Background: The celebrated American writer Ralph Waldo Emerson once said, “Build a better mousetrap, and the world will beat a path to your door.” Emerson’s quote has surely inspired entrepreneurs the world over to build great products. But when it comes to building a successful SaaS company, Emerson was only half right.
Ask any SaaS entrepreneur, in particular one who has banged their head against the wall, wondering why customers won’t buy, and they will tell you: building a great product is only half of the equation. You can have the best SaaS product in the world, but it doesn’t matter if you can’t sell it. Most customers won’t beat a path to your door. Great SaaS companies have sales operations that can scale.
So instead of listening to Emerson, we decided to consult a modern-day sales genius. Our aim was to learn more about how early-stage SaaS companies build great sales operations. We had the pleasure of interviewing Mark Roberge, former Chief Revenue Officer at HubSpot, who is currently a Senior Lecturer in Entrepreneurial Management at Harvard Business School.
As SVP of Worldwide Sales and Services at HubSpot, Roberge built a sales operation that grew the company from $0 to $100 million in sales. During this period, Roberge created a sales approach and methodology at HubSpot that emphasizes the use of data analytics to help companies optimize all aspects of their sales operations, in particular sales recruiting and sales team building.
This methodology helped HubSpot grow at an exponential rate, eventually going public in 2014 and currently trading at $2.6B. Roberge then laid out these concepts in his best-seller “The Sales Acceleration Formula: Using Data, Technology, and Inbound Selling to Go from $0 to $100 Million.”
One of the most compelling qualities that Mark brings to the table is his background as an engineer, which enables him to apply elements of systems design and process optimization to sales. Importantly, his methodology questions accepted assumptions about the qualities that define great salespeople, as well as how and when software companies should scale their sales operation
In our interview with Mark, we aimed to delve deeper into the concept of the sales acceleration formula, specifically focusing on how companies can customize their own formula that takes into account the unique aspects of a company’s product, market, and sales model.
Please enjoy the interview transcript, and then take a look at our key learnings from the interview.
Interview with Mark Roberge (MR):
Q: Thank you for joining us today, Mark. We’re excited to interview you and hear the advice that you have for early-stage SaaS founders.
Let’s start where by focusing on where SaaS founders go wrong. What are the biggest sales mistakes that you see SaaS founders make in the early days of building a business?
MR: The first and biggest mistake I see is premature growth, which is focusing on growth before a company has found customer success. I recommend that founders use a three-phase framework when building their company. The first stage is customer success, the second stage is unit economics, and the third stage is growth. I see many entrepreneurs moving to the growth stage even before they have found true customer success, and also before they have proven that the unit economics work.
Many companies make the mistake of assuming that if customers are buying, they have reached product-market fit. But are customers benefiting from the product? Is the value proposition being realized? Few organizations reach true product-market fit at the beginning.
Here is an interesting question to consider. As an early stage SaaS startup, would you prefer to have a $10 million revenue business with 70% retention, or a $1 million revenue business with 100% retention? You’d rather have the $1 million revenue business with 100% retention. Why? Because that business can grow profitably. The business with 70% retention will require large investments to continue its growth, because of the high churn rate in the customer base.
In the first phase, companies should not worry about growth or scaling. They should focus on customer happiness. When you bring on the first 10 customers, at least 8 of them should be saying, “This is an awesome product. Please don’t take this away from me.”
Q: You described the customer success phase — can we dig in deeper on that? What are the leading indicators of product success? How do you know when you’ve reached it?
MR: This varies depending on the company, but one of the best metrics I have seen is weekly active usage of the product. That is, how frequently does a customer use the product on a weekly basis? You need to see behavior from the customer that is correlated with the value they’re getting from the product, and you can see that by tracking frequency of usage.
At HubSpot, the metric that best predicted customer success for us was usage of product features. We realized that if customers were using more than 5 features in our product by their first-year anniversary with us, we were realizing the value proposition for them.
What you are doing in the first phase is adjusting the customer success lens. There is no one single data point that is predictive of success entirely. That’s why the cohort analysis is tremendously valuable. Once you develop your initial hypotheses on the key indicators, you can set up weekly or monthly cohorts to see if the percentages are going up or down, and to decide if you’re ready to move to the next phase. The more frequently you assess the cohorts, the better.
Q: What if you’re not seeing the right trends in the customer success metrics?
MR: Then you need to go back and fix it. If you try to move to the next phase without getting customer success right, you’re setting yourself up for failure.
Q: What do you think is the most important thing that a SaaS startup should get right in terms of its sales process in the early days, before it begins to scale?
MR: If you are in the seed phase, the focus is product-market fit. Not massive selling. So I would recommend pushing off the sales hiring and focusing on metrics. For example, companies should do segment analyses to better understand the different types of customers they have. This will enable you to understand the best-performing segments. It will also help you to understand the maximum sales capacity that a segment can support, and enable you to run experiments on other segments to ensure they can be fixed.
The next step is proving customer success. Customer metrics at this point include payback period, LTV/CAC ratio, and magic number. Sales and marketing metrics include lead conversion rate and average productivity per sales rep. Customer metrics include average revenue per customer. If these metrics are tracking well, then you can build the sales playbook.
Q: How do you build the sales playbook?
MR: The biggest mistake companies make in building a sales playbook is to build it from inside out. Selling from the inside out looks like this: the company theorizes about what a customer wants, puts together a nice sales presentation, and goes out to try to sell the product. This type of selling is becoming extinct.
The sales playbook should be built from the outside in. This means that you need to start with the value proposition. Selling is about telling a story about a product that makes the most sense to the customers. You need to build a sales process that supports the buyer journey. What are the problems they are telling you they have? Which words do they use? What are the product options they can choose from? Where do you fall? Who is involved in the decision? Mostly importantly, figure out where the buyers are in this journey.
Then set up rapid daily film reviews to review the sales playbook. Every night at 5 pm, we’ll sit down and review a recorded sales call. And we’ll ask the following questions: Is our playbook optimal for this buyer journey? Is it unique to this buyer, or is it representative for a larger set of buyers?
As you do more of these film reviews, you can determine if there are ways to improve the playbook that will result in higher payback and increased productivity per salesperson. Doing this will translate into better sales.
Q: So how do you create the buyer journey?
MR: This will differ by category of business and by functional role. Start with the questions: Who is the right decision maker at the customer? Who is the right person to sell to? The buyer journey starts to evolve as you answer these questions. For example, there could be a committee of decision makers. Each decision maker cares about different things. In this case, there should be a slide for each person on that decision committee.
Q: What are your recommendations for a SaaS company hiring salespeople in the early days?
MR: You do not want to hire the salesperson who is just money hungry. That person shouldn’t be saying, “Give me the playbook and I’ll crush it.” This person is going to be destructive at the first two phases of customer success and unit economics. This person will not be able to assess the buyer journey.
The best salesperson to hire is a hybrid between a sales person and product manager. This is because it’s more about discovery in the early days.
When you get to the third phase, the growth phase, the sales context becomes very important. Every company has a different sales context. A salesperson that works for one company won’t work for another company. So you should study companies with similar sales context, and see what types of people they hire. Also, put together 10 or so categories of what you need to see from a salesperson, and be very prescriptive about what these criteria are.
Then make the hires, and watch them progress. When you have a high-performing salesperson, ask the question, What is it about her? Why is she doing great? Are her best qualities in our hiring criteria? Why is Dave struggling? Are we weighing his weaknesses correctly?
Next, it’s about building the blueprint for your hiring managers. Keep the hiring formula simple, because it may change as the market dynamics change. Contextual change will affect the hiring formula. Your team will become more specialized as the team grows.
Q: If a SaaS company is pursuing a vertical strategy (for example, selling into real estate or financial services), how important is it to have salespeople with experience selling into that vertical?
MR: I would suggest being careful with hiring based on a candidate’s vertical experience. Be careful with overweighting it. Vertical experience is easy to see, but it doesn’t necessarily track to sales performance.
Q: How long should it take for a new SaaS sales hire to get productive?
MR: It usually takes 3 to 6 months. But instead of fixing a specific period, you should always go back and evaluate the data, and see what it’s telling you. It could be longer or shorter than this.
Q: When is the right time to hire a VP of Sales as a SaaS company?
MR: This is another huge mistake that founders make. They say to themselves, “We’re now at a stage where we need a professional sales manager. We need to hire a VP of Sales from a huge company with a great resume”. That may work but it usually doesn’t. It takes a particular style on the part of the sales manager. Many VP of Sales candidates never worked for an early-stage company, yet they think they have figured out the magic formula. But they haven’t.
For the first sales leader, it is important that they can adapt to a new context and innovate.
Q: Thank you so much for your time today Mark. As we complete this interview session here, do you have any further suggestions to SaaS founders?
MR: One last thing to remember is to match demand generation to sales hiring. Founders should keep customer demand in mind. They should look at the business through the lenses of both inbound demand and outbound demand. There may be different sales models such as SDRs and AEs. As you double the sales team, unless you double each area of demand generation in proportion, you will have different levels of demand.
· Building a SaaS sales strategy is multi-step process, and you can’t skip any steps: Roberge emphasizes that there are three phases to building a sales strategy: a) customer success; b) unit economics; and c) growth. Each phase is distinct. In the customer success phase, Roberge emphasizes customer happiness and delight. The customer should be demanding the product, and the startup should have a sales playbook that enables it to repeatedly identify ways to delight the customer. In the unit economics phase, the startup establishes whether the business model works, in particular that the product can be sold profitably.
Finally, in the growth phase, the business is ready to scale. Skipping the first two steps is an easy trap to fall into, and it is dangerous. It can lead to significant wasted resources in selling a product that customers don’t want.
· The sales playbook should be built from outside in: The right way to build a sales playbook is to start with value proposition and build from the outside in, listening to the customer and and learning through consistent “film reviews”, optimizing for the buyer journey. This is the opposite of the “inside out” approach that many companies take.
· Don’t be beguiled by flashy resumes or industry experience when hiring salespeople: When hiring salespeople, looks can be deceiving. Roberge emphasizes that too much experience can actually be a detriment. This may result from a salesperson assuming that he/she has the magic formula, without taking time to analyze the unique buyer journey for a product. It may also result from a “coin-operated” salesperson chasing quick sales, without demonstrating the product management and customer success qualities required to ensure a satisfied customer. SaaS founders should be careful to assess sales hires based on what they may do in the future, rather than what they claim to have done in the best.
· Slow and steady wins the race: Although extremely fast-growing SaaS companies may sometimes capture the headlines, Roberge cautions against the “grow at all costs” approach. His contrasting a $10 million revenue company with 70% revenue retention with a $1 million revenue company with 100% retention puts this idea in sharp relief. The 70% retention business may have reached scale quickly, but it likely did so by consuming a sizeable amount of cash. The 100% retention business has put the foundation in place for profitable growth, and its use of cash will be much more efficient. SaaS founders should focus on putting the right building blocks in place during the customer success and unit economics phase, to prepare themselves for the right type of growth down the line.
 Venture investors often refer to companies with high revenue churn as having a leaky bucket. Sales and marketing spend is continually required fill up the bucket, due to the constant revenue churn.
 Magic number is defined as follows: [Change in Subscription Revenue between Two Quarters] * 4 / [Sales and Marketing Spend for the earliest of the two Quarters]. This metric effectively calculates the annualized increase in subscription revenue resulting from a dollar of sales and marketing spend, and reflects the sales and marketing efficiency of a SaaS startup. If this figure is greater than one, the SaaS startup is being efficient with its sales and marketing spend, and should increase spending. Please refer to “Magic Number Math” by Scale Venture Partners for a detailed analysis of the metric.