Startup Lessons with Dan Martell: Exits, Common Mistakes and Sales Team Structures

Recently, I had the chance to sit down with Dan Martell to chat about some of the biggest challenges faced by SaaS founders. If you don’t know who Dan is (and you really should), he’s a successful entrepreneur with five startups under his belt, as well as a coach to B2B SaaS founders. He’s got one of the most popular YouTube channels for SaaS entrepreneurs with 30K+ subscribers and counting.

He’s definitely worth following, whether you’re a new founder or a SaaS entrepreneur with years under your belt. Here are just a few of the insights he shared in our conversations:

On Startup Exits

One of the most impactful takeaways from my conversations with Dan was his theory that there are only about 21 people in the world who, if you got to know them, could have a material impact on your life and your exit from your startup.

According to Dan, people buy companies for strategic reasons. Maybe it’s because they want to get into a market, because they want access to your talent, your processes or your IP, or because they want to grow into an existing market.

Whatever the case may be, he explains, “If you think about three big categories of why somebody would buy you and then start thinking of the 1-3 companies from each one of those that could buy you – that have the capital, the means and the know-how – then really, there are maybe seven real companies that could buy you. And if you think about it, there are only three roles at each of those companies that are important to an exit.”

Dan suggests that most people think the key figure in the acquisition process is the CEO. But although the CEO writes the checks and makes the final decision, they’re not the most important person. It’s also not the corporate, business or enterprise development guy – even though that’s the person that’s probably going to be reaching out to you. The job of that role is just to generate leads, to evaluate companies and to get the conversation started.

From Dan’s perspective, the most important person is the product manager. “This is typically the person who’s going to evaluate your technology,” he describes. “They’re asking themselves one question. Based on where they want to go strategically, are they going to buy or are they going to build? If the product manager doesn’t know you, doesn’t believe that you have a superior product or doesn’t believe that you’ve got the right tech stack or infrastructure, they’re not going to suggest to the CEO or even to the corporate development guy that you’re an interesting target.”

Because there are so few people that could have a material impact on your exit, Dan suggests that the key to even getting the opportunity to exit is to invest in those relationships from the start, so that they’re already in place when your company is ready.

“Maybe once a year, you meet them at the annual conference, or you organize a dinner and you bring people together,” he recommends. “You don’t share your secret sauce. You just let them know that you’re doing well, that you’ve got some interesting perspectives on the market, and that you’re a thought leader. That’s what creates these opportunities.”

When you’re ready to exit, Dan advises that it’s up to you to create a competitive process. Often, he sees founders that are going along, happily building their businesses, when someone reaches out to them to start a possible acquisition conversation. But he sees it as a major risk to only have one potential buyer involved in the process. Instead, he recommends reaching out to other companies you’ve identified with something like the following script:

“Hey Sujan,

My name’s Dan, and I’m the founder and CEO of x.dot com. We recently got inbound interest from a company that’s made us think twice about remaining independent. Just wanted to reach out and let you know, and to see if we should jump on a call to discuss that before things got too far along.

Let me know,
Dan”

According to Dan, what’s important is that he’s not saying he’s selling. “I’m just saying, look, there’s somebody that’s reached out and shown interest,” he explains. “You’re potentially a company that might want to look at our business, and if that is of interest, maybe we should have a conversation sooner rather than later, so that by the time we connect, it wouldn’t be too far along.”

I can attest to how effective this strategy can be. A while back, I bought a competitor of Voila Norbert – all because the founder emailed me to let me know that they had started the selling process and already had a possible buyer in mind. It was 5:00pm on a Friday, and I was showing my in-laws around town. But I dropped everything to talk to my team and see if it made sense for us to move forward. A few weeks later, we wound up buying them – all because of the kind of email Dan recommends.

On the Mistakes SaaS Founders Make

Dan’s experience with his own startups – as well as the 40+ he’s invested in – gives him pretty much a front-row seat to the huge number of mistakes founders can make. In his experience? The number one mistake is not nailing a niche.  

“If you pick a niche and focus on it, you’ll attract other people – lower and higher,” he shares. “But if you don’t nail that, everything’s harder. The marketing’s harder. The sales process and the conversion process is harder. The copywriting is harder. The customer success part is harder.”

Once you’ve nailed your niche, Dan sees founders struggling to invest in what he calls a “growth engine”  and really focus on it. He explains, “One of the exercises I walk clients through is a growth map. It’s really just an audit of what they’ve done in the past.”

As an example, Dan shares that, “The other day, I got off a new coaching call with a client. They were doing really well. They were about $70K MRR, and all of a sudden, they dropped down to $35K. We were digging in and looking at the graph of their revenue. It had this awesome spike, and then it dropped down and started flatlining. So I asked ‘Hey, what did you do the two or three months prior to get that spike?’ And they go, ‘Oh, we did a bunch of partner webinars.’ I asked if they were still doing partner webinars. ‘No.’ When I asked why? ‘I don’t know.’”

In Dan’s experience, true growth isn’t about finding some “silver bullet” strategy. Instead, it’s about stacking different strategies together and operationalizing them in order to create a growth engine.

He gives the example of content marketing. “You see a lot of companies that go, ‘Okay, we’ve got a blog, we did all this work, and we got some traffic,'” he says. “And then they’re like, ‘Next up, Facebook ads.’ They stop writing content. They stop monitoring performance. They don’t look at their funnels anymore. They’re focusing on the new thing. To me, it’s all about operationalizing the channel and making sure that it’s efficient and producing before moving on.”

The final mistake Dan shares is not setting goals in a way that allows you to work backwards from them.

He explains, “Let’s say our goal is to crack $2M in ARR. So that’s about $166K a month in MRR. That’s the goal for the year. Knowing that, we want to break it down per quarter, then per month, and then per week, asking how many clients we need to hit those numbers. But we have to set the metrics we need to create the growth ramp that’ll help us hit that target.”

That’s pretty much goal-setting common sense, but what Dan really honed in on was the potential downside of not having your metrics broken down to that degree. He says, “If I do two months, and I miss my target, not only am I not going to grow the amount I was supposed to, I also have to replace the lost MRR growth.”

From my experience, I know how hard it can be to build momentum, knowing that you don’t just need to produce a certain amount of revenue – you have to actually backfill revenue you should have earned already. To avoid this, Dan recommends breaking goals down to a weekly basis using a tool he calls the Precision Scorecard, which can be downloaded for free from his website.

On Building a Sales Team

Finally, I got to dig deep with Dan on tips for building out a sales team. Usually, as we’ve both experienced, you start with the founder selling. And that’s hard to replace, because typically, the founder has a certain combination of charisma, energy and product/industry experience that’s tough to duplicate.

But since companies can’t grow if it’s only the founder selling (or if it’s only the founder who’s selling effectively), Dan argues that the first step in the process of building out a sales team has to be documentation.

“Founders don’t realize that they have things they say or processes they use that are intuitive to them to get the deal,” he explains. “But they don’t document any of it. I’m talking about your email follow-ups that you’re sending out, the flow of the demo call, how you’re qualifying people, who you’re realizing are your best customers – all of that needs to be documented in what I call a ‘sales program playbook.’”

As you’re getting your documentation together, Dan also recommends looking at how you’re spending your time. In his opinion, “You really should be spending most of your time on doing the demo and following up. If you’re spending time prospecting, you need to look at that. If you’re spending time on configuring and onboarding customers, you’ve got to look at that. If you’re spending more than 20% of your time on any one of those tasks, you should hire somebody.”

Interestingly, Dan suggests that your first hire be a hybrid “sales support role.” Here’s Dan’s explanation of how the role functions in conjunction with founder selling:

• “Their job is to follow your playbook to qualify leads, and to follow your onboarding playbook to activate customers. If you were my sales support rep, you’d be the first point of contact with the customer.”
• “Once they’re qualified, you’d say, ‘I’d love to schedule a class with Dan, our product specialist, to see if our product can meet some of those challenges that you mentioned in our email.’ You schedule the time in my calendar. I’d get on the call with the prospect. They decide to buy at the end. I negotiate it. I follow up. I deal with objections until they’re in.”
• “Then, I say, ‘Hey, I’m going to pass you back to Sujan. He’s going to get your account set up and set up training.’ I think that’s a really efficient first pass at starting to get some support in the sales process.”

This process works because, in Dan’s experience, “It’s usually less efficient to hire somebody to replace the founder at first. It’s more efficient to hire somebody to give the founder more time to spend on sales, and then move the sales support rep up to start doing their own sales calls and back-filling the SDR role.”

That said, Dan has a few cautions about the process. First, he argues that your product has to have a $3,000 or higher annual contract value to really be able to build a sales team at scale. He’s also seen that any salesperson you bring on is going to result in a conversions drop of about 20% – but that it’s about building systems that create predictability, rather than depending on superstar salespeople.

Dan is also a huge advocate for figuring out inbound marketing and improving your sales process before jumping to outbound. “It’s too expensive,” he states. “A lot of people don’t realize outbound can take 12-16 months to be efficient if you don’t have a process or some scripts to follow, if you don’t use good segmentation, or if you don’t have a good hook in your email to get people interested.”

If your demo process needs work, Dan offers the Rocket Demo Builder, which he claims solves the problem of founders who do product tours, rather than true product demos. Check it out as part of your efforts to optimize your existing sales process before expanding to outbound.

I’m hugely grateful to Dan for taking the time to chat with me and to share his startup wisdom. But now, I want to hear from you. Did any of Dan’s insight surprise you? Do you agree or disagree with his points? Leave me a note below sharing your thoughts:

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