a16z Podcast - a16z Podcast: Getting Sales Right

Episode Date: March 4, 2015

It may seem like good apps or services sell themselves. That's what the whole viral thing is all about, right? Wrong, says Daniel Shapero, who helped build LinkedIn's enterprise sales team from a small core group to more than 1,200 people all over the globe. Shapero joins a16z General Partner Peter Levine (an engineer who jumped into sales before taking on his first CEO gig, and who now also teaches a class on the topic at Stanford) to discuss the right way to build a sales organization -- from answering the basic question of why sales?, to hiring, compensation ... and the inevitable culture clash that occurs when salespeople and engineers meet.

Hello, I'm Peter Levine from Andresen Harwitz, and I'm here with Dan Shapiro from LinkedIn. Dan, welcome. Thanks, Peter. Thanks for being here. Yeah, my pleasure. Maybe just for, you know, for folks listening a little bit about yourself and, you know, what you have done at LinkedIn and what you do now would be awesome. Happy to, and thanks for having me here. Sure. So I've been at LinkedIn for about six and a half years. And for the majority of my time there, I was responsible for building out the talent solutions go-to-market organization. And so for those you know LinkedIn, as a membership, you now realize that about 60% of how LinkedIn makes money is through serving enterprises to help them hire great people. And so we provide enterprise tools for those companies. And I was responsible

for the sales team that brought those products to market to about 30,000 enterprises around the world. And so by the time, you know, when I inherited it, it was probably about a $40 million business and grew it to over a billion dollars in the span of about four years, team of about 1,200 people spread around 27 offices on most continents. So, amazing ride. And in the last three months, I've done a complete pivot now. And I'm actually on the product side of the organization building great products to help people find jobs. So it's been a big shift and a lot of fun. Great. Great. Well, again, welcome. One of the, you and I have talked about this. And it's just, it's always interesting to me because when I had originally

thought of LinkedIn before I got to know you, I would have never imagined that LinkedIn, of all companies out there, would even have a sales organization. And here you say, you manage an organization of 1,200 people and, you know, all this revenue. Why, you know, how did all that happen? I thought it was sort of this viral thing. People just, you know, kind of downloaded the product and used it. And what was the purpose of building a sales organization and at that scale and maybe some, you know, some of the rationale there? Yeah, no, I think it's a very fair question.

And from my perspective, it is true that, in fact, the people that use LinkedIn, the recruiters that use LinkedIn, taught us about the value of the product before we understood it ourselves. And we'd always thought about the way that we were going to serve the market. which is actually quite different than most enterprise sales teams, is to actually serve the end user first. A lot of enterprise software tools are designed to serve the decision maker. And we thought that if we focused on the end user, then we can create the most value because that's actually the person doing the work.

What we learned in that process is that although users understood that the product was interesting and useful, the market had to learn how to value what we were offering and therefore learn what it's worth paying for. And then similarly, most organizations adopting a disruptive product like ours, had to completely retool their team, their process, the way that they organized themselves in recruiting. And so they needed a partner to help them understand how actually to apply the technologies

that we'd built to what they were doing. How to phase that out over multiple years, in many cases, it's a fairly aggressive change to shift out an old recruiting practice and move into a new recruiting practice, and that takes help, and help that we couldn't expect most teams to just figure out on their own. And so to some extent, thinking of it as a sales team, is probably a narrow view of what our team does. What our team really does is to help understand how to quantify the value of what they're getting themselves into

with a partnership with LinkedIn and understand how to adapt their practices to actually get the most value out of those tools. And what we've found is that those two things are incredibly hard to do through the product alone. We've talked quite, you and I, outside of this, we've talked quite a bit about the value of a sales organization. And you know, you kind of express it as this,

organization that teaches a customer about the product and understanding the value, how do you measure the return on that? And how do you think through that? Because it would seem like, okay, like customers understand it. What do you find? And once you're talking with these customers, how is that translated into value versus, let's say, not doing anything? Yeah. Well, I think there's a couple ways to think about it. Like a simple way is you could basically say, at what price could I sell my product without a sales team? And my guess is that for most products, you could actually find a price that the product would,

in theory, actually sell itself at scale. The truth is that we found that price to be materially lower than the value we can communicate to the market through people and through a sales team. And so you can actually go and buy LinkedIn's Enterprise product suite online, buy yourself the credit card. And the truth is that most people don't

because they want someone to help them make the right decision about what to buy in a consultative way. They want to make sure that they're making the right decision about is it really worth my money. And they want to point of contact that's going to help them along the way. It's a big decision. And if you're putting your career on the line, you want to make sure there's someone you can talk to you to make sure you're doing it in the right way. So I think, you know, you could say if Salesforce or Oracle or success factors basically slash prices by 70 percent, could they sell their products online, like maybe. but it would be a lot easier to have, you know, an organization that actually helps the market

understand the value that they're getting. Interesting. Maybe we can, you know, you've had a lot of experience, great experience, managing large sales organizations, and I'd love to sort of break things down, maybe operationalize some of the aspects of what is it like to manage, you know, what are, what's, what's the, what's the, what's the day in a life of a VP running a 1,200-person sales organization? How did you spend your time? And then I'd love to get into sort of hiring, best hiring practices that you had and maybe firing, like when do you take someone out? Maybe talk a little bit about forecasting and some of the

other elements that go into what probably is a big part of your day-in-day-out job as, you know, a VP running an organization like that. But maybe like, what is, what's your life like? What's the day in the life of Dan Shapiro as VP of sales at LinkedIn? Yeah. You know, the funny thing is it's changed over the different phases of the business. And so I think there's like a lot of common, which is, you know, you always have to feel connected to clients.

You always need to be meeting with clients. And even as you scale and any given client doesn't become important in the grand scheme of, you know, delivering for the business, you still have to know what it feels like to be in front of a client, what are their reactions, and is it changing or is it the same? And so that was a consistent theme. Another consistent theme was that you got to be in front of your people. So we had a team spread across 27 offices around the world. I need to go visit. You need to go see what it feels like to be in local markets. And you can learn more in two days in an office than you can talk in them over the phone for a year. And, you know, you always want to be in all the

major hiring and promotion decisions. So I always found that those were the highest leverage moments because that's how you, those moments are where the organization learns what the culture really is. Who do you hire? Who do you promote? Who do you let go? That's where culture gets defined for my perspective. I think what's changed is that probably at any given point, half of my time was devoted

to a problem of the day. And so early in talent solutions, the problem of the day was, How do we explain to the market what we're about in a way that's easy for them to understand? And so it was actually a product marketing problem, really. Like spending time with customers understanding how to distill the problem. Later it became a scaling problem. We actually knew how to communicate to the market, but we didn't have any of the systems, processes, technology in place to go from 50 people to 500 people. And then later in the business, it became about leadership development.

And I basically needed to get to a place where we had just massive depth of talent that at some point I could step away from the business. And the business would continue to crush it as they'd done when I was part of it. And so I think that any great leader understands the problem of the moment. And if you're lucky, you've got enough depth around you where the problem of the moment can be defined by what is going to keep you from scaling over the next 18 months. I think where a lot of people get struggle is where the top leader is basically thinking about the business. is three to six months out. And I think a lot of sales leaders do because they grew up in a quarter-to-quarter individual rep capacity versus thinking about, okay, if I woke up a year from now and realized that we weren't scaling anymore, why would that have happened? Okay, I need to start

working on that right now. And if you've got good people, you can do that. Yeah. Our listeners to a large degree are entrepreneurs who are running companies. Maybe the company doesn't have a sales organization yet. And they're, you know, thinking about, okay, who do I hire? How do I hire sort of the first person, first couple of people? Maybe just, you know, what's your philosophy on hiring? You mentioned that. Like, you know, it's a really important greeting hiring and then, you know, firing, which is inevitable over the course of one's life as an executive. So are there takeaways on, you know, what do you recommend from a hiring standpoint? What do you look for? Maybe some advice to folks who are thinking about bringing on, you know, this new organization called

sales and kind of, you know, how do you provide some comfort and some advice to folks starting out and thinking through that? Yeah. I think it's a great question. And one thing that I would say is that any time that we launched a new office or a new product and we basically you to hire the first person to go seed the opportunity. We've always overhired. We always found someone that we knew could do much more than what we knew the initial job would require. And we almost, oh, we never compromised on culture fit. I think we generally never compromised on culture fit, but particularly when the first person was going to lay the groundwork, we knew that everyone was going to essentially come into work as we scaled and look to them and say, what does success

look like? Well, you're the successful person that's been around. I'm going to emulate you. And so I think that what I've found is to not, to be a little bit more aggressive on finding a person that can do more than the role and to make sure that you think that person actually will define the culture that you feel good about over the long term. I think beyond that, I think probably the biggest lesson I learned about hiring salespeople is the easiest way to assess a salesperson is to get them to sell to you. And so, like, we did this process where we would go through all these interviews and then at the end of the interviews, like six interviews in, we'd give you a mock sales call.

And people that had crushed all six interviews would fail the scales call. And we're like, how are we doing this at the end of the process? This should be the first thing that we do. And so I think for us, simple thing. Like give a person, a PowerPoint deck, or a context in which to come in, find someone that you know that has sales experience

and have them sit in with you. They'll know the difference between what a good salesperson sounds like and a bad salesperson. Good salesperson asks good questions, bad, surrogacy, people talk a lot. And I think that that mock moment will tell you probably about 60% of the problem, and the remaining 40% is mostly about culture.

Maybe on the other side, so, you know, we, I certainly have, you have, it's inevitable, we're in these situations, you go hire people, and some don't work out. Yeah. And so how do you think about sort of that process as it relates to sales? Is it, you know, one, a lot of people view sales, and, you know, we all, as a numbers game, okay, you make your quarter, like you stick around till the next quarter, right? And every, you know, every quarter you're measured by your results. I was sort of thinking how you all think about sort of letting someone go,

and at what point should somebody think about that? If you miss one quarter, do you give a person another quarter? If you miss two, like, you know, there's always these discussions. how long is enough, maybe just some advice to folks who, you know, when it doesn't work out, what do you do and what might be some, you know, ideas around that? Yeah, I think those are always the hardest discussions. And I think anyone that acts like, has the bravado to act like, oh, it's easy for them to know when to fire someone, I think that those people are in middle management.

They're sort of relegated to middle management, right? because the job gets even harder as you're talking about more and more capable people in larger and larger jobs with more and more scope. And the difference between, there's no like good and bad at that point. There's degrees of capability to go achieve the task. So I think that sort of a couple caveats, and then I'll get my answer. My first caveat is that some of the people that took the longest to mature as salespeople had the highest potential in the long run.

So we hired some people in the sales roles that were off profile of a typical sales. person. They came from management consulting. They came from client services. They had something about them that we knew could communicate at an executive level. They didn't really know selling in a traditional sense. And some of them took a long time to get there. And conversely, there are some people that ramped really quickly but never got to a plateau that we were comfortable with. And so I think it comes back to a is the person, performing against your expectation. If not, can you explain why? And do you believe that that gap will be bridged in a period of time that you're comfortable with? I think there's people where I've

said, you know, they're not getting there, and I don't believe in them. Or I actually can't communicate why they're failing, and that really troubles me. Like, something about what they're doing is not working, and I can't even tell you what it is. I can't believe in that person, because I don't know how to help them through that process. Where other people, it's like, you know what? They're failing and they're still failing. But I know if they just get this one thing right, then it'll unlock all of this potential. And I'm willing to make more, you know, have a larger bet. I think one of the things that I've found very effective is I always set a time period for myself. So I say, okay, great. It is July. By October, I'm going to make a

decision. And in October, even if I still feel in the middle ground, it's a no. So I think you can, and then sometimes I realize I give myself more time or less time. But somehow that deadline for myself gives me the power emotionally to make a hard call sometimes. I'm curious. And by the way, I usually share that date with the person. Yeah. Like, we agree that it's not working now. And in October, we're going to come back together and decide whether we're there or not.

Right, right. Right. You know, that's a hard conversation, but it's actually a really healthy one. I'm curious, just based on your experience and just industry-wide, do you think there's sort of a hiring, batting average that one might take away, like, you know, of 10 people I hire, how many are going to work out and how many do? Because what I find often with, well, myself included in entrepreneurs, it's like, we all know that some people aren't going to work out. Yeah. But how well am I doing? Like, if all 10 don't work out, clearly I'm doing a lousy job. And probably if all 10 do work out, that's outside, you know, those are outside the normal averages, both of those,

right? And I'm just sort of wondering, is it half that work out? And, you know, let's see, you know, 70%, like, what do you think the nominal rate, like, how should people measure themselves when they think about building out salespeople and hiring them? What do you think that that sort of looks like? I'm just sort of curious if you have a number. I don't think I do. And the reason I'm struggling to think of a sort of a benchmark is that some roles, like hunting roles early in a startup's career, have tremendous variance of success. Some people crush it, a lot of people don't, and you're probably going to cycle through people pretty quickly. Yeah. So they're the success rate maybe, what, less than 50 percent? One in three. Yeah, so, okay. That's a true batting average.

Yeah, or, you know, 40 percent. I think you're in the right ballpark. On the other hand, hiring a to manage existing relationships of senior accounts, you can find places where you have predictable capability. And you might not always get the best person, but the difference between the best person and a good person might not be that huge. Got it. And so, you know, your batting average to finding an amazing person still might be one and three, but actually 60% of the time you find a pretty good person. And that might be sufficient for the business. So I think the variability of the performance of the job kind of plays into it, too. Okay. I find out of the performance of the job kind of plays into it too.

Okay. I find leadership's the hardest thing, though. I think leadership adding average is really hard to do at sales leadership. Yeah, like really not homegrown, solid external sales leadership. And at least in a startup, most people, like the thought process that we've seen is, you know, okay, we're at 50 people. We need to be at 500 people. Who has managed a 500, been a manager in a 500 person org?

Okay, great. let's go bring them into our org. Okay, as it turns out, they're not comfortable with ambiguity because 500 people sales orgs don't have a lot of ambiguity, but yet that's the problem of the day. And so we find that it took a lot of practice to get that kind of signal, right? Yeah, interesting. Maybe, you know, switch a little bit to just your thoughts on forecasting. I always, and we've discussed this perhaps in the past a little bit on forecasting accuracy

versus not. And like, is it okay to be, you know, is it okay to forecast low but then come in high? How do you sort of think about that as you have an organization at scale? How important is it to forecast correctly? And what are the ramifications of incorrect forecasting, whether low or high? and what do you do about that? Yeah, that's a great question. I've actually struggled with this point

because early on I came into the team and I was like, why do we spend so much time talking about this? I mean, forecasting. Yeah, yeah, yeah, yeah. Like, of all the things to be talking about, like, why this? And I think one of the things that I discovered was that forecasting is a pretty good starting point for a discussion about do you really know.

what's going on. And so if you don't think about it necessarily as the outcome is an accurate forecast, but the outcome is a clarity to management of do you really know what you're talking about. And do the things you predict actually play out. And so I found it to be very helpful to assess people beyond the actual goal of the forecast. That being said, we're incredibly good at forecasting within the sales team at LinkedIn to sort of mind-blowing capacity. And it is allowed the business to invest more aggressively on the front end around the non-sales organization. Explain, take me, maybe dig, you know, click down one step there and take me through.

What does that mean? Yeah, let's just say. Let's be simple about it. Let's say that I forecast $8 million the year. And in fact, I did 10. Well, if I knew that 12 months ago, we could have hired four engineers that could have been building new products that would have helped us stay ahead of the competition. In not doing that, I'm essentially starving the business of potential investment resource.

And so part of my goal, you know, you could think of, if you want to take a super Silicon Valley view of sales, our goal is to fund engineering. And my ability to do that successfully requires me to be a good forecaster. Yeah. I think that I've seen a couple places where I think forecasting goes a little awry where you essentially apply forecasting rigidity to new businesses. And the conversation is, you're just launching a new product. and you said you were going to do $3 million and you did $2.5. And why were you under? And it's like, we just launched

the business. It's all guesswork at this point. Like, let's not talk about the delta. Let's talk about the why and why it wasn't what we thought. So I've seen a couple places where I think it can be counterproductive. Yeah. And how did you guys get so good at it? So I think scale helps.

The law of averages at that point. Because the law of averages play in your favor. And I think any SaaS business has an advantage because you're talking about subscription. But essentially what we've done is we've bifurcated the forecasting process into new business and existing business. And for existing business, we know what a customer with the following usage profile that we can see the upsell rate and the turn rate. And so on the existing business, we have incredible accuracy of guesswork. On the new business side, we've just hired

enough people and had enough people and we've looked at enough activity levels to know that if the following things happen, we kind of know what's going to come out the other end. And so what we tend to do is we take a historical top-down measure of, given the following things around pacing and where we are in the quarter and where we are in the year, we guess where we're going to end, and we map that to a, what does each team think that they're going to deliver? And those numbers are typically in a tight range. And that gives us enough of a triangulation to come pretty good. But we do a good job on this. That's great. That's great. One of the other conversation points always with entrepreneurs is sales compensation. Yeah.

And let me characterize it as engineers get paid a certain way. Here's the, here's sort of the typical dialogue that I might have with a technical founder, technical engineering group, would be engineers get paid a salary. There's no commission. There's no bonus. If somebody does a great job, they don't get paid more money. Yeah. And yet salespeople, they have typically a base and then a commission plan on top of that that is based on performance. How do you rationalize that? And why, you know, I've been in a lot of conversations with my engineering folks on why does sales, have to be on that plan. Like, why can't everyone just get paid a flat salary? Sure. And like, why doesn't that work? Yeah. And maybe it can work. I mean, it's a very interesting question.

Yeah. And I know a lot of organizations that try to change it to say, okay, I'm just going to hire salespeople who believe in our business and we'll give them stock options and grant them options and pay them a flat salary just like the engineering group. And we're all equal. Yeah. Why does that, does that, why? And yet, talking to sales, folks is like, well, that doesn't work. Well, why doesn't it work? Yeah, no, no, I think it's a great question. It's a really funny conversation because I think there's something at the heart of human nature about it. I think there's a couple things. I think first of all, one of the, there's sort of a couple sides to the conversation. One side is what is different about the sales role

that makes this work versus an engineering role? I think one of the things is that it's easily measurable and it's highly individual typically. And so you actually can know with the output of a person, which is really hard, if you talk to any engineer, like, what's an engineer worth? Well, this guy wrote more lines of code. Well, this guy wrote better code. This guy's code quality was higher.

This person ships faster. Like, how do you actually assess a person? And I think in sales, there's actually you have the ability to do that in a much more refined way than you otherwise do. The second thing is to recognize that salespeople get to hear no all day long. And so the need for emotional fuel

is a big part of being a salesperson, the need to have a rush, the high of having a win, and that when meaning something, and that when being visible to others, and that when being something you take home to your family, that's part of what gets salespeople to hear, no, eight times a day, and still want to pick up the phone again. And so I think that those are very different kinds of jobs

than traditionally what you need in engineers, or product managers or marketers that have, a different kind of job with a less individualized objective and a less sort of the other thing that I think if you're a fan of I think is Bob Sealdini the guy that wrote the influence book

basically says that for creative, expansive type of tasks giving people explicit compensation is actually really counterproductive. They tend to narrow their field of vision. They tend to focus on known solutions. For highly repetitive narrower tasks, paying someone per their direct

output actually drives higher output. And I think sales tends to sit much more in the former engineering, in the latter engineering sits way more in the former. Can I make one more? Yeah, absolutely. I think the biggest concern people tend their voice around this is like, does this brew us breed a sales culture that is the heart of evil in most tech companies? And I think what we've learned at LinkedIn is that compensation is not how culture is formed. Okay. At LinkedIn, if you want to make money in the year, you sell a lot of stuff. If you want to get promoted, which is really the path to earning for yourself and your family, to hire and higher opportunities, you have to be a complete team player. And so with that kind of short-term compensation but long-term focus on culture, you know, the way the people get ahead and the people really earn for themselves is actually to be that complete package. And that's created a culture that is not short-term focus and it is about, not just me, but my team. And I think that there's always this fear that I think entrepreneurs have,

that sales compensation somehow is going to ruin the culture of the company. I think that that happens at some places but doesn't need to happen. Yep. Interesting. You have a very interesting career in that you've moved from sales now into product. Like, I'm exactly the opposite. I move from, you know, most people move from product. You start as an engineer and then you go to product management. Maybe you do sales, but you move up the exact ranks, whatever.

I'm curious, what have you taken from the sales world and applied in your product roles? And is there, should people do more of what you're doing? And what have you learned in that process? Because I find it fascinating that you've actually taken almost the opposite step from a normal career. And I'm just like, what are the learnings, what are the takeaways? is what can be brought from your experience in the sales role back into the product role? Yeah, it's a great question, and I'm learning.

So I'll be curious how I'll answer the question a year from now. I think there's a lot of similarities between the role, despite the fact that they're so different. Like, in one hand, what makes a great salesperson and a sales leader, I think, is being able to empathize with an audience, and that's also what makes a great product manager. If I build this feature, how will people absorb it, how will people react to it, how will it make them feel, will make them feel good or bad or intense or calm? And I think

that great salespeople think about the same thing in terms of the environment that they create for their clients and their prospects. I think that great product managers are great internal leaders. They tend to be the ones in many cases that can rally the troops and align the troops around a cause. Salespeople do the same thing in front of clients. That being said, they are very different. And to some extent, I feel like I'm learning a completely new discipline. And my hope is that, however, my sort of my personal career path evolves, that being able to speak in both worlds will be useful, whether I'm in one or the other or sort of above above both in my career. But I'll tell you one thing, the jokes that people laugh at are very different

from team meeting to team meeting. Totally new set of jokes. Great. Great. Well, good luck to you in your new role. Thanks again. This is awesome and I'm sure we'll catch up. We'll catch up again soon. Like forward to it. Happy holidays, man. Yeah, thanks.