Who sank the boat?

“Was it the pig as fat as butter?”

Summary: Hiring that big hitting sales guy in the first few years will radically undermine the probability that your start-up, or your new business unit will be a success. Counter intuitively, they won’t ‘rock your world’, they will ‘sink your boat’.

How can this be so?

There is a wild-eyed, evangelical, west-coast school of thought that argues that start-up businesses are not smaller versions of large companies and that traditional tools taught at MBA schools don’t really help companies in their first few years of evolution. A more relevant tool set is required.

I guess when Steve Blank, Eric Reiss, Alexander Osterwalder – and other thought leaders – started developing this idea, it was considered quite radical. But now Mr Blank teaches entrepreneurial classes at Stanford and is lauded by Harvard as one of the masters of Innovation… I’d kind-a-thought that their teachings had already reached the shores of this backwater of global economy (and entrepreneurship) in the UK; and that we were embracing the commercial gospels according to St. Steve et al. I was wrong – it looks as though their evangelical work has barely begun.

Midas

I have a friend. Let’s call him Midas. Midas managed to start a UK software company with the active support of a VC about eighteen months ago. Around 12 months ago, the VCs felt Midas needed some heavy hitting sales support to push the business on – so he/they got a sales director and then a selling CEO. Fast forward a year and the sales director and selling CEO are out, and the sales team they set-up has been quickly dismantled.

What was the cost of all this?

I’m guessing here but let’s say that the VCs used an agency to hire a top 5% sales guy (come-on, no self respecting VC is going to want any other sort of sales guy). According to LinkedIn’s salary scale, that top 5% VP Sales guy will cost us £200k and a CEO probably £185k.  Let’s say these figures are fully-loaded costs, that an agency received 15% of the total package and that it’s taken us 12 months to work out things weren’t working. Let’s say that these guys were thoughtful and considerate and that they hadn’t started hiring a sales team around them to scale the revenue ramp!

Cost of hiring sales is – conservatively – £450k (Direct Costs). What about the indirect costs, the costs of politicking, arguing with marketing, product development, the CTO. Let’s be kind – maybe sales only used 200 man days of the founders/developers/VCs time… £150k fully loaded?

That’s £600k, and of course we probably didn’t get too far forward – remember we’re having to pay all those other guys too. Bottom line, the sales team just used up £600k of our – insert your own number – £1.5 million round, and whilst they waved their arms around for a year, the rest of the company used up the rest.

So, who sank the boat?

One of our favourite bed-time stories is ‘Who Sank the Boat’. It has – imho – a profoundly insightful message that can be understood by young children and astute capitalists. I’m going to apply its teachings to start-up companies. Sure the sales team is the one we can all blame, but who sank the boat?

Was it the founder… who sank the boat

Was it the VC… the developers… the advisors…

Or was it the sales team… that sank the boat?

 

‘Who sank the boat’ is the winner of the 1983 Australian Picture Book of the Year Award, this book is about the animals which live on Mr Petter’s place, who discover that their boat has been sunk by one of them, but which one?

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2 thoughts on “Who sank the boat?

    • Fair point Cyril, I could have made that clearer.
      They hired a CEO (previously a VP Sales) and a VP Sales… to give them more ‘sales execution’ capability.
      (This would have been perfectly understandable if the startup had a product and a clear idea of their market – like an established business does – but they didn’t.)

      So hiring sales execution capability didn’t help this startup. Indeed – and I didn’t argue this in the blog – it ‘unhelped’ because when confronted with unknowns, they did what they do best.. sales. And if you can’t get the revenue in, they started to scale the organisation in line with the business plan… marketing, sales, business development. Why… because that’s what ‘big business’ learning teaches us and that’s made us successful in the past.

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