Category: Finance

My personal experience and more recently working with Fresco Capital’s startups has taught me that no matter how different each business and start-up process might be, nearly all new co-founders and CEOs eventually pose the same important, inevitable question: When do I hire a VP of Sales?

My response is always the same: When you really need one.

So, what does that mean?

Co-Founder and CEO Talent and Time Management

Most co-founders and early CEO’s prefer to focus their talent and energy on conceiving and building the new enterprise. The most successful CEOs come from backgrounds in finance and operations. Only 20% of Fortune 500 CEOs started out in Sales or Marketing.

Yet many company leaders also necessarily take on the crucial task of generating those early sales. While a CEO may excel at creating connections and relationships, few are sales experts and are typically overwhelmed with the task’s time commitment. So, during start-up and initial operations, when CEOs think in terms of building the company by building a stellar leadership team, they want to pass on those vital sales responsibilities as quickly as possible to a proven sales expert. After all, a good leader should hire other good leaders, right?

Not yet.

This Is Not The Time to Buy The Rolex

Although a new CEO and leadership team typically want to hire a proven VP of Sales from a very successful company, making a “Rolex” hire early in the company development — and paying Rolex prices for the talent — is not the answer. In fact, poaching an expert VP of Sales by offering a sizeable opportunity and compensation package is counterproductive.

Here’s why.

An extremely successful VP of Sales has become successful because they effectively manage a sales force. A new VP will want to replicate that success by building their new sales team and developing a sales process, complete with expensive sales automation tools. In the long term that is exactly what your company needs. In the short term, however, that is a potentially dangerous waste of resources for your new company during a crucial period. (Yes, I am saying that Google Sheets is a perfectly good CRM at this stage.)

While the VP of sales is putting together a team and developing long-term strategies, nobody is focusing on making actual sales. Lots of money going out, none coming in. The results can be disastrous. The VP of Sales and the team are either fired, quit, or the company runs out of money.

Build Your Sales Team from the Bottom Up

There is a much better option. Build your sales team from the bottom up.

It may feel counter-intuitive, but the bottom up process is more logical and practical for new companies. It makes much more sense to hire a junior salesperson – someone who will one day report to the VP you eventually hire.

The junior salesperson is expected to be out there making contacts and making sales, which is – at this point in time – what the company needs. Look for someone in the industry with knowledge and experience, demonstrated success, and capacity to learn.

I know that the CEO is eager to offload the sales process, but recognize you will need to spend time mentoring your new hire, and plan to give them at only 25% of the labor the first month or two. Don’t expect them to do all your sales work — understand that the CEO may still want — or need – to close these early, important deals and the new hire will only shadow the CEO for the first few weeks, growing into the role.

The point is that a co-Founder or CEO should be doing primarily what the CEO alone can do — especially in sales.

After the salesperson starts to take over more and more responsibility and sales start increasing, hire another junior salesperson and start slowly building your team. Most importantly, keep the team focused on generating sales. At this point, allow the team to start building a sales process and choose some tools that fit your environment.

Now You Need A VP of Sales

So, when do you hire the VP of Sales?

The answer is simple: Hire your VP of Sales when you’re generating enough sales for a VP to manage and your process is starting to strain at scale. That’s when you really need one.

That’s when it makes sense to hire a mega-talented VP of Sales with exactly the qualities and skills you need. That’s when you’re ready to recruit a proven, effective leader, someone qualified to create the big vision, continue building a sales force, make the strategic long-range plan, and facilitate the team’s success.

And that’s when you can afford to invest in the best VP of Sales you can find.

In the meanwhile, the “Bottom Up” strategy is a better short-term approach in terms of all primary company resources – money, staff, time- and it leads directly to stronger company success in the long term.

As venture capital investors, we are constantly looking for positive fat tails, companies that have the potential to generate extreme positive outcomes.

At the same time, not all fat tails are positive. There are negative fat tails. And as we look towards 2016 and beyond, it’s important to think about the risks. While there are many potential risks to consider, the following list of five fat tails focuses just on finance and economics because I don’t have the time to write a book this month.

To be clear, these are not predictions. In fact, the world may be better off if none of the following fat tails happen in 2016. But at least we should be prepared and resilient, just in case.
 

1. US dollar squeezes dramatically higher

 
If the US dollar rises steadily, that would not be a fat tail. But if it rallies sharply higher, that would fall into the category of fat tails. Why would that be negative? Historically, a strong US dollar is associated with tighter liquidity conditions globally. And so if we see a sharply stronger US dollar, that will be a clear warning sign of potential risks ahead. Currencies are typically the first financial markets to move. They lead bond markets, equity markets and private markets. As an early warning indicator, keep an eye on the US dollar. If it squeezes higher, get ready for more fat tails.
 

2. Unexpected rise in interest rates

 
The last interest rate increase by the Fed was in the summer of 2006. At that time, Facebook was only open to students, the iPhone had not launched and Tesla was an early stage startup. An entire generation of young people has grown up without understanding what happens when interest rates rise. An entire generation of old people has forgotten what happens when interest rates rise. It’s highly possible that we’ll finally find out in 2016. Historically, rising interest rates could not be called a fat tail event because this was a normal cyclical process. But if there is an unexpected rise in interest rates during 2016, it is best to approach this as a fat tail event because we really cannot predict how the results will play out.
 

3. Unicorn contagion

 
In every cycle, certain ideas capture the essence in a single word. In the current cycle, Aileen Lee’s concept of unicorns is that word. Now that some of these companies have started to show signs of being less than perfect, their connection as unicorns creates the risk of contagion within the group. More broadly, it’s still unclear what weakness within the group would mean for the broader startup and financial ecosystem. Perhaps nothing. Perhaps they are a leading indicator. At the very least, it’s worth keeping an eye on sentiment around unicorns.
 

4. Crowdfunding backlash

 
Crowdfunding is a transformational and positive idea overall. Like any transformational idea, markets have a habit of taking things too far. We’re now seeing new crowdfunding sites pop up weekly and some of the players are using very aggressive marketing tactics. There will inevitably be fraud, so the only question is the magnitude and the level of backlash. The fat tail event would be a larger than expected level of fraud, which would then lead to a strong backlash. This could impact both crowdfunding itself and also fintech generally. Compliance is already one of the fastest growing job in the finance sector. Unfortunately, a fat tail event in crowdfunding could accelerate this trend.
 

5. The Euro breaks up

 
Politically, it seems unthinkable. To be clear, this is not expected to happen in 2016, but it needs to be considered as a fat tail risk. If the Euro were to break up in some fashion, that would be the unwinding of a trend not simply going to the start of the Euro itself, but many decades earlier. The impact would be felt by everyone and while financial markets would take a back seat to the social issues, there would clearly be a massive impact on financial markets as part of the process.
 

The paradoxes of fat tails

 
Fat tails are full of paradoxes. The good news is that, individually, each of these events are unlikely to happen in 2016. The bad new is that fat tails are not independent. A stronger US dollar may actually happen along with an unexpected rise in interest rates and this in turn could trigger a unicorn contagion, a crowdfunding backlash and even a Euro break-up. And so, rather than thinking about them as five separate fat tails, we need to be aware of the possibility that they could cascade into one giant fat tail.

Fat tail events are almost impossible to predict. The only consistent prediction is if you can stay resilient during negative fat tail events, you’ll be around to take advantage of the remaining positive fat tail opportunities.