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Summary:

With downloadable apps taking over the enterprise, how do startups reach enterprise decision makers and purchasing managers? The answer: Your inside sales force.

inside sales
photo: dotshock/Shutterstock

With downloadable apps taking over the enterprise, you’d think the days of six-figure enterprise software deals would be drawing to a close. In truth, enterprise deals are alive and well. But if users are doing the downloading, how do enterprise decision makers and purchasing managers get into the picture?  The answer: Your inside sales force.

As I’ve covered previously, the route to the enterprise begins with freemium app distribution and conversion. The second phase is Inside Sales.

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Inside sales are the future of enterprise sales

Just as there has been a sea change from outbound to inbound marketing, the tech industry is experiencing a similar wholesale shift from outside direct sales reps to inside sales teams. In fact, inside sales jobs are growing at 15X the rate of outside sales roles. Not only is it the future of enterprise sales, it’s also likely all you can afford at the early stages of a company’s growth.

In contrast to traditional outside sales, which is done in-person and tends to involve extensive travel and time expenditures, inside sales is professional B2B sales done remotely via phone, email and chat. It is strategic selling that requires managing a deal through a multi-stage process, multiple touch points with the customer, establishing value and an ROI for the product and supporting complex purchasing methods, like procurement departments, but importantly without visiting the customer.

This is about closing mid-sized transactions in volume – Salesforce.com was built exclusively this way during its first five years. It’s also how you move the billing relationship from a user and credit card to a company so you can grow the deal over time. Recently, there have been many examples of apps that started with a freemium product but offer compelling enterprise value that is monetized by inside sales teams, including Box, Evernote, FreshBooks and Expensify, and Jigsaw, which was acquired by Salesforce for $175 million. And across the many companies I have worked with, this is a common approach that has led to success.

The elements of an inside sales team

So how do you know if you’re ready to build an inside sales team? Truthfully, if the product is shipping it’s never too soon.  A key test is the price at which you are converting free users to paid. There are a lot of apps that only charge 99 cents or $4.99 a month for the premium version. That won’t cut it – your margins won’t support a sales force. You’ll need a price point of at least $25 to $50 per user per month to validate the value of your product and make enterprise sales work. At that price or above, a workgroup of 10 to 20 users can be sold within a customer account for $5,000 to $10,000 per year. Over time, you’ll be able to increase the deal sizes through premium features like administrative functionality.

Your first inside sales team should consist of the company founder/CEO and two salespeople. My advice is not to hire an experienced VP of Sales to build your team. Instead, the founder/CEO needs to become a student of the science behind sales.

In the early stages, the founder/CEO can sell the product better than any high-priced rep or VP. That’s because emotion plays a big role in buying new technology from an unproven startup. No one creates emotion and enthusiasm like a founder. This is what you should look for in your first sales hires as well. Your first reps are likely to be a colleague or a rep with inside sales experience from other startups.  They aren’t likely sitting at Oracle.

First steps and expectations

To get started, hire two reps so you can train them together and expect that one won’t make it. Your first reps should sit next to the founder/CEO, who should plan to spend time sitting in on sales calls and monitoring progress on a daily basis. Salesforce.com’s product is the gold standard for managing inside sales, but there are a number of other tools to try:

toolkit

(Disclosure: The author’s company, Rembrandt Venture Partners, is an investor in InsideView and PaperShare; and the author serves on the board of Webtrends.)

This is how the founder/CEO figures out how to close mid-size deals in volume, and just like any other start-up situation it takes a lot of trial and error until you achieve traction.

The typical inside rep will make $40,000 to $60,000 per year in base salary. Including bonus, their on-target earnings (OTE) will be between $100,000 and $120,000. Check Payscale or Glassdoor for the latest figures. It’s obviously higher in places like the Bay Area, Boston and New York, but it’s important that your first reps sit down the hall from you. Over time, it will make sense to grow this function in lower-cost areas such as Salt Lake City, Austin, Seattle or Scottsdale, which are all known for having a lot of inside sales talent and experience.

Most Enterprise 2.0 startups are subscription businesses, so quotas should be tied to Annual Revenue Requirement (ARR) or Monthly Recurring Revenue (MRR) with accelerators for contract lengths greater than one year. A typical quota for your first rep is $500,000 of ARR. Over time, enterprise sales reps often settle around a $1 million quota. However, for the first six to 18 months, you should pay commissions based on the number of deals closed, regardless of size. This helps build momentum within the team and recognizes you don’t really know what deal size and volume to expect.

Even if you have a popular app that has some paid conversions, it’s not a slam-dunk that you will be able to successfully transition to inside sales. It’s possible that your product is better suited to single users rather than teams or that you’re not priced competitively compared to the perceived value.

Nevertheless, don’t get discouraged. In practice, if you can close some deals with an inside rep or two, you can sell more with more reps – the scaling is nearly linear. Once you’re really cranking at a high level, it’s probably time to deploy outside direct salespeople to sell very large deals to the largest enterprises.

Scott Irwin (@scottirwin) is a general partner at Rembrandt Venture Partners, where he focuses on Enterprise 2.0 and SaaS investments.

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Photo courtesy of dotshock/Shutterstock.com.

  1. Great post Scott- Enterprise SaaS has brought with it sales 2.0, which as you said, benefits from inside reps being able to transact larger and larger quotas through volume and scale.

    I would add that the more deeply the cloud app is differentiated, and the more streamlined the trial experience and product ease of use/time to value, the more possible it becomes to scale revenue non-linearly as you add more reps.

    This can be achieved by automating certain sales functions – like user activation and within-product education/tips, and targeted outbound emails, and also through scalable high-touch activities like one-to-many product demo’s.

    Achieving a solid product usage and data synchronization architecture that feeds into Salesforce and your marketing systems also increases rep productivity- quotas and transaction volumes.

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  2. Very good article, Scott. The understanding of sales, revenue and customers (SRC) are critical for entrepreneurs to succeed with enterprise startups. Thanks for posting it.

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  3. Trish Bertuzzi Monday, April 15, 2013

    Interesting post with great information. If I may be so bold to add a point…

    In our 2012 SaaS Inside Sales Metrics and Compensation study we discovered that, on average, if you are a SaaS company selling via inside sales, 57% of the pipeline is delivered via marketing. That means you need a really strong demand generation engine particularly at the outset when you have no branding or name recognition.

    To add to that you also need a kick ass database filled with spot on data that focused your team ONLY on those people who are in your sweet spot.. which means you need to know where your sweet spot lies. If you do not have the demand generation engine combined with truly focused intelligent outbound your team will fail regardless of how cool your technology is.

    Thanks for listening and I look forward to learning more from you!

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  4. Nadim Hossain Monday, April 15, 2013

    Scott – great post! One of the most important implications of the rise of inside sales, I would argue, is its implication on marketing. While there is an evolutionary parallel between inbound marketing and inside sales, the right marketing approach to support inside sales teams — at least for considered purchases, such as software — is ‘high-velocity marketing.’ I write more on that on my blog:

    http://www.nadimhossain.com/1/post/2013/04/from-inside-sales-to-high-velocity-marketing.html

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  5. This post is super timely as we are Rexter are in the exact parameters that you described: 10 – 20 person work groups at ~$5 – 15k recurring. At Rexter we provide next gen contact management (we call it professional relationship management). I know we need to build up an inside team beyond me (the CEO & Founder) so your guidance is great. Thanks much!

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  6. Scott, I would add that you should consider getting a customer success (retention) focused person in the team as soon as the finances support it. Early in your lifecycle, referencable customers are key for growth and of course churn is expensive.

    A very helpful article for founders – I will be sharing.

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  7. Giri Fox, RightScale Monday, April 15, 2013

    Also travel-time to see people in person is a problem for sellers in major cities. Even senior people end up being on the phone a lot… in which case you’re already getting field sales people to partially act as phone-based reps.

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  8. Justin Roff-Marsh Monday, April 15, 2013

    I’d go further. Inside sales is not just the future of enterprise sales — it’s the future of sales, full stop!

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  9. Gary-Yau Chan Monday, April 15, 2013

    Wouldn’t inside sales depend on customer segment? For those clients that need more handholding and are a bigger enterprise, it would require more than inside sales to keep the b2b partnership together.

    Gary
    http://www.community.salesmoto.com
    Q&A for Enterprise Sales & Marketing

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  10. Great article – Inside Sales (fuelds by Free App/Freemium) is the most effective model today. Additionally, Inside Sales approach is really measurable and you can track these metrics below which were not as easily measured in traditional field sales organizations:

    1-Activities: Dials:Connects, Dials:Opps, Dials:Deals
    2-Pipeline: Pipeline Today, Pipeline History, Sales Funnel Conversions, Sales Cycles/Rep
    3-Sales: Win/Loss Analysis by Rep & Stage, Bookings Trends, Forecast by Pipeline Stages (rather than traditional Forecasting Stages)

    And there are other metrics too that apply really well to Inside Sales!

    Regards,
    Zorian Rotenberg
    VP, InsightSquared (#1 Salesforce Analytics)
    http://www.insightsquared.com

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