How to Vet a Startup and Sales Leadership

Understanding the metrics of the business, the leaders you'll be working for, and the questions to decide if you can tolerate the risk

One of most interesting things during my new job search and my observations of being at a startup for the past 8 or so years out of my career are that a lot of sales people (jr, and shockingly sometimes sr) who don’t fully understand the business mechanics of the startup. It’s the only way you’re able to assess the risk you’re taking on.

Inherently, as commercial people we’re training to disqualify and better understand the mechanics of how a certain product would fit with a prospect and how that impacts their business or department, and how that aligns with a specific initiatives of the business holistically from the top down. Yet when it comes to better understanding the actual business you’re selling FOR when interviewing, sometimes mid career, or even junior, it seems a lot of sales people don’t understand the business or ask the tough questions to really assess the opportunity.

Granted, as an organization gets bigger, you have to focus on more narrow teams and functions since the scope of your role and how that fits into a large public org for example, begins to get lost as you go down the ladder. But this specifically for vetting out startups so that might be an article for another day.

Here’s what we’ll cover today:

• Business mechanics and key units to understand and ask about

  • The important metrics to understand

    • ACV, ARR, ASP, revenue, churn, and how do dissect the health of a business

• Vetting out leadership

• Vetting out Sales Leadership

  • Questions to ask to Executive team and Sales team

• What to look for to mitigate risk and follow up questions

  • Clear Red Flags

• Next week: How to formulate a plan

Business Mechanics

If you ever watch SharkTank, the one question that is constantly asked over and over is simply, “how do you plan to do that?”. And more often than not, you have responses that range from very aspirational goals to pointed, objective steps on how to get there. Sometimes owners will get an investment because the Sharks are investing into a person who is just “willing” their way to building out a company. Investors often invest in ideas, and also the founder themselves.

That won’t be a sales guy, but the first two points are pertinent. The common theme as any investor, and quite frankly any business person, is dissecting the health of the business and how you can help, and forecast how you’ll succeed. Even if you’re more junior, you’ll impress every sales manager in an interview or for a new role but re engineering how you’d get to a number. More on that later.

Key Metrics to Understand:

• Growth Motion:

  • PLG (Product Led growth)

  • FLG (Founder Led Growth)

  • MLG (Marketing Led growth)

  • SLG (Sales led growth)

  • Land (net new logo)

  • Expand (upsell or cross sell accounts)

  • Land and Expand (hunting and farming, this is common at startups)

• ACV: average contract value

• ARR: annual recurring revenue

• MRR: monthly recurring revenue

• ASP: average sales price

• Churn: the number of annualized contracts that do not renew

• SQL - sales qualified leads

• MQL: marketing qualified leads

• Lead flow - how many leads are generated via events, or marketing, and outbound? (they might not have concrete data on this, that’s not unreasonable)

• ICP: Ideal Customer Profile (sometimes this might have to be figured out! or the org has a buyer in mind)

• Avg Sales Cycle: Duration from initial engagement to signed contract

The health of a business is predicated on how well those metrics look and depending on what stage the business is in. A more streamlined SaaS business like an Adobe or Databricks will be much more complex than a startup.

The reason it’s important to look at these numbers is because if you start working back towards the math, re engineer how you get back to your number, then assess risk on the actual business and how to work towards your given number, you’ll have a clear picture of what the risk tolerance of the role will be. With that, follow up questions that positions you to manage expectations.

I’ll show you how to do that below.

Vetting out Leadership

It’s super important to take the approach of also assessing who you’ll be working for. Primarily, your direct sales leader, and executive leadership.

This is by no means an end all be all, but it’s nice to know whether or not the executive team has done it before. By “it” I mean:

• Have they been successful at a startup before?

  • If they failed, what did they learn?

• How long have they been in their respective domain, what have they accomplished?

• Why did they start this company and what’s their vision (you can find this on articles online, or behind funding announcements)

You can certainly have folks who have never been in an industry or domain, but it’s a risk. If you have a team of people who haven’t navigated the waters of the unknown, it’s also a risk. Startups are not easy, and it’s incredible difficult to scale a company even to $10mm. Having folks who know how to handle rocky waters is a bonus.

Vetting Out Sales Leadership

Now that we’ve covered a quick glance as to who’s behind the business, you’ll also have to vet out who you’re going to be working for directly in a sales capacity. In other words, your direct sales leadership.

Regardless if you’re an SDR or AE, these questions will provide helpful insight but also help you stand ahead of the pack. I’ll provide you with questions that someone will have to provide thoughtful answers to:

• What made you trust your career here?

• What is a successful outcome for you?

• What are the biggest challenges in the business today?

• What’s the vision for the team (and product/company) in the next 6 months, the next year? (important not to ask for too long term, its a startup, shit changes fast).

• Tell me about a failed rep? Or your challenges as you see it in the sales process today?

• How does the executive team make hard decisions?

• How do you operate with your reps?

• Can you speak to a tenured rep? or Sales engineer?

• If seed stage, can you speak with a customer?

The goal of asking these questions, along with getting a sense of metrics which I’ve outlined above, is to get a sense of how they think. They’re doing the same to you.

But aside from selling them on why you’re a fit for the role, you also need to realize that they are selling YOU as well. Understanding their motives, where they want to be, and a near term vision will give you insight on what’s happening at the company, along with whether or not you’ll want to work with this person.

***Disclaimer: super important to ask these questions to executive as well. Don’t worry if it’s the same question, the varying degree of answers will give you more insight on the company. It’s all just information gathering.

Most importantly, talk to product, marketing, AEs, or even customers. Bonus points if you can find people who used to work there. They’ll be able to give you a ton of inside baseball.

If you want to read more about these strategies, check out How to Land a Job in SaaS Sales Part II.

What to look for to Mitigate Risk

There’s two buckets of questions here, the metrics one are clearly objective. While the questions pertaining to motives, or tell me about a time when … are more subjective.

I can’t give much guidance on the subjective, other than trust your gut. Also follow up with subjective questions when you see gaps in the hard metrics. When asked questions that you’re not expecting, but are never the less good, hard questions that invoke thought - you can get a good sense of whether or not someone is being genuine. At the very least, have an idea of how THEY (ie leadership) is approaching on how to solve that gap/problem.

Clear Red Flags

• Team doesn’t let you talk to customers or other members of the team

• Former AEs say “stay away”

• Network says “I don’t see it” … follow up with why? And refine your questions back to the team you’re interviewing with.

If you have ideas on how to vet that out further, I’d love to hear them!

Scenario Example

Let’s say that you’re at an early stage startup, pre series A, looking to come onboard as their first rep. You’re going to be in a land and expand motion, with a high volume of monthly free users you can convert to paid. Your quota for the year is $800k.

In this scenario, let’s pretend that the team has about $1.4m in revenue, comprising of:

• 100 customers, with a product led growth motion, In business for 3 years.

• Annual revenue is $1.4mm

• Product Price: $100k (all in), Starter is $10k

• ACV: $14k for 1 year term

• Avg ARR: $14k

• Churn: 30%

• ASP: $14k

• Lead flow: 100 free users per month.

On the surface, this isn’t actually bad. But let’s break down the numbers even further. If the max price point for this product is $100k, there is an opportunity to expand each account to $90k. Also great. Typically an account that has historically purchased an entire suite ($100k) is only a mid market company, sitting in in the $10 - $1bn range. So far so good.

Out of the 100 accounts though, only about 20 are in the profile of companies that can reach $100k. Ie, out of 100 paying customers, only 20 accounts are in the $10mm - $1bn range.

As an AE or even SDR, I now look at this and think that really most of my time is going to be set up around accounts that have the ability to get to $100k. The rest is going to be an outbound motion, that I’d have to figure out, within the given company profiles. I can’t depend on SMB companies specifically, since I have an $800k quota to hit. That will be a TON of volume, like 80 deals in a year, or 7 deals in a month. Tough to do in B2B.

From an extremely conservative perspective, assuming that you can get an expand of $70k out of your account list that meets your profile (you’re looking at a conservative conversion rate of 10%), so you only have 2 companies to bank on to get you to $140k.

• 20 accounts sit at $30k ($600k)

• 80 accounts sit at $10k ($800k)

If you noticed churn is at 30%, you’ll notice that if the company is doing $1.4mm in revenue, most of this being SMB companies, then they are now having to account for $420k in churned revenue the following year, to make up the loss.

More questions to ask:

• How are they mitigating this?

• Are they investing into marketing?

• How is product analyzing usage and do they know why they are churning?

***those might be subjective questions to ask to better assess how the business is filling the hole.

Now the question becomes, how do I formulate a plan to get to $800k with these facts? And is this risky?

If I get 2 accounts from a conservative projection, that hit the $100k mark, that’s roughly $140k in revenue. The rest is predicated on how I figure out an outbound strategy that works.

• Are there similarities in the verticals of companies that are paying (ie if they’re all in finserv, maybe that shows I have something repeatableto work with)

• Are the companies that are in the top 20 intros from VCs to founders or the result of product usage converting to paid, or just outbound efforts?

• Long story short, are there trends, that as a sales person, can utilize to focus my time on low hanging fruit?

The tricky part is that there is no “right answer”. All in all, it depends on what stage of career you’re at. If you can take the risk, from a financial and personal perspective. Looking at this, I find it hard to hang my hat on 20 accounts that can get me to $800k. Even if I get 4 of those accounts to $100k, that’s $280k. But if they were all in one vertical, maybe they’re onto something.

Even though there isn’t a clear answer, which depends on you, the exercise will still impress the hiring team with your business acumen. It will also give you a much better basis on how to make an informed decision.

Next week I’ll tackle how to set up your plan for success.

Thanks again for reading!

PS - if you’d like, give me a follow here or on Twitter @askobylarz.