Especially if you're doing account manager-type high-touch sales, which I assume Oxide is given its product, it would be difficult to hire strong sales people at all without variable compensation. It's best to think of sales as an entirely different kind of animal as the rest of the company. Like the post says, when they're making lots of money, everybody else is making even more money.
One thing people who have never managed direct sales teams might not immediately grok is: good sales people are experts at gaming incentive schemes. Their work and output adapts to their comp schemes in ways nobody else's does. If you cap a salesperson's comp in a quarter, they will work to move sales out of that quarter; exactly what you don't want.
> Like the post says, when they're making lots of money, everybody else is making even more money.
I’ve worked with sales people whose compensation had loopholes you could drive a truck through, make sales that cost us more money than we made on the contract. Now a few of those are good for attracting VC money, but you have to be strategic and I’ve seen too much evidence of them not being so.
If you lock up your biggest potential customers with bad contracts that makes you default dead and no good way to weasel out.
A compensation plan that aligns incentives to address the principal-agent problem of sales representatives is probably necessary, but definitely not sufficient, to manage an effective sales program.
> One thing people who have never managed direct sales teams might not immediately grok is: good sales people are experts at gaming incentive schemes.
Is that just circular though? i.e. I think everyone's like that, it's just unusual that it's tied directly to compensation. e.g. if I feel that my Jira output is being critically monitored, I might push something (or the reporting of something) into the next sprint if it's close and I've already done a lot in this one; I might more diligently create tickets for every little incidental thing that popped up (rather than just quietly getting it done).
I'm not comp'd according to that, but it's the same behaviour, it's just 'a measure becoming a target' really isn't it?
I don't have a more precise way to articulate this other than that adapting your behavior to your compensation is a skill, most of us are not expert in that skill even if we think we are, but even bad salespeople are like ninja masters at it.
As others have said, the sales compensation model is fundamentally a low base and then a percentage of the sale. I think Ben Horowitz had an early blog post about not trying to innovate on sales compensation models, and having seen a few attempts at "innovation" at Google Cloud, I agree. It's almost never worth the complexity.
You can figure out various sliding scales, maybe even caps (but adjusting the scale is more rational), but I think flat pay is basically anathema to being a salesperson.
I forget the details, but the rough shape of it is that sales makes a lower base salary, but with a commission component that can lead to a higher salary than the standard one. I can't remember if there's also some sort of cap.
You could take it as undermining those other points, but I don't. (I am, of course, biased.) We didn't do this because we needed to address some failing of these other things, we did it because sales has an incredibly strong culture of this compensation model, to the degree that it would be difficult to hire otherwise. That isn't an issue with other staff.
Additionally, some of the points don't work the same way with sales, that is, the variability is easily measured and objective. Sales people don't write promo packets, you count up the amount they sold.
> we did it because sales has an incredibly strong culture of this compensation model, to the degree that it would be difficult to hire otherwise. That isn't an issue with other staff.
SF Bay Area SWEs are famously compensation-focused, and this uniform salary is basically Google new-grad SWE entry-level TC.
Are you hiring from the minority of good engineers who aren't driven primarily by compensation, but you just can't find the analog of that among good salespeople?
> Sales people don't write promo packets, you count up the amount they sold.
And you manage the imperfect alignment? (Imperfect, like the incentive to close a sale by lying to a customer, in a way that won't be discovered until next year. Or incentive to close a sale now, and don't communicate back a customer insight that would nudge the product line in a better direction longer-term, since that insight risks someone at the company wanting to talk to the customer, which puts the imminent commission at risk.)
> SF Bay Area SWEs are famously compensation-focused,
We don't hire only SF Bar Area SWEs. Only about a quarter of the company is in the Bay Area.
> but you just can't find the analog of that among good salespeople?
I'm not sure I've ever met an equivalent salesperson. Maybe that's a personal thing. Given the other responses in this thread, it seems to be fairly universal.
Thank you. Two followups, trying to learn from Oxide:
1. Did you go straight from founders and marketing/relations people doing sales, to hiring salespeople with a conventional compensation scheme? (Or were there some other things you tried in between?)
2. Given the opinionated and unconventional ideas that you have for engineering and product culture, and also given that traditional enterprise sales culture was powerful enough to overwhelm that for hiring... is there anything you're consciously trying to do differently in enterprise sales, and how do you accomplish that within the (fairly transactional?) relationship that you have with your sales team?
1. I don't work on that side of things, but yeah, that's my understanding. We did discuss if we were going to try and do the flat scheme, but I believe we made the decision to be more traditional before we ended up putting up the job descriptions.
2. I can't answer that, as I don't work on that, but maybe someone else will read the thread and chime in. Sorry about that!
In practice, you pay out the commission over time. So if someone was extremely deceptive, or the customer churns nearly immediately, you don't just keep getting the commission.
At Oxide's scale, it would likely be hard to hide out in the way you're suggesting. It's a very technical sale, and probably any material deal is going to involve some discussion with someone beyond just a single sales rep.
Perhaps to bcantrill's point in the post though, I would suggest you reconsider the assumption that Sales people are purely coin operated. I'd love to hear from their reps directly, but as an example from my own experience, lots of the early Google Cloud sales folks were there because they hated how places like Oracle or Microsoft treated their customers. They were absolutely taking less peak pay, for what they felt was a better relationship.
Sales is fundamentally about relationships and trust in this kind of high-touch transaction. Badly behaving reps are pretty quickly outed, one way or another, though at big companies it can take a while to fire them.
Happy to go into it in more detail, but the salient points are in the piece: sales folks are eligible to make more -- but can also make less. This is in keeping with the way enterprise sales is done more or less everywhere: sales is different from every other company activity in that it is very quantifiable. I don't think that there's a whole lot more to say about it?
"this is in keeping with the way enterprise sales is done more or less everywhere..."
For non-sales roles you're doing things very differently than (most) everywhere else, which is why it seems like a compromise to give in to an 'industry standard' model for enterprise sales.
The fact that sales is quantifiable doesn't explain why sales people get instantly rewarded with cash comp (+ equity) while everyone else on the team might wait years for a potential liquidity event.
The real explanation for why sales people get paid so well is that some really good sales people sold the idea of a highly favorable 'industry standard' model for enterprise sales.
> You think the quality of Anthropic’s salespeople had much to do with them crushing their numbers as Claude exploded?
This raises an interesting point. I think B-to-C sales for small amounts (ignore car sales for a moment) is very different than B-to-B sales where the amounts are normally 10-1000x larger than B-to-C. It is much easier to distinguish the great from good from mediocre, etc. To be more specific about Anthropic, the B-to-C sales team is probably more of PR & marketing to build hype around the product. However, the B-to-B sales team is trying to sell contracts to large corporations for 100s or 1000s of new users. Again: The scale of economic impact is incomparable, especially when deciding how to compensate staff.
Also, in my personal experience, the best sales really shine when there is an economic downturn, but they manage to outperform everyone -- existing and new accounts. Or, in the words of Warren Buffett: "Only when the tide goes out do you discover who's been swimming naked."
>The real explanation for why sales people get paid so well is that some really good sales people sold the idea of a highly favorable 'industry standard' model for enterprise sales.
Is there a notable company with enterprise sales that's successful without sales commissions?
Companies in the past have tried a "flat salary no commissions" comp structure for salespeople before and it doesn't work even though intuition seems to tells us that it should. The thinking goes something like... "If salespeople are paid a good salary and therefore aren't under any pressure to meet any quotas to earn a high income, that mental freedom should allow them to sell."
What actually happens is that fixed salaries for sales positions attracts underperformers who can't sell and simultaneously, makes the job not attractive to "rainmakers" who know they're worth more than the fixed salary.
... But 2 years after that story, they changed their policy and had to pay sales commissions again. They eventually learned what previous companies already figured out: variable pay for salespeople works the best.
Yeah no doubt you have to have performance based compensation but that's exactly what equity and bonuses are for everyone else. Sales people are special in getting large amounts of cash comp in addition to equity.
>Sales people are special in getting large amounts of cash comp
Not sure what you mean by "getting large amounts of cash comp" as if it was a given. Co-founder clarified their base pay is lower. If they don't sell, they won't get large amounts of cash comp.
What's the alternative idea you have in mind for compensation? How does one re-divide the pie to be more "egalitarian" to the fixed-salary $200k non-sales employees that doesn't lower the compensation to salespeople and make the job less attractive to rainmakers?
Sales people that don't sell just get fired, that's the thing about being such a quantifiable role. So in practice at a startup with a hot product you end up with a team of sales people receiving huge amounts of cash comp.
Everyone in in a well run startup org gets performance based compensation in the form of increases in salary, bonus, and equity.
There's no reason sales people couldn't be compensated in the same way. The reason they're not is just that it's considered an 'industry standard' to reward instantly with cash.
Sales people have themselves a sweet deal they're loath to give it up whether or not it's in the best long-term interests of the company or even themselves. It's not a terrible thing but it does seem an anachronism that will go away.
>Everyone [...] gets performance based compensation in the form of increases in salary, bonus, and equity. There's no reason sales people couldn't be compensated in the same way.
There is a reason and it's based on the external market dynamics that the company itself can't control. The potential candidate salespeople can see/compare how other companies pay for sales.
Whatever principled stance the company wants to take on compensating salespeople in a different way than "industry standard" e.g. "same salary + same bonus as the devs" or "flat salary no commission" etc ... those idealistic plans still have to compete in the marketplace with other companies paying high sales commissions. Therefore, if the more egalitarian sales comp structure means the "rainmakers" are choosing other companies instead of yours, it's a moot point.
Sales commissions aren't an "industry standard" just because they're an "industry standard" type of circular reasoning. It's an industry standard because other compensation methods for salespeople that pay them like all the other non-salespeople don't work so most successful companies converge on paying high commissions for high performers. A lot of non-salespeople don't understand this so it seems like paying commissions for sales positions is arbitrary and unnecessary and therefore, "unfair". As a dev, I used to think sales commissions that exceeded my salary were ridiculous but having attempted sales myself, it now makes perfect sense.
"It's an industry standard because other compensation methods for salespeople that pay them like all the other non-salespeople don't work ..."
[citation needed]
I think it's more accurate to say that it's an industry standard because it works, not because nothing else can work. There's a lot of herd mentality and (much more reasonably) risk aversion when it comes to messing with revenue generation.
>, not because nothing else can work. There's a lot of herd mentality [...]
There is herd mentality yes, but you have to consider that there have been a lot of startups founded by devs who rejected herd mentality and did try to compensate salespeople in a non-standard way. See Pluralsight CEO (a former C# .NET developer) as one example.
The timeline goes like this... When dev worked as an employee at previous company, they hated that salespeople were on commission because it's "unfair". Dev later starts his own company and thus has a chance to implement his own ideas (based on intuition instead of historical evidence) on how to fairly pay salespeople. (I.e. "there's no reason I can't just pay salespeople same as my devs"). He then sees that he can't recruit superstar salespeople or the salespeople he can hire actually can't sell. The market finally "educates" the dev-now-CEO that his intuition and mental framework about salespeople's incentives and motivations were wrong. He relents and switches to the typical commission structure that he really really didn't want to do.
There have been hundreds of years of commerce history showing how salespeople are incentivized by commissions but computer programmers that start companies are an idealistic and stubborn bunch and therefore they want to pay salespeople a different way. There's no risk aversion because they're rebellious against the status quo and are convinced they're right and "everybody else is doing it wrong". Seems like a rite-of-passage that they try their alternative idea and then eventually learn it doesn't work. Ben Horowitz's a16z blog article was aimed at those startup founders (mostly ex-developers) who thought paying commissions was completely illogical and unnecessary.
Your alternative compensation plan idea to pay a delayed annual bonus exactly like the devs is more "fair"; the problem is superstar salespeople aren't interested in it. They don't have to be because they can just work for another company that pays fat commissions.
That's because the folks who are buying enterprise technology (aka the economic buyers) for a solution that can potentially cost millions of dollars know if the person attempting to persuade them to do so belongs in that room or not. That is a skill learned over years of negotiation, contracts and legal reviews and executive messaging.
You have to have been in those rooms to acquire the skills that make for successful executive salespeople, and their variable comp is a requirement or you wouldn't be able to staff the team.
Sometimes salespeople boost their metrics by promising features that come from other people's work. But they also sometimes provide valuable information on what people are willing to pay for (very different from what they say the want).
One important detail: their comp model is different -- but the hiring model is the same. And that has yielded a deeply thoughtful and customer-centric sales team. We are very mindful of go-to-market anti-patterns![0]
Honestly it makes sense and resembles how other companies pay sales people. Lower base salary than other roles in the company for similar years of experience (roughly) but with a commission component that's some percentage of each sale. Commission is a big big part of sales culture that I suspect is hard to eliminate in an effort to be different.
What's interesting is that often times the commission has no cap, so top sales people can take home higher income than even than executives (at least in cash compensation).
But to the commenter's point, true transparency would share the commission % as well :)
