When to Hire That First Sales Rep

When To Hire a First Sales Rep

Many startup founders will sell their company’s very first deals. During this phase, often called “founder selling,” no sales reps are involved. The advantages to founder selling include cost, speed and learning.

Yet, to grow into a big business, startups eventually need to scale their sales efforts. B2B startup success stories like Slack, Zoom and Salesforce have hundreds of sales reps distributing product and generating revenue. These reps create scale. They allow the business to multiply.

Many startups stutter when transitioning from founder to rep selling. It is a tricky endeavor, in which making the wrong hire at the wrong time can set a company back. There is the obvious risk of cost. Sales reps are premium resources, and it can take several quarters to realize that a rep is not going to work out. More significant are the opportunity costs of missing a sales plan, which can gravely affect a cash-out date, team morale or most importantly, a funding valuation. After all, companies that generate lots of revenue are more valuable to investors than ones that do not.

This begs the question, when should a startup hire their first sales rep? Fortunately, there are some clear indications as to when the right time hits.

New Logos Start Looking the Same

At the beginning of a startup’s life, a founder is often trying to uncover who their ideal customers are. Often this takes some experimentation. The very first customers a founder signs might look quite different from one another, because the startup does not yet know who the “right” customer is.

It is very hard to scale this type of selling. If each customer looks different, they may require different messaging, different demos, different pricing… The list goes on. A founder is well-suited to handle this, but they would be putting a sales rep in a difficult position by asking them to tackle this messy, relatively unscalable selling.

However, once patterns start to emerge within the customer roster, things change. The startup is gaining a clearer picture of the ideal customer profile. At this point, the selling motion begins to stabilize. The sales deck stops changing meeting to meeting. The pricing solidifies. A new person, a sales rep, could be trained how to sell this product to a specific customer. This is a big step forward in the life of a startup, and a major indication that a sales rep could be successful.

The Pipeline Is Bursting

Another sign that a startup is ready to hire their first sales rep is when they have the pipeline to support it. Many first sales hires fail not because they lack the sales skills to close deals, but because they lack enough qualified opportunities to be successful.

Some startups will rely on sales reps to both generate opportunities and close deals. While there are some examples of this working, it is generally not a good idea to rely solely on a rep to generate their own pipeline. A general rule of thumb for startups is to expect a sales rep to source 20 to 30% of their own pipeline, with the remaining pipeline coming from other sources (like marketing, business development reps, etc.).

As such, a good sign that a startup is ready to hire a sales rep is when they have the pipeline to support one. Generally speaking, startups should work to stuff the funnel so much that it creates a burden on the selling founder. When a founder becomes inundated with new sales opportunities, they should consider hiring their first rep.

Quota Is Going Up and to the Right

The final indication is related to planning. So many startups are misaligned between their revenue targets and their selling capacity. For example, if a founder expects revenue to go from $500 thousand to $2 million over the next four quarters, yet they have no sales reps, it’s unlikely they will hit that number. They would have to be an absolute selling all-star to manage a personal quota of $1.5 million amongst all their other founder priorities. Is it possible? In the right business with the right founder, probably. Is it likely? No way.

Let’s say a founder believes a mid-level sales rep could close $750,000 in revenue per year. Now the founder needs two reps if they want to transition to 100% rep selling. Plan accordingly.

It should be clear; the revenue plan alone is not a reason to hire a rep. Without a somewhat clear customer profile and some pipeline traction, it’s unlikely a rep will be successful. So, founders should be realistic about the revenue plan given other factors in the business.

With that in mind, sales capacity beyond a founder’s individual selling capabilities is another important indication that it’s time to hire the first sales rep.

Plan Ahead

It often takes a quarter (sometimes two quarters) before a rep can be expected to hit full quota. This creates some complexity in the decision of when to hire a rep, because a savvy founder needs to plan to hire the rep two to three months before they are actually needed.

Founders should look for signs that the customer profile is coming into focus, that pipeline investments are ramping up, and that the revenue plan is increasing, rather than wait for those things to fully come to fruition.

Finally, if given the choice between hiring too early or too late, it is best to be early. Finding the right rep almost always takes longer than expected.

Hiring the first sales rep is challenging and scary, but embrace this important milestone and keep pushing.

Author

  • Egan Montgomery

    Egan Montgomery is the director of Go-to-Market at High Alpha, a venture studio based in Indianapolis that has raised over $260 million across three funds and three studios, launched over 30 companies, and invested in 60 world-class founders.

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