In the dynamic world of growth companies, the art of hiring can dictate the trajectory of your business. Drawing on lessons from my collaboration with Doug Tatum when I started Chief Outsiders and insights from Geoff Smart and Randy Street, this blog delves into the critical importance of selecting the right sales personnel and the economic ramifications of hiring missteps.
Three Red Flags Indicating a Mis-Hire for VP of Sales
- Lack of Strategic Insight: By the fourth month, a competent VP of Sales should be able to articulate a clear pattern or theory that guides the sales strategy. A failure to do so suggests a lack of understanding of the market dynamics or the company’s position within it.
- Neglecting the Installed Base: An effective VP of Sales recognizes the importance of understanding the company's existing customer base and sales processes. Not insisting on meeting with current clients or participating in ride-alongs within the initial three months is a missed opportunity to gauge the business's current standing and build on existing relationships.
- Immediate Pipeline Ownership: While taking charge is generally positive, a new VP of Sales who accepts ownership of the existing pipeline without first evaluating its quality or potential may lack the critical assessment skills necessary to prioritize and strategize for long-term growth.
Identifying these signs early can save your company from prolonged sales leadership misalignment and the associated costs .
Quantifying the Cost of Mis-Hires
Hiring the wrong individual for a sales position entails not just the direct salary loss but also considerable opportunity costs, including potential market share losses and relationship damages. You just lost at least one and half years of your life. You got nothing for the incremental dilution you experienced. You might have a credibility issue with investors (which impacts the next round's price). As we have shown you before in our case study "48 Million Reasons Why", getting it right can be worth a lot and getting it wrong can cost a lot.
Through strategic hiring, early identification of mis-hires and leadership acumen, companies can navigate the complex terrain of team expansion and leadership selection. Embracing these strategies is essential for unlocking growth and maximizing valuation, ensuring that your company not only survives but thrives in the competitive marketplace.
Insights from Doug Tatum's "No Man’s Land"
Doug Tatum’s exploration in "No Man’s Land" reveals another way of viewing the significant economic implications of expanding your team. Consider hiring your new VP of Sales. An average cost of $400,000 (base + guaranteed bonus) in 2024 is economically equivalent to borrowing approximately $1,640,079 at a 7% interest rate to be paid off in 5 years. Many of you will have to raise this via equity vs. debt and take further dilution; this emphasizes the significant financial commitment and underscores the importance of thorough analysis and strategic planning when making hiring decisions, especially in the context of optimizing business growth and preparing for a successful exit strategy as advocated by MOIC Partners.
"Who" by Geoff Smart & Randy Street: Identifying Effective Leaders
The insights from "Who" shed light on how to hire "A" players. As my partner Dave Levitt states, he hires 1 out of 75 sales leaders and bag carriers he interviews. WHAT? Can this be real? From the thorough research performed by Geoff Smart & Randy Street, the data is clear — most of us cannot hire "A" players. And we only get it right less than 50% of the time at best. They have developed a proven process for hiring correctly. We have developed our own proven process for B2B SaaS sales, but more about this later.
The book also revealed ground-breaking research about the types of CEOs that drive investor value. The distinction between "Lambs" and "Cheetahs" reveals a nuanced understanding of leadership effectiveness. Most boards hire Lambs due to their soft skills and being open to criticism. "Cheetahs," known for their quick decision-making and high standards, are the ones who invariably create significant investor value. In fact, their research of private equity backed companies found that Lambs were only successful in building significant shareholder value 57% of the time, whereas Cheetahs were successful 100% of the time. Read the research yourself in Chapter 6.
This revelation challenges conventional wisdom, suggesting that while emotional intelligence is crucial, it must be coupled with decisive action and a results-driven mindset to truly advance the company's objectives.
Key Takeaways for MOIC Partners Readers
1. Strategic Hiring: Understanding the capital cost of each employee can transform hiring practices, encouraging leaders to think critically about team expansion.
2. Mitigating Risks of Mis-Hires: Implementing a proven hiring methodology is critical to avoid the costly mistakes of adding culture debt and lowering performance.
3. Leadership Selection: Identifying and fostering "Cheetah"-like qualities in leaders can significantly enhance your company’s growth trajectory and market valuation.
In a rapidly evolving business landscape, these insights are more pertinent than ever. At MOIC Partners, we're here to guide you through strategic decision making processes, from nuanced hiring strategies to leadership development, ensuring your company not only grows, but thrives.
Let's embark on this journey together, crafting a future where your SaaS company achieves unparalleled success. Reach out to us at maximize@moicpartners.com.
