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Evaluating a Sales Role: Market
The most common reason tech companies fail is market size. You may have heard this referred to as the total addressable market or “TAM”. TAM is generally the first stop for any venture capitalist in evaluating a company because it is so important in trying to predict future success. When we are interviewing for sales roles we aren’t going to run TAM analyses, but we can do some homework on the market opportunity. The reason this is important is obviously the potential for equity value, but also the ability for the company to unlock potential energy that creates forward momentum. When companies have forward momentum, so do their employee’s careers. For example, in my last business, we grew from 9M to 17M to 30M in a three-year span. That growth required more salespeople which required more sales managers, more sales directors, more sales support, & more sales enablement - most of whom came from internal promotions. So joining a company that has the ability to scale up directly correlates with the ability to scale up your own career. There are a couple of easy ways to suss out potential market size:
Ask for the calculation
The most senior person in your interview process should know the potential market size of the business (if they don’t = red flag). Companies & founders will have different ways of calculating this, but this one is a simple equation, the bigger the better. Ideally, you are looking for a market opportunity north of 50B. I know it sounds ridiculous that something with a 25B opportunity is not interesting, but the truth is most businesses will only penetrate a small % of their total market. Companies in small markets will have moments of stalled growth, which can lead to career stagnation for folks in sales positions.
Interview Qs: What is the total market opportunity for this business? How did you arrive at that number?
Find where the money is coming from
Businesses will generally have revenue coming from new & existing customers. The best businesses have positive “net revenue retention” which means their customers spend more money with them year over year. When going through your interview process, understanding how residual revenue is growing is significantly more important than new bookings. The reason is that if residual revenue continues to grow, new bookings only have to grow linearly for the company to grow exponentially. Exponential growth = forward momentum = career opportunities.
Interview Qs: What % of your revenue is from existing customers vs new customers? How has revenue from existing customers grown over the last 12 months? What % of customers churn annually?
Evaluate if technology can expand the market
Last but not least, does the technology the business is developing have the potential to change the situation in the market. Uber is the perfect example of this. The ease of use and simplicity led many of its users to greatly increase the number of times they use an alternative car service, therefore increasing the size of the taxi market dramatically.
Interview Qs: How does the product serve customers better than what exists today? How does it make accessing the service easier?
Market size is important in determining the forward trajectory of the company. The forward trajectory of the company is important in determining the forward trajectory of your career. The one caveat to all of this is to understand if a large market is already controlled by hard to displace players. For example, “advertising” is a massive market, but so strongly controlled by Google & Facebook that it will be difficult for any company to disintermediate even with a large TAM.
Choose the most senior person on your interview panel, and dig into the market. It’s the best proxy for what “up” looks like, and “up” is the best proxy for what your career can look like.