Sunday, April 29, 2007

Lesson #12 - Sell... don't be Sold

I have hired a lot of sales people in my history as an entrepreneur, and I can honestly say I am horrible at it (but I have learned a lot). I am hoping this blog may shed some light on the challenges of finding the right sales person.

I believe one of the most critical hires, and probably one of the biggest risks an entrepreneur has to make is the first sales person. I have seen ventures fly and die based on this one person. So here is my quick guide for Hiring a Sales Person.

1. Don't hire a manager - hire a sales animal. I have made this mistake one too many times. Here is why - I always hired a resume, and never a person that can execute the task I need done. Managers don't want to sell - they want to manage. They certainly don't want to cold call, do demos and get on a plane every week. Its hard to avoid this pitfall, because of the environment of a startup. You always want to have a solid "VP of Sales" on the business plan, and able to convince the investors that we can hit 10M in revenue in three years. You need to get out of this mindset - remember - don't follow their rules - focus on building a company. Who cares if your first sales person didn't work at IBM- if he is closing deals - you made the right choice.

2. Eat the dog food first - or you will end up hiring the wrong dog. I can tell you, that despite my inability to spot talent - I am actually a pretty good sales person. Not because I wanted to be when I was growing up - but because it is 90% of what an entrepreneur does and must do. I have been the first sales person of every venture I have founded, and it I can't tell you how important this is for multiple reasons. The first reason - you need to make sure you have something to sell. Timing is everything in hiring people - and hiring a sales person before the product is ready for prime time is just a waste of time and money. The second reason - you need to know what kind of sales person you need. Interacting with prospects will give you insight on who your customer is, what they want and what they know. If you are selling a product to tech guys at Fortune 500 companies - you need to consider this when you look for the right person to hire.

3. Check references - History is the great predictor of the Future. Call managers who they worked for and ask tough questions. What was their quota? What did they sell? Did they work alone? What was their commission? In my second company, my first sales person hire was a guy who sold ads for the local newspaper - and my partner thought I was crazy for hiring him because we were selling enterprise software for ERP systems. Not exactly the same. The reason I hired him was based on the conversations I had with his former manager. He said "This guy can sell... period." I knew it was going to be tough to train him - but what I learned was - it was a lot easier training a guy about a product, versus training a guy on how to sell. He ended up being a great sales person - sold millions of dollars of software - and is still doing it today (in a different tech company).

4. Hire someone Hungry (and preferably with a mountain of debt) - If a sales person has money, there isn't much incentive to hit the streets. If a sales person is paid a large base salary, there isn't much incentive to work for the commission. You need someone who wants to create wealth (primarily for themselves). If the person you are looking to hire drives up in a Mercedes for the interview - make sure its a lease. Sales is about success-based compensation. If a sales person pushes back on a compensation plan that has commission as a big component - then they are not a sales person.

5. Make the Interview a sales pitch - it really works. A colleague of mine, who happens to be a very successful entrepreneur, and much better at me in hiring great people - gave me this tidbit of advice. Make the interview a sales pitch. As an angel investor - I can't believe I didn't think of this as a manager (since I see hundreds of pitches by people who aren't qualified to be an entrepreneur). You will see immediately how the person handles pressure, the tough questions and is able to sell you (probably the toughest customer). If your product is a little too complex for the person to sell during his interview - make up a product that they can get up to speed on quickly. For example - the new IPOD, or maybe a new HP Printer. As long as they can do 2 hours of research on the web, and put together a powerpoint and cover the highlights of the product - it should be plenty to show you their strengths and weaknesses.

6. Give a personality test - you never know what you'll find. I have never done this for any employee - but one of my portfolio companies started doing this - and they seem to have gained from the experience. There are a few free services on the web that offer tests (like

7. Set Expectations and clear, measurable Goals - with a timeline. One reason why sales people sometimes don't perform in a startup environment is because their are no clear goals. Its hard to set quotas, when there is little or no sales history to base it on. And even if you setup quotas - you need to setup the critical steps that need to be taken to reach the quota. Make sure every task is sales related. Don't have the sales person waste time reviewing data sheets, or editing the website. They are there to sell - any distraction you give them will dominate their attention - because its an excuse not to pick up the phone and make calls.

8. Micro-manage. In the first 90 days of having a new sales person on the job - meet with them every morning - set the days agenda, and make sure the next day you go over the task list. This may sound over-whelming - but its the only way you will know this is the right person, and you need to figure this out in the first 90 days. On day 91, have a staff meeting, and get all feedback and make a tough decision - thumbs up or thumbs down.

9. Ask the hard questions - even if they are rhetorical. A startup environment can be very hectic - everything is changing, moving fast - and due to the chaotic nature of being in a small team - its natural that friendships form. This is a very dangerous aspect to being in a startup. Its tough being a "boss" to a friend, and it is especially tough putting them on the spot and asking the tough questions. This needs to be addressed up front. If there is mutual respect, and you work as a team - and no one is taking personal attacks - it will become a very natural part of running the business.

10. Feed the monster - invest in your sales person. If you believe you found the right person, and he passes the litmus test - its time to invest. The only thing that is worse then a lame-duck sales person, is a rain-maker with no marketing behind him. You need to feed the monster. Whatever it takes - telemarketing, email marketing, advertising, events, etc - find ways to get your superstar leads. So many companies spend all their money on R&D and the salary of the sales guy - and that's it. You absolutely need money for marketing - in fact - if you hired a sales person (which means your product is ready) - you need to be spending atleast 1-2x of the sales persons salary on marketing. So if you hired a guy for 5k per month base - you need to spend 5-10k in marketing per month.

I am sure I missed a few lessons that I have learned - but I tried to focus on "preventative" lessons that can make sure you get the right person, instead of focusing on "my sales guy is awful, what do I do now??"

And remember - don't be sold by your new hire on "the reasons" they can't sell - or they need more time, training, a better website, a new feature, etc.... They are selling you, and not selling your product.

Good luck - follow your gut.

Tuesday, April 17, 2007

Lesson #11 - Don't chase Money, and don't expect it either

As an active angel investor and having run an angel fund for a few years, I often am asked by entrepreneurs "How do I find investors?". Its a hard questions to answer, and even harder where I live in Florida - where venture capital is far and few between.

I have two answers - one optimistic and one a little pessimistic. But I think there needs to some levity to the answer, because raising capital is not easy, and in many cases even when you do raise capital it may be something you regret down the road. It is a classic case of "be careful of what you wish for - you may just get it".

My first answer is - a question. Before I can give you my opinion on how to raise capital - Answer the following:

Are you a scientist at a University? a successful Entrepreneur who has sold a previous venture? or a industry veteran who was a VP at a Fortune 5000 company?

If the answer is no, no and no. Then your chance for raising any institutional capital is less than 1%. If you do not live in Boston, New York or Silicon Valley - then your chance is less then .01%. I realize this is pessimistic - I am the last guy who wants to be a buzz kill for an entrepreneur - but I am trying to save the entrepreneur time and money - and convince them to focus on other paths.

The fact is - Venture Capitalists are bankers. They know the statistics, the know the variables, and they are in the business of reducing risk in their investments. One of the biggest risks in backing ventures is the founder/CEO - and if you do not fit the mold - its almost an immediate "No".

So, what is my second answer - Don't chase the money. Focus on building your business. Entrepreneurship and starting a company is not easy. If an entrepreneur is not prepared to sacrifice, invest their life savings and survive day-to-day on a string budget - then they probably should not be an entrepreneur. Many people I advise them to work for a startup that may have capital, learn the ropes and then go out on their own. Some people I talk to - are not necessarily convinced their idea is the next "billion" dollar idea - but just want to experience the life of an entrepreneur. You don't have to start the company in order to qualify as an entrepreneur. If there is a hunger for risk - there are multiple options. Join a VC -backed company looking for experienced talent - or join a larger company - and look for opportunity for spin-off opportunities.

If you are a hard-core entrepreneur, and you do believe your idea/company is the next big thing - then you need to take this advice to heart - DO NOT chase money. Focus on building your business, and the money will follow. Create value.

Don't spend your days working on a business plan, financial pro-formas based on "what if's", and building skin-deep partnerships with other companies. This is a complete waste of time. It doesn't build value - it distracts you from building a business.

Entrepreneur = Building a Business

Are business plans important - sure. Do you need one - maybe. I can tell you I have personally looked at 3,000+ business plans over the past few years - and I can't remember saying "wow, I really like this plan - I am going to invest". Realize - I am an Angel Investor and don't run a VC fund - but I don't think my thoughts are to different then that of a GP at a major firm. We all invest in companies that show traction - and have proven the model. We want to experience the business - not read about what it could be.

My thoughts apply to both Angel Capital and Venture Capital. The bottom line is - Venture Capital doesn't invest in concepts anyway - so the only hope for a startup to raise capital is through Angels.

So the obvious follow-up question is "what about Angels? or Friends/Family". Yes. you can raise money with a business plan. There are a lot if angel investors who will write checks - just because they like the idea and like your enthusiasm. But I think this is a dangerous process - for both you and the investor. First of all, you should always consider your investors money as if you were making the investment yourself. Second, you owe it to the investor and yourself to take the venture as far as you can until you are convinced your business will use the capital wisely and to grow - and not to "prove out some ideas".

To summarize - focus on your business. If you have something special it will attract attention, momentum and eventually money. Investment should not be in your business plan. If you want to write a business plan that makes an investor say "wow, I like this business plan" - it should show how you have grown the business with little or no capital, show consistent revenue and a financial plan that shows a valuable company in 12-24 months with no outside capital required.

Then, they will want to invest.