When to hire a Head of Sales for your startup - and how to structure their compensation
The most common mistake I’ve seen with startups is hiring a Head of Sales too early.
Similar to your sales representative compensation plans, your executive compensation will change over time. Think firstly about your north star and structure alignment around it.
The most common mistake I’ve seen with startups is hiring a Head of Sales too early. For early stage companies this tends to be one of the most expensive employees from a cash burn perspective. The Head of Sales at a startup typically receives a total compensation package ranging from $300k to $400k, which includes 1-3% equity in the company.
Determining the Right Time to Hire Your Head of Sales
Having a team of 3-5 or more individuals in the same role, such as Account Executives, warrants a dedicated leader. While a team lead or player/coach can serve as a temporary solution for a few quarters, a permanent management position should be established as soon as possible.
Once you have a few of your sales reps consistently bringing in deals you should consider adding a Head of Sales.
Hiring the Right Head of Sales
Sales executives in larger organizations are often preoccupied with participating in numerous internal meetings, ensuring dashboards produce accurate forecasting, and making incremental improvements to the larger sales organization. While these leaders are necessary at scale, they may not be as crucial during the early stages.
A Head of Sales of a startup must know how to work with reps to close business, be able to recruit and hire great sales reps and build repeatable sales processes. In my opinion, during the early stages of a startup, it's preferable to prioritize hunger, grit and creativity over tenure when hiring for this role.
This individual has to be able to operate in the macro with founders while working in the micro with sales reps.
A few other factors to consider:
Deal size - Has this individual closed deals around the same size of your average annual contract value?
Deal speed - Has this individual closed deals with the same timeframe that your current reps are closing today?
Industry - Does this person have experience in your industry? If possible, are they already a user of your product?
Phase - Does this person have experience operating in the current phase of growth you're in as well as the next phase of growth you’re going into?
If the answer to any of these questions was “no,” that doesn’t mean the candidate is a no, but it’s really helpful when there is alignment on these points.
How to Align and Compensate Your Sales Leader
It's common for sales representatives and sales executives to have a “50/50 base to on-target earnings” compensation structure, meaning half of the executive's compensation is based on the sales team's performance.
While companies attempt to balance this variable pay by awarding a Head of Sales roles 1-3% of the company's equity, it's essential to understand what is being incentivized by presenting this compensation structure.
Variable pay is designed to accelerate revenue growth by aligning the reps and executives to bring in deals. This approach makes sense when a company matures and understands their sales motion, however, there are negative consequences to this strategy, such as sales executives pressuring sales reps to engage in aggressive outreach, resulting in misaligned customers and poor retention.
Additionally, this compensation structure may lead to a combative relationship between sales executives and Customer Success and Product Leadership teams, rather than a collaborative one. In the early stages, when everyone is figuring things out, it's essential for all departments to be appropriately aligned.
During the first 3 months, ensure that your Head of Sales is provided with a guaranteed compensation to allow them to concentrate on the overall business rather than solely focusing on bringing in customers who may not be a good fit.
Your Head of Sales will be hungry to bring in deals, but emphasize the bigger picture and that they have room to breathe. Sales is both an art and a science, it's important to give executives room to explore and collaborate across the business while building the sales motion.
Closing Note
Open the kimono. The Head of Sales is a key member of your leadership team. This person will drive a lot of your revenue, if not all of it. From product issues to milestones expected by investors, your Head of Sales needs to know about it. If you want this person to succeed, align on compensation but also truly let them in the door.
Product-market fit is another factor to consider when hiring a Head of Sales. If you don't have product-market fit yet, it's probably too early for a Head of Sales.