Sales Force Compensation: Challenges of Growth

Finding the best sales force compensation structure for expansion stage technology companies

Sales force compensation is a very challenging and sensitive topic to broach from any number of angles. To people outside of or not familiar with the sales profession, there is unfortunately too much stereotyping of sales compensation as over the top, condoning aggressive sales tactics, and out of touch with the rest of the company's compensation structure. Within the sales profession and management executives, there is constant debate around the right compensation structure as a mixture of performance-based commission versus base salaries.

To date, most of the literature and research out there typically focus on two types of organizations:

• Mature organizations or organizations in mature markets with a sizable, established sales force. For them, the challenges are most acute in maintaining and improving sales productivity through fine-tuning and continuously adapting the sales compensation structure.
• Innovative, one of a kind companies with a new business model or compensation structures that either go against the common wisdom or have some novel characteristics. For these companies, the key challenges will be how they will sustain these models as the company matures and starts having to fend off competitors and copycats.

I find that there is still not a lot of great case studies or discussions around a special set of companies that are of most interest to us at OpenView ' fast growing, expansion-stage technology companies. From our experience, these companies are typically at a point where they have a good product, have found a proven market that accepts that product, but need to rapidly ramp up their sales force to capture a broader market and create enough momentum to take them to the next level.

Of course, to do this well it requires a combination of great management leadership, judicious strategy, and a receptive, growing marketplace. But sales execution and sales force growth and motivation, in particular, is one of the key differentiators for companies in this stage.

We see three distinct sets of challenges around sales compensation, which I shall discuss briefly here and explore further in upcoming articles:

• Compensation for a sales force that is selling both very large deals and much smaller deals, when the sales force is not large enough to be segmented by deal size/market. This is very common with companies selling infrastructure software, which can be used by small technology customers or major corporations. There is always a balance to be made between encouraging sales people to hunt the large but risky 'elephants' while at the same time ensuring that the company still has sufficient coverage of bread and butter smaller deals, as these deals help ensure a more predictable stream of new revenue.
• Compensation and cost planning for a sales force that is growing rapidly on the company's momentum in the market. On the one hand, sales costs can quickly become uncontrollable if the company does not master the sales learning curve and plans to add / promote its sales people appropriately. A deep analytics challenge that arises in this situation is to understand how much of the growth is dependent on marketing investment as opposed to sales efforts, separately from the market's organic growth.
• Retention and promotion of the top early sales persons. It is not clear how fast growing companies should compensate their top sales people, who typically account for an outsized proportion of their deals. Promoting an early top sales person into a managerial role (like a VP) risks hurting short-term sales productivity, increasing their commission risks outpacing the company's growth, and granting of options reduce the pool for future senior management hires. Making these decisions harder is the fact that the first few successful salespeople tend to be the Jacks of all Trades ' renaissance salespersons whose versatility tempts the management to rely on them more and more.

In the next few blog posts, I will explore these challenges and how companies are addressing them, hopefully bringing out some interesting insights that will help sales management design more effective compensation strategies for fast growing companies.

photo by: 401(K) 2012

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Why Chasing Hot Leads is a Bad Idea

In an ideal world, all B2B sales leads would be pre-qualified and ready to buy. And though recent studies suggest that a large chunk of the sales cycle may already be over by the time many prospects talk to a live salesperson, the reality is that inbound sales leads will always occupy a wide spectrum of sales readiness: tire-kickers, hot leads, and everyone in between.

This cold, hard reality: that hot leads will only ever be a subset of the total universe of potential prospects ' means that feeding sales a constant stream of qualified leads requires a demand generation strategy that focuses on 1) reaching potential customers at every stage of the selling cycle, and then 2) employing systematic lead nurturing to move those prospects towards sales-readiness.

In theory, anyway. Of course, in the real world ' a world of sales quotas, quarterly revenue goals, and impatient investors ' not all stake-holders, especially salespeople, are interested in the notion that the most effective lead generation strategy is a long-term proposition. Because our agency works primarily with high-tech companies, we see this kind of pressure often. One result of that pressure can be a demand for tactical, sales-driven campaigns designed specifically to seek out hot leads, campaigns that lead with so-called 'late stage' offers like demos, free trials, or even price discounts.

As I wrote previously in a white paper, 'Lead Recycling: A More Cost Effective Approach to Demand Generation for High-Technology Companies,' focusing demand generation investment on acquiring net new, hot leads is an expensive proposition at best, and at worst, a recipe for failure. Some of the main reasons are these:

' It's difficult if not impossible to target a message exclusively to those prospects that are ready to buy. Media options abound that will enable a company to focus on specific job titles, company revenues, industries, etc., but 'budgeted to buy (insert your product or service here)' ' not so much.

' Many high-tech products are first-of-breed solutions and/or of a complexity that involves multiple stake-holders and demands a more long-term, consultative selling process. Prospects may simply not be ready to buy a solution because either 1) they don't know such a solution exists, or 2) they may not even be aware they have the problem in the first place.

' Focusing on only the most qualified prospects leaves many potential (albeit, more long-term) deals on the table. A potential customer might have precisely the problem that a particular product or service solves and are anxious to solve that problem, yet may not feel as though they're ready to buy and so fail to respond to the campaign.

In addition, response rates from tactical campaigns are likely to be much lower ' for the reasons outlined above ' so companies need to spend more money to generate relatively few opportunities. Lastly, because the campaigns weed out all but those prospects in active-purchase mode, it leaves the sales pipeline empty once those deals have been either closed or eliminated. This requires a constant re-loading of the sales funnel with new, expensive leads.

Just to be clear: it's no crime to include late stage offers as part of your demand generation mix to reach that small percentage of new leads that are indeed ready to buy. However, attempts to focus exclusively on those late-stage prospects are usually doomed to inefficiency. It's a much better idea to cast a 'wider net,' bring in prospects at every stage of the selling cycle, and then employ lead nurturing to drive that larger pool of prospects to the point at which they're ready for sales.

Adapted from the white paper: 'Lead Recycling: A More Cost Effective Approach to Demand Generation for High-Technology Companies.'

Analyzing the Venture Capital Tax Debate: Fairness, Impact, and Consequences

President Obama's 2013 budget once again contains a provision for raising taxes on the profits venture capitalists earn on their investments.

The thinking behind the provision goes like this: Venture capitalists make a lot of money, so it's only fair that they should pay more in taxes. And because they dedicate their time to investing in, working with, and ultimately realizing the value of their portfolio companies, their income should be taxed at the same rates as wages, rather than capital gains.

It's a simple argument that, on the surface, seems to make sense. The problem is that the logic is incomplete. Until we fully understand the implications of the current venture capital tax proposals, we risk unleashing some unintended and, frankly, undesirable consequences for everyone.

This is not a commentary on the appropriate levels of government spending or overall tax policy. It's a simple request that, before implementing any tax policy changes, we analyze the potential impacts should such a policy be put in place. Would the results be better for society than the ones our current tax policy generates?

Widespread economic benefits

Venture capitalists invest equity into companies to help them create new technologies, products, and services; employ and train people; and grow the economy. The capital can be used to hire staff and outside professional services firms, lease real estate, or purchase furniture and equipment. These investments are usually quite risky for the venture capital funds that make them, but sometimes yield considerable financial returns and frequently lead to significant advances in innovation and competitiveness.

Compared to the 'shovel-ready' capital investments that the government tends to make, venture capital is far more effective at stimulating the economy. Venture capital investments don't cost the government anything, yet still generate revenue for it.

Importantly, they help create permanent jobs and stimulate economic growth over the long term, rather than simply creating a short-term spike. For example, according to a 2011 report by the National Venture Capital Association, in 2010, venture capital-backed companies accounted for 11 percent of private sector employment (nearly 12 million people). The report also found that every dollar of venture capital invested between 1970 and 2010 helped to generate $6.27 in revenue in 2010.

Questioning the Logic

Before we change policies, let's be sure that we thoroughly understand how the current proposals will ripple through the venture capital and entrepreneurial sectors, and what their actual long-term impact will be on tax revenues.

Here are some of the fundamental questions that should be answered before making any changes, as well as some insights I've gathered throughout my 12 years as a venture capitalist:

How important is investing in growth companies for the economy and for tax revenue?

I've learned a few things about the benefits of private equity investments, and job creation is one of the great examples. Approximately 60 to 70 percent of the money venture capitalists pump into companies is used to hire and train employees, typically for positions that pay significantly more than the average job. These workers generate payroll taxes as well as non-discretionary and discretionary spending (think new homes and cars, or just more meals out). Employers also pay taxes on their companies' overall income and capital gains. Altogether, we're talking about a significant source of long-term economic stimulus.

Successful companies also bring innovation and competitiveness to our economy. You don't have to look any further than Facebook, Google, or Apple for examples of venture capital-backed companies that have helped reshape the face of our economy.

Will lower net compensation for venture capitalists lead to less venture capital activity or reduced quality?

Anyone who has sat through freshman economics knows that financial incentives change behavior. Earning a lower net income could push some venture capitalists to retire, change careers, or worse, never enter the sector in the first place. While most experienced venture capitalists love what they do, myself included, the movement of people in and out of the industry is relatively fluid. Change the tax policy and there almost certainly will be fewer venture capitalists and less venture capital activity.

What effect would less venture capital activity have on the economy?

This is one of the most important questions to be studied because there would likely be significant downstream effects should venture capital activity diminish. Fewer venture capital investments would mean less funding for growth companies. That, in turn, would translate into fewer jobs, less innovation, and a decrease in our overall competitiveness ' none of which bodes well for the economy.

Will taxing venture capitalists at a higher rate result in greater tax revenues?

It's not likely. Venture capitalists currently receive a portion of the capital gains they help create through their venture capital funds. If they are treated as employees who are paid wages from those funds, we would effectively be increasing the capital gains tax on arguably one of the most important investment sectors in the economy.

In addition, less venture capital activity could lead to reduced start-up funding. That would mean fewer high-paying job opportunities and less business investment, which create taxes both directly and indirectly through their multiplier effect on the economy. The tax increase on venture capitalists would surely lead to lower tax revenues from the missed economic growth opportunities. Understanding this relationship is key to crafting the best tax policy.

Finally, if tax policy were to change, venture capitalists may choose to embrace other avenues that are more advantageous from a tax perspective, further eroding tax revenue.

The road ahead?

There's no doubt that venture capitalists are well compensated and can generally afford to pay higher taxes. But what happens to our economy if we decide to tax venture capitalists more? Do we end up with higher total tax revenues? Will we impede innovation, competitiveness, and job growth in the process? Is there a different tax policy, perhaps a counterintuitive one, that would be better for the economy overall?

Forward-thinking national, state, and local governments recognize the value that venture capitalists bring to their economies. Some of them, such as Israel, Russia, Pennsylvania, and others even offer incentives to attract entrepreneurial activity to their geographies. The tax policies currently under consideration, by contrast, would act as a disincentive. Maybe the policies are optimal, but shouldn't we at least take the time to analyze their implications before implementing them?

The bottom line is that venture capital activity grows our economy. We should be maximizing that growth, not hampering it through tax policy.

photos by: Images_of_Money & 401(K) 2012

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15 Ways to Get to Know Your Target Audience

One of the biggest factors impacting the success of your marketing is how well your audience relates to your content. If your audience feels that you understand their needs and can help them, they will be more likely to respond to your calls to action. If your content isn't relevant, they will tune your messages out.

But how exactly do you get to know your target audience? Understanding their pains, needs and wants can be challenging ' especially if you spend all day running from meeting to meeting and crisis to crisis.

Here are 15 ways to get to know your audience:

1. Subscribe to the magazines and blogs that they read.
2. Subscribe to Google Alerts for the news topics that they follow.
3. Attend the same conferences and trade shows that they attend. If you can't make it in person, you can check out the events' websites to find out what topics are trending right now.
4. Study how your competitors are interacting with your audience.
5. Connect with members of your target audience on Twitter and pay attention to their tweets.
6. Join LinkedIn groups that members of your target audience belong to and follow their discussions.
7. Join Facebook groups that members of your target audience belong to and follow their discussions.
8. Review the comments on your blog.
9. Monitor your social media presence to learn what your target audience is saying about you and which content they are sharing the most.
10. Check your website analytics to learn which pages are getting the most views, as this will give you an idea of the content that your target audience finds the most interesting.
11. Review your website analytics to see which keywords people are using to find your web pages.
12. Use Google's keyword tool to find other keywords that may be relevant.
13. Ask your sales team and customer service representatives about your customers' biggest concerns.
14. Survey your customers to find out what types of content they want from you.
15. Ask for their opinions every chance you get!

Using these tips will help you get to know your audience, so you can create content that meets their needs and increases your conversion rates.

What about you? What methods do you use to get to know your audience? Feel free to share your comments below.

Attention Job-Seekers: Stop Branding Yourself As Lazy!

Every job-seeker knows that employers want to hire people who work hard. However, it's very easy to unintentionally brand yourself as 'lazy' when you are looking for your next job. During your job search, you are put under a microscope, as employers make quick judgments about your work ethic based on actions that may seem minor to you. If you want to stand out in a good way and be seen as hard-working and proactive, make sure you follow these 7 job search best-practices:

1. Do your homework before EVERY 'test.' Treat every career conversation like an interview because every career conversation is an interview. A person recently referred to me for career advice didn't know that I worked in the front-office for an NBA team for 5 years, or that I wrote a book on how to get your dream job. He could have learned this information before our call through a 60-second google search on my name. How motivated do you think I was to introduce him to other people I trust, given the lackluster way he approached his call with me? On the other hand, I've had calls with people who have referenced specific articles I've written when asking me for career advice. Within minutes, these people impress me. Do your homework before any informational interview, networking situation, or job interview, and have a list of intelligent questions you plan to ask. Preparation (or lack of preparation) is always very obvious, and it will be used as evidence for how you approach your work as well.

2. Always take the extra step. Always ask yourself this question during your job search: 'How can I stand out in a good way from my competition?' For example, instead of writing, 'References available upon request' at the bottom of your resume (which is like writing 'willing to meet with you for an interview'), why not just take the extra step and include a 1-page document with endorsements of your work?

3. Never hitch-hike. Every now and then, someone will come up to me after one of my job search seminars (or send me an email after the seminar) and ask me to send their resume along to people in my network. I refer to this as 'hitch-hiking.' Never ask someone else to do your job search for you. Instead, ask people how you can take yourself where you want to go.

4. Use third-party endorsements. The best way to brag is to get the right people to brag for you. As much as possible, use third-party endorsements as evidence for your work ethic, character, talent, intelligence, unique value, etc. Compare these two sentences for a cover letter, and ask yourself which is more compelling:

' 'One of my strengths is my excellent work ethic.'

' 'John Smith, Director of Sales at XYZ Company, referred to me as 'the hardest working sales rep' he's had in the last 10 years.'

5. Don't ask questions that imply laziness. While you may be curious about a company's official work hours or vacation/PTO policy, asking about this too early can make you look lazy. Save these sorts of questions for after you have an offer in hand.

6. Always follow-up fast. Make it your practice to follow-up immediately after any networking situation or interview. Whenever anyone gives you their time and/or advice during your job search, always send a thank you note. This is a very obvious tip that most people take for granted. Want proof? I've actually received thank you letters from people to thank me for sending them a thank you letter!

7. Never submit boiler-plate or unprofessional job applications. Treat the process of applying for a job as if it is the first project the employer has given you as a paid employee. Anything less than a well-written, 100% complete, error-free application will end up in the trash, especially given that employers are receiving hundreds or thousands of job applications these days. You want the employer to read your application materials and think, 'Wow, this person is EXACTLY what we need.' It's a huge turn-off to hiring managers when someone submits a cookie-cutter resume or cover letter.

Author:

Pete Leibman is the Founder and Keynote Speaker for Dream Job Academy and the Author of 'I Got My Dream Job and So Can You.' His work has been featured on Fox, CBS, and CNN.

Special offer until July 30, 2012: Send your current resume (and a link to a job description you are interested in) to Resume@DreamJobAcademy.com. Dream Job Academy will randomly select 25 winners in July 2012 for a Confidential Resume Evaluation from Pete Leibman ($250 Value)! Make sure to include 'Personal Branding Blog' in the subject line of your email.

Report: Oan-European IR Conference in Brussels

Delegates gathered from IR societies in Netherlands, France, Belgium, Portugal and UK

The inaugural Pan-European IR Conference in Brussels on June 11 and 12 brought together delegates from the IR associations of the Netherlands (NEVIR), France (CLIFF), Belgium (BIRA) and Portugal (FIR), as well as from the UK, in an event supported by NYSE Euronext.

The conference kicked off with a dinner in the Grand Palais de la Bourse, which included an entertaining keynote address delivered by Stephan Hollander, professor of accounting at Tilburg University, who talked about the hidden side of IR activities.

'We wanted a speaker from outside, with relevance to IR, but who could include humor and perhaps was controversial,' explained Marcel Schulze, MD of Tradinfo, which organized the conference on behalf of the IR associations.

The day began with the heads of the associations ringing the opening bell of NYSE Euronext Brussels before the first workshop got under way.

Focused on tracking and measuring the effectiveness of IR programs, it was chaired by Hans Buysse, president of the Belgian Association of Financial Analysts, which ranks and gives awards to Belgian companies based on their IR programs.

Unsurprisingly, there was plenty of time for networking built into the schedule, as one of the chief aims of the event was to help IROs network across borders, so Buysse's workshop was followed by a 45-minute coffee break.

Then the fireworks began: Marc Lefèvre, head of business development and client coverage in Europe for NYSE Euronext, and Mark Hemsley, CEO of MTF BATS Chi-X Europe, squared off in a lively discussion about trading venues, new instruments and regulation.

After a long lunch, the group broke into two sessions. One of the most talked-about presentations was by Tjerk Huysinga, vice president of IR Europe at Royal Dutch Shell, who discussed social media.

He spoke in detail about the development of the Shell iPad application for IR, a particularly lively discussion given that many of the IROs in the group were in the process of developing their own iPad apps.

The feedback from delegates was positive, especially in terms of networking opportunities. Many said they were happy to have had the chance to get to know their colleagues from across borders, share best practices and learn from each other.

Hans Leufkens, head of client coverage for Netherlands/Belgium at NYSE Euronext, was extremely pleased with the turnout and positive feedback. 'We look forward to expanding the event next year,' he said.

Attendee feedback

'This was a great opportunity to have updates on current topics in IR and to engage with colleagues from other countries across Europe.' ' Tjerk Huysinga, vice president of IR Europe, Royal Dutch Shell

'This first Pan-European IR Conference exceeded the expectations of most participants. It was a privileged moment for the debate between IROs from various countries about the most important current topics of common interest.' ' Patricia Vieira Pinto, president of FIR

'The Pan-European IR Conference is an excellent opportunity to meet your international colleagues to discuss and share experiences about the same topics we all have to deal with in these volatile capital markets. For those who missed the inaugural 2012 conference, don't miss the 2013 event!' ' Gerbrand Nijman, president of NEVIR

Building a Culture That Motivates and Inspires Creative Teams

In his book Drive, Daniel Pink discusses a number of recent studies that show how people in today's creative knowledge economy are not necessarily motivated and engaged by traditional methods.  In fact, offering rewards for performance (the carrot and the stick), using title and rank to direct people (micro-managing), and lavishing half-hearted recognition can actually be fairly de-motivating.

Instead, people are motivated by their desire to be creative in their work and make a difference. We want to be empowered to find solutions to make their work better. We want to work on something that helps improve the world. We want to solve complex problems that challenge their skills and intellect. It's the creative nature of our work that can keep individuals excited and energized every day.

However, creativity is not just an individual endeavor. In many situations, the most creative work happens when individuals come together as a team and feed off of each other through collaboration, brainstorming, arguing, and exchange of ideas.

As leaders and managers of creative organizations then, it is our responsibility to create a culture that enables individuals to explore innovative ideas in their work and build an environment where teams can flourish. We need to help employees find meaning and interest in their work and design an environment that encourages sharing and inspiration for ideas.

OK, sounds good, but how? A creative work environment is more than just a ping-pong table in the lounge. Physical environment is important, but there are a multitude of other ways a culture of creativity and entrepreneurship can be infused into various parts of your business.

In a Webinar next week, we'll discuss the growth of our creative culture at Mad*Pow, detailing some lessons we've learned along the way. We'll outline our approach in general, and then detail some of the specific activities we've tried ' from the design of our space, to team building activities, to management guidelines, and goal setting. We'll also dive deep into our recently completed company Design Slam event ' a team building design activity that gave Mad*Powians the opportunity to collaborate with folks they don't normally work with, and spend their energy on interesting design problems with few constraints. Exactly the type of team building and creative exercise we intended.

This article is an original contribution by MIchael Hawley.

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