When a software company is in the early stages of existence, all they have to worry about is doing whatever it takes to get their application in front of as many potential customers as possible without worrying about a repeatable sales process. Once a company reaches a certain point, such as surpassing the million dollar milestone (or whatever metric applies), then it becomes increasingly necessary to create a scalable & repeatable sales strategy.
In order to continue our high growth, we have adopted a new sales strategy at QGenda to make our customer acquisition methodologies more repeatable no matter how many sales people we add to the team over time. The first major change was defining the structure of the sales team, which consists of a 4 year goal oriented promotion track of Business Development Rep (BDR) –> Account Executive –> Sr. Account Executive –> Sales Team Lead.
At QGenda we have an extremely high closing ratio (45%) for prospects that take the time to see a webinar, so for us it is important for the BDRs to constantly be setting demo appointments for the Account Executives. As a Business Development Representative you are expected to:
- Send 15 new prospect cold emails per day
- Send 15 follow up emails to previous cold emails from 3 days ago
- Make 15 calls to follow up emails sent from 5 days ago
- This equates to a minimum of 45 prospect touches per day
- Set 25 demo appointments per month (only count those that get performed)
Once a BDR reaches a specific goal (e.g. 250 demo appointments get performed) then the BDR should immediately be promoted to the Account Executive position. As an Account Executive they are responsible for performing demos, providing proposals, and closing hot leads. The Account Executive and Sr. Account Executive get promoted to the next level by booking $1MM in recurring revenue. Sales people are typically very competitive and goal oriented, so defining sales goal parameters that lead to promotions helps create a healthy motivated sales team.
What other ideas can help create a repeatable sales process?
Last week’s post about sharing company success by offering stock options covered a lot of the basic structural details around implementing an employee sock option plan, but one major point left unanswered is who gets what and how much? The most common way to discuss stock options is in terms of percent ownership, but many entrepreneurs (including myself) prefer to present stock options in dollar values with an expected outcome based on growth over a 4-5 year period.
Here are some common percentages of non-founder employee stock options:
- CEO/President ~ 5%
- C-Level (COO,CFO,CTO,etc) ~ 2% – 3%
- VP ~ 1% – 2%
- Director ~ .5%
- Manager / Senior Engineer ~ .2% – .25%
- Engineer / Consultant / Advisor ~ .05% – .15%
These are well known industry standard non-founder equity percentages, and it’s important to note that founder equity is an entirely different and more complex calculation based on a lot of parameters.
When discussing stock options with employees, I like to stay focused on the outcome of what these options could amount to using examples. For example (using easy numbers), if someone is granted 10,000 units with a strike price of $1/unit and the company grows at 60% year over year for 5 years, then those stock option are now easily worth $10/unit which is over $100k total. It’s much more exciting to think that 4-5 years of hard dedicated team work could pay off 10 fold for everyone, versus just telling each person individually that they have .1% ownership in the company.
What are some other key points when determining non-founder stock option equity grants?
An important part of building a successful company is sharing that success with the very people who make it possible. Stock options are a great way to share the success, and it also provides employees a true form of ownership behind all their hard work. Recently it became time to offer stock options at QGenda, so I began by talking to several entrepreneur mentors, and it was very apparent that there are many ways to setup stock options.
Here are some of the key points to consider when setting up stock options:
- Options should vest over 4 years.
- A typical vesting schedule of the 4 years is broken into a 1 year cliff then monthly vesting thereafter. For Example: if you are granted 48 units, then 12 units vest after the 1st year and then 1 unit per month for the remaining 36 months.
- When calculating the Strike Price you can avoid costly annual valuations by using a reasonable formula to value your business such as 3x trailing twelve month (TTM) revenue.
- Plan on 10% to 20% of the equity of the business to be part of the option pool.
- Create a buy/sell agreement with the same formula of 3x TTM revenue such that any employee that leaves the company has to sell their stock back to the company.
Offering stock options is a great way to provide loyal employees their fair share of ownership in what they are helping to build.
What other key points should someone consider when offering an employee stock option plan?