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Hiring More Sales People Won't Grow Revenues Faster

A while back I went to a venture dinner and heard Mark Leslie give a talk about how hiring sales people doesn't have an immediate effect on revenues, even after taking into account the normal 6-9 month ramp up where the new people aren't productive [linked below].

This was on my mind after talking to a former VP of sales for a startup we worked at together. The CEO fired him after 12 months. He was hired was to turn the sales organization around, and laid out a plan to do this. The plan involved a slow hiring ramp, and about 18 months to hit revenue targets. The CEO refused to accept the plan, demanding speed by hiring more salespeople sooner. Thanks to this brilliant intrusion into the sales VP's domain the company burned through cash too quickly, didn't meet revenue targets, and was severely cash-strapped the following quarter.

Here's what Mark Leslie had to say, echoing these experiences:

When we apply the MLC [manufacturing learning curve] to sales, we come to the following conclusion: The time it takes to achieve cash flow breakeven is reasonably independent of sales force staffing. It is, instead, entirely dependent on how well and how quickly the entire organization learns what it takes to sell the product or service while incorporating customer feedback into the product itself. Because the entire organization has to come up to speed, hiring a large initial sales staff does not speed up the time to breakeven, it simply consumes cash more quickly.

I just found and uploaded a PDF of the slides for the talk. Mark Leslie also posted a note at AlwaysOn summarizing his talk and articles.

Posted by Mark Saturday, June 18, 2005 1:49:00 PM | permalink |