In my experience, at the $1 million ARR stage, most SaaS companies find themselves in one of two buckets. Either their sales organization is firing on all cylinders or falling apart at the seams.
You can guess what happens to the companies who have sales teams that are knocking it out of the park. Customer acquisition increases as they continue to execute strategies and tactics that they know work well and shed the ones that don’t. These teams don’t have it all figured out, but they know enough to deliver consistent sales results.
On the other hand, the companies who find themselves stumbling at this stage have to act fast. Getting to $1+ million in ARR is a significant achievement, but continued growth isn’t a given if there are severe cracks in the foundation. These teams tend to have stumbled into early success without being able to attribute it to anything in particular. Often, their revenue has come through the sheer muscle of a founder or a few early employees who accidentally happened to be good enough at sales.
To get and stay on a more reliable growth path, these organizations must start doing things that scale and fix what’s not working. Determining the cause isn’t always self-evident though. Startup founders in these companies tend to characterize their sales organizations with vague phrases like:
- “We’re just a mess, and I don’t know why.”
- “We never know how much is going to close so we can’t do forecasts.”
- “I am terrible at hiring and never pick the right salespeople.”
- “I’m not sure what we did to get here, but nothing feels like it’s working and sales are flat.”
By the time I sit down with a founder like this, they are usually flustered and inarticulate about precisely what’s going on. They aren’t sure what the problem is, but sales feels chaotic, unpredictable and stuck. I’ve been there, and I feel their pain.
At my previous company, I found myself accidentally at the helm of sales. The first couple of years were far more disorganized than they needed to be. I jumped from one initiative to the other, didn’t understand what to track and measure, didn’t have a defined sales process or methodology and made my fair share of big hiring mistakes.
Once we did get it dialed in, it was transformative. We jumped from a few million in ARR that came far too painfully to $5 million and then quickly to $10 million.
Ask these 11 questions to find issues in your sales org
If you are in this spot, getting to the root issues can be tricky as you sift through your history and baggage surrounding sales. Everything feels murky. However, I’ve found that asking these 11 simple questions can actually illuminate your issues pretty quickly. These are easy questions to answer, and you will come out the other side knowing where your sales organization gaps are.
- Do you use a repeatable recruiting process? A nascent sales leader usually has a hit or miss approach to hiring. A consistent process that takes every candidate through the same questions and interview stages helps you hire those who are most likely to succeed. Over time the process improves, and you get good at predictably hiring great salespeople.
- Are the majority of your sales hires a good fit? You won’t get every sales hire right, no one does. However, you need to hone the skills and instincts it takes to spot, hire, train and develop great salespeople. If this isn’t a strength of yours, get some help until you learn how to do it well.
- Is your rep turnover acceptable to you? It’s okay to lose the salespeople you don’t want to retain, but if your best salespeople don’t stick around, you will be treading water forever. Look to culture, compensation, and quota for clues as to why they are leaving and fix the issues fast.
- Do you have a positive sales culture that’s focused on learning, collaboration, and results? Sales culture may sound like the “soft,” unimportant stuff, but I find it to be the number one predictor of success.
- Do you use a sales playbook for rep onboarding, training, and development? You can informally train your first few reps, but as soon as you want to scale that will break down. A sales playbook captures your institutional knowledge and imparts it in a consistent way across the team.
- Does your sales team follow a defined sales process and methodology? So many new sales leaders think they have a process and methodology when they don’t. Define the steps for your sales process, including the buyer perspective, and how your team is to approach each stage. There is no way to track, measure and improve without a consistent approach that everyone follows.
- Do you follow a predictable cadence for team and individual meetings that includes coaching, deal strategy, feedback, and open dialogue? A lot of sales leadership issues can be solved by simply setting and following a regular cadence for productive, actionable team and individual meetings.
- Are your forecasts accurate? This is a tough nut to crack for even the most seasoned pros, but the accuracy of your projections says a lot about how methodical and effective your sales process is, and how accountable you are holding yourself and your salespeople.
- What percent of your reps hit quota? If everyone is hitting quota, then your quota may be too low. And if no one is hitting it, then it’s too high. Understanding how to set realistic quotas is an essential part of your sales management foundation.
- When you want to see data & analysis of your team’s activity and results, can you get that information easily? You can’t improve anything if you don’t measure it. Salespeople and sales leaders rely on metrics to track the heartbeat of the sales organization. You need the tools and resources to get to any number you need quickly, and to keep key sales metrics highly visible to everyone in the organization.
- What’s your sales efficiency? This is a number that most investors want to know, but few operators track. Sales efficiency (also called the SaaS magic number) can be calculated by taking current quarter new revenue annualized, divided by prior quarter sales & marketing expenses. For example, if you spend $2 on sales & marketing in Q3 and generate $2 of ARR in Q4, your ratio is 1. A number far below one can indicate very inefficient (untenable) sales & marketing, while a number far above 1 can show the company isn’t investing heavily enough in sales & marketing and that’s limiting growth.
Reflect on the questions, and answer honestly. Once you have a good handle on your gaps, of course, then it’s time to put your focus on fixing these issues so you can start to grow predictably. That may mean strengthening your areas of weakness, hiring or promoting skills to help you get there, or re-architecting the team. Everything starts with sales, and if it’s not firing on all cylinders in a predictable, scalable way, it’s going to be difficult to reach your growth targets.