Building Your Startup’s 2022 Revenue Model
It’s that time of year when Startup CEOs are building their 2022 Revenue Plan. As someone who has built sales models- and has also been responsible for hitting them- here are some tips for incorporating your Sales team’s perspective into your 2022 Model.
One of the most rewarding aspects of Sales leadership is being “close to the money.” Each day, Sales leader’s teams sign new customers and track performance to target, so they have a good sense of how business is trending.
If they are optimists like me, they can forecast growth rates and get motivated about how big the startup can become. On the flip side, if sales productivity begins to fall or customer retention dips, they feel the impact before it hits the company’s financial statements. If they fall behind on their sales recruiting numbers, they understand how that will impact revenue targets two quarters out.
All of this is a part of the daily calculus of running a Sales Org. Good Sales leaders know the “equation of the business.” They understand the key metrics and how they interact. And because they spend all day talking to current customers and prospects, they see trends and opportunities before anyone else.
Now is the time of year for startup CEOs and Boards to incorporate Sales leadership’s perspective and put together a solid 2022 revenue plan.
Here are some areas to dig into.
Scaling and optimizing are two different things, and it isn’t easy to do both simultaneously.
If you plan to triple the size of your Sales team in 2022, all else being equal, it is very difficult (not impossible) to simultaneously increase productivity. Why?
1) Some of your best salespeople will move into management. Their new goal is to create ten versions of themselves, this takes time, and you will lose their individual productivity in the short term. Model this in.
2) When an Org. is scaling, your management team will need to devote significant time hiring and training new hires. This leaves less time for developing and training the existing team. Is now the time to invest in dedicated sales training and/or recruiting?
3) It’s likely your outbound sales and/or demand gen efforts have been focused on the highest converting new customer segments. To 3X the team, you’ll need to find 3X potential customers (leads) that convert at the same or higher rate. Do you have data proving the leads are out there and can be successfully brought into your sales & marketing funnel?
4) With new salespeople, sales managers, and customer segments, comes the risk of increased customer churn. With so many changes, be careful predicting that customer retention will be flat. Have you looked at customer retention by cohort? By lead source? By lead type and vertical? Are you planning to scale your customer success team linearly? Invest more? Invest less? How are things trending? The larger your revenue base becomes, the larger its impact on your current year’s revenue. Don’t wait for churn to become a factor before modeling it in. Don’t assume it will be flat y/y.
5) Early on, the time it takes to ramp salesperson #1 or #2 is often lost in the numbers. But if your team plans to grow by 50% or more in 2022, be prepared to factor in the new-hire ramp accurately. Related: finding 5 great salespeople is easier than finding 25, so you will likely see a negative impact on salesperson retention during their first 60 days (e.g., you’ll need to fire more people or more will quit). If new hire retention decreases, startups should avoid the temptation to hold onto lower performers so that they hit their headcount numbers. “The mean influences teams,” and poor performance will always negatively impact your A players. Stay focused on productivity, model in higher salesperson churn, and invest in finding the right people for your Org.
6) Are you planning on selling into a new market in 2022? Are you expanding into new geographies or moving up-market to Enterprise? Are you expanding down-market to SMB? Do you have a new product to offer your existing customers? Or an adjacent product to offer a new market? My advice is to treat these as new, separate business lines until you have some data to inform your model.
It is a common mistake to assume that launching an Enterprise sales team will generate 2X more revenue per quarter than your SMB team. It is tempting to include this in your forecast, particularly given the large investment needed to launch an Enterprise team. Only build it into the forecast once you have some data (and the first handful of customers).
Until then, decide in advance how much you plan to invest in proving out the new market if you hit your targets-great- double down.
When startups must succeed within an unproven market or new product line to hit their goals, bad things happen. Remember, the very nature of startups is that their market share is small, even in their core market, so it’s always best to win where you can win. Then use the proceeds to place adjacent bets and go all-in on the winners.
Investing in the right levers for your business
Now, onto the fun stuff. Here is the good news: if you are rapidly scaling your Sales team, you should have more revenue, and thus more resources, to invest in levers. Fast-growing startups can win market share by combining a winning formula with massively talented and motivated people. Once you begin to hire for roles that function as levers across your Sales Org, the race is on.
Here are some places to invest in 2022 to ensure you can scale with success.
1) Sales Training & Onboarding — A rapidly scaling sales team will add more new salespeople in Q1 and Q2 2022 than exist on the team at the end of 2021. Once we wrap our heads around this, the importance of effective training and onboarding becomes obvious.
But yet the tendency to focus on what is happening today- the deals in today’s pipeline, hitting this month’s revenue target- is pervasive. To avoid this, startups should be deliberate in putting their best sales leaders into sales training roles. And the company should focus on productizing the sales playbook so even an average sales rep (if they work hard) can hit their number.
2) Sales Manager Training — In a fast-growing Sales Org, “Managers” do very little “managing.” Instead, they focus on coaching and developing their teams. Sales Managers at startups are like an NBA basketball coach from the sidelines, engaged in every moment and sharing real-time feedback without hesitation.
When done right, talented and committed salespeople can be ramped into top performers in 3–4 months. It is a remarkable thing to watch. But this is only possible if your Sales Management team knows exactly what they are doing and operates from a place of confidence. This does not happen on its own. You can tell the quality of the startup by the quality of its front-line managers.
Rapidly growing startups must invest in their Sales Managers. These are “catch-all” people who will influence the ballooning headcount of your startup with every conversation and every gesture.
This is why it is critical for startups to invest in a highly capable VP of Sales. The VP’s job is to build the Sales Management team. A great VP knows how to recruit, train and lead excellent Sales Managers. From there, great Sales Managers build great teams. It’s as simple as that.
There are many other areas startups should consider investing in to ensure they can hit their 2022 targets: Recruiting, Sales Enablement, and Customer Success are all big levers. It comes down to finding 1–2 great people in each area who will embrace the company’s 2022/23 revenue goals as their own and have the confidence to function as a key lever in determining the outcome of the scaling Sales Org.
Building startups is a high-stakes business. If you have momentum and a plan to scale aggressively in 2022, you’ll get one swing at the plate-one chance to execute. And if you succeed, you get to do it all over again in 2023.
Good luck!
Pete brings 15+ years of experience as an operator and sales leader at technology companies ranging from $1M to $750M in revenue. As an advisor and consultant, he works with high-growth companies looking to scale their business and build a strong foundation for growth.
Originally published at https://www.petehancock.me on August 31, 2021.
