This week’s post is written by Sam Marelich. Sam is a Managing Partner at The Collective Search where he works exclusively with venture-backed startups, recruiting for revenue generating teams.
“Are you considering starting up a business because you wish to work on wonderfully interesting technical problems all of the time? Stop now — Google is hiring, go get a job with them. 90% of the results of [starting] your business, and somewhere around 90% of the effort, are caused by non-coding activities.”
- Patrick McKenzie, Kalzumeus
So you’ve started a software company. You’ve got a product, some users, and raised some money to kick things into growth mode. Great!
In order to make money, you need sales. If you want to sell things to other businesses, you will need to build out a sales team at some point. Even if you don’t think you need to. It really comes down to two fundamental realities in software: (a) companies are happy to spend vast amounts of money on software that solve important problems and (b) it is rather difficult to sell software for tens or hundreds of thousands of dollars consistently and predictably by simply waiting for customers to come to your website and entering their credit card details.
This is even more true if you have raised Venture Capital funding. Venture funding is the business equivalent of rocket fuel — it’s money given with the expectation of aggressive revenue growth to follow, year after year after year. Alongside they money you’ve raised, you’ve also acquired a charter: you need to build a machine that hires, ramps and manages a large number of salespeople.
Luckily, this is the sort of problem that has been figured out. The San Francisco Bay Area is stacked with people who understand the specific nuances of selling software. There’s also a wealth of experienced operators available to hire on as either full time leaders, or as part time consultants.
The stakes are high. If you aren’t able to hire people, you won’t hit your revenue numbers, and your odds of success (and even survival) decrease dramatically. VC funding means you can grow in a very different way than a traditional business would. It’s one of the reasons you see a number of SaaS businesses approaching $20, 30 and even $100s of millions in annual recurring revenue, within the first ten years of the companies’ lives. It’s also incredibly important you hire the right people - sales reps are expensive, with a single Account Executive easily running $20k per month fully loaded (base + ramp + benefits + office space + expenses adds up quickly!)
Getting Outside Help
As you continue to scale your sales team, you’ll likely need help from external recruiters. External recruiters can be extremely helpful for three reasons.
1: They’ve had a lot of conversations with the sort of people you want to hire.
A good external recruiter should have a detailed understanding of the sort of salesperson you need (and where to find them). The hiring needs of a company that sells a transactional product with a contract value of less than $10k per year to sales or marketing organizations are going to be vastly different to a company that sells solutions that start at $250k annually to CTOs. Different customers require different types of salespeople with varying levels of technical competence.
2: Winning talent in a candidate's market
The price of admission in large metropolitan areas like the Bay Area is extraordinarily high. In some ways, running a startup here is like being the best runner in your hometown, and then waking up in the Olympics. Sure, you’ve got a product that works, and you’ve found some demand, and even raised funding from a reputable VC firm, but everyone else has that too. More often than not, you’ll be competing with a number of other firms for talent. Moving fast in the recruitment process is one of your best defenses against larger firms (this is particularly crucial when you go to hire your first rep).
3: Speeding things up
Hiring is simply another sales process. You need to strike a balance between qualifying hard and getting deals closed. If you don’t qualify hard enough, you’ll end up spinning your wheels (or much worse, in this case, hiring the wrong team). But at the same time, you can’t spend the next six months exclusively talking to 500 people. Outsourcing the work of finding, initially qualifying and getting candidates excited about your company to someone who’s done this a number of times is a very easy way to take a lot of work off your plate.
Three Types of External Recruiters
Assuming you have decided to work with an outside recruiter, the next question becomes “what type of recruiting org is the right match for my company?” External recruiters can be categorized into three organizational structures.
1: Large generalist recruitment agencies
Like the largest firms in your respective software niche, the major advantage of big recruitment agencies tends to lie in their scale and distribution. Larger recruiting agencies are often cheaper (and in my experience, more likely to drop their rates to win business).
Things that you want to understand when talking to a large recruiting agency:
What is their business model - do they mostly hire contract workers or are they focused on permanent placements?
Within a business, does this recruiter (and agency) specialize in any area?
How familiar is this agency with standard software metrics and expectations?
Are they focused on resume screening based on inbound candidates & job boards, or are they specifically head-hunting individuals that match the profile you’re looking for?
What does their fill rate look like?
It’s worth making the distinction between permanent and contract agencies, as the workflow and speed of hire tend to be very different. Of the thousands of candidates I’ve spoken to as a recruiter, I’ve only spoken to one who wasn’t hired as a permanent employee.
As you go through the process of talking to agencies, pay attention to how eager they are to start working on a search. A common strategy that some hiring managers use involves signing up with a number of recruiting agencies to fight it out to make a single placement. This process tends to involve a lot of coordination on the hiring manager's behalf as you need to manage multiple recruiters, none of whom are making you a particularly high priority.
Just like you want to qualify your prospects, good recruiters will want to make sure they’re spending their time in an effective manner.
2: Individual professionals
The real upside of dealing with an individual professional is they bring niche expertise, which tends to increase the likelihood they are aligned with the needs of the hiring manager. This is something recruiters have a bad reputation for (see the ongoing meme about IT recruiters not knowing the difference between Java & Javascript).
Like most services businesses, starting out as an external recruiter is a capital light exercise - all you need is a phone, a laptop and a LinkedIn account. Anyone can say that they’re able to help you with it, however, like any business partner, quality and results between individuals varies wildly.
Things you want to understand when dealing with an individual recruiter:
How well do they know the space?
Does their experience match with the hiring profile you’re looking for?
How many placements are they trying to make a month?
Is this recruiter focused on maximizing their earnings, or optimizing their lifestyle?
At an industry standard placement fee of 25% of candidates’ first year salary, a talented individual recruiter can earn upwards of $250k annually without a tremendous amount of effort, and with a relatively low cost of doing business. The economics of running a recruiting firm become substantially worse once you start hiring staff for your own recruiting operation . Now that recruiter will need office space, a proper CRM, oh and the most expensive bit - other people. At this stage recruiters experience most of the downsides of being a larger company - you have to paddle a lot harder just to keep a larger vessel moving at the same speed.
3: Specialized recruitment agencies
I’m somewhat biased (I work at The Collective Search - a specialized software sales recruiting agency). That said, I think using niche recruitment agencies make the most sense as you blend the two benefits - you get better reach into the market, but also get the specialized knowledge of what the market is actually doing. Recruiting is changing, especially in such competitive talent markets. Recruiters can’t just rely on setting up job advertisements and then sitting back while they wait for great candidates to apply (after all, if your careers page was delivering all the candidates you ever needed, why even hire a recruiter?).
Within software sales hiring, we’ve seen job advertisements to be entirely unproductive, except for hiring junior talent without sales experience. This is the one exception to the rule, as the key determining factor is if the candidates are willing to work a sales job (most college grads don’t).
Irrespective of the type of recruiting organization you decide to partner with, done right, recruiting should be a partnership, where you can trust the candidates you’re sent are worth your time. Running a venture-backed startup is hard! A good recruiter should be able to make the entire hiring process much simpler, faster and less stressful. Their focus shouldn’t be on collecting a fee, but rather on becoming aligned with your objectives - on building out a team that will be able to go the distance.