Introduction
For Software as a Service (SaaS) companies, the success of sales strategies are pivotal successfully driving growth and revenue or imploding and causing financial failure, toxic culture, and mass-layoffs. A trend that has gained attention is the shift from a unified sales team to separate teams focusing on renewals and net new acquisitions. While this approach might seem appealing on paper, the reality reveals a multitude of challenges that can lead to its downfall. In this article, we delve into the reasons behind this strategy, its inherent unfairness, the unrealistic expectations it sets, and the counterarguments against its effectiveness.
Understanding the Shift:
Tech companies often decide to split their sales teams into two distinct groups: one concentrating on renewing existing contracts and the other dedicated to securing new clients. This shift is driven by the desire to streamline operations, maximize efficiency, and cater to the unique demands of both stages of the sales cycle. Renewals teams are promised commission certainty due to the recurring nature of their deals, whereas new business teams might not enjoy the same level of guaranteed income due to the unpredictable nature of net new sales.
The Unfairness of the Model:
The disparity in compensation between the renewals team and the net new team can breed resentment and disengagement among the latter. Renewals reps enjoy financial stability and job security, whereas their net new counterparts face the pressure of generating large deals with uncertain outcomes. This inherent bias can lead to demotivation and high turnover rates among the net new sales team.
The Illusion of Tiny Payoffs:
Closing large net new deals is indeed a Herculean task that requires substantial effort and persistence. While renewals teams benefit from consistent revenue streams, net new reps often must work tirelessly for a seemingly disproportionate payoff. It’s unrealistic to expect sales representatives to consistently close multiple six or seven-figure deals within a 12-month timeframe, as the sales cycle for such deals is inherently longer and more complex.
Relationship Handover Predicament:
One of the most overlooked drawbacks of splitting sales teams is the forced handover of relationships from net new reps to renewals reps. Net new salespeople invest time and effort into building client rapport, only to see the relationship transitioned to someone else upon renewal. This can cause frustration and a sense of starting from scratch for net new reps, while the renewals team reaps the rewards and praise.
Unmasking Hidden Agendas:
1. Opportunity Cost Calculations: The division of sales approaches allows organizations to methodically control opportunity costs. By segregating sales forces, companies ensure that specialized teams focus on either net new sales or renewals, thereby minimizing the risks associated with allocating resources to unpredictable net new deals. This pragmatic approach enables companies to maintain a stable revenue stream from renewals while venturing into new growth avenues.
2. Misalignment with Reality and Toxic Culture: The impact of these concealed motivations can often lead to a toxic work culture. The threefold effect includes the introduction of unfair and illogical Performance Improvement Plan (PIP) rules, disproportionately burdening the net new sales team. These unrealistic targets and subpar account allocations undermine morale, as team members are pushed into a corner with no regard for the complexities of net new sales cycles.
3. The shockingly common “rarity” of Ego Management and Power Dynamics: Beyond the veneer of operational optimization, a key motivation behind splitting sales teams is to manage out overconfident, arrogant middle management figures who were 1) promoted into the “manager position” based on favouritism rather than meritocracy and has been found out as being a poor manager 2) could potentially challenge the supremacy of SVPs or CROs. This move is strategically designed to neutralize any threat posed by ambitious managers who might seek to usurp higher leadership positions or bask in the limelight that the senior leadership desires for themselves.
The Unfortunate Impact:
The interplay of these motives generates a cascade of adverse consequences that pervade the organization:
1. Toxic Culture and PIPs: Companies embracing these hidden motives often foster a toxic culture. The imposition of impractical PIP targets for the net new sales team sets the stage for demoralization and fear, as they are unfairly burdened with unrealistic expectations. This, in turn, cultivates a culture of mistrust, poor morale, and high turnover rates.
2. TAM-less Accounts and Misaligned Verticals: The impact of ill-conceived PIP rules is exacerbated by poor account allocation and vertical alignment. Net new sales reps are handed accounts with little Total Addressable Market (TAM), resulting in insurmountable challenges. Assigning irrelevant verticals, such as “digital transformation” services for meatpacking businesses, showcases a disregard for practicality and strategic sales alignment.
3. Overlooking Realistic Sales Cycles: The failure to acknowledge the intricate nature of net new sales cycles highlights a critical shortcoming. Companies subject net new sales reps to PIP rules without understanding the extended timeline required to close significant deals in this domain. This disregard further contributes to the sense of injustice and a lack of support from leadership.
Conclusion:
Beneath the well-crafted narratives of strategic optimization and growth-centric reorganization, the decision to split sales teams into new net sales and renewals is often driven by motives that are not openly acknowledged. These hidden agendas include the need to manage power dynamics, reduce opportunity costs, and acknowledge the true importance of committed revenue renewals in sustaining a business. Companies should recognize the intricacies of their motivations and strive for transparency, ensuring that their sales teams are not just manipulated pawns, but rather empowered entities contributing to the genuine growth and prosperity of the organization.
While the optics of splitting sales teams might project a move toward strategic optimization, the underlying motives tell a different tale. Ego management, opportunity cost reduction, and the pursuit of limelight can inadvertently breed toxicity, unfair practices, and mismanagement within an organization. If an organisation is going to “split the sales teams” then it’s imperative for companies to recognize and address these concealed motivations, fostering a more transparent, supportive, and equitable environment that genuinely empowers sales teams and encourages growth.
