Column: How and When Do You Hire Your First Salesperson?

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

Column: How and When Do You Hire Your First Salesperson?

The other day I had a call with a founder in my portfolio of angel investments who is preparing for a Series A round. His question was: At what point should he step back from personally leading sales and hire a real sales team?

Every seed or Series A company will go through this important step. There's no question that a founder's passion and knowledge of the product usually makes for a great salesperson. But at some point, it's time to let go and bring in the experts: true salespeople.

The challenge is, unless you cut your teeth in sales or have direct experience with the inner workings of a sales organization, many founders don't know much about recruiting or structuring a sales team. So where do you start?


First, with people:

There are many different types of sales professionals out there, all with different strengths, and in an unlimited capital situation you'd want to hire a bunch of different types and see which one performs best for your startup. But most companies at this stage can't afford to run that experiment. Here are the four types of salespeople you can start with as your first hire:

  1. Cheap and scrappy. This is your straight-out-of-college, hungry-to-prove-and-perform individual with no industry or sales experience but great coachability and drive. This person will need investment up front, but the right pick will pay off.
  2. Seasoned sales pro. This person has lots of sales experience and can be a vital asset in structuring and leading the sales team as it grows, but they have no industry experience or connections and will need to develop those.
  3. Seasoned industry pro. This person has both experience and connections within the industry you're operating but no sales experience. While this person can still be successful, arguably skill gaps are harder to fill than knowledge gaps.
  4. Sales and industry pro. This is a turnkey hire because of their sales experience within the industry, giving them the knowledge and connections to hit the ground running with the least amount of upfront investment.

I advised the founder that #4, a sales and industry pro, is probably the easiest place to start. That said, any one of these types of sales hires can be successful; ultimately it comes down to how much you can invest in them (less experience requires more time, training and coaching), and also who you come across in your search. You may find the perfect fit for your company's purpose and values in any of these buckets, and any additional investment or ramp up is worth it for the right hire.

Second, compensation:

The right compensation model helps you not only attract great professionals but help them do their jobs more effectively with the right incentives. But make peace with the fact that you will make a lot of mistakes in this area, and you will need to adjust and pivot throughout the growth, maturation and life cycle of your business. It's just part of building companies. With that disclaimer, here are two crucial pieces to sales compensation:

1. Compensation model. Your structure consists of a base salary plus commission, and understanding the right base salary depends on the type of salespeople you're hiring. A good guideline is a $40-60K base salary (remember, I'm talking about startups here), but it could be as high as $100K depending on experience and field.

Once you've established that base, the next step is to determine what percentage of total compensation is variable based on a commission, which is paid out if the salesperson meets or exceeds quota. A good rule of thumb here is setting the variable comp at 25% of the base salary and up to another 25% for exceeding quota. That means a sales person on a $50K salary will make an additional $25K for meeting quota and up to another $25K (double the salary) for crushing it.

2. Quota and revenue churn. This second piece is vital not just for the earning potential of the employee but also for the long-term health of the business, and you'll find much of your adjustments over time happen in this area. Quota and churn are inextricably linked; if you don't consider revenue churn when setting quota, your salespeople will "sell hot" into accounts that won't last — which will over time bury them in a hole that makes it difficult for them and the business to recover. An example: Say you set quota at $10K of new revenue per month, and in the first month your sales person meets it. But in month two, you see 10% ($1K) of that new business churn. To make quota, your salesperson will need to sell $11K, or quota plus 10%. Should this pattern continue, the hole gets deeper and more difficult to scramble out of. Churn guardrails are crucial.

Incorporating churn into quota is overall healthier for the business. Not only does it disincentivize "commission hole-digging," it also forces your salespeople to form more consultative relationships and take greater care in onboarding and account management since churn and quota are both front of mind in their efforts.

While there's no prescribed path to success with your first sales organization, you need to have a plan to scale from founder evangelism to mechanized sales that scale revenue. Founders should always be selling their own product, but even more important is their ability to create a scalable sales org beyond themselves.

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Tinder is altering dating profile creation with its new AI-powered Photo Selector feature, designed to help users choose their most appealing dating profile pictures. This innovative tool employs facial recognition technology to curate a set of up to 10 photos from the user's device, streamlining the often time-consuming process of profile setup. To use the feature, users simply take a selfie within the Tinder app and grant access to their camera roll. The AI then analyzes the photos based on factors like lighting and composition, drawing from Tinder's research on what makes an effective profile picture.

The selection process occurs entirely on the user's device, ensuring privacy and data security. Tinder doesn't collect or store any biometric data or photos beyond those chosen for the profile, and the facial recognition data is deleted once the user exits the feature. This new tool addresses a common pain point for users, as Tinder's research shows that young singles typically spend about 25 to 33 minutes selecting a profile picture. By automating this process, Tinder aims to reduce profile creation time and allow users to focus more on making meaningful connections.

In wholly unrelated news, Elon Musk has announced plans to relocate the headquarters of X (formerly Twitter) and SpaceX from California to Texas. SpaceX will move from Hawthorne to Starbase, while X will shift from San Francisco to Austin. Musk cited concerns about aggressive drug users near X's current headquarters and a new California law regarding gender identity notification in schools as reasons for the move. This decision follows Musk's previous relocation of Tesla's headquarters to Texas in 2021.

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Los Angeles, has a thriving startup ecosystem with numerous accelerators, incubators, and programs designed to support and nurture new businesses. These programs provide a range of services, including funding, mentorship, workspace, networking opportunities, and strategic guidance to help entrepreneurs develop their ideas and scale their companies.


Techstars Los Angeles

Techstars is a global outfit with a chapter in Los Angeles that opened in 2017. It prioritizes local companies but will fund some firms based outside of LA.

Location: Culver City

Type of Funding: Pre-seed, early stage

Focus: Industry Agnostic

Notable Past Companies: StokedPlastic, Zeno Power


Grid110

Grid110 offers no-cost, no-equity programs for entrepreneurs in Los Angeles, including a 12-week Residency accelerator for early-stage startups, an Idea to Launch Bootcamp for pre-launch entrepreneurs, and specialized programs like the PledgeLA Founders Fund and Friends & Family program, all aimed at providing essential skills, resources, and support to help founders develop and grow their businesses.

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Type of Funding: Seed, early stage

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Notable Past Companies: Casetify, Flavors From Afar


Idealab

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Location: Pasadena

Type of Funding: Stage agnostic

Focus: Industry Agnostic, AI/Robotics, Consumer, Clean Energy

Notable Past Companies: Lumin, Coinbase, Tenor


Plug In South LA

Plug In South LA is a tech accelerator program focused on supporting and empowering Black and Latinx entrepreneurs in the Los Angeles area. The 12-week intensive program provides early-stage founders with mentorship, workshops, strategic guidance, potential pilot partnerships, grant funding, and networking opportunities to help them scale their businesses and secure investment.

Location: Los Angeles

Type of Funding: Pre-seed, seed

Focus: Industry Agnostic, Connection to South LA and related communities

Notable Past Companies: ChargerHelp, Peadbo


Cedars-Sinai Accelerator

The Cedars-Sinai Accelerator is a three-month program based in Los Angeles that provides healthcare startups with $100,000 in funding, mentorship from over 300 leading clinicians and executives, and access to Cedars-Sinai's clinical expertise and resources. The program aims to transform healthcare quality, efficiency, and care delivery by helping entrepreneurs bring their innovative technology products to market, offering participants dedicated office space, exposure to a broad network of healthcare entrepreneurs and investors, and the opportunity to pitch their companies at a Demo Day.

Location: West Hollywood

Type of Funding: Seed, early stage, convertible note

Focus: Healthcare, Device, Life Sciences

Notable Past Companies: Regard, Hawthorne Effect


MedTech Innovator

MedTech Innovator is the world's largest accelerator for medical technology companies, based in Los Angeles, offering a four-month program that provides selected startups with unparalleled access to industry leaders, investors, and resources without taking equity. The accelerator culminates in showcase events and competitions where participating companies can win substantial non-dilutive funding, with the program having a strong track record of helping startups secure FDA approvals and significant follow-on funding.

Location: Westwood

Type of Funding: Seed, early stage

Focus: Health Care, Health Diagnostics, Medical Device

Notable Past Companies: Zeto, Genetesis


KidsX

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Location: East Hollywood

Type of Funding: Pre-seed, seed, early stage

Focus: Pediatric Health Care Innovation

Notable Past Companies: Smileyscope, Zocalo Health


Disney Accelerator

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Location: Burbank

Type of Funding: Growth stage

Focus: Technology and entertainment

Notable Past Companies: Epic Games, BRIT + CO, CAMP


Techstars Space Accelerator

Techstars Space Accelerator is a startup accelerator program focused on advancing the next generation of space technology companies. The three-month mentorship-driven program brings together founders from across the globe to work on big ideas in aerospace, including rapid launch services, precision-based imaging, operating systems for complex robotics, in-space servicing, and thermal protection.

Location: Los Angeles

Type of Funding: Growth stage

Focus: Aerospace

Notable Past Companies: Pixxel, Morpheus Space



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🚁 One Step Closer to Air Taxis in LA
Image Source: Joby Aviation

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Joby Aviation, a pioneering electric air taxi company, has achieved a significant milestone by successfully flying a hydrogen-electric aircraft demonstrator for 523 miles with only water as a byproduct. This groundbreaking flight showcases the potential for emissions-free regional travel using vertical take-off and landing (eVTOL) aircraft, eliminating the need for traditional runways. The company's innovative approach combines its existing battery-electric air taxi technology with hydrogen fuel cells, paving the way for longer-range, environmentally friendly air travel.

For LA residents, this development holds exciting implications for future transportation options. Joby's technology could potentially enable direct flights from LA to destinations like San Francisco or San Diego without the need to visit conventional airports, offering a cleaner and more convenient alternative to current travel methods. The company's progress in both battery-electric and hydrogen-electric aircraft positions it at the forefront of next-generation aviation, promising to revolutionize urban and regional mobility.

Notably, Joby Aviation has already made strides in Southern California by securing an agreement with John Wayne Airport earlier this year to install the region's first electric air taxi charger. This strategic move sets the stage for LA to be among the initial markets where Joby will launch its electric air taxi service. With plans to commence commercial operations as early as 2025 using its battery-electric air taxi, LA residents may soon have access to a fast, quiet, and environmentally friendly mode of transportation that could significantly reduce travel times and traffic congestion in the region. In the not too distant future, LA might find itself in an identity crisis without traffic and excess smog 🤞🤞.


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