Your business is thriving and its time to expand the team. Up to this time, you have handled all of the sales yourself, but you find yourself consumed more and more by fundraising, product vision, future partnerships, that new office space and all of those pesky but feel-good requests to come speak at the local conference or meet-up.

As a thrifty and cash-aware CEO that is always managing the company bank account, your first instinct is to find good people that you can underpay. "I just got a bargain," you tell yourself. You have just fallen into the cash trumps worth trap.

Here are three mistakes that will ultimately throttle your business:

Nobody can make more than me. Got that ego in check Mr. Trump? What is the purpose of this thinking? People who think this way are obviously a bit narcissistic but underneath all of that is someone who puts themselves before the good of the company. Great CEO's get that they will hire smarter and more qualified people and then compensate them appropriately. This means that they could receive more cash compensation than you. You of course benefit as they increase the value of YOUR company.

There is a cap on sales compensation. This is the accidental (or is it?) backdoor into the same issue I just wrote about. A great sales compensation plan provides the salesperson with incentive (the variable compensation segment of their plan) to hit their sales goals. If you built or approved the plan, and there is enough stretch in the plan to encourage them to stretch accordingly, why limit the upside if they hit the ball out of the park? Bringing in a whale should be revered. I know many sales people that specifically move deals into the next quarter/year so they can maximize their compensation. Caps are just another reason to do so.

Everyone makes the same salary. What is this the old Soviet Union? I realize that there is a simplicity in hiring everyone at the same level. Why, we invest that way at The Startup Factory where everyone receives $50k and we get 7.5% of the common shares. (When you invest in 10-14 companies a year, you need to find ways to operate efficiently.) I might even support a plan to hire all entry-level sales people at the same rate. But once in the company, you need to compensate the best and move out the worst hires. The same goes for the variable portion of the compensation plan. New sales people in a new territory should have a modified plan compared to the grizzled vet who inherited a long-standing customer base.

Hiring sales people is hard. Compensating them is even harder. Review your compensation plans with former sales managers (they know every trick in the book), align the plan with your desired goals and test their actions to your overall company goals. Then let them loose and pay them for every one of those elusive paying customers.

Published on: May 7, 2015