August 12, 2006

"Don't hire a VP of Sales too early"

Ed Sim has a post on how and why hiring a VP of Sales too early can cost a stat-up dearly:

1. VPs of Sales need to make their comp. Typical salaries range from $150-200k plus performance equaling a total package of $300 to $350k. Most VPs of Sales will try to get you to guarantee the first year or at least the first couple quarters of compensation to offset the risk of working at such an early company.
2. All VPs need people to manage which means your VP of Sales will want to hire a bunch of reps to grow the business. The experieced enterprise direct sales reps will cost you $80-100k base plus performance of up to $150-175k total comp. Once again many of the best reps will want to get some guaranteed draw for at least a quarter or two to get started.

What ends up being a situation where you expect to bring on a performance-oriented sales team becomes one which many of your new hires get guaranteed comp for a couple quarters. The burn rate added to your company almost doubles overnight with these heavyweight sales guys with no leads to go after and no mature product to sell. In addition, over time the sales team will get frustrated if the product is not ready for primetime and they will be out looking for a new job in a couple of quarters making all of this effort a very expensive experiment. Hiring a VP of Sales is not a commitment to hire one guy, it is a commitment to bring on a team, one that will not be cheap. Before you make this commitment, make sure you are ready.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.