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🌱 5-Bit Fridays: Why sales (and why founders fear it), how to build sales team, how to learn anything, the impact of social media homogenization, and schlep blindness
👋 Welcome to this week’s edition of 5-Bit Fridays. Your weekly roundup of 5 snackable—and actionable—takeaways from the best-in-tech, bringing you concrete advice on how to build and grow a product.
Happy Friday, friends 🍻
Earlier this week, I posted what’s probably my most ambitious deep dive so far. If you missed it, I definitely suggest giving it a read when you can. 👇
ByteDance | TikTok: Origins, How They Grow, and The Future of The Internet
Understanding the growth forces behind the most valuable startup on the planet, and breaking down concrete lessons from TikTok's road to 1B MAUs.
In other exciting news…on March 2nd we crossed 4,000 HTG readers! And I just want to say, truly, thank you so much to each and every one of you for subscribing, and giving me your time once/twice a week. It means a lot. 🙏
Here’s what we’ve got this week: 🌱
Why Sales, and why founders fear it
Why (and how to) hire a Head of Sales
How to learn anything: The Feynman Technique
The homogenization of social media is going to have some real consequences
How to find startup opportunity lying around right under your nose
Small ask: If you enjoy today’s post and wouldn’t mind ❤️’ing it in the header above, I’d be incredibly grateful. It helps more people discover my writing and helps this newsletter grow. Thank you!
(#1) Why Sales, and why founders fear it
Many technical or product-centric founders want to avoid sales. For starters, they think product excellence and market fit obviate the need for a formal sales function. Also, because they fear it.
When I was running my startup, this was hands down the part of the job I liked least. I’m an introvert, but even if you’re not, building stuff is almost always more fun than getting into a stressful sales mode.
For B2B though, as we’ve seen with every B2B company we’ve looked at in this newsletter, adding a direct sales function is inevitable.
In a post by Elad Gil, he argues that product-centric founders often procrastinate in building a sales force out of an unnecessary fear, which he says is usually a mistake.
You might be thinking, if your sales model is bottoms-up product-led growth (PLG), what’s the big deal? Your product does all the selling, so why bother thinking about sales earlier on?
And that’s a very valid question. Honestly, until reading Elad’s post, I wouldn’t have had an answer for you.
Now I do. So let’s get into it.
Starting with the impact of direct sales on revenue. Slack and Zoom—two legendary PLG companies— get a substantial % of their revenue from enterprise customers.
Slack gets 40% of their revenue from enterprise
"Our direct sales and customer success efforts are focused on larger organizations who have a greater number of users and teams and have the potential to increase spend over time... We had 575 Paid Customers >$100,000 of ARR as of January 31, 2019, which accounted for approximately 40% of our revenue in fiscal year 2019."
Zoom gets 30% of their revenue from enterprise
We have a unique model that combines viral enthusiasm for our platform with a multipronged go-to-market strategy for optimal efficiency... Our sales model allows us to efficiently turn a single non-paying user into a full enterprise deployment. For the fiscal year ended January 31, 2019, 55% of our 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing. These 344 customers contributed 30% of revenue in the fiscal year ended January 31, 2019.
And direct sales are usually necessary to convert these types of upstream customers. As is perfectly described by Mark Cranney:
One of the myths of SaaS is that the products are so good, so easy to use, so quick to deploy … that the product sells itself. Given the popularity of try-before-you-buy and freemium-to-premium models for software as a service, it’s easy to see where that myth comes from.
But as many startups discover to their horror — after they “land” users and try to “expand” to more departments in a large company or government agency — this is far from the truth. Even with early viral growth, SaaS products don’t sell themselves. Strong enterprise sales is critical to capturing market share.
And just because a SaaS company has landed a Fortune 500/Global 2000 client doesn’t mean it will keep that sliver of business, let alone upsell, cross sell, or sell across more divisions that can span multiple geographies. Doing that may require building an outside sales team.
It’s precisely when the product seems to be selling itself that building out this sales team and process is critical: Stopping or stalling at that point could expose the company to the competition and lose it the race to be #1 in its category.
That’s why combining a top-down and bottoms-up approach by layering a formal sales function will give you the best results. 👇
Importantly, adding sales too early can be a big mistake. If you don’t have product-market fit yet and don’t know if your model works, ramping up direct sales will create problems on multiple fronts (like a bloated and expensive sales force that’s not able to sell much product). But if you do have signs of it, you’re building a B2B product, and as Elad says, “You want your product to be adopted by as many people as possible, including people working at the largest companies in the world”…then don’t waste any more time, and get to it. 🏃♂️
Before we get to how, let’s first look at why some founders have an innate fear of sales.
There are 6 reasons according to Elad. Here are the takeaways:
“Most technical founders have strong familiarity with bottoms-up sales. They download open-source packages all the time, and adopted Github or PagerDuty or Stripe through word of mouth. What many founders have not seen directly is how well a repeatable sales engine can work.”
Perception of sales as an art versus science. In reality, there is a sales playbook.
“Since sales are stereotypically driven by people with liberal arts degrees who played sportsball in college, technical founders often view it as a bit of dark magic involving expensive dinners, cross-country flights, and a lot of small talk, high-fiving, and gong-hitting. In reality, sales is a giant process engineering exercise which has benefited from 40 years of iteration. A great sales leader will have an effective playbook they can apply, a pipeline process to run, and a hiring and compensation approach that will work for your market.”
“Bottoms-up adoption is considered much cooler and more organic than doing inside or direct sales. […] The even cooler thing is to build a monster company…If resistance comes from your team versus you, explain to them that your goal as a company is to build something great. To build something at scale, you will need to get big companies to adopt your product.”
“Sales will change your culture, but it is an inevitable change. Instead of fighting it determine how you can productively incorporate sales people. How can you grow in a sustainable manner? How do you want your culture to evolve? Taking it slow is a better long term solution than not doing it at all (or waiting to long and regretting it).”
Sales at its best.
“At its best, sales is not only a large revenue driver, but also a way to get customer feedback and input back to the team. It should drive rapid revenue growth while feeding your team competitive intelligence, customer concerns, feature requests, and other insights from the field. These can help drive business strategy, product roadmaps, and your ultimate success as a company.”
Sales can cause a company to overspend and crash & burn.
“I have seen instances where a company overhires a sales force before it has a repeatable working sales model, or real product-market fit. In this case, a sales team can be existentially bad for a company. You will burn through all your cash before sales shows success. […] Give yourself permission to ramp sales slowly, make sure things are working, and then ramp some more.”
So, now that you know what holds many product-centric founders back from getting into sales, and the revenue-generating value of building a sales force once you have PMF, the next question is “How?”.
Peter Levine from Andreessen Horowitz thought you might ask that. 👇
(#2) Why (and how to) hire a Head of Sales
When it comes to sales, most product-centric founders succumb to the temptation of learning how to fly after jumping out of the plane.
With sales, you want to avoid this approach. As Elad touched on above, there is a repeatable, and understandable, operational process behind sales developed over decades.
This isn’t a reinvent-the-wheel situation.
Over Peter’s career, he’s found that founders who give it a go themselves usually get around here after a year:
Holy fuck. This sales stuff is way more complex than I thought. Just get me out of this mess so I can go back to building great product. In the year that I’ve spent trying to run sales, I took my eye off of product and now we have three competitors beating us on features that should have been in our product six months ago. And on top of it the viral adoption I had among users is now being crowded out from the top by some fancy-pants big company with its own huge sales force and deep relationships in place. Shit-shit-shit…
So, after you’ve decided you don’t want that to be you. The next option is building up a sales team, and the best place to start is hiring someone who knows how to do it.
Once you hire your first seasoned exec who works out, you will be grateful for her presence. All sorts of things will magically get done. People will get hired, deals will get closed, process will tighten up. It can be a wondrous experience.
– Elad Gil
CloserIQ suggests these 6 steps to go about hiring a Head of Sales.
Step 1: Assess your sales context and what you think you need. Start by assessing where your team lies on the sales learning curve. Are you transitioning from founder-led sales to a few AEs selling, or do you need a new Sales VP with experience going from $5 to $20 million ARR?
Step 2: Decide if you actually need a head of sales. Consider three things: your initial self-assessment, your place in the sales learning curve, and your sales team’s size and complexity.
Step 3: Run a gap analysis of your sales machine. Next, have the founder, a sales advisor, or a consultant run through a detailed gap analysis of your sales team. Look at key pieces of the sales process to understand every aspect of your sales machine: strategy, funnel performance, talent, culture, motivation, and operations. (Check out this checklist template)
Step 4: Develop a detailed hiring rubric based on this gap analysis. Then, translate the gaps in your sales machine into focus areas for your search, skills to look for, and interview questions to ask.
Step 5: Pick the right executive recruiter. Make sure to find an experienced executive recruiter – one who specializes in sales executives and has an existing talent pipeline
Step 6: Run your search. The overall hiring process begins with a founder screen, then moves on to a deep dive focusing on the highest-priority focus areas from your gap analysis.
And importantly, as Peter Levine says, once you’ve hired a Head of Sales as a founder, you’re not out of the sales picture. There are still practical ways to be involved in the sales process as a CEO:
Have a weekly meeting with your sales VP where you review the pipeline and forecast, have the VP of sales educate you on what he or she is doing and ask questions
Ask what you can do to help your sales VP: Can I help with closing a deal, visiting a customer, or rallying the troops?
Spend time together! In fact, there’s no better way to build morale with your sales team than to do so with them and your customer
Hold your sales VP accountable by setting clear objectives with quantitative (not qualitative!) agreed-upon metrics; you should also know the quotas and productivity of each salesperson
Be sure to interview the first sales hires to ensure alignment with your head of sales as well as with organizational culture and values
Encourage engineers to spend time with sales, and sales to spend time with engineers; the more the two organizations interact solving real product and customer issues, the less foreign each will be to one other and the better your product will be
Go deeper on this: 🧠
Simple Math to Set Up a Sales Team: How to structure quotas, compensation, and territories for a new sales team.
Founding Sales: Startup Sales for Founders (and Others) in First-time Sales Roles
(#3) How to learn anything
Learning new things is the best, and only, way to evolve.
In life, work, or wherever. Learning is everything.
It’s why I write this newsletter. It’s why you subscribe to it, and it’s why you chose to open this post today.
This means that meta-learning (i.e, learning how to learn) is, in my view, the single most valuable skill you can have.
So, how do you learn something?
A couple of days ago I came across this LI post by Sahil Bloom:
The Feynman Technique is a learning method that prioritizes simplicity to build depth of understanding.
It takes its name after Richard Feynman—an American theoretical physicist who won the Nobel Prize in 1965 for his groundbreaking work in quantum electrodynamics.
Richard Feynman was certainly intelligent.
But there are a lot of intelligent people in the world.
Feynman's true genius was noted as his ability to convey complex ideas in simple, elegant ways.
He observed that complexity and jargon are often used to mask a lack of deep understanding.
Hence “The Feynman Razor” that I’ve written about:
If someone uses a lot of complexity and jargon to explain something to you, they probably don’t understand it.
The Feynman Technique is a learning framework that requires you to develop a deep understanding of a given topic.
It involves four key steps:
1. Set the Stage
2. ELI5 (Explain It To Me Like I'm 5)
3. Assess & Study
4. Organize, Convey & Review
Let's cover each step:
Step 1: Set the Stage
What’s the topic you want to learn?
Starting with a blank page, write the topic at the top and jot down everything you know about it.
Read & research the topic.
Add any new learnings or insights as you develop them.
Step 2: ELI5
Here's where it gets unique:
Attempt to explain the topic to someone without a base understanding of it (i.e. a “child”).
On a blank page, write down everything you know about your topic—but pretend you are explaining it to a child.
Use simple language!
Step 3: Assess & Study
Reflect on your performance. Form an honest assessment.
How well were you able to explain the topic to a child? Where did you get frustrated? Where did you turn to jargon?
These are the gaps in your understanding!
Read and study more to fill them.
Step 4: Organize, Convey & Review
Organize your elegant, simple language into a clear, compelling story or narrative.
Convey it to a few others, then iterate and refine accordingly.
Review your new, deep understanding of the topic.
Remember: Simple is beautiful.
I love simple things. And when it comes to learning, I couldn’t agree more that a technique designed to abstract complexity and convey ideas in simple and digestible ways is the best approach.
You’ve no doubt listened to someone ramble on about something using jargon and round-about ways of explaining things, thinking, “Just spit it out! Why are you making this so complicated!”. And on the other side of the coin, you’ve certainly listened to smart people explain complex things, using say a simple analogy, and instantly just got it.
That’s because complexity and jargon mask a lack of deep understanding. If you can’t communicate it, you don’t know it.
Now, go and use the Feynman Technique, and find beauty in simplicity.
To summarize the Feynman Technique:
To illustrate, here’s Feynman explaining how fire works.
(#4)The homogenization of social media is going to have some real consequences
Social media feeds are all starting to look the same.
Once upon a time, we’d use separate apps for things like friends, family, news, culture, and entertainment.
Now, open Instagram, TikTok, or Facebook and you can have it all. And they’re all standardizing what their feeds look like. Wherever you go these days, you’re more and more likely to see the same vertical looping videos.
As Alex Kantrowitz from Big Technology says, “The content is so similar it's easy to forget which app you're on.”
He’s right. When I deleted TikTok for a while, somehow I self-justified that Instagram Reels was better. To which I was regularly reminded, “You’re just watching TikTok’s on Instagram now”.
This homogenization of these social media apps is of course in part due to market demand for short-form video. But also, a strong reaffirmation of why TikTok is successful.
AI-based recommendations that don’t rely on a social graph trump the follow model of traditional social media. (If you missed our latest analysis on TikTok, we go deep on this)
In a recent post by Alex Kantrowitz, he discusses how this kind of uniformity in apps never lasts long. Usually, amidst some other factors, there’s a winner take all scenario that unfolds.
As Alex describes:
A Winner Will Take The Market
The follow model, for all its faults, let you build distinct feeds on different apps. You could build a news and culture feed on Twitter, a friends and family feed on Facebook, a celebrity and interest feed on Instagram, and an entertainment feed on YouTube. But when these apps replaced the follow model with algorithms — which consider all the content on an app, and serve what they think you'll like — the purpose-built feed died.
Now, we're in a testing-out phase for AI-based recommendations. Every app is unleashing its algorithm on (effectively) the same pool of content, and a winner will eventually emerge. A marginally better app will attract more users, which will give it more data to make its feed better, which will attract more creators to pump it with content, which will open its lead. It’s a flywheel. And eventually, the lesser apps will get worse and fall off.
"There's a very real possibility that using artificial intelligence — some — or generally one of these companies will walk away with the everything app," Instagram and Artifact founder Kevin Systrom told me on Big Technology Podcast last week. “The benefit you get of having a large user base, of having the best artificial intelligence for recommendations, is enormous."
Some other takeaways from this post on the impact of this growing homogenization:
The government may grow emboldened toward action, making a ban more plausible. One of TikTok’s arguments to Congress is that banning TikTok will hamper the 5M businesses using the app to reach 1/3rd of Americans. But, if all the apps are the same, in the eyes of lawmakers TikTok (or any of the apps for that matter) are replaceable, making a ban of one less consequential.
Standardization will lead to more advertising send. When things are the same across platforms, people allocating ad spend get all giddy. Why? Because it makes it much easier to know what to create (i.e vertical UGC), how much to pay, what to pay, and how to measure their efforts. When these come together, the spend more.
More power to the creators, specifically, the top ones. When all platforms index the same content, they'll be desperate to differentiate. Meaning, exclusivity becomes the name of the game. And when there’s exclusivity, there’s big offers being made to creators.
First time reading? Subscribe for in-depth analyses on the growth of popular companies, like Notion, OpenAI, Canva, and others.
(#5) How to find startup opportunity hiding right under your nose
In a famous essay by legendary entrepreneur and investor, Paul Graham, he introduces this concept called Schlep Blindness.
There are great startup ideas lying around unexploited right under our noses. One reason we don't see them is a phenomenon I call schlep blindness. Schlep was originally a Yiddish word but has passed into general use in the US. It means a tedious, unpleasant task.
The most dangerous thing about our dislike of schleps is that much of it is unconscious. Your unconscious won't even let you see ideas that involve painful schleps. That's schlep blindness.
The most striking example I know of schlep blindness is Stripe, or rather Stripe’s idea.
For over a decade, every hacker who’d ever had to process payments online knew how painful the experience was. Thousands of people must have known about this problem. And yet when they started startups, they decided to build recipe sites, or aggregators for local events. Why? Why work on problems few care much about and no one will pay for, when you could fix one of the most important components of the world’s infrastructure?
Because schlep blindness prevented people from even considering the idea of fixing payments. Probably no one who applied to Y Combinator to work on a recipe site began by asking “should we fix payments, or build a recipe site?” and chose the recipe site. Though the idea of fixing payments was right there in plain sight, they never saw it, because their unconscious mind shrank from the complications involved.
– Paul Graham, Schlep Blindness
Simply, we have blindspots to big problems. Often, ones right under our noses.
And the bigger the problem, the better the startup opportunity.
Not just because of the intrinsic value in solving a big pain, but because harder problems scare a lot of people off, meaning there’s less competition from other founders.
In this sense, Schleps are like underpriced stocks.
So, how does PG suggest you find your schleps to go fix?
The trick I recommend is to take yourself out of the picture. Instead of asking "what problem should I solve?" ask "what problem do I wish someone else would solve for me?" If someone who had to process payments before Stripe had tried asking that, Stripe would have been one of the first things they wished for.
Go deeper on this: 🧠
And that’s it for our 21st edition of 5-Bit Fridays!
As always, thanks for reading! I hope you learned something new from at least one of today’s Bits. If you did, and you don’t mind, I’d really appreciate a quick tap of the ❤️ icon in the header of this post (or if you’re feeling it, giving it a share).
Thank you! And have a lovely Easter weekend!
Until next time.
— Jaryd ✌️