Hunting vs. Farming, Expanding into New Territories and Compensating Sales Reps: Lessons from AppDynamics
Earlier this year, Cisco announced its somewhat unexpected acquisition of application-intelligence company AppDynamics* just before the company was set to go public. What hasn’t been discussed much until recently is how the company built out such an effective enterprise sales force, which led directly to significant revenue growth. One of the key reasons, I believe, the company was such an attractive acquisition target.
My team and I had a chance to catch up recently with Dali Rajic and Chad Peets, two key executives who helped build the go-to-market machine at AppDynamics. Dali became the company’s chief revenue officer in 2016 after starting as the VP of West Coast sales. Chad, the CEO of sales-focused search firm Peets & Associates, worked closely with Dali and his team to help enable the rapid headcount growth of AppDynamics’ sales force. Their lessons on whom to hire, how to hire, and how to organize and incentivize a growing sales team is instructive for any enterprise software company looking to hit massive scale.
This is the third and final part of our interview focused on sales leadership principles and practices.
How do you think about new territories and reps? If one salesperson is assigned to New York City with five reference accounts and someone else gets nothing, is the second rep destined for failure? How do you make sure there is fairness, especially as you split territories and the company is growing very quickly?
Every rep that comes in understands that lead generation is his/her number-one priority. It’s ongoing pipeline generation [PG] regardless of territory and seniority. There is no opportunity to just “farm” (or focus on expanding existing accounts only by fulfilling demand), a startup does not provide for that sort of environment. Also, every business unit [BU] we sell to usually has competitive products installed which need to be replaced if pursuing expansion, and the customer needs to understand the value of doing so. We practice “demand generation” vs. simply “demand fulfillment” – most of our customers need help in defining the full scope of their challenge, which can’t be done without being very active in accounts and really understanding their challenges in detail.
Having PG playbooks, PG best practices, PG criteria, PG leading indicators is a must, to provide direction and guidance for reps, so they can maximize yield on their time spent working. We ingrain into every fiber of the rep’s body and mind that they have to look for new business continuously, because a high growth business falters otherwise. Even as our company grows pipeline generation will just evolve and get harder because breaking into a larger enterprise is much more difficult than finding a startup on the West Coast that is willing to try new technology. Building a cadence and Leading Indicators for reps activities every week is key to driving their own success.
It can sometimes be hard for reps who have no existing, installed accounts to realize they have a treasure trove of opportunity in non-installed accounts. In order for them to understand that and capitalize on it, you have to segment the market and accounts scientifically, have proof the model drives success for the customer and them, make sure that territories have equal potential, and develop a process they can follow. That Sales Process is their path to success. At some point as the business grows, leadership will start breaking off accounts from certain territories and create warmer new territories, to provide some momentum lift for new reps, while helping senior reps focus on strategic target accounts. We’ve noticed that if reps have too many installed accounts, their hunter skills will eventually get sand papered away.
Every six months, we do a slight readjustment of territories and roles to align with our continued growth. Every 12 months, we are transparent there may be a more-significant readjustment of territories and of accounts. Reps typically keep pillar accounts they open and grow, as we want to make sure customers get maximum value from interactions with us. This process and philosophy has been successful in making sure people maintain appropriate focus and accounts have proper coverage, driving great results for customer and great income outcomes for our field teams. We observe activity via leading indicators to see who starts having too much to effectively cover, and we start splitting off some (installed) accounts from people who are showing signs of being overwhelmed.
Reps tend to lose their edge when farming mode sets in, and usually the customer loses first and the rep second, at which point they might be at risk to have key accounts removed due to not driving and providing enough value to customers. The key is that you are transparent with reps on the model, obligations to customers, expectations, accountability, and the rewards of following the model.
What do you mean that farming can put you at risk of having key accounts removed?
What ends up happening if we don’t pay enough attention to this model, is that you have reps who are more concerned with accumulating accounts vs versus maintaining the farmer-hunter mode, if you will. Almost 100 percent of the time when the account mix of new and installed is off, reps start merely nurturing relationships versus continuously looking at what problems they can solve for customers.
It is not possible to do all of the little things that need to be done in accounts to solve big challenges across too many installed accounts. We create demand by identifying problems for customers that they did not know they had, or they didn’t know they had at scale. This then results in the creation of large value to customers and large deals to the business. When you stop doing all the little things you’re just pitching products. When you’re pitching product and taking the easy way, that’s when you run the risk of forfeiting success as the entire chain of activity to customer impact to sales revenue rewards, breaks.
Making sure that you have enough new sale and upsell opportunities AND making sure that reps continue to keep that edge, and hunter’s mentality when it comes to new accounts, has been key to not allowing anybody to get complacent. Consistent practices, collaboration with reps and transparency are very, very important when creating a model such as described, or you can create a lot of turnover. The involvement of senior leadership and ownership of the business details and messaging to the team are a necessity for success. Jeremy Duggan, my GM for EMEA, is a great example of a leader who has built team loyalty, great customer acquisition and business impact results, and consistent top performance via this model. He has been instrumental in shaping this model with me at AppD. This mentality and culture and the sales model you build around this process and philosophy, transcends geographies.
How do you think about sales compensation particularly in the context of landing new customers?
As a business evolves from a startup into a medium-sized company, the need for more new logos evolves and becomes more clearly defined/segmented, and more enterprise-sized logos are added. PG is where everything begins and where everything ends. It is also the hardest and least fun part of the sales job. That means comp plans have to reflect an uplift for new logos and the right activity, and a mechanism for in quarter incentives without breaking the comp model needs to exist. Sales has to build an engine that is continuously focused on new logo wins of various types, and the different new logo generation techniques. What that means is that the comp plan, the quota, and the territories have to be built so they’re optimized towards new logo creation for every rep type (junior to more senior), and various customer segments.
With every comp plan created, the company has a responsibility towards the Sales Org and the level of efforts they have to put in to drive new business. It is critical to understand how the rest of your internal BUs can support the sales motions in this land and expand model, from Sales Support to Customer Success to Engineering to Marketing, as that needs to be considered in the comp plan. Marketing is especially important in impacting and helping drive rep productivity across PG, so that team needs to be accountable as a partner. It can either help provide massive lift to the entire PG engine, if content at velocity across a wide spectrum of key topics and go to market materials is there and refreshed frequently. There is huge value in MQLs truly and incrementally generated by Marketing, with minimal lift required by reps. Any Sales org and reps can thrive for a while with minimal impact across those variables and with self created materials, yet when you hit a certain scale this lift and true partnership is needed to run a successful and consistent PG program. Depending on how much value a sales team gets from these teams, the comp and over achievement bonuses need to reflect the weight of the effort needed by reps to drive new logos.
Organizations have to be careful not to make existing account sales punitive if you have a land and expand model. It comes back to the territories—make sure they are balanced so that without new logos, reps are at a lower probability of being able to retire their quota. It’s really a multitude of things as discussed above. It isn’t just the comp plan, but the comp plan is a variable of new logo creation.
How do you make sure a rep gets credit for account expansion, particularly in a business like AppDynamics’ where that expansion and upsell drives meaningful velocity for the model?
The “expand” piece is where we have driven a lot of our success as problem solvers, given our land-and-expand Model. We prove value and credibility first in the land and then build and ask for our fair share in the expand, as the customer understands the specific value we can deliver. New reps and even more senior reps across our competitors will have the tendency to give away a lot of value on software licensing and pricing upfront by trying to throw everything into deals, and determining value “by all that is included in the deal”. Everybody loses in this scenario – the customer has to figure out what impact they can drive with this software and how on their own, companies don’t get fair market value, and reps don’t get proper comp for their software and efforts. Our sales process is focused to identify true areas of impact. The land-and-expand model isn’t just about getting in: it’s about getting in, then demonstrating value, quantifying it, capturing it, and building out champions in those accounts for further wins together.
The “expand” is a lot harder than getting in many times, as you re not just asking for smaller project based spend any longer but enterprise type spend. It usually always includes replacement of existing tools. If you measure activities and track leading indicators by reps on a weekly basis, you’ll understand if they’re penetrating those accounts by driving value for customers or by simply pitching technology.
That’s why territory optimization is so important as we want to make sure there is plenty of time for account penetration and new logo generation, along with taking care of customers and then expanding. It is a balance and we have largely been successful driving it, by creating comp plans and quotas that have helped shape those motions. All of our compensation plans are highly leveraged towards over achievement, driven by identifying how to help drive the right customer outcomes at the right frequency.