time.
- Evaluate the manager's diagnosis, coaching methods, and the candidate's response to coaching.
- Be cautious of candidates who are overly obsessed with titles, as it may indicate ego issues and a poor fit for the company culture.
- Giving away VP of sales or head of sales titles too early is not necessarily a problem if it attracts exceptional candidates.
- Assess candidates' performance over time and adjust their titles accordingly.
Designing Sales Incentives for New Teams
- When hiring a sales team, avoid using the sales compensation model from their previous company as it may not align with your startup's goals.
- During the journey to product-market fit, offer a flat salary plus equity instead of a commission-based plan to attract reps who enjoy the design journey and are not solely focused on short-term sales.
- Once you achieve product-market fit, align your sales compensation plan with your strategic objectives, such as paying reps a percentage of the deal when the customer pays and another percentage when they hit a leading indicator of retention within the first 30 days.
- Avoid common mistakes like putting most of the commission on the first ACV from the customer and having little to no commission on expansion, as this can conflict with the buyer's desire to start small and expand later.
Scaling Pricing Strategies for PLG Products
- Salespeople are compensated based on a percentage of the first ACV (3%) and expansion revenue (5%).
- This incentivizes salespeople to sign up customers with a small ACV and expand them later.
- CSMs are responsible for onboarding and expanding customers, and have their own compensation structure.
Optimal Price Point for Introducing a Sales Team
- The biggest problem seen in portfolio companies is sales growth with PLG pricing that doesn't expand.
- Traditional large sales teams selling low ACVs often fail to expand revenue as expected.
- The decision of when to introduce a sales team depends on unit economics, specifically the payback period (CAC / ACV).
- A payback period of 12 months is considered ideal, but anything below that is good.
- ACV is only one part of the equation, CAC is also crucial and varies widely for outbound sales teams.
- The optimal price point for introducing a sales team depends on the specific business and its unit economics.
Evaluating Payback Periods
- Payback periods are important metrics for investors to evaluate startups.
- At the IPO, a payback period of less than 12 months is excellent, 12 to 15 months is good, 15 to 20 months is concerning, and above 20 months is a problem.
- At the Series A, a payback period of less than 12 months may indicate that the startup is being too efficient and could potentially grow faster.
- A payback period of 12 to 15 months is really good, 15 to 20 months is fine, and above 20 months is concerning.
- There is more flexibility in payback periods at the Series A stage because there is potential for improvement with scale and opportunities for low-hanging fruit.
- Founders should include the entire sales and marketing alignment in their CAC calculation to truly understand their actual payback.
- At the Series A stage, if the founders are selling well, a part of their salary should be attributed to CAC.
- General networking events that lead to leads should also be included in CAC.
- CAC should include all spending on marketing, salespeople, sales leadership, and sales operations.
Analyzing LTV in Early-Stage Companies with Limited Data
- LTV is important for early-stage companies, but it can be difficult to measure accurately due to limited data.
- One way to measure LTV is to divide the ACV by the churn rate, but this requires making assumptions about the churn rate over a long period of time.
- HubSpot's early churn rate was reported to be between 3% and 8%, which is high even for SMBs.
- Investing in companies that serve SMBs can be a good starting point, but it's important to have a healthy up-expansion motion and a strong expansion mechanism to make the business viable.
- PLG is well-suited for SMBs because most starting ACVs are zero and revenue comes from expansion.
Gross vs. Net Revenue Retention
- Net revenue retention is more important than gross revenue retention.
- A net revenue retention of 120% means a company will grow by 20% annually without acquiring new customers.
- A net revenue retention of 90% with 30% expansion or 50% customer retention with 70% revenue expansion both result in 20% annual growth.
- Having 50% customer retention with 70% expansion means half of the potential customers are not finding value in the product.
- Net revenue retention is more important for companies with a clear target customer base.
- A net revenue retention of 120% is good for startups, but companies need to aim for above 100% to avoid relying on new customers for growth.
- At a billion in revenue, a 90% net revenue retention requires $100 million in new contracts and $200 million for 10% growth, while a 110% net revenue retention allows 10% growth without new sales.
Advising SaaS Founders on Scaling to Enterprise
- Scaling into the Enterprise with less than a couple million in revenue is rare, except in cases like SpaceX.
- Going into the Enterprise too early can be a trap, as it takes a long time to secure a large logo and their requirements differ from SMBs.
- It's better to focus on finding product-market fit before scaling into the Enterprise.
- Enterprises can distort strategy and product roadmap before a company is ready.
- Being pulled into the Enterprise by demand is a better indicator of readiness than proactively pursuing them.
- Accepting a large Enterprise customer too early can disrupt the company's focus, product roadmap, and sales strategy.
- Startups should have a framework for scaling into the enterprise and not rely on lucky inbound deals as a primary sales strategy.
The Impact of Large Logos & Social Validity
- Large logos and social validity can help a little, but not as much as people think.
- Founders should be specific about their Ideal Customer Profile (ICP) and focus on quality over quantity when acquiring customers.
- Use a green-yellow-red system to categorize potential customers based on fit and conviction.
- HubSpot's inbound to outbound ratio was 100% for the first two or three years.
- Over time, HubSpot's inbound to outbound ratio changed to 50% inbound, 30% channel, and 20% outbound.
- At brand scale, the lines between inbound and outbound marketing become blurry.
Common Mistakes Startups Make with Channel Partnerships
- Underestimating the effort required to mobilize a channel partner.
- Assuming that channel partners will be eager to sell a startup's product without significant incentives.
- Not understanding the channel partner's strategy and how the startup's product aligns with it.
- Failing to provide sufficient motivation (e.g., spiffs) for channel partner representatives to sell the startup's product.
- Salesforce.com became a channel partner for HubSpot after identifying a need for demand generation capabilities among its sales representatives.
- HubSpot was one of ten partners selected by Salesforce.com to receive quota relief, meaning that its sales representatives could count HubSpot sales towards their sales quotas.
- HubSpot was promoted to Salesforce.com's sales team during their sales kickoff, and a dedicated sales representative was assigned to the partnership.
- After a year, HubSpot was contributing 10% of HubSpot's revenue.