There is a very prominent west coast tech company, selling a social media management system, making the classic case for sales monkeys vs. creative, innovative sales talent. And it is indeed instructive to watch.
What is a sales monkey in the enterprise software space?
Sales monkeys represent a well-known “sales model” delivered by transaction Sales VPs that focuses on hiring armies of reps, throwing them into the market, keeping the few who succeed, firing those who do not, destroying founder and early employee shareholder equity in the process.
He or she is someone who mindlessly sends scores of emails all day with “value props” to prospects one prays may take a face to face meeting. Sales monkeys are measured by brain dead transaction sales managers on how many phone calls they make, how many emails they send, how many face-to-face meetings they get.
These “metrics driven” transaction sales managers can measure activity, not value, not creativity, not imagination.
Sales monkeys spend more time in forecasting calls than in front of decision makers. Weekly.
They are not measured by how they think, they are measured by how much they spam.
They are “assigned” lists of accounts which change year to year, often quarter to quarter. They are given mindless scripts of “differentiators” they are expected to pitch to anyone who will listen.
They employ Marketo or Hubspot driven marketing (SPAM) machines to blast endless emails to anyone unfortunate enough to be caught in a DiscoverOrg database.
This social media management company has a sales turnover in its western region of over 100% in 2016 alone. It has almost 50% turnover in the central region in the last 9 months. It budgets for 40% turnover in the national sales force and deliberately over hires knowing most reps will be gone in less than 18 months.
Nationally, fewer than 15% make sales quota in a single year and fewer than 5% make quota 2 years in a row.
The Sales Monkey Model, populated by transaction Sales VPs, is ascending because there is a mad dash to a liquidity event required by venture backed companies. Thus, forget expenses, paid for in founder dilution, and blow out top line revenue hoping someone will buy the company before the expenses and dilution collapse it.
Venture heavy boards often take the position that if only 15% of the sales force is making quota, the solution is more reps. Of course! Two times failure equals success.
The liquidity event must be achieved at all costs. And the costs are dear. Or one could say they are dear if one misses the event window or the market changes, as it did recently for the unicorn sector.
The focus on the liquidity event comes because the investment company knows it will invest in 10 firms and only one or two will pay back the investment losses in the others. So start pumping steroids into the sales force because top line growth equals success and success gets the liquidity event and that event gets the golden ring.
Except when it doesn’t.
Over the last couple of years, the industry “unicorns” have taken valuation haircuts from 50% to 70%. Many of these companies pumped the sales steroids into their monkeys, accepted the massive turnover, had to do endless financing rounds to the point where their valuation collapsed.
The market’s short term institutional memory kicked in and the good sales reps learned what a toxic place these places were to work, managers counting your emails not measuring the length of pipelines.
Good reps bailed and less talented sales monkeys lined up at the door—knowing they had a nice gig for 6 to 12 months while they found a real job.
Dilution set in. Every round, 40% or more equity disappeared into funding more sales monkeydom with its 40% or more turnover.
If there were a rush to a liquidity event at the beginning, it grew to a panic after the last round.
A well-known Seattle unicorn in the enterprise space, after its D round and bank loans, still found itself losing $9 million a quarter while its sales grew 20%. Despite 60% of all revenue being plowed back into marketing and sales, it could not get close to a profit. A down round was the only alternative—except, wait, do a liquidity event!
So it did an IPO. The IPO delivered another $100 million and lots of press but it also made this unicorn’s financials public. And they are ugly financials.
Now, with losses of $8-$9 million a quarter, the death watch begins. How many quarters until this company collapses? While it would likely want to do another IPO, that is not yet something the financial wizards have figured a way to do. So today, the employee stockholders, locked into a 6-month holding period, just wait and pray they can sell their stock before the roof collapses.
So hiring sales monkey armies does get top line revenue growing and if a firm can get a fast liquidity event before the costs eat it alive, the model works. Then, so too does a Ponzi scheme if you get out early.
But hiring transaction sales monkey armies starts a cancer.
That cancer is the inherent dilution cost of constant turnover. Turnover means new reps need to be hired. Headhunters must be paid. Startup costs for every rep mean months of non-productive time while he or she learns the territory and product.
Good reps leave and tell peers to stay away. Weak reps need massive marketing infrastructures because they cannot operate without constant leads flowing from automated marketing SPAM machines.
20% top line growth is just not enough. Nor is 30%. The only solution is the liquidity event that happens early. If it doesn’t the cancer catches up and gets you.
Smart founders with disruptive companies are bypassing early private equity (dilution) and getting their first customers the old fashioned way.
They are selling their way to revenue. They are hiring “sales partners” who forego base salaries for lots of equity—and they leverage that risk reward equation. Or they are selling via a trusted advisor network with short sales cycles and costs of sales and marketing around 20%.
What a thought!
ContingencySales.com brings disruptive technologies to market without dilutive venture capital. We have portfolio companies in fraud detection, data-in-use security, social engagement, similarity search and Cloud-Sliver technology.