Can You Really Hit Your Board Plan?

Make sure the data shows you a viable path to hit your targets and you're setting the team up for success.

We’re going to grow $7 million next year!

“That’s incredible!”, I said. I was talking to the cofounders of a fast growing AI company. They were working on their plan for next year and the big question they had was if they should hire some more reps or hire a VP of sales first who can grow the team. They were looking for some advice on which approach was best to take.

They certainly had a ton of momentum as they just landed a deal worth almost $1 million bringing their ARR to almost $4 million.

They had one sales rep who was more of a glorified SDR and meeting scheduler. The cofounders were doing most of the selling.

I asked them where that number came from and they said it was where their Board thought that they should be at the end of the year. The thought process was that they should get $2 million from their existing customers and $5 million from new customers.

“You Need 11 AEs”

I told him I wanted to do some math and come back to them with some thoughts on their target. I wanted to build out a capacity model, which basically shows you how much revenue each AE can bring in.

The quota for the AEs was $1.2 million so even if they had all those reps fully ramped and with pipeline at the beginning of the year, they would need 6 AEs. But this wasn’t the case. They had one rep and they were just starting the interview process for several new reps.

One of the things that you need to account for is the ramp period. Part of that is them learning the product and your sales process. But most importantly, it’s the generation of pipeline and the maturing of that pipeline so that you can eventually close it. Some pipeline is going to exist already for new AE, but I’ve never seen a new AE come in with fully loaded pipeline where they can hit they are fully loaded in the first quarter.

When I did this math, it came out to be that they needed 11 new AEs. Oh, and by the way, they needed to be in the seat by the beginning of May (it was already late November). If they brought them in halfway through the year they wouldn’t have much impact because the sales cycles were almost 6 months.

I also talked to their Head of Marketing about the plan for next year and I asked him how likely it was that they hit their growth target. He felt it was very unlikely and he was looking at it from another angle - how much pipeline was needed for them to get to that target.

Failing to Plan is Planning to Fail

Were they going to be a successful business? Nothing is ever certain with early stage companies, but the odds are very much in their favor. They had a really compelling product and value proposition and some great leaders.

However, I just couldn’t see them hitting that $7 million growth target for that year. I understand where the number came from and why the board would want to push them to such heights, but they just didn’t have the infrastructure in place to grow that quickly.

You can tell yourself things like we’ll just figure it out or were different or people will step up and close this business but this is just a case of the planning fallacy.

What I recommended was that they hire that VP of sales since they needed someone to thoughtfully build out and hire the team, but they should reset expectations on the targets for the next year. Talk to the Board about why they think it’s going to be tough to achieve and set a realistic target based on the new numbers. They can still leave the stretch goal out there but they shouldn’t base the rest of the plan (like headcount) on that larger number.

No model is perfect, but they can help you give an idea where your blind spots might be.