Sales Strategy · Business Strategy

Is it ok to hire Commission Only sales reps for my B2B2C mobile startup that I've bootstrapped?

Chirag Rana

April 29th, 2015

I've bootstrapped my mobile startup and developed a complete product. Investors wants to see the traction with paid customers before funding my startup. My target audience is small and medium businesses. My app requires door-to-door sales with free trial period with no contract to sign. I've subscription model. Since I'm following Groupon type business model, I need a big team of sales reps. I've few options.
  1. To hire Commission Only sales reps
  2. To hire business interns
  3. To hire some experienced sales person by sharring sweat equity.

I've read horrible stories for all these options. My questions are:

Is it ok to hire Commission Only sales reps?
What are the terms should I use in contract while sharing sweat equity? What if person doesn't perform well in this case?

Thanks in advance.
Chirag Rana  |  http://www.chiragrana.com  |  973 552 4474

Larry Shiller

April 29th, 2015

You have other options: 1) Get the first customer yourself: Critical to understanding what it takes to sell. 2) Ask your customers/prospects how they like to be sold and why. Their answers will tell you if sales reps are the way to go and what the alternatives are. 3) Find a sales/marketing sweat equity partner who is experienced in the industry you're in. 4) Partner with a large firm that wishes it had your product to sell.

Brian McConnell

April 29th, 2015

No! Commission only is code for "I can't even pay minimum wage!" I am sorry to be blunt but you need to figure your business out before you induce people to work for you under terms like that. If you can't meet bare minimum terms of labor, you have no business bringing on (unpaid) employees. Do the work yourself and if it's too much, and you are making enough money to hire people, then do that. Sent from my mobile phone. Please excuse any typos or discombobulations.

Rob G

April 30th, 2015

Chirag; as you can see there's no shortage of opinions on this subject of sales, sales models, sales compensation, vetting candidates, etc. As you are likely learning sales is not a simple subject to either master or manage and sales does not come in just one flavor - 'one size does NOT fit all'. You are asking a crowd of varied backgrounds and experiences to help answer a few very specific questions("is it OK to hire commission only sales people", "what contract terms should it use", etc.). These arethe wrong questions at this stage of your company and you are, IMHO, putting the cart before the horse and thus getting wildly variable answers. We (this group) has inadequate data thus you are getting answers that are all over the map. This is akin to asking: "i'm in the transportation business, so what vehicle should i buy and how much should i pay"?. Someone who's run a taxi business and assumes you are transporting people across town will tell you to buy a Prius. A guy who has run a trucking company will tell you to buy an 18 wheeler. Someone who's in the business of transporting wheat around the globe will tell you to buy a ship and the texas oil tycoon will tell you to buy a pipeline. Wrong questions + incomplete data = not-so-actionable feedback. What we do know is this:
1. "i have no sales background": That's fine, but you need to back up a bit here and do some simple analysis of what you are selling, to whom and at what price (NPV and LTV really) before you can even begin to answer the questions you are asking here and, quite frankly, you are asking the wrong questions for this stage of your company.
2. "I tried partnering with marketing agencies for my enterprise customers last year and faced failure so I'm targeting on SMB. Learned many lessons in past 2 years :)" This indicates to me that you are to a significant extent shooting in the dark. It does not surprise me in the least that this model didn't work so well. You don't hire a "marketing agency" to sell a startup product to enterprise customers and you don't hire direct sales reps to sell to SMB (unless your NPV and LTV are unusual for SMB prospects and over a certain threshold, say $10k and $20k or so respectively) - you've got it almost exactly backwards.

IMHO, rather than continuing to shoot in the dark you need to back up and do some higher-level analysis of what you are selling, to whom and for how much. Only then can you land on a proper selling model and only then can you land on whom to hire (direct sales, channel sales, no sales (and go with marketing only), commission only, salary plus recoverable draw based on commissions, equity kickers, inside sales, outside sales, a combination, etc.) and how to compensate them. Full disclosure, i am not interested in running your sales org or being a paid consultant/advisor, but i'm happy to give you some actionable pointers and help however i can. 

Robert Gordon Co Founder at OurRecovery "Because No One Can Do it Alone"

April 29th, 2015

Sales people in general are all crazy... that's not a fault, they are motivated by different things. Regardless what you do, if sales growth in general or key account growth are the keys to yur business, you need someone who understands sales, sales people and ow to hire and motivate them... The equity plus override should get you there... just be darn sure you check references [including former clients] and the demonstrated growth they claim.

good luck... it's going to be a rough ride... you'll love it!!!

Gordon Miller CEO at G3Systems, Inc.

April 29th, 2015

I only use Commission Only Sales Reps. If they dont perform they dont eat. Bad ones dont last long and good ones get rich. I run all ops at 20% gross margin and split profit with sales team 50/50, or about 10% of the deal. Most start at 5% until they earn those types of margins. .... Gordon G. Miller III CEO G3 Systems, Inc. 804-852-8999 Direct gordon@g3.com http://www.g3.com

Robert Gordon Co Founder at OurRecovery "Because No One Can Do it Alone"

April 29th, 2015

Actually I was thinking... I need help with UI/UX for the app I'm building on addiction... I could help you vet the sales guy/gal and process... you could help me make good decisions on design...
I am NOT proposing I want the sales job... I've had a good deal of experience with inside and outside sales forces and could give you a sounding board...
thoughts?

Gordon Miller CEO at G3Systems, Inc.

April 30th, 2015

If you are giving up equity to sales people you are insane.  We did that on my 2nd company and it cost me a fortune to buy back that equity at 3x market value down the road.  Reward them with 5%-10% on gross sales if you have that much margin and make it in perpetuity for as long as they remain with the company.  That is all you need.  Equity is for suckers because it is only good if you plan to sell the company.

Brent Wittke CEO, Co-founder at Resale Therapy

April 30th, 2015

If the product is already built, and your value proposition is validated and compelling, then you should get outside the building and sell it yourself.

Your perceived need for a large sales force is based on the belief that you need to scale now. You need traction, adoption, and conversions. You can demonstrate all of those with as few as 20-50 customers. How long would it take you to sell 20-50 customers? If there is a validated pain point and a good value proposition, I'd say less than a week.

Get out there! No one is more capable of selling your product, than yourself.

Once you're funded then the need to scale becomes relevant. That will be the reason you become funded. 

Andrew Lockley

April 30th, 2015

More like 3-6mths!

Chad Williams CEO at SurveyLocal

August 5th, 2015

A bit late to the party but maybe this will help someone else. I've recruited, grown and managed large (50+) teams of direct, cold, salespeople under various compensation structures. With my current company we sell mostly to SMB's via cold calls. 

The best option based on the info I've gathered from your posts is to recruit a sales leader who is in the top 5% of B2B cold sales. You can either do a small amount of equity which vests after some milestone, or a decent base + commissions. You should NEVER outsource this or rely on commission only reps during the early stages. You desperately need the early feedback from your first sales to adapt your process and product. You also need to tightly control the sales experience to make up for the fact that your product is an unknown and likely buggy.

After you have a small, steady, customer base, you can use commission only reps but you need to have the process ironclad by then. We have found for professional level B2B selling, however, that it is almost always more profitable to have a few killer reps that are highly paid, than an army of average reps that need constant motivating, rehiring, training, etc.