Typical scenario: You have a product and some initial sales, even without a marketing team or budget! You hired a sales person, and she’s doing great. You feel like you reached an initial product-market fit, and now you want to pour gasoline on the fire and scale.
You hear about other startups who hire SDRs: Sales Development Representatives. Sometimes they go by slightly different names, but the idea is similar: Let’s hire recent college grads en masse, maybe also folks with a couple of years of work experience, who are going to spend their time emailing and calling prospective customers.
In this post, I share why I don’t believe that hiring SDRs this way is an effective strategy, and what I prefer to do instead.
SDRs: why not?
– The imagined SDR career path doesn’t make sense and leads to hiring employees with the wrong skills for the job. The career path that the typical SDR aspires to is working a couple of years as an SDR, hitting their goals, and getting promoted to a “real” sales position, meaning closing deals as an Account Executive. This is how the position is portrayed, and a lot of college grads think of the SDR position as a jumping off point to the world of sales.
The problem is that this doesn’t make any sense. The skills and capabilities needed for excelling as an SDR are writing ability, being detail oriented, analytical skills, including A/B testing and campaign performance tracking, and patient, continuous improvement by experimenting with new ideas. These are not the typical skills of the high-performing sales person – like strong verbal communication skills, the ability to think on one’s feet, and highly-developed interpersonal skills.
So either you hire people with SDR skills and then promote them to a position they don’t have the skills for, or — and this is typically what happens — you hire people with Account Executive (sales) skills, and expect them to excel as SDRs.
– Not scalable. As opposed to other channels like content, PR, and email marketing that can reach a huge number of prospects with a relatively low investment in terms of employees needed, you need to hire more SDRs to reach out to more prospects.
Why? Because there are only 24 hours in a day, or say nine hours in a work day, so the number of emails and phone calls an SDR can make in a day is limited. Want more emails, sales opportunities, and customers? You’ll need to hire more SDRs.
It’s pretty common in the US to see gigantic teams of SDRs — dozens of people, or even more — with multiple layers of management hierarchy. This means a big investment in hiring, development, management, and salaries.
Yes, you can argue that the sales team itself — the team that closes deals and brings in new customers — isn’t scalable, for the same reasons. It’s technically true, but a salesperson is more directly tied to the revenue she is able to bring in, and it’s easier to attribute new deals and revenue to her work. Did you hire two sales people and they both hit their targets? Great, they’re accretive and you can hire more. Did they not hit their goals? You may want to part ways, or recalibrate.
SDRs are further away from closing deals. If you have a few SDRs who are creating sales opportunities that don’t close, it’s hard to know whether the problem is with the SDRs, with your Account Executives, or with the type of opportunities. In addition, the longer your sales cycle is, the longer it’s going to take you to notice you have a problem with your SDRs. Until you do, you might continue to invest in growing a team that’s not really contributing to the company’s growth.
These days, there are many tools that are supposed to automate an SDR’s work. You may have heard of tools like reply.io, outreach, salesloft, toutapp, yesware. These tools help with sending out emails, but less so with writing emails, tracking performance, and finding leads to email. So some of the work remains manual, and therefore not scalable.
– The danger of over-investing in the wrong channel. One of the latest episodes of the SaaStr podcast (highly recommended) featured Sam Blond, Chief Sales Officer at Brex, former VP Sales at Zenefits. One of the insights he shared was how they had quickly built a huge SDR team at Zenefits, investing a ton in recruiting and training. After a while, they discovered that the leads and opportunities created by the SDR team converted to customers at a much lower rate compared to leads coming in from other channels,like content and conferences. It took them a long time to discover this, both because their sales cycle time was long, and also because the SDR team didn’t have comparative close rate data from other channels that were run by the marketing team (and vice versa).
The SDR channel should be measured according to the same performance metrics of all the other channels: cost per lead and cost per opportunity, close rate, CAC (Customer Acquisition Cost), and so on. It’s important to take into account the channel’s fully-loaded cost, including headcount costs (salaries and commissions) and tools.
The bottom line is that it’s “easy” to build a big SDR team that shows a lot of activity like calls, emails, and opportunities… it’s harder to track results, continuously improve, and deliver cost-effective results over time.
So what should you do instead?
As you were reading the first part of this post, did you happen to think about a different team at your company that has more relevant skills and areas of responsibility for the task at hand? Writing skills, automation tools, A/B testing, email marketing, creative ideas, tracking different channels… hmm… sounds familiar?
If you thought “marketing!” – you guessed it. And indeed, I argue that SDRs or “automated prospecting” should be part of the marketing team. Here are the reasons:
– Relevant skills and inherent scale mindset. The marketing team is supposed to possess all the skills — and tools — to send well-written emails, with the right messages, segmented for your target audience. In addition, the marketing team is always supposed to consider scale and how to do more with constrained resources, and to diligently track performance and results.
I’m always amazed to see gigantic SDR teams that spend days building lists of potential leads by using LinkedIn or other tools, and finding email addresses for each lead (using platforms like DiscoverOrg, data.com, or Rapportive).
Marketing teams are smaller and leaner, and simply can’t afford to spend so much time on such tasks. Our solution? Using Upwork, meaning outsourcing to remote teams of freelancers (usually in developing countries). The teams build lists quickly and cost-effectively, especially considering the alternative: hiring employees in New York, San Francisco, or Tel Aviv.
A few months ago, I talked to a VP Marketing of an Israeli startup that had built an SDR team of dozens of employees in a big, expensive city in the US. He told me the team invests most of its time finding leads and contact information, and sends on average 50 emails a week per person. At the same time, we were working with another Israeli startup, with a marketing team of one full-time person and one part-time person. They averaged sending 1000-2000 prospecting emails per week (sometimes more), by using the “machine” we had built: a combination of Upwork for building lists and finding emails, and a marketing manager who wrote email copy for 1-2 emails that were sent to these leads using Marketo and reply.io. The cost of the machine was orders of magnitude lower than the SDR team in the other startup.
– Ownership for all Sales Opportunities. I believe the one metric the marketing team should be measured on is sales opportunities, which we define as a sales meeting/call on the calendar with a relevant lead. The Head of Marketing allocates her budget and resources to different marketing channels — conferences, content, digital advertising, webinars and so on — in order to hit the opportunities goal. She carefully tracks costs and results for each channel. She re-allocates budget and resources between channels according to their relative performance. If automated email prospecting doesn’t work, she will shut off the machine and re-invest the budget in other channels, at least temporarily.
In the startup I mentioned, automated prospecting was working well for about six months, generating the highest number of new sales opportunities out of all channels, for a low cost. After six months, the channel “dried up.” It was hard to know exactly why, probably a combination of fewer new leads every week, and over-saturation of our marketing messages. We paused, significantly decreased the number of weekly emails, and focused on other channels in the meantime: webinars, conferences, and content. After a few months, in the beginning of the new year, we reintroduced automated prospecting with new messaging and “fresh” leads. It started performing again.
Switching back & forth between the channels was relatively easy. We didn’t have to hire or fire people, and the marketing manager easily switched from writing emails and managing Upwork freelancers to writing content and producing webinars, and the other way around.
This is a pretty common phenomenon in marketing. You try a few campaigns in a certain channel, and see good results. You double-down on the channel, and enjoy the fruits of your labor for a few months. Then, you start experiencing diminishing returns; the channel becomes more expensive and produces less. At this point, you try new channels, or invest more in other channels.
Marketing is a never-ending trial & error process, where you experiment, see success, invest, and so on. A flexible team that can easily switch between different channels is highly valuable and will lead to better performance at lower costs.
So should sales not do anything besides closing deals?
Some (like Jason Lemkin from SaaStr we already mentioned) say this indeed should be the case. Sales people, also known as “closers” or “account executives” should do one thing: close deals. The salesperson should come in the morning with four sales calls miraculously set up in her calendar by someone else (SDRs, or the marketing team).
We work with startups that work both ways:
- Marketing brings in (almost) all sales opportunities.
- Marketing brings in some of the opportunities, and the sales team needs to bring in the rest.
Neither is perfect, and we don’t have a universal recommendation. If you do decide to adopt the second option, here are our recommendations for how the sales team can create their own opportunities:
- Highly personalized emails. Focus on important leads, and send them personalized emails. Here, lack of scale is an advantage. It’s OK to invest a few hours writing a relevant and interesting email for an important lead.
- Referrals. Similarly, sales people should look for mutual acquaintances who can connect them to important leads. The time investment of doing so is justified for these leads.
- Cold Calls. Cold calls are almost exclusively done by the sales team, not the marketing team. Personally, we still haven’t worked with a company that saw great results with cold calls. Nowadays, a lot of people don’t have an office phone, or they don’t pick up, or their assistant does. But it’s always worthwhile to try out new tactics and see for yourself if it works for your specific situation.
If you choose the second option, the sales team should have opportunity creation goals. The marketing team should view sales-created opportunities as another channel, one with low control and predictability (similar to inbound referrals, for example). And of course, the marketing team should measure all the variables we previously mentioned (e.g. close rate), in the same way they’re tracked for the other channels.
The bottom line
Email outreach can be efficient and cost-effective, when done by the right team with the right tools. In my opinion, the marketing team should own this channel, instead of a separate sprawling team of SDRs.