Recently, someone much smarter than me shared an interesting podcast on the popular Predictable Revenue approach. In short, Loren Padelford (Chief Sales Scientist at Shopify) discusses how the SDR model is not all that it’s cracked up to be.
I love it for so many reasons. It’s a hot take, contrarian, and challenges the status quo (if you can call something that’s just 5 years old the “status quo”). It asks listeners to understand and evaluate their go-to-market model instead of just copying what they do at Big Tech Corp. Loren correctly highlights that when the SDR to AE hand-off is done poorly, it hurts everyone, especially the customer. If your approach is land and expand, quit trying to grow bigger deals in the land phase. Have a model and stick to it. And make sure that the plan is optimized for your customer’s buying process, not your preferred selling methodology.
All that said, many will listen to this podcast and conclude the SDR model is broken. It is not. It’s just a model – a tool for acquiring customers. And like all tools, there are correct and incorrect applications. Don’t swing a circular saw at a nail and wonder why your deck isn’t sturdy. Similarly, if Shopify was growing with no sales reps at all, then adding both SDRs and AEs in a two-tiered model probably wasn’t the right approach to begin with. Good tool, wrong use case.
The criticism is fair, but the primary challenge I have with it is that it doesn’t address the two of the biggest values of an SDR team: recruiting and customer acquisition (not CAC, as Loren contends).
Let’s start with recruiting. We all know hiring great reps from the outside is hard. It’s expensive. It’s time consuming. And it has an unfortunately low success rate. It’s why many companies are willing to hire average sales leaders who promise to bring “their team” of reps in with them once joining. Yet in my experience, these outside hires usually aren’t the top performers on the team.
The SDR program creates a bench, a feeder league, for your AE hiring. SDRs are cheaper, easier to find, and more eager to get training on your way of selling. Companies can wait until an SDR proves performance before promoting them to AE instead of betting that an outside rep will learn the product and adapt to the new environment.
If you need to hire reps, either to backfill turnover or to expand the team, the SDR model might be right for you.
The second issue is on customer acquisition. Not Customer Acquisition Cost (CAC), but acquisition. Growth. Frankly, it doesn’t matter if your CAC is higher or lower with SDRs than it used to be if your growth is also different. Let’s look at an example to illustrate this:
|Company A||Company B||Company C|
|Cost of Team||$300,000||$500,000||$400,000|
Company A is where you are today. Is the CAC in B and C higher? Maybe…probably. Growing costs money, and growing faster is more expensive than growing slower. So if the CAC for Company C is acceptable (works with your LTV, company strategy, financing, etc) then it doesn’t really matter if it’s higher or lower than Company A (today). What matters is that C is a better way to get to higher growth than B. That is, if higher growth is what you want and are willing to pay for.
This is Econ 101: diminishing marginal returns. Digging deeper into the barrel is harder. As a sales leader, the job is growth. It is not to minimize CAC (at least, not usually). The SDR model, in some but not all instances, can help fuel customer acquisition while keeping CAC in check.
So listen to what Loren is saying here. There is no silver bullet, no one model to rule them all. Figure out your market, your product, your customers, and then thoughtfully apply the best model for you. Don’t adopt the SDR model because it worked for Salesforce and don’t throw it away because it didn’t work for Shopify.