How And When To Start Hiring Salespeople

It seems as though the primary Catch-22 faced by entrepreneurs typically involves the wisdom and timing of hiring a salesperson (or two). Often startup companies are started by just a few diligent souls one of whom is CEO, another possibly in charge of operations and another (or sometimes one of the others doing double duty) is anointed the head of sales. If the company gains any traction at all in its market, that model will have shown that it works at least in the short run.

But, not far into its success, the startup likely confronts two issues in regards to sales. First, the head of sales probably doesn’t have the complete skill-set to be a world-beating salesperson. He or she developed some connections and made the initial sales to get things rolling. But, frankly, the personality profile likely to “damn the torpedoes” and join a couple of buddies to find the non-guaranteed next big thing is not likely the same personality profile that is going to be the world’s leading sales superstar.

The explanation for that is pretty simple. The best salespeople can be pretty good when the product they are selling is weak to average in the market space. But given something fantastic they will hit home runs all day long! Consequently, the top salespeople are always looking for a great product to sell. Your company may have developed it, but so long as it is in beta phase or still an infant in the market, the top salespeople will typically wait to jump on board. There are always things they sell successfully and they know that they are good enough that they can always come back to yours later. And someone who is a sales record setter somewhere else probably isn’t going to quit and walk away from the income to start over in your company.

Second, as the company grows, the initial head of sales will become preoccupied with other tasks and will be unable (sometimes by choice) to be as effective as he or she could be.

So the idea of beginning to hire salespeople springs to the fore.

Hiring salespeople seems like one of the simplest tasks a business could do! But in reality, it is the quite complex and very few startups get it right the first (or second) time.

What’s The Salesperson’s Motivation?

For about 100 years the key to motivating salespeople was simple: money. Conventional wisdom held that the top salespeople were the top earners. They were the ones who could sell the proverbial ice to Eskimos!

Today’s approach to motivating salespeople is more complete. An appropriate compensation program certainly is commission-focused. But it also contains elements of:

• Financial incentives,
• Non-financial rewards such as advancement opportunities,
• Training availability, and
• Equity in the book of business produced.

For a startup, this theoretical examination of sales might be fascinating. However the real question is how to structure a compensation program for salespeople that will produce exceptional results without bankrupting the company.

For that, you have options.

Straight Salary

In a straight salary design, your salespeople are paid the same amount regardless of their production. Of course, you should set minimum expectations which, if not met, result in termination. The straight salary method has benefits for both the employee/salesperson and the company. But on further examination, you will find that the benefits to the company are quite small and not at all worth the risk.

For the employee/salesperson, this plan provides fantastic security and predictability. So long as realistic minimums are met, the salesperson can be assured of a steady, unchanging paycheck week after week.

For the company the benefits are the simplicity of explanation, implementation and administration as the salesperson is treated just like any other employee for payroll, taxes, etc. Plus, the predictability lends itself to budgeting quite well. If each salesperson is compensated by $75,000 in salary and benefits, hiring 3 salespeople will cost the company $225,000.

The drawbacks to this design can be catastrophic. Much like what happens historically in communist and socialist economies, this plan will ultimately result in a lower overall sales rate (due to the lack of incentives). Salespeople will naturally migrate to the lowest, safe level of production and stay there. A comfort level will set in and new employees will quickly be indoctrinated by the others or face ostracism or other punishment by peers.

Straight Commission

The straight commission design, on the other hand, is very attractive to the company, and, believe it or not, to many of the best salespeople.

With the straight commission plan, the company offers no base salary (although it may pay a stipend during training or until commissions begin coming in). The employee receives nothing until he or she makes a sale.

Like the old adage, “one man’s trash is another man’s treasure,” salespeople look at straight commission plans from the optimistic standpoint or the pessimistic one.

Where one sees the danger in a wildly fluctuating compensation, another sees the opportunity. Where one sees a lack of formal support, the other sees freedom.

The salespeople most attracted by a straight commission program will generally be entrepreneurial, driven, risk-takers. In a word, superstars!

For the company, there are some drawbacks, mostly dealing with administration issues in ever-changing pay, taxes and benefits, and salespeople being reluctant to follow the company guidelines (I’ll do it my way. If it doesn’t work you don’t pay me so what do you care?), but there are clearly very significant benefits to the company as well.

The largest advantage, assuming little or no stipend or training costs up front, is that the company can add an infinite number of salespeople! After all, if they don’t produce, they don’t cost anything.

Another advantage is the obvious: the salespeople will always try to get bigger deals to make more money. Win for them. Win for the company.

A Hybrid Plan

Unfortunately for the startups that need great salespeople, the competition for those high-earner, straight commission-loving superstars is fierce. The likelihood of wooing one away from their current six- or seven-figure income is unlikely. So what are your options?

The startup strategy for hiring salespeople should encompass two parts. First, a compensation program that realistically allows for high earnings is crucial. It is imperative that you are able to model some plans in which the salesperson can make $100,000 or more in the not too distant future. Note that I am not saying everyone will, can or should make that. But it has to be a possibility and a realistic one at that for a hard worker.

I have had discussions with a couple of startups recently who are growing their sales forces. Both, independently, indicated a good salesperson for them will make about $50,000. The problem with that is you are going to be competing with other jobs for those people. Let me put it a slightly different way. A salesperson who is making $200,000 a year is not interested in a different job that pays $100,000 – unless he can really make more than $200,000 in it soon. Likewise, if you are offering $50,000 to the better/best salespeople, the people you will be attracting are making less than that now (probably waiting tables or selling at a kiosk in the mall). Those are not the ones you want!

The second piece of the strategy involves designing a contemperaneous program in which the salespeople are trained relentlessly to become better (ultimately, top) salespeople, along with some base pay until they get to that higher level.

Of course, this requires resources, both money for salary/base, and time, money and talent for the training. But hiring a decent salesperson and making them extraordinary is much better for your company that hiring a bunch of sub-standard producers.

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