In The Early Days, What You Think is a “Sales” Problem is More Likely a Marketing Problem (Updated)

The other day I met with a great founder doing about $40k in MRR that wanted to raise some extra money to “make sales more repeatable.”  Sounds good.

I started to dig in a bit to understand what this founder really meant though.  At this rough stage ($20k-$80k or so MRR), usually most SaaS startups finally have a regular stream of leads — just not that many.  10 a month, 20, 100, whatever it is.  Leads now come in regularly because at least something is working, there just aren’t a lot of them.  Not enough to grow fast enough, but enough to grow regularly.

So we dug into the math.  This great start-up is closing about 5 new customers a month, and they want more.  They want more “salespeople” and/or a magical VP of Sales to help them.  But let’s dig into what’s really happening:

• 100 “sign-ups” a month
• Which they turn into 50 “MQLs” (marketing qualified leads)
• Of which 20 turn out to be bona fide prospects, or “SQLs” (sales qualified leads)
• Of those 20, 50% need features or functionality the product simply doesn’t provide yet.  So they can’t be serviced today at least.
• Of the 10 that are qualified AND can actually get benefit from the product — they close 5.  That month.
• So their close rate from an SQL they can actually deliver for is 50%!

That’s actually kind of amazingly good — a 50% close rate, with a sales cycle of less than 30 days — for a vendor in a very crowded space, with well-established competitors and zero brand awareness, that spends $0 on marketing.

So my advice was simple:  you don’t have a sales problem.  At least not yet.  You have a marketing “problem”.  The founders themselves can handle 10 qualified leads a month.  Not only is that not very many calls, but in the early days, the founders are such experts in the product, its nuances, how to hack it, etc … you want them to keep selling, at least until it becomes > 25% of their time.  10 demos a month wasn’t yet > 25% of their time.

Usually, in fact, hiring your first salespeople won’t really help in sales until there are enough leads that the founders just don’t have time.  That’s probably 25+ qualified leads a month, potentially more.  Once you are there — hire your first rep (and really ideally two, in fact, more on that here).  But before that, a warm body that doesn’t know your product well isn’t really going to help.

Instead, focus on hiring a head of demand gen.  As we’ve discussed before, $500k in ARR is almost late for a head of demand gen.  Have her help you go from 100 to 200 sign-ups a month.  To work the funnel so those 50 MQLs turn into 25 SQLs, not 20.  That’s where the leverage often is at this stage.  More on this here.

Later, when you have a surplus of leads, sales will help you sell more.  And after that, in fact, it will all become a capacity and numbers game.

But in the early days, it’s usually marketing to the rescue.  Not some sales magician.

More on that here in two deep dives with the CROs of Owner and Brex:

(note: an updated SaaStr Classic post)