Firing fast is the secret to building top sales teams

This article summarizes an episode of 20VC’s video series featuring Chad Peets, managing partner at Riverpoint Capital.

Chad Peets, managing partner at Riverpoint Capital/ Photo credit: 20VC

Chad Peets, managing partner at Riverpoint Capital, has a simple method for building top sales teams. He recommends firing the bottom 10% of the sales team every year. His approach goes against common ways of keeping employees and shows the hidden costs of keeping average performers.

The only measure that matters is new customers

When interviewing salespeople, founders often focus on metrics that look impressive but matter less. They ask about deal size or past quotas, but Peets says these miss the one skill that best predicts success at a startup.

Past success is measured in new customers
Peets says, “I want to know how many net new logos [new business accounts] you brought in. And if you can’t tell me that you brought in net new logos, the interview’s over super quickly. I don’t care if you said, ‘I inherited this customer, and I went and upsold them.’ That has no value to me at a startup because at a startup, I’m going to give you 50 accounts that have never heard of us.”

Some skills are more teachable than others
A founder might find someone who can find new customers but has never closed a six-figure deal. For Peets, that’s a good trade, because one of those skills can be taught, and the other cannot.

Peets explains, “You have to give on something. If you’re not able and capable of doing pipeline generation and closing new logos, I cannot teach you that. I can teach you, with proper leadership, how to go from closing US$200,000 to US$2 million deals. I can teach you that.”

A workplace where people are responsible for results requires high turnover

This focus on getting new customers requires a certain type of person. Building that team means accepting difficult facts about managing performance and employees leaving.

Low turnover is a warning sign
Many leaders are proud of low employee turnover, seeing it as a sign of a good workplace. Peets sees the opposite. When he hears about a sales team with few people leaving, he sees a leadership team that is not holding people responsible for their results.

Peets argues, “Tell me what your involuntary attrition is, which means people that you fired. [They say,] ‘We’re so proud of this. We only had to fire 2% of our sales organization last year. Such a great place to work.’ And I’m like, all you’re telling me is you will let anybody work there, and you don’t hold anybody accountable. You should be shooting the bottom 10% of your sales organization every year.”

Average performance pushes away the best employees
Failing to deal with poor performers does more than hurt profits. It creates a workplace that drains morale and pushes top performers to leave.

“If you have A players in your company and they’re surrounded by a bunch of B players, and you’re not holding those B players accountable,” Peets notes, “your A players will quit. They do not want to look… I’m an A player. I’m killing myself… and I got three reps next to me that don’t work hard… and you do nothing to them. Forget that. I’m not going to put up with that.”

Acting quickly is a good thing, not a mistake
Every leader makes a bad hire at some point. The real mistake is waiting too long to fix it. Keeping a poor performer allows a small problem to grow into a bigger one.

Peets says, “We are all going to make hiring mistakes… The difference between you and me is when I [mess] up, I own my [mistakes], and I fix them quickly. You like to pretend like you didn’t [mess] up, and you want to give it more time… which allows the problem to fester and get bigger. So, will I fire fast? Yes, I will fire fast.”

Founders hire for the future, not for today