Ratio Of Engineers To Sales People In Billion Dollar SaaS Startups
tomtunguz.com
tomtunguz.com
1) It uses proper graphs for information display. Note the box plots with quantiles, and properly scaled axes. And the first plot which denotes the confidence intervals.
2) Actual numeric data is shown in tables.
3) The source data is avialable.
Well done! More of this, fewer "Infographs" plz.
Many thanks to OP for an excellent write-up and I, too, would like to see more of this quality content on HN!
Someone remarked that the numbers add up to more than hundred percent for the first year, and the confusion is because the y axis is mislabelled. It should say "Cost for team as percentage of revenue".
Also, the first two years shouldn't be plotted as part of the line as they are just two data points in total for these years and since there is considerable spread in better represented data we know any single data point is probably not representative. At least not if you insist on using decimals.
It's also a bit unclear what the line for "more than seven years since funding" comes from, since the provided summary table only shows up to year 7. It seems the data table truncates, but there are two companies that cover age 16-24 in the spreadsheet, once again giving a very small sample.
It was typically true that engineers have high leverage, productivity and scale, whereas sales people do not. When traditional enterprise software was sold, it was done primarily through the "hunter" sales model and sales people were compensated accordingly to bringing in big deals. Sales grew revenue, which meant that if you hired more sales people at an established company, you'd have more revenue. This is why in the 1990s, if you met a tall white guy at a bar in San Carlos driving a nice car, he was probably an Oracles sales person (a bit of hyperbole).
The nature of enterprise sales is changing, not just because it's gone to SaaS/subscription. One of the key changes in the last few years is the growth of measurable analytics in marketing. You see, marketers and sales people are not the same. In the old days, marketers couldn't measure the impact of their marketing investments. There were loose correlations between marketing and the leads they generated for sales. But now, because of analytics derived from marketing software, you can actually draw conclusions on which marketing campaigns were the most effective from impression to conversion.
What does this mean for this post? 1. I think we're going to see fewer sales people per engineer. We likely won't see a huge growth in R&D spending; we will see less dollars spent on expensive sales people. 2. Marketers will become more hybrid product-sales-analytics people (like growth hacking), which means there's a great opportunity for data-driven commercially-focused engineers to transition towards this greenfield area in marketing.
TL;DR: Selling enterprise software has changed so the ratio of sales:engineers will go down in the next 10-15 years.
First, these ratios aren't a recipe for success, just data to inform decisions. Each business is different because of the industry they serve, the go-to-market strategy and the particularities of their customers acquisition processes.
I wonder how much of the prioritization on spending fed back into the success of these SaaS companies, and how much of it was due to prevailing trends in management theory that influenced the course of the startup as it was given funding and ramped up? In other words: how much of the ratio of spending on developers v. sales and marketing was data-driven, and how much based on fad? I get the sense that there is a bit of an echo chamber in the tech industry that can influence what businesses do when they receive angel funding and VC.