Four Questions to Answer Before Your First Sale
Three go-to-market veterans answer questions founders ask us all the time
As early-stage investors, we’re often backing exceptional technical founders who have no experience in sales or marketing building breakthrough products that have not yet been released. In turn, we commonly help founders answer the same questions over and over: How do I get my first customers? Do I need a sales team—and if so, when should I bring them on board? Do I start with a rep, or hire a CRO? And the inevitable, how do I price my product?
Those questions are hard, even for seasoned leaders. We know because we’ve been founders/CEOs and struggled with them ourselves. But rather than just give you our own perspective, we assembled a panel of go-to-market experts to help us get answers.
Meet the Experts
Kevin Van Gundy is Chief Revenue Officer at Vercel. Kevin has often been one of the first, if not the very first, commercial hires at companies selling open-source software and/or infrastructure automation.
Ben Sabrin is the Chief Revenue Officer at Ngrok. Ben was the first employee brought in to JBoss (subsequently acquired by Red Hat.) He served as the original VP of sales for MongoDB, helping to grow it from a 20- to a 300-person company. And most recently led the go-to-market org for Okta’s Server Access products.
Mark Smith describes himself as “retired” but he’s currently a venture advisor at TCV. He was formerly Executive VP, Sales and Business Development at Rubrik. Mark has taken four companies public, dating back to Network Peripherals in 1993.
How do I get my first five customers?
“Sell the end state,” says Kevin Van Gundy. “We’re often going out and saying, ‘Hey, I’m passionate about solving this problem and if you put your money and faith in me, we’ll solve it for you.’” From Kevin’s perspective, those first customers need to buy into the person even if they know that at the beginning, the product may be rough around the edges. That sell-then-build approach means your first customers will effectively be design partners. You’ll throw a lot of engineering effort into making your product work for them, but that’s all stuff you need to learn anyway.
It’s important to realize that getting those first few introductions is everyone’s job. Founders, employees, investors… Anyone who can make an introduction to a potential customer must make it. Once the introduction has been made, it’s as important to listen as it is to pitch yourself.
“What are the biggest problems in your daily life; what are the biggest problems in your workflow?” says Kevin. Then go back and ask, “If I solved this problem, how much would you pay for it?”
Another thing to bear in mind is that those first five customers don’t necessarily need to be paying customers. Sometimes a customer logo—and the validation of the problem you’re solving—is worth more than your asking price as long as they’re going to really use it. Minimizing the customer’s expense also helps to ensure that there’s a fair exchange of value in those first few deals.
“I always want to make sure that every customer that I sign early feels that they got the better deal from a value perspective than they gave to me. You always want to make sure there's some equity left so you can continue to grow that relationship. Because if they feel that there's equity they're gonna pay it forward and talk to a lot of other people; they're gonna be proud of the value that you and your product have delivered to their business.” —Ben Sabin
Of course, there is an alternative approach in the form of the product-led go-to-market, where a startup puts a product on its website and makes it easy for customers to download and use. Then at some point they’ll swipe a credit card and become a customer.
That approach begs the next question…
Do I even need sales people?
Kevin has a lot of recent experience with a product-led approach, because Vercel has a free tier, a self-serve product, and an enterprise sales product. “The way we think about product growth at Vercel is, it’s really a long-term funnel where the dollars I’m investing in Next.js will at some point come back as dollars on my enterprise product,” he told us. But, he also warned that the approach only works when three conditions are met: The product has to be mature, its value has to be self-evident, and it has to sell at a price that makes it easy for users to expense.
“As a founder you need to be really thoughtful about, ‘Can I do product-led growth or do I need an enterprise team or a sales team?’ You have to have very high confidence that a user can sit in front of your product and see a valuable use case and then extract value from it, all without talking to a salesperson.” —Kevin Van Gundy
One advantage of having a free tier or freemium product is that people can try it for themselves. Then when you do have a sales team, those enterprise buyers will hear good things about your product from people who are already using it.
Ben also cautions against trying to operate with no sales team at all. “For every Atlassian that's been incredibly successful without a sales force,” he says, “There's thousands of companies that have reached their full potential because they've built really good sales teams.”
That’s consistent with something we’ve observed at Neotribe; it’s easy to get someone to swipe a credit card for $10 to 100 per month. But once you get beyond that, there are usually multiple people in an organization who need to agree to a purchase decision. Half the value your sales team delivers is delivered after they get the company to a “yes”, as the rep shepherds it through finance and legal departments and gets purchase orders written up and agreements signed. Startups that want to navigate a significant purchase cycle without a sales team put a big burden on their customer to navigate it for them.
One way to bypass some of those hurdles is to find channel or resell partners who already have sales agreements in place with large enterprises. Once again, Kevin warned founders to be careful what they wish for, direct sales teams are usually a better way to start.
“Be thoughtful about what the successful outcome looks like for that channel motion,” he said. “I see a lot of organizations start the BD (Business Development) motion really early because, like, ‘Oh we got some inbound from a big system integrator, we're ready for partnerships.’ They don't recognize that just like there’s an enormous number of folks that go into supporting any single rep in a sales organization, there's an enormous amount of BD people, product engineering, partner marketing, and other stuff that goes in behind any partner in a channel strategy”
When should a startup hire its first rep or sales leader?
At Neotribe, we often talk to founders whose backgrounds are 100% engineering and 0% sales. Their first instinct may be to hire a sales rep or director of sales, but there are good reasons to hold off on that decision.
As Ben put it, “Nobody knows the problem that you're solving better than you.” Getting that first rep up to speed can be massive time-suck. Perhaps more important, your first few customers teach you a ton about how your product needs to be developed and presented if it is to succeed in the wider market.
“Especially if you’re co-founders; if there’s two of you, there’s no excuse not to build a set of customers that help you understand exactly the dynamics that you're looking for,” Mark added. “Take your time and make sure that you've gotten some acceptance from at least a handful of customers.”
We tell our founders that every startup goes through two phases: At first you’re trying to prove that your product is valuable to customers; that customers will not just pay for it but deploy and integrate it. After that, you can focus on proof-of-market and scale it out. When you try to prove market and scale the business before you've proven value, that's where startups get into big trouble and run out of money.
At Neotribe, we feel that proof-of-value needs to be driven by founders. Once you know that your product is of significant value to your target customer base and you’ve figured out what the message is and what it took to get them over the line, that's when you bring in a salesperson to try and help you scale that effort.
If you’re a founder CEO, there’s another reason to build your sales and marketing muscle: You’ll never stop selling.
“I’ve dragged every CEO I've worked with around the country. We go on road shows together. The three things I recommend founders look for [in a sales director] are, one: You should inherently trust this person; you're gonna give this person a bunch of equity, you're gonna invest a huge amount of time with them, you're gonna fly around the country with them; you should inherently just feel like they're your person. Two: You should like them for all the same reasons. And three: They need to just be as in love and on fire for your company and the product you've spent years working on, because they're gonna get yelled at and told no for the next several years.” —Kevin Van Gundy
So there’s a pretty strong consensus against rushing to hire a sales team. There’s an equally strong consensus that when the time is right, it’s better to build your team from the bottom up, with a rep who’s ready to hit the street than to bring in a big time sales exec first.
As Ben advises, “Try to hire an individual contributor to start because if you're the VP of Sales or the Chief Revenue Officer, for a company that has less than 20 people, guess what? You're selling. You have a big title but you're rolling your sleeves up and selling.”
The same principle generally holds true for sales development reps (SDRs). Hold off on hiring them. That’s work your sales reps should be doing. In the early stages, as Mark says, “[Your rep] owns the whole territory; they own every aspect of sales from finding customers, to closing customers, to understanding their needs and keeping them happy.”
How should I price my product? (TL,DR: $50k/yr)
We’re only half-kidding about that $50k number. It’s almost like the number Pi showing up everywhere in nature; $50K just magically shows up as the average price for any enterprise product.
People underestimate how hard it is for a sales person to drive a deal, and whether it's a $10K deal or a $250K deal, the work often isn't materially different. There's a limit to how many deals a rep can do a year, and often if the deal size is under $50K it's hard for that rep to deliver enough gross margin to make the model work. Another pricing factor to consider is that large organizations get uncomfortable if your product is too cheap.
From the perspective of a large enterprise, a lot of paperwork and legal fees go into onboarding a new vendor. Putting himself in the role of customer, Ben asks, “Am I going to burn 40 hours of one of my lawyers’ time to get an MSA in place with this small company for a product that costs $25,000 to $30,000? The answer is probably no.”
If you really are delivering breakthrough value, you should be able to ask for an extortionary price. You might not get it but you should have earned the right to ask for it and then get negotiated down, as opposed to walking in with what you think is an entry point price that you think the customer is going to see as a no-brainer. The entry point price might be sending the customer the opposite signal.
“I was one of the first sellers at Tray.io,” Kevin recalls. “Essentially we said, ‘Okay this is what the best-of-breed amongst our competitors is charging and we're gonna ask for a little bit more than that.’ We said, ‘Hey, it's $100,000,’ and they said, ‘Absolutely not!’ We asked, ‘Well, what would you pay?’ They said $60,000 and that was our pricing at the next iteration.
Out of the initial group of customers that you approach—once they understand the value and that your product solves pain, and it gives them a personal win—if at least a couple of them don't say your product is too expensive, then it's too cheap! —Mark Smith