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Growth Strategies From a Sales Focused Founder with Steli Efti

Growth Strategies From a Sales Focused Founder with Steli Efti

Today, I am talking with Steli Efti, the CEO of Close.io, the inside sales CRM of choice for startups and SMBs.  

Steli has over 20 years of experience in sales and entrepreneurship and has trained thousands of founders, sales directors, and sales reps to build sustainable and predictable revenue through sales.  

He’s also a mentor and advisor to many early-stage entrepreneurs as well as a fellow podcaster with his own show, which you can find at TheStartupChat.com.

In this interview, we’re going to talk about how to think about growth and how to approach it within your own business.

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Topics covered:

  • (01:01) – Background Leading up to Today
      • (01:11) – Steli explains Close.io and how it came to be.
  • (03:21) – The Sales Process
      • (03:55) – Steli discusses the kind of value sales and marketing creates relative to operations.
      • (05:34) – The characteristics of an entrepreneur that really wants to grow vs those paying lip service to the idea.
      • (08:20) – Operationalizing sales.
        • (09:29) – The necessity to commit to the long term.
        • (10:01) – Developing repeatability and predictability within your sales process.
        • (12:18) – A smart hiring strategy recommended by Steli.
          • (13:39) – Potential pitfalls.
          • (14:55) – Making that first hire.
            • (16:13) – What to look for in the early stages of your business.
            • (16:41) – How too much sales experience can be a disqualifying criteria when looking to hire for your team.
            • (17:00) – Two types of sales people.
  • (19:43) – Compensation Models
      • (20:03) – Steli discusses the thoughts around compensation in the early stages of your business.
        • (21:18) – Perks other than money that you can offer your sales reps.
        • (22:44) – Designing a compensation structure together with your team.
        • (23:34) – The importance of keeping it simple.
      • (24:51) – Why you should never make compensation structures that are paying people for life on a monthly basis.
        • (25:24) – Considering customer lifetime value and your average cost to acquire a customer.
        • (26:07) – Keeping sales people motivated.
  • (29:43) – Profit
    • (29:59) – The role of profit as an enabler for growth.
    • (34:08) – How to know if your business isn’t worth scaling.
      • (34:47) – The importance of discerning between customer acquisition and retention and expansion.

Rapid-fire Questions:

  • (38:47) – What limiting beliefs have held you back in the past that you had to overcome to get where you’re at today?
  • (40:27) – What was a strategic sacrifice that you’ve made that was necessary to get where you’re at?
  • (42:13) – Are entrepreneurs born or bred?

Resources mentioned:

The Startup Chat – Steli’s podcast

Where to learn more:

If you want to learn more about Steli’s CRM service head on over to his website Close.io, or check out his podcast at TheStartupChat.com.

And listen in to the show to get his personal email and a chance to get free copies of all his books.


Jordan: 0:00:00.0 Welcome closers, today we have another episode of The Profitable Property Management Podcast coming at you. This is Season Three on profit.

0:00:07.0 I’m your host Jordan Muela, and every week I interview world-class property management entrepreneurs and industry experts who share actionable insights to help you grow your property management empire.

0:00:17.1 Whether you manage 100 units or 1000, this broadcast is designed to help you see the big picture and to give you the tools and tactics that you need to get to the next level.

0:00:26.1 Today, I am talking with Steli Efti, the CEO of Close.io, the CRM of choice for startups and SMBs. Steli has 20 plus years of experience in sales and entrepreneurship and has trained thousands of founders, sales directors, sales reps to build sustainable and predictable revenue through sales.

0:00:43.4 He’s also a mentor and advisor to many early-stage entrepreneurs as well as a fellow podcaster with his own show, which you can find at TheStartupChat.com.

0:00:53.3 In this interview, we’re going to talk about how to think about growth and how to approach it within your own business.

Welcome to the show Steli.

Steli: 0:01:00.0 Thank you so much for having me.

Jordan: 0:01:01.3 So, I want to get some initial context. Close.io, can you just give us a brief overview? What is that, how did it come to be?

Steli: 0:01:11.0 Yeah, so Closeout.io is an inside sales CRM that’s focused on SMBs. We have many tech companies, but we have people in real estate, property management. All kinds of industries around the world that are using are inside sale CRM.

0:01:23.0 So if you sell primarily through the phone, through email, through kind of inside sales communication with your prospects and customers, we’ve built the best CRM in the world with out of the box kind of two-way calling, two-way email sync, and a lot of other productivity tools for people.

0:01:38.2 The reason it came into existence – there was nothing that made us want to go into the CRM space. It’s a very competitive space, but what happened was that we were running an outsourced sales team on demand for venture-backed startup companies.

0:01:55.2 So, if you had raised over ten million and you were building out a sales team as a tech company in Silicon Valley, you could come to us, pay us a ton of money and then we would run all kinds of tests in terms of figuring out a predictable and scalable sales model for you, and then hire sales people for you and scale your sales organization for you.

0:02:14.4 And we did that with over 200 venture-based startups within 18 months.

0:02:18.7 And from day one, we felt that we needed to build internal software to allow our sales people to out-compete their competitors, to be happy at work and also to scale a sales organization.

0:02:30.8 And at the beginning, that was all – we never intended to productize the software, but eventually the software became so good that we decided to launch it as a tiny little product and see what would happen.

0:02:43.9 And it ended up outgrowing the services business within six months, although there was a tiny team attached to it.

0:02:49.6 And that was the signal that made us go, “Maybe we should focus on the software product. Maybe there’s a really big opportunity here.”

0:02:56.5 And that’s what we’ve been doing since 2013. 0:03:00.7 We are many millions in terms of revenue, highly profitable, and as I said, thousands and thousands of customers all around the world.

Jordan: 0:03:08.1 I love that. So, great story. Dogfooding is kind of the classic breeding ground for where a lot of great SaaS companies have come out of. Dogfooding, meaning building something for a use case that you’re dealing with immediately yourself.

0:03:21.0 I do want to talk a little bit about sales in general. At the 10,000 foot level, you’re known for talking a lot about sales. A lot of traction with that. People are very eager to hear you talk on the subject of sales.

0:03:33.3 But for SMBs that take great pride in operations, great pride in their craft – in delivering their service or good, how would you advise them to think about the value that sales as a piece of operations can create relative to the value of the good or service that they happen to be in business to deliver?

Steli: 0:03:55.8 Yeah, that’s a good question and a big one. I really think, you know, at the core of it – of the way I think about sales is that sales is nothing more, nothing less than result driven communication. Right?

0:04:05.7 Any time you’re communicating in any form with an end goal in mind, a purpose in mind, you want to move something forward and get it to some level of a conclusion. You are selling.

0:04:19.2 And so, you know, sales really applies to many areas in life. It can be allowing your prospects and getting them to purchase and become customers, but you’re also selling when you’re trying to get somebody to join your company and work for you. Somebody that’s in high demand or very talented.

0:04:34.5 Sales is any time you try to convince anybody of anything. Like talking to journalists trying to get them to write a story about your company. Right?

0:04:41.5 Anything that is results driven communication at its core is selling.

0:04:44.3 So sales is incredibly valuable skills because it makes the world go round, it makes things move forward to their logical conclusion.

0:04:53.3 And I would go on to say that it doesn’t matter if you value sales or not, and it doesn’t matter if you have mastered sales or not, organizationally, internally, you are selling. If you like it or not, if you call it that or not.

0:05:07.2 And the better you are selling and the more you cultivate skills as a skillset within your company, the better and the more the results that you are able to accomplish with the group of people that you have.

0:05:18.5 So, if you like it or not, you’re doing it. So if you’re doing it anyways, you might as well learn how to do it really well.

Jordan: 0:05:24.9 I love that. The conscious acknowledgement of what’s already happening. So, extending out that thought in that conversation.

0:05:34.9 When you think about the difference between entrepreneurs that are genuinely to committed to growth, specifically within the context of sales and marketing, versus those that maybe are just being seduced by the notion of growing, what are the defining characteristics of folks that are really making the genuine commitment to grow?

As opposed to folks that are just playing house or maybe paying lip service to the idea.

Steli: 0:05:54.9 Yeah, I would say that, you know, I would say that it’s two things.

If you are looking for shortcuts and easy solutions, versus if you are committed to a long term goal and persistent action.

That’s really what separates the people that accomplish the goal for growth, the desire for growth, versus those that only flirt with it. Right? But never really get to it.

0:06:20.7 I always say that most of the advice that I give is very basic. But it’s timeless. Right? It was true 50 years ago, it probably will be true 50 years from now.

0:06:27.9 And that’s the type of thing I’m interested in. I’m not interested in that much, although I live in the technology world, and what’s constantly changing, I’m interested in what will never change. Right?

0:06:36.0 Because that can be a fundamental guideline to everything I do. And so, if you came to me and you asked me how to lose weight, I would tell you to eat broccoli and work out. Right? Just the basic things.

0:06:47.4 And I truly believe that most people know what it takes for them to get to growth, but they’re constantly running around looking for another solution.

They’re like, “I still haven’t found growth, I’m looking for something new, I’m looking for something interesting.”

0:07:01.6 And what’s really going on in my mind in my observation, is not that they don’t know what it takes for them to grow, it is that they are looking for a more convenient answer to growth.

0:07:09.4 It’s not that they don’t know what to do, the thing that they know how to do or they need to do, they really don’t want to do. Right? 0:07:20.3 They really don’t want to do.

So they’re out there looking for a simpler, more convenient answer. And to me, that separates those who never accomplish what they want – right?

Think about somebody that’s trying to lose weight, is always looking for a hack. 0:07:33.7 A new fad. What’s the newest, coolest pill I can take. What’s the easiest thing, book I can read.

There’s no easy answer to this. There’s basic answers and those are going to be true. And if you commit yourself to it, you can get there. It’s not that difficult.

0:07:46.9 And the same thing is true for growth. There’s something you know, in your business, you can do and need to do to grow that you don’t want to do. 0:07:54.8 You want to avoid. It’s uncomfortable. That’s the thing you need to do.

And if you’re ready to go beyond your discomfort, if you’re ready to change and do the things that you are a little afraid of, or that you’re not used to, then you’re probably, sooner or later, you’re going to find growth.

Jordan: 0:08:14.3 Well, I’ve heard it said, “What you resist tends to persist.” If you’re avoiding those things you know you must do.

0:08:20.3 So let’s talk about operationalizing sales. For a lot of small businesses, again, they’ve operationalized service delivery but when it comes to sales and marketing, they’re looking for lead gen solutions, throw some money at it, make it go away.

0:08:32.3 For an entrepreneur that has really mastered their craft, they’re running a small business, and sales is fundamentally on them, how do they go about graduating out of that role and operationalizing it with as much equivalence as they give to all the other departments that make up 90% of the personal budget within the organization?

Steli: 0:08:53.6 Yeah, that’s a good question. So, first of all, I think philosophically, you have to commit yourself to the desire to make that happen. Right?

0:09:00.2 Here’s something I hear all the time from entrepreneurs, they go, “I really, really need to get out of – I really need to grow my business out of the position it’s in right now, which is so dependent on me and my relationships, my network and the work I do to close deals and get new customers, but I just don’t have the time.”

0:09:20.6 And so, and they say that today, and then a year passes and I ask them, and they still have the same story. And three years pass and they still have the same story.

0:09:29.1 And again, this is why the business isn’t growing. Right? Because here’s what you need to do. You need to commit yourself and say, “There’s never going to be a good time, I’m always going to be overwhelmed, I’m always going to have too much on my plate, and what I need to realize is that I need to take a few steps back to be able to go a lot more steps forward with my business.”

0:09:47.6 So, I’d rather take a little hit in terms of revenue right now and taking a few less customers on board right now to step up a foundation where my business can grow in the future much further beyond the point that it’s ever reached.

0:10:01.9 What does this mean practically? Well, first you have sold as the founder and it’s working. Awesome. Right?

You have some customers, you have somebody to deliver a service to. That’s awesome. Right? A plus.

0:10:15.3 Now, the next step you have to take is you have to ask yourself, are the activities that I had to take, are those activities repeatable. Right? 0:10:24.3 To get to the sale.

Meaning, can I do the same thing and get the same result. Right?

0:10:30.7 Or, is it like I”m doing something different and I’m getting a variety of results. Right?

Some times I go do networking events, sometimes I call my old friends, sometimes I just go to a conference, sometimes people come to me.

0:10:43.7 Then I run an add at a local newspaper. Like, I’ve done all – every month I do something different and something happens. Right?

0:10:51.6 And there’s no repeatability, there’s no predictability in my prospecting.

0:10:56.5 If that’s the case, the next step is to figure out a way to make your sales activity repeatable and predictable. Right?

How can I start now doing something that I could repeat and get the same results. Right. Where I can get a level of certainty.

If I do x, y and z, this is going to be the sales that is going to come back. That’s step number on towards scale and growth.

0:11:22.6 Once you get to that step number one, now the next question that you have to ask yourself is, “Hmm, if I could hire thousands of people and told them to do the exact same thing I’m doing, would they also get the same result?” Right?

0:11:36.9 And so, I’ll give you a good example, if I have 100 uncles and every month I pick one of them and ask them if they want to buy and they say, “Yes”, that’s pretty repeatable and predictable, but it’s not scalable. Right?

The moment I reach 100 people that I pick, now I’ve run out of that source of leads. I run out of that source of that activity, so now I can’t hire people and tell all of them to do the same thing because the scalability of that thing really doesn’t grow with it.

0:12:06.7 If you find something that is repeatable, predictable, and in theory could be scalable, there’s so much to go after that many people could do the same thing and go after it for a long period of time.

0:12:18.7 Then, what you have to do is hire some people. I would advise you to hire – when it comes to sales, always hire in doubles or triplets. Right?

Get multiple people at once so you get a difference – they all get the same training, the same information, they start at the same time, I guarantee you, one of the three will have better results than the others.

0:12:39.0 It’s going to give you data on what type of person does better in sales in your job in your business than others do. 0:12:43.3

0:12:45.1 If all three are killing it, and our profitably selling, hurray! Keep all of them. Right? And just hire another three people, because sales is profitable.

0:12:52.8 But more likely than not, nine out of ten times one out of three people is going to to a lot better than the other two and it’s very hard to know that if you’re not experienced hiring sales people beforehand.

0:13:02.1 So, now what you do is you bring in three people, and you teach them to do the exact same thing you did. 0:13:09.2 And you observe. Do they generate the same results? Right?

0:13:13.6 And if they don’t, what happens? Why are they struggling to generate the same results and what do you need to improve or change or help them out with to get there.

0:13:23.0 The moment you get them to generate results, maybe they don’t have to generate as good a result as you do, but good enough to make it sustainable.

0:13:32.3 Now you’ve got something. Right? Now you have something that has promise and can grow.

0:13:39.3 You can do this for a little bit yourself and be like a sales manager, but you could also, once you have three, four people that are kind of generating sales and revenue and things are going kind of well, not perfect, but well, now it could be a really good time for you to actually hire a sales manager and show them, “Hey, here’s what we’ve done as a sales process, here’s what I’ve built as a sales team, it’s a very rough version one, you have experience in managing teams and scaling and growing them, come in here, take what I’ve built and grow it.”

0:14:05.2 And that’s usually the right time to transition. 0:14:08.7 Most founders that do it the other way around, they are saying, “Well what I’m doing is not scaling, so I”m just going to go out there and hire a sales manager, tell them to go and hire five people and then figure out a sales process that scales.”

And best of luck and that will always fail. 0:14:24.5 So, don’t’ do that. Do it yourself, do it in a predictable way, in a repeatable way.

Ask yourself, “Does it scale?” And if that’s true, go hire three people, teach them what you’ve done, see if they can generate results.

0:14:35.3 And if you get there, hire a manager to take over. Grow, build, improve upon what you’ve started.

Jordan: 0:14:41.9 That’s great. So you really outlined some potential landmines in the process. The first one being that there is no process.

You’re just throwing a body and saying, “Hey figure it out.”

0:14:50.0 So that’s a pretty obvious red flag, I think people can intuit that.

0:14:55.0 When making that hire though, for an SMB that’s hiring the first sales person in that role, are they even hiring a sales person?

0:15:00.6 Let’s assume that they have meaningful inbound lead flow, do they really need a sales person? Do they need an order taker? What’s your commentary there?

Steli: 0:15:11.1 Yeah, I mean it depends on the complexity of the sale right?

If the sale is completely transactional, if somebody calls, I pick up the phone, they say, “I want to order 100 of what you have to offer,” and all I have to do is type in their information and send it to them, obviously that is something that is much easier to hire for. Right? Because it doesn’t take that much qualification.

0:15:29.7 Now you could ask yourself, “Do we want to stand out?” What kind of brand and reputation you want to build, so you could we hire people that really sound amazing that ask better questions that make people feel really valued on the phone. But it’s not that difficult of a scale.

0:15:43.0 But if you really need sales people – sales people means there’s going to be some friction in the buying process.

Even if the leads are inbound, they might have some questions, they might have some objections, they might have some insecurities or fears before buying your product.

0:15:55.4 You might be in competition with other solutions and offerings out there. So you’re going to need somebody that’s a better communicator.

0:16:04.2 If that’s the case, I still would tell you that in most cases, you really don’t need somebody with a lot of sales experience.

0:16:13.2 Like, in the early days, I would value a culture fit. I would value the motivation, the hunger that somebody has, and the core DNA.

Are they somebody that – is this person somebody that’s a good communicator? Is this somebody that is trust worthy? Is this somebody that’s vicious and competitive?

If they have these things, they’re not that afraid of rejection, they’re not afraid of going the extra mile or going where it’s uncomfortable.

I’d rather hire somebody like that than hire somebody with many years of experience in sales. 0:16:41.3 I would actually say, if somebody has, I mean, not one or two years experience – if somebody has many years of experience in sales, five, ten, fifteen years, I would – that would be a disqualifying criteria for hiring. Right?

0:16:55.1 I would run for the hills if somebody comes to me and says, “I have 30 years of experience in sales and I want to work for you.”

0:17:00.4 And here’s why, right? There is – oversimplified, there is two types of people in sales, those that know how to sell, and those people are making a lot of money and they’re in high demand and they’re not looking for jobs. They are being hired, they are never applying for jobs.

0:17:16.4 And then those that have learned to sell to people who know nothing about sales that they are good at selling. Right?

And these are the people that have 20 years of experience but have nothing better to do than apply for your job. Right?

0:17:31.8 And take an entry level job in a company that doesn’t have a proven sales team, that cannot pay a lot of money, but they are telling you, “Oh, I have so many contacts in this industry. I’m so important, I’ve closed million dollar deals.”

0:17:44.3 If they are telling you things that sound too good to be true, they are too good to be true. 0:17:48.2 I would run for the hills. I would be scared.

0:17:50.6 If you can’t answer the question, “Why is this person right now right here wanting to work for me?” There is not a good answer if you have to look for an answer. Right?

0:17:58.9 There can always be exceptions. If that’s your father, your brother, or somebody that you have a close relationship with, you know, that’s fair.

0:18:05.9 But if they came in because they want to work for you because they don’t have a job right now, they’re telling you they’re really experienced and successful in sales, the truth is, they aren’t. Right?

0:18:16.8 And so, they’re going to destroy a lot of value and they’re going to waste a lot of your time. They’re going to put a lot of bad ideas in your – the problem is you’re not going to instantly notice that.

0:18:26.3 And a lot of founders and entrepreneurs, when they’re not experienced in sales, they’re going to give these people way too much time.

They’re going to feel that something is wrong, but they’re going to tell and rationalize themselves, “Well, I don’t know anything about sales, this person has 20 years of experience, maybe I just have to wait and see. Maybe I just don’t understand how selling works.”

0:18:44.6 No. It’s not true. You’re going to sense and feel and know when somebody knows what they’re doing.

And if your intuition is telling you this person is weird, what they’re telling me does not make sense, you’re right. 0:18:54.8 You don’t need a lot of sales experience to be probably accurate with that.

0:19:01.1 So I would look for core attributes and talent before experience. In the early days. 0:19:07.1 Right?

0:19:07.9 Once you get to scale, you’re going to have to hire more and more experienced people and proven and vetted people.

0:19:12.1 But at that point, you can get these vetted people and experienced people because you can pay them enough money, your organizational structure’s attractive, you have a proven track record of growth and opportunity for them.

0:19:24.8 But in the very early days? You’re going to have a bigger chance hiring young potential than hiring experienced veterans that are really good at what they do.

Jordan: 0:19:32.8 I love that. I really like what you highlighted in the scenario where you know something’s wrong, but you’re not sure what.

0:19:37.9 And that ambiguity is a by-product of a lack of process, oversight, a lack of an activity-based framework.

0:19:43.8 When we talk about forms of self-sabotage for the entrepreneur, comp is one of those examples, right? The idea that I want a really successful and effective sales person but I want to pay them as little as possible, put them on a 100% comp, etc.

0:19:57.4 Walk me through how a successful, reasonable entrepreneur thinks about comping sales people in their early model.

Steli: 0:20:03.9 So, a number of things. Number one, for the folks that are doing long-term, you want your sales people to be rich people. Right? You want them to be making tons of money.

Because if you structure your deal right, the more money they make you, the more money your company makes.

0:20:20.6 There’s no reason to cap the amount of money they can make, because you’re capping them out of money they can make you as well. Like, there’s zero alignment in that.

0:20:29.3 So, ideally, and some of the best companies, the sales people are the people that are being paid the most.

Jordan: Rightfully so.

Steli: 0:20:35.4 Yeah. And there’s companies where the top sales people are being paid more than the CEO or the founders. Right? And rightfully so.

Good on them. Right? Good on them because they’re bringing all this business and money and revenue to the company.

0:20:47.2 Now, having said that, in the early days, you know, you are most likely not going to be able to be paying millions of dollars to people because it takes a lot of time for them to close these deals and you’re not going to be able to finance that.

0:21:01.3 So, the way that I would think about compensation in the early days, is you’re most likely not going to be able to compete, just purely based on compensation.

0:21:09.6 Because you’re not going to be able to pay the most amount of money to the most talented sales people out there. Not in the early days when you’re still figuring out a sales model and a sales organizational structure.

0:21:18.8 So, a lot of the reasons that people should want to come and work for you are not necessarily monetary. Right?

They should be – the pitch should be that they’re going to get to work with you the founder directly. They’re going to be able to design and build the sales process.

0:21:34.5 Not just do the sales job. Be at the ground floor of building the sales department. 0:21:38.1 They’re going to be able to put themselves in a position to grow in a leadership role in a way that they wouldn’t be able to do in a much larger organization.

0:21:47.7 And so, these exposures to the entrepreneurial point of view, to working directly with the owner of the business, designing the job and the role for all the future people to come and to be hired versus just doing the job.

0:21:59.0 These things are going to be really attractive to a certain type of sales person. More likely they’re not, a sales person that’s a bit more entrepreneurial than the average sales rep.

0:22:09.0 And that’s the type of sales rep you want, because in the early days, you’re still going to have to explore and experiment. You’re going to have some trial and error.

You don’t have the perfect sales model mapped out that you just hand over to them and they just have to execute. 0:22:23.5 So, I like the benefits and the things you have to offer that are not just compensation.

Then, tell them – and this should be the truth, that when it comes to compensation, you want them to get filthy rich, you want the company to be incredibly successful and high growth.

0:22:44.5 And you will work – you will design a compensation structure together with them. They’re going to have input in the compensation structure for the sales team. 0:22:53.8 And I mean that.

You should develop the comp structure as you’re learning more about the sales process and the sales model that you have together with the sales team.

0:23:03.5 Get their input. It doesn’t mean that they tell you exactly what to do. Right? “Pay 100% commission on everything.”

0:23:08.9 But it means that they have a say so they will have ownership of it. And then when they start hiring sales reps for you, they’re going to be able to sell the compensation structure with conviction because they have ownership.

0:23:23.3 It didn’t just come from some owner or entrepreneur. They were a part of the discussion so they feel that they can sell this and they can defend this.

0:23:34.5 And you want to start with a compensation structure as simple as possible. It’s going to get complicated all on its own.

0:23:39.8 You’re not going to have to work that hard to make it complicated. 0:23:42.5 Start simple. Right? Start as simple as possible.

Too many founders start way too complicated. Ten page compensation structure in the early days is way too complicated.

0:23:54.3 You’re trying to adjust for all scenarios when what you should try to do is you should try to account for the most important things first, and then think of your comp structure as a product that living, breathing, product that needs versions, it needs iteration, it needs improvement.

0:24:16.9 So, when you come up with a comp structure, it should always have a version attempts to it. 0:24:19.1 It’s comp structure version one, you know, June 19th, 2018 and the idea and understanding is that we’re going to be updating this once a month.

We’re going to be editing things, we’re going to be deleting things, we’re going to be adjusting things. 0:24:32.0 Until we get to a point where we really have scale and certainty on how the business model works, how the sales model works and now this model is not going to be changing every few weeks or every few months.

0:24:43.6 But, in the beginning, keep it simple and so part of keeping it simple is don’t make things that are very hard to change and turn back. Right?

0:24:51.8 Don’t make compensation structures that are paying people for life on a monthly basis.

Jordan: 0:24:58.2 So let’s zone in on that. Because SaaS, subscription model, recurring revenue, that’s actually an analog for my industry where they’re charging a monthly management fee.

And I feel like this is totally a scenario where people get stuck. 0:25:10.4 I’ve had numerous scenarios where I’ve got a client with a way over-compensated – they feel like it’s a way over-compensated sales person. 0:25:18.6 Give me the 411 on trailing revenues, etc., with recurring revenue.

Steli: 0:25:24.4 Yeah, well there’s not a simple model that applies to every business, even in SaaS. Because it depends so heavily on your customer lifetime value and your average cost to acquire a customer. Right?

These two things will give you your profit margin and that profit margin will dictate how much of that you can pay a sales person. Right? 0:25:42.5 How much of that a sales person really owns.

0:25:43.7 But in general, I would tell people, “Here’s what not to do. You don’t pay sales people on a monthly basis.” Right?

Depending on a close deal. So if I close a deal, the customer is paying me a thousand bucks a month, the sales person should not be getting a commission every time payment is being made on a monthly recurring basis.

Jordan: Indefinitely.

Steli: 0:26:02.7 Yeah. Indefinitely. Never, ever should that be the case. Right?

0:26:07.5 And there’s a number of reasons for this. Number one, is you’re probably going to get compensation wrong, and if you get it wrong on a one-time payment, that sucks.

0:26:15.8 But if you get it wrong on an indefinite, monthly payment, that can really cost you your business.

0:26:23.5 Number two, you want sales people that are motivated. Right? Sales is a very activity based thing. Think of it as a sport.

0:26:33.8 No matter how good of an athlete you are – imagine if you were like a top athlete in a top team, if you, every time you throw – let’s say in basketball, you make a score, if that point would hold on to every other game.

0:26:51.0 So next game you start, you’re starting with 20 points and the next game you start you’re starting with 40 points.

0:26:54.8 Eventually, if you’re a really good player, you’re going to get on the field and have no reason to be motivated and hustling, and work really hard because you’re already thousands of points up, right?

0:27:04.4 The same thing is true for sales people. You want to give them a great payment, a motivating payment, something to go after to be excited about, but once they receive that, they should be hungry to put in the work next quarter. Next month, again.

0:27:20.1 They shouldn’t be like, “Well, I’ve been at this company for six months, even if I don’t do anything, I’m still going to make pretty good money for the next 12 months.”

0:27:25.0 That’s not what you want them to be thinking. Right?

So, I would, in general, tell advice to people to make in the beginning, call it a bonus, not even a commission.

0:27:36.9 Make it a quarterly thing so they can work really hard for three quarters and then get a really good payment.

0:27:43.8 Pay them in a way that seems painful to you. Right? When you as an entrepreneur feel like this is a bit too much, it’s probably right. 0:27:50.6 Right? It’s probably right.

You really want to motivate these people and money motivates sales people, right? 0:27:58.1 And you can see. They’re going to be performing way better than you ever expected if you give them a real good reason for it, right?

0:28:02.8 If you were, if you try to hold back, if you nickel and diming them, they’re going to do the same thing and then their performance is going to be underwhelming and you’re really shooting yourself in the foot.

0:28:14.0 So, pay them once a quarter, once they hit a certain target. 0:28:17.9 You could do this if you wanted to be really thoughtful, on an individual as well as a team basis.

So you tell them, “If you as an individual rep, if you hit a certain goal” – you could have like three levels right? The lowest level: what you expect from them.

And really a point where it’s like, “If you hit this level, you’re going to get some extra money.” Right? 0:28:36.9 So they have a like a low level, mid level, high level target to go after. And that they’re going to be compensated with in the form of a really nice bonus payment.

0:28:47.3 And then you could add something that’s a team based thing. “Hey, if the entire sales team reaches this certain revenue goal, everybody is going to get a little tiny cherry on top.” Right?

That shouldn’t be a massive payment because people are going to be unhappy if they were the main reason the goal was accomplished and everybody gets the same.

0:29:04.0 That’s just a tiny little cherry on top but it explains and sells the entire team on the idea that this is a team sport in the end of the day.

We as a sales team hit our goals, the company is hitting their goals, means this company is going to be around, it’s going to be growing, more opportunities are going to be there for us, so we can’t just only selfish.

If every other sales person is failing while I’m succeeding, this job, this company is not going to be around for long. Right? So you want to incentivize that. 0:29:31.1 Start with that, and then once a quarter, see how well this is working, adjust, improve, add, subtract.

Jordan: 0:29:37.7 Love it. Yep. Totally makes sense to me. I think a lot of people will intuit that when they hear it.

0:29:43.2 I do want to talk about the role of profit. Structurally, there are certain situations where a company isn’t ready to grow.

0:29:48.6 Let’s say that they’re not funded and they haven’t reached product market fit and there just isn’t enough money to throw at it.

How do you think about the role of profit as a governor or an enabler for growth?

Steli: 0:29:59.6 Yeah, so. You said it right. It all depends, right?

Listen, if you cannot finance the business through your customers and your profits, then it’s going to be have to be financed somewhere else. Right?

0:30:16.1 So either you finance your growth through your own profits, which means that your customers are paying you so much more money than it costs you to service them and you can take they excess of that money.

0:30:25.5 And now it’s a question of how aggressive do you want to grow. Do you want to take all the profits and reinvest in the business and growth? Do you want to take half of it? 0:30:30.4 Do you want to take a small amount of it?

0:30:32.8 The amount that you’re willing to reinvest might really adjust the growth curve, right? Of how fast your business is going to scale and grow.

0:30:40.0 If you don’t have that luxury, for whatever reason you’re telling me, no matter how well we sell, no matter how good our customers are, we’re not going to be making profit in the early days.

It might take us many years to start to turn a profit, then you’re going to have to finance this from another source. Right?

0:31:00.3 That might be a bank, that might be an angel investor, that might be a venture capitalist. It’s going to be some kind of an investor. Right? In one way or another.

It might be yourself. Like, your own savings. But then you’re the investor. Right? 0:31:10.4 But the money’s going to have to come from somewhere.

And so, when you take outside sources for money to invest in growth, again the question is then – the question that you have to ask yourself early is then “How good are we in securing later financing rounds? How good are we in fundraising? How many sources of capital do we have? How good are we in tapping into these sources of capital?”

0:31:35.7 And that will dictate how aggressive you can be in postponing profits or in spending people’s money. Right?

0:31:42.0 If you raise a friends and family round and you don’t have that. Your friends and family are not that wealthy, you don’t have that many friends and that much family, right?

0:31:51.8 And you’ve never raised outside money, you don’t have a track record in it, you’re fairly inexperienced in scaling a business, I would be very, very conservative with the money that I raise. Right?

0:32:02.4 I would ask myself, “How can we put this money in the business in a way where maybe we don’t turn a profit immediately, but we get to break even.” Right?

0:32:11.5 And once we get to break even, we could then re-evaluate. Can we go outside and find financing and tell our investors, “Hey, we could grow the business on break even profitably or, if you give us the money, we can aggressively grow faster, which makes the business a lot more valuable, which will benefit you and us.”

0:32:32.6 That’s a pitch that is compelling to investors. 0:32:36.7 If you were like a fundraising ninja, right? A black belt, and you’ve done this many times and you’ve raised millions of dollars before and you have many sources of capital and you really – you have a skill set.

0:32:46.3 Either yourself or somebody else on your team, you’d be a lot more aggressive, right? 0:32:51.0 You could put a line in place and say, “Hey, profits are not going to be important for the first five years, all we’re going to care about is growth. Top level growth. And we’re convinced if we can hit a certain growth curve, we can keep getting capital to keep fueling that growth.”

0:33:08.1 So that would be, to me, what determines how aggressive you should be in terms of how you finance growth.

0:33:13.8 But at the end of the day, it’s very simple. The problem that most founders have, what many founders have, is that they have no experience in funding and financing, they’ve never done it before.

0:33:24.1 They might be able to scrape a little bit of capital from their network and then they have this hope and dream that that capital will get them that much growth and then outside investors and institutionalized investors will be compelled to want to invest more money.

0:33:39.1 And that could happen, it’s just a much, much riskier proposition. 0:33:45.1 It’s much more of a lottery ticket than really a business plan that has high chances of success.

0:33:49.4 What I’ve outlined, are things that will work if you execute well. What I’ve just outlined at the very end is much more based on hope and luck than on real execution.

0:33:59.2 You could be executing really well and still fail because you don’t have good access to sources of funding, and you’ve never cared enough to turn a profit early enough and so now you’re in trouble.

Jordan: 0:34:08.3 How do you know if it’s not working? How do you know if you fundamentally – there are certain situations where somebody will approach me and we’ll look at their business dynamics and all I can tell them is that, “If you scale this, you will be scaling something to your own detriment.”

0:34:20.6 What are the infrastructure conditions in terms of finances, etc., that maybe a person might look at and say, “You know what, even though I think I could do it through sheer force of will, through fundraising, through sales and marketing”, the underlying mechanics are not in place.

0:34:37.2 Can you walk me through how you think about that?

Steli: 0:34:40.2 I’m going to make this very simple, yes. So this is going to be a very simple mental model. I think that most people can follow.

0:34:47.1 Don’t worry or don’t care as much about acquisition of customers. Look very closely at your retention and expansion.

0:34:58.6 If your – if you acquire customers, I don’t care at what rate. At an amazing rate, right? You’re acquiring all the – hundreds of thousands of new customers are signing up every day for your service. Oh my god, you’re exploding. 0:35:13.7 So that is a nice start.

0:35:16.2 But that’s not, that’s actually pretty irrelevant to the question, “Will this scale?” or, “Will you be in trouble in a few months or in a few years?”

0:35:25.6 The answer – “Are we building a business that has longevity or are we just fooling ourselves?” is not in the acquisition numbers, it’s in the retention and expansion numbers.

Look at not only how many customers are we acquiring, but how many of those are we retaining. 0:35:41.1 Like, are these customers that we are acquiring, are they actively using our service or product every day, multiple times, or as many times as we could imagine for our industry?

And are they using it more and more over time? And are they paying us more and more money over time? And are they getting more value, more success through our service or product over time.

0:36:04.8 If your retention numbers are strong, and if your customers are expanding, meaning they’re spending more and more money with you over time, not the same and not less and less money over time.

0:36:16.4 If you have strong retention and expansion numbers, more likely than not, you’re building something that is fundamentally sound. 0:36:26.0 That is sound. That is going to stick around.

0:36:30.2 And then the question is just, are you – how long is your customer lifetime value? How long do they stick around? And how much does a customer make you? And how much does it cost you to acquire them?

0:36:41.7 And if you’re very good retention, you can spend an insane amount, you could be spending $10,000 dollars to acquire a customer that only pays $200 a month.

0:36:52.3 If that customer sticks around for decades. Right? 0:36:55.3 And if they spend more and more money every year. They start at $200, next year they’re at $400, next year they’re at $800, then $1200. 0:37:01.6 You’re going to be able to finance this eventually. Right?

Because an investor will look at this and realize this is, you know, it might take 10k but we’re making 100k. 0:37:09.7 It just takes some time to make a return on that investment.

0:37:12.6 And more important than that, these customers are probably so incredibly happy and successful, we’re going to be able to build a really profitable brand.

We’re going to be able to build other products and other services to sell to these customers. Right? 0:37:23.9 We’re really building something that has longevity. Right?

0:37:28.6 I have people all the time, they come up to me and they’re, “Steli, we launched a new mobile app with $10,000 every day, $40,000 every day. We’re now – we really need to raise more money to really do more ads and really scale this up.”

And I always ask them, “Oh, how many total users do you have?”

0:37:43.4 “Well, we have 120,000 downloads in the last two weeks.”

“That’s exciting. How many of those are active users yesterday? How many active users did you have yesterday?”

And it’s always a soul crushing answer. They’re always 0:37:55.7 Inaudible], they’re always in pain because they have to give me their number.

0:37:58.6 It’s always like, “Well, you know, yesterday was like 2200 people.”

I’m like, “Yeah, well that sounds 2200 people sounds very different than 120,000.” Right? “Let’s talk about these 2200. What did they do? Are they coming back?”

That’s the core thing you should look at.

Jordan: 0:38:17.4 Love it. So churn and revenue expansion. We don’t have more time to get into it. But guys, it is so underrated. 0:38:23.5 That’s not just for valley SaaS companies, that’s for SMBs.

0:38:27.4 If you’re in the recurring revenue game, you must retain your customers. And expansion revenue, don’t think fee maxing, don’t think nickel and diming people. Think actually biz dev, adding more value, expanding the programs. There are opportunities there.

0:38:40.9 I do want to move on to the rapid-fire section of the interview. And I just want to quickly go through these and get some off the cuff answers from you.

0:38:47.7 I do this with every guest and Steli, the first question is this: What limiting beliefs have held you back in the past that you had to work through and to overcome to get where you’re at today?

Steli: 0:38:57.7 The biggest one was, as an entrepreneur, that I think I had an 80’s baby mental model of success. Which meant I had watched too much Rocky movies.

So I thought I would have to suffer to success. I would have to go through failure and I would have to be punched in the face again, and again and again and again. 0:39:16.5 Metaphorically speaking. Until I finally went through so much suffering that deserved success.

That’s a very bad mental model to follow if you want to be not just successful but also kind of happy and sane as a human being.

0:39:32.6 And the first company that I started in Silicon Valley when I moved from Europe to the valley – I sold everything I had. I bought a one-way ticket to San Francisco thirteen years ago.

0:39:39.5 And the first company I did, I suffered through it. I did all the wrong things and it took five years out of my life to fail at something that I could have failed very quickly within a year and just let go and start over again.

0:39:53.7 And it took like almost getting to depression and being completely broke financially, emotionally, spiritually for me to admit that this didn’t work and I can’t – if I want to be a successful entrepreneur, I can’t just suffer my way through success.

0:40:07.3 I can’t just keep running against the wall all day long with my head. Eventually my head will break.

So I have to look for the doors with my eyes versus just going through the wall with my head. 0:40:19.5 That was a really big one for me to break through.

Jordan: 0:40:20.5 Love that. So it’s self-fulling right? If you assume you have to suffer you will suffer. So it was an example of a non-worthwhile sacrifice.

0:40:27.7 On terms of worthwhile sacrifices, what was a strategic sacrifice that you’ve made that was necessary and really worthwhile to get where you’re at?

Steli: 0:40:39.6 I think that any time I had to let go of somebody, it was something I didn’t want to do, because most people, or almost everybody I’ve every hired have turned out to be great people.

0:40:55.7 Not always the right asset at the right time. Not always skill wise the right person for the right job, but always great people.

0:41:03.4 And so, the best sacrifice was learning over time that postponing the decision when ways had to part was really bad for them and really bad for me. And really bad for the business. 0:41:17.3 Just all around a terrible thing to do.

0:41:20.5 And learning to act really quickly whenever I had the sense or I had the data that told me that this person isn’t working out for the business.

0:41:32.2 Taking a step immediately and learning to understand that it’s not about me, that conversation is not about making me feel good or justified, it’s all about empowering them to feel good. It’s all about empowering them to succeed moving forward.

0:41:46.3 I think that mental shift made a big difference and I can say probably today, a lot of our biggest customers today are people that worked for me at one day or another and I had to part ways with. And we stayed in touch and they’re customers of me.

0:41:59.7 Some of my – I’m an investor in their business. I have very strong relationships with almost everybody that I’ve worked with in the past and that’s because I put them first.

Jordan: 0:42:06.3 Wow. So the sacrifice was the uncomfortability of wading into those conversations in an honest way instead of avoiding it.

0:42:13.0 Last question of the day. I ask this to every single guest. Steli Efti, in your opinion, are entrepreneurs born or bred?

Steli: 0:42:23.7 I don’t think entrepreneurs are born. I think that people – some people have natural talents that can help or make things easier when you’re an entrepreneur.

I think everybody can learn to be an entrepreneur, but I do think talents do make a difference.

0:42:40.1 And so, I don’t think that everybody’s equally gifted at being an entrepreneur and can be as successful 0:42:46.9 Inaudible.

I think everyone of us can learn to be as successful as we can in our lives with our potential, with our luck, with our circumstance, but I don’t think it’s a black and white answer.

0:42:59.6 There’s a lot of grey between the things – the natural talents that people are born with, the skills and experiences and things that can be acquired if your desire is big enough. 0:43:11.4

Jordan: 0:43:11.1 Little bit of both, fair enough. Plenty of people fall into that camp. Steli, for folks that want to stay in touch, find out more about what you’re up to, what’s the best place for them to go.

Steli: 0:43:19.7 Yeah, so I’ve written over ten books on the topic of sales. From hiring sales people to scaling a sales model.

If you want all of them in a digital format, in a beautiful link, just send me an email, Steli@Close.io. Just say, “Bundle please” and I’ll send you a link to get all my books for free.

You mentioned it earlier, if you enjoy podcasts, you liked our conversation today, you want to got to TheStartupChat.com and check out the podcast there. You might enjoy it.

Jordan: 0:43:47.4 Alright, that’s one of the better answers to that show-ending question I’ve gotten before. Hey, thanks for coming on the show, let’s stay in touch.

Jordan: Thank you so much for having me. Bye bye.