Death of the Salesman?
There is an ongoing argument in Silicon Valley about the relevance of having an outside (read expensive) sales force. Some venture investors have told us that they will no longer fund any companies needing outside sales and instead will seek out “freemium sales models” as the primary sales channel. There are two sides for this story. On one hand, outside sales forces can be expensive, can have runaway costs if the hiring plan is either too early or too late and is not as effective as in the past. On the other hand, the absence of a direct sales team may ruin the chances for an otherwise successful infrastructure investment. Since the “no salesman” theory is in vogue there isn’t much out there in the way of defense for the outside salesman so we thought we’d give it a try. The argument in defense of the outside sales person has three elements — first it doesn’t have to be wasteful — smart hiring decisions, fast “onboarding” of new hires, and well thought out sales team (outside, inside, systems engineer) can keep costs under control while the customer acquisition rate ramps up. Secondly, the outside sales team can play a big role in communicating the value proposition and positioning. But finally the most important argument in favor of the outside sales teams is that — IT WORKS.” Just look at the last three infrastructure companies that recently went public. The table below shows the cost of sales and marketing from the companies’ S1 filings. These percentages, while being high compared to a freemium model, make the point that effective sales teams remain a key for a successful strategy. While the percentages seem high keep in mind that these companies may not have achieved “exit velocity” without their direct sales forces.
Cost of sales and marketing (% of revenue)