The Introvert’s Guide to Glad-Handing

One day back at MarkLogic, we invited our local congresswoman, Jackie Speier, to visit our offices.  Regardless of what you may think of her politics, she’s an impressive person with an fascinating background including, for those with long memories, that she was the congressional aide shot five times and left for dead on the runway in Guyana when Congressman Leo Ryan went to investigate Jonestown.  I was looking forward to meeting her.

She arrived — early of course — with a few handlers.  We exchanged the usual greetings and took a few pictures.  Then, she said, “would you mind if I went around and met a few people before the presentation?”  “No, no — not at all,” I said.  Leaving the handlers behind, off she went into the sea of cubicles.

Affordable Care Act

What I saw next blew me away.

Cube by cube she proceeded, “Hi, I’m Jackie — what’s your name?”  “Great, what do you do here?”  “Oh, I see [from the picture on your desk] you have a son, what’s his name?’  “How old is he?”  “Oh, [insert something in common here].”  More chatter.  A few laughs.  “Are there any questions I can answer for you today?”

There are extroverted people.  There are gregarious people.  There are charismatic people.  And then there are politicians.  She was the best room-worker I had ever seen in my life and she did it as effortlessly as she did naturally.

“This,” I thought, ” is why you’re not a politician, Dave. You have no skills.”

But leading the troops is a key part of the job of a startup CEO.  While such glad-handing often comes naturally to sales-oriented CEOs, it usually does not for more product-oriented ones.  A sales-oriented CEO is typically an extrovert; a product-oriented one an introvert.  So what’s a poor introvert to do?

First, Run A Normal Communications Program
All CEOs should run some sort of baseline company communications program.  This could look something like:

  • Bi-annual kickoffs where the company is brought together to hear about progress, learn about new initiatives, and recognize achievement.  Think:  educate, decorate, inebriate.
  • Post-quarter all hands calls/meetings after the off-quarters to discuss company performance, progress on quarterly goals, and go-forward priorities.
  • Topical all-hands emails and follow-up live calls/meeting to announce breaking news and provide commentary.
  • Separate and/or built-in “town hall” sessions with open employee Q&A to the CEO and the exec team.

This is baseline.  If you’re not doing this and you’re over about 20 people you need to start doing aspects of it.  If you’re over 150-200 people you should be doing all of this and quite possibly more.

For most CEOs — even the introverts — this isn’t hard.  It’s structured.  There are presentations.  Most of the questions in Q&A can be anticipated, if not solicited in advance.

Management by Walking Around
Let’s say you’ve set up such a program and are getting good feedback on it.  But nevertheless you’re still getting feedback like:

“You’re in your office and in meetings too much.  People want to see more of you.  The answer isn’t more all hands meetings.  Those are fine.  But people want to see you in a more informal and/or 1-1 way.  I know, you need to do more MBWA — management by walking around.  You’ll be great at it!”

“No, I won’t,” thinks the highly self-aware introvert CEO, imaging a nightmare that goes something like this:

CEO:  “Hey, Bro-dy!” [Struggling to choose between Bro and Buddy.]
Employee:  “Did you just call me grody?  What the –“
CEO:  “No, Buddy, no,  I called you Bro, Pal.”
CEO:  “So, how’s my Buddy doing?”  [Slaps his back.]
Employee:  “Ow!  I just had shoulder surgery.”
CEO:  “Whoops, sorry about that.”
Employee:  “No problem.”
CEO:  [Notices picture on desk.]  “Hey, I see you’re married.  How’s that lovely wife?”
Employee:  “We split up three months ago.  I haven’t had the heart to take the picture down yet.”

Sure, the CEO thinks, let’s try some more MBWA.  Or maybe not.

Find Your Way
The problem here is simple — it’s a classic, in this case “reverse,” delegation mistake.  The well-intentioned feedback-giver isn’t just telling you what needs to be done (i.e., help people get to know you better through more individualized interaction),  they’re telling you how to do it (i.e., management by walking around).  So the solution is simple:  listen to the what and find your own way of how.  If you’re not a natural grip-and-grin type, them MBWA isn’t going to work for you.  What might?  Here are some ideas:

  • Every Friday morning do three, half-hour 1-1s with employees across the organization.  This will play to your introvert strength in 1-1 meetings and and your desire to have substantial, not superficial, interactions with people.  If you’re disciplined, you’ll get to know 156 people/year this year.
  • Management by sitting in the way (MBSITW).  Pick a busy spot — e.g., the coffee room or the cafeteria — and camp out there for a few hours every week.  Work on your laptop when no one’s around but when someone walks in, say hi, and engage in a 1-1 chat.
  • Small-group town hall Q&A sessions.  Attend one department’s group meeting and do a one-hour town hall Q&A.  It’s not quite 1-1, but it’s definitionally a smaller forum which will provide more intimacy.
  • Thursday lunches.  Every Thursday have lunch with 3-4 people chosen at semi-random so as to help you build relationships across the organisation.

So, the next time someone tells you that you need to do more MBWA, thank them for input, and then go find your way of solving the underlying problem.

Are You Counting Payments as Renewals?

Enterprise SaaS has drifted to a model where many, if not most, companies do multi-year contracts on annual payment terms.  How did we get here?

  • Most enterprise SaaS products are high-consideration purchases. Buyers typically perform a thorough evaluation process before purchasing and are quite sure that the software will meet their needs when they deploy.  These are not try-and-buy or wing-it purchases.
  • Most SaaS vendors will jump at the opportunity to lock in a longer subscription term. For example, with an 85% gross retention rate you can offer a 5% discount for a two-year contract and end up mathematically ahead [1].  Moreover, with a default annual increase of 5 to 10% built into your standard contact, you can offer a “price lock” without any discount at all (i.e., the customer locks in the price for two years in exchange for a two-year commitment).

When you combine the vendor’s desire to lock in the longer term with the customer’s belief that the solution is going work, you find a fertile ground for doing two- or three-year contracts.  But these multi-year deals are almost always done on annual payment terms.

Most SaaS vendors don’t want to take the next step and ask for a multi-year prepayment.  The upside for the vendor would be to eliminate the need for collections in years 2 and 3, and eliminate the chance that the customer — even if unhappy — won’t make the out-year payments.  But most vendors refrain from this because:

  • It’s seen as an unusual practice that’s frowned upon by investors
  • Most investors believe you could better maximize ARR by simply raising more capital and sticking with annual payments
  • It can lead to lumpy renewals and cash flows that are both hard to manage and understand
  • It can lead to large long-term deferred revenues which can hinder certain M&A discussions.  (Think:  large balance of cashless revenue from suitor’s perspective.)
  • It complicates the calculation of SaaS metrics, sometimes confusing investors into believing that good metrics are bad ones. (I think I am literally the only person in Silicon Valley who is quick to point out that a 75% three-year retention rate is better than a 90% one-year one [2].)

Thus, we end up in a situation where the norm has become a two- or three-year contract with annual payments.  This begs a seemingly simple “if a tree falls in the forest and no one hears it, did it make any noise” kind of question:

Quick, what’s the difference between a one-year contract that’s renewing for the first time and a three-year contract that’s coming up for its first downstream annual payment?

I’ve often quipped that they’re both “renewals,” but in the former case they’re handled Customer Success and in the latter they’re handled by Legal. [3]

But let’s be clear, regardless of the process you use to manage them [4], they are not the same, and should not automatically be treated as such for the purposes of calculating SaaS metrics. One is the voluntary renewal of a subscription contract; the other is the payment of a contractual commitment.

If you don’t want to renew your subscription, there’s nothing I can do to force you.  If you don’t want to make a contractually committed payment I can sue you.

Let’s consider an example.  We have six customers, Alpha through Foxtrot.  The first three did one-year deals, the second three did three-years deals.  The simple question is:  what’s your gross dollar retention?  A merely acceptable 83% or a very healthy 95%?

payment renewal

If you calculate on an available-to-renew (ATR) basis, the rate is 83%.  There were 300 units up for renewal and you renewed 250 of them.  If you include the payments, the rate is 95%.  1,050 units were up for renewal or payment, and you invoiced 1,000.

This is a case that feels a little bit wrong both ways.  Including the payments uplifts the rate by mixing involuntary payments with voluntary renewals; to the extent you want to use the rate as a satisfaction indicator, it will be over-stated [5].  However, excluding the payments seems to fail to credit the company with the auto-renewing nature of multi-year deals.

One thing is clear:  payments certainly cannot be included in any ATR-based rate.  You cannot view making a contractually required payment as the same thing as voluntarily renewing a contract. 

Because of prepaid multi-year deals, I have always calculated retention rates two ways:  ATR-based and ARR-based.  The former is supposed to give you an idea of how often, given the chance, people want to renew their contacts.  The latter is supposed to show you, mathematically, what’s happening to your ARR pool [6].

I have an issue, which is highly subjective, when it comes to out-payments on non-prepaid, multi-year deals:

  • On one hand, I can argue they are contractual commitments that the vast majority of customers will honor and thus are effectively – save for a few rare cases – identical to prepaid multi-year deals. Think:  the money’s good as in the bank.
  • On the other hand, I can argue that a dissatisfied customer – particularly one who blames the vendor and/or the software for their failure – will not want to pay, even if the contract says they’re supposed to. Think:  it’s a toothless contract that the vendor will not likely not enforce against an angry customer.

Philosophically, I can argue that these out-year payments are either “good as in the bank” or I can argue that they’re “basically renewals that will ‘churn’ if the customer is not happy.”  The first argument says to treat them like prepaid multi-year deals and put them in ARR-based retention rates.  The second argument says they’re effectively voluntary renewals and should be counted as such.

In reality, you need to know what happens at your business.

I believe for the vast majority of businesses, customers honor the contracts and we should treat them like prepaid, multi-year deals in ARR-based rates — and you should always publish in parallel ATR-based rates, so people can see both.  However, if your company is an outlier and 10% of those payments are never collected, you’re going to need to look at them differently – perhaps like renewals because that’s how they’re behaving.  Or get better lawyers.  Or stop doing non-prepaid, multi-year deals because, for whatever reason, your customers are not honoring the commitment they made in exchange for you to give them a price lock.

# # #

Notes

[1] Over 2 years you get 190 units versus an expected 185.  (Not counting any expansion.)

[2] 0.75 > 0.9^3 = 0.73 – you need to compound annual rates to compare them to multi-year ones.

[3] Or, really, Accounts Receivable but that doesn’t sound as funny.

[4] I’d argue that when you define your customer success process that you should treat these two customers identically.  Whether it’s a payment or a renewal, in a good customer success process you should constantly monitor customer progress with the hope that the renewal (or the payment) is not some big decision, but merely incidental.  (“Yes, of course, we want to keep using the software – is it just a payment year or do we need to renew the contract?”)  This might increase your cost to renew a bit – because you’ll be paying CSMs or renewals reps to do collection work that could theoretically have been done by Accounts Receivable – but it’s still the right answer if you want to maximize ARR.

[5] While payment does not necessarily indicate satisfaction, it probably does indicate the absence of intense dissatisfaction.

[6] e.g., I’d use the the churn rate (1 minus the retention rate) as the discount rate in a present value calculation.

What It Takes to Make a Great SaaS Company

I’ve been making a few presentations lately, so I thought I’d share the slides to this deck which I presented earlier this week at the All Hands meeting of a high-growth SaaS company as part of their external speaker series.

This one’s kind of a romp — it starts with some background on Kellblog (in response to some specific up-front questions they had), takes a brief look back at the “good old days” of on-premises software, introduces my leaky bucket concept of a SaaS company, and then discusses why I need to know only two things to value your SaaS company:  the water level of your bucket and how fast it’s increasing.

It kind of runs backwards building into the conclusion that a great SaaS company needs four things.

  1. An efficient sales model.  SaaS companies effectively buy customers, so you need to figure out how to do it efficiently.
  2. A customer-centric culture.  Once you’ve acquired a customer your whole culture should be focused on keeping them.  (It’s usually far cheaper than finding a new one to back-fill.)
  3. A product that gets the job done.  I like Clayton Christensen’s notion that customers “hire products to do jobs for them.”  Do yours?  How can you do it better?
  4. A vision that leaves the competition one step behind.  Done correctly, the competition is chasing your current reality while you’re out marketing the next level of vision.

Here are the slides:

The Three Marketing Books All Founder/CEOs Should Read

Few founder/CEOs come from a marketing background; most come from product, many from engineering, and some from sales, service, or consulting.  But few — ironically even in martech companies — grew up in the marketing department and consider marketing home.

When you combine this lack of experience with the the tendency that some marketing leaders and agencies have to deliberately obfuscate marketing, it’s no wonder that most founder/CEOs are somewhat uncomfortable with it.

But what’s a founder/CEO to do about this critical blind spot?  Do you let your CMO and his/her hench-agencies box you out of the marketing department?  No, you can’t.  “Marketing,” as David Packard once famously said, “is too important to be left to the marketing department.”

I recommend solving this problem in two ways:

  • One part hiring:  only hire marketing leaders who are transparent and educational, not those who try to hide behind a dark curtain of agencies, wizardry, and obfuscation.  Remember the Einstein quote:  “if you truly understand something you can explain it to a six-year old.”
  • One part self-education.  Don’t fear marketing, learn about it.  A little bit of fundamental knowledge will take you a long way and build your confidence in marketing conversations.

The problem is where to begin?  Marketing is a broad discipline and there are tens of thousands of books — most of them crap — written about it.  In this post, I’m going to list the three books that every founder/CEO should read about marketing.

I have a bias for classics here because I think founder/CEO types want foundational knowledge on which to build.  Here they are:

  • Positioning by Al Ries and Jack Trout.  Marketers frequently use the word “positioning” and after reading this classic, you’ll know exactly what they mean [1]. While it was originally published in 1981, it still reads well today.  This is all about the battle for the mind, which is the book’s subtitle.
  • Ogilvy on Advertising by David Ogilvy.  Ogilvy was the founder of marketing powerhouse agency Ogilvy and Mather and was the king of Madison Avenue back in the era of Mad Men.  Published in 1963, this book definitely shows signs of age, but the core content is timeless.  It covers everything from research to copy-writing and is probably, all in, my single favorite book on marketing. [2]
  • Crossing the Chasm by Geoffrey Moore.  The textbook classic Silicon Valley book on strategy.  Many people refer to the chasm without evidently having even read the book, so please don’t be one of them.  Published in 1991, it’s the newest of the books on my list, and happily Moore has revised it to keep the examples fresh along the way.

If I had to pick only one book, rather than suggesting original classics I’d revert to a summary, Kotler on Marketing, an overview written by Philip Kotler [3], author of one of the most popular marketing college textbooks, Marketing Management. [4]

If reading any of the above three books leaves you hungry for more (and if I were permitted to recommend just a few follow-up books), I’d offer:

  • As a follow-up to Positioning, I’d recommend The 22 Immutable Laws of Marketing also by Al Ries and Jack Trout and also written in the same accessible style.  This book would place second in the “if I only had one book to recommend” category and while less comprehensive than Kotler it is certainly far more accessible.
  • As a follow-up to Ogilvy on Advertising, and for those who want to get closer to marketing execution (e.g., reviewing content), I’d recommend The Copywriter’s Handbook by Robert Bly.  Most founder/CEOs are clear and logical writers who can get somewhat bamboozled by their marketing teams into approving gibberish copy.  This book will give you a firmer footing in having conversations about web copy, press releases, and marketing campaigns.
  • As a follow-up to Crossing the Chasm, I’d recommend Good Strategy, Bad Strategy, an excellent primer on strategy with case studies of great successes and failures and Blue Ocean Strategy, a great book on how to create uncontested market space and not simply compete in endless slug-fests against numerous competitors — which is particularly relevant in the current era of over-populated and over-funded startups. [5]

As founder/CEO you run the whole company.  But, for good reason, you might sometimes be hesitant to dive into marketing.  Moreover, some marketeers like it that way and may try to box you out of the marketing department.  Read these three books and you’ll have the tools you need to confidently engage in, and add value to, important marketing conversations at your company.

# # #

Notes

[1]  The Wikipedia entry on positioning isn’t a bad start for those in a hurry.

[2] Right from the second sentence, Ogilvy gets to the point:  “When I write an advertisement, I don’t want you to tell me that you find it ‘creative.’   I want you to find it so interesting that you buy the product.”  Love that guy.

[3] Of 4 P’s fame.  Kotler’s 4 P’s defined the marketing mix:  product, place, price, and promotion.

[4] Kotler on Marketing is deliberately not a summarized version of his classic, 700-page textbook, but alas it’s still written by someone who has produced numerous textbooks and nevertheless has a textbook feel.  It’s comprehensive but dry — especially by comparison to the others on this list.

[5] I can’t conclude any post on marketing thoughts and thinkers without a reference to one of the great marketing essays of all time, Marketing Myopia, by Theodore Levitt.  It’s old (published in 1963) and somewhat academic, but very well written and contains many pithy nuggets expressed as only Levitt could.

Video of my SaaStr 2019 Presentation: The Five Questions Startup CEOs Worry About

A few days ago, Jason Lemkin from SaaStr sent me a link to the video of my SaaStr Annual 2019 conference presentation, The Five Questions Startup CEOs Worry About. Those questions, by the way, are:

  1. When do I next raise money?
  2. Do I have the right team?
  3. How can I better manage the board?
  4. To what extent should I worry about competition?
  5. Are we focused enough?

Below is the video of the thirty-minute presentation.  The slides are available on Slideshare.

As mentioned in the presentation, I love to know what’s resonating out there, so if you ever have a moment where you think –“Hey, I just used something from Dave’s presentation!” — please let me know via Twitter or email.

Hiring Profiles: Step 0 of a Successful Onboarding Program

Happily, in the past several years startups are increasingly recognizing the value of strong sales enablement and sales productivity teams.  So it’s no surprise that I hear a lot about high-growth companies building onboarding programs to enable successfully scaling their sales organizations and sustain their growth.  What’s disappointing, however, is how little I hear about the hiring profiles of the people that we want to put into these programs.

Everyone loves to talk about onboarding, but everybody hates to talk about hiring profiles.  It doesn’t make sense.  It’s like talking about a machine — how it works and what it produces — without ever talking about what you feed into it.  Obviously, when you step back and think about it, the success of any onboarding program is going to be a function of both the program and people you feed into it.  So we are we so eager to talk about the former and so unwilling to talk about the latter?

Talking about the program is fairly easy.  It’s a constructive exercise in building something that many folks have built before — so it’s about content structuring, best practice sharing, and the like.  Talking about hiring profiles — i.e., the kind of people we want to feed into it — is harder because:

  • It’s constraining.  “Well, an ideal new hire might look like X, but we’re not always going to find that.  If that one profile was all I could hire, I could never build the sales team fast enough.”
  • It’s a matter of opinion.  “Success around here comes in many shapes and sizes.  There is not just one profile.”
  • It’s unscientific.  “I can just tell who has the sales gene and who doesn’t.  That’s the hardest thing to hire for.  And I just know when they have it.”
  • It’s controversial.  “Turns out none of my six first-line sales managers really agree on what it takes — e.g., we have an endless debate on whether domain-knowledge actually hurts or helps.”
  • It’s early days.  “Frankly, we just don’t know what the key success criteria are, and we’re working off a pretty small sample.”
  • You have conflicting data.  “Most of the ex-Oracle veterans we’ve hired have been fish out of water, but two of them did really well.”
  • There are invariably outliers.  “Look at Joe, we’d never hire him today — he looks nothing like the proposed profile — but he’s one of our top people.”

That’s why most sales managers would probably prefer discussing revenue recognition rules to hiring profiles.  “I’ll just hire great sales athletes and the rest will take care of itself.”  But will it?

In fact, the nonsensicality of the fairly typical approach to building a startup sales force becomes most clear when viewed through the onboarding lens.

Imagine you’re the VP of sales enablement:

“Wait a minute. I suppose it’s OK if you want to let every sales manager hire to their own criteria because we’re small and don’t really know for sure what the formula is.  But how am I supposed to build a training program that has a mix of people with completely different backgrounds:

  • Some have <5 years, some have 5-10 years, and some have 15+ years of enterprise sales experience?
  • Some know the domain cold and have sold in the category for years whereas others have never sold in our category before?
  • Some have experience selling platforms (which we do) but some have only sold applications?
  • Some are transactional closers, some are relationship builders, and some are challenger-type solution sellers?”

I understand that your company may have different sales roles (e.g., inside sales, enterprise sales) [1] and that you will have different hiring profiles per role.  But you if you want to scale your sales force — and a big part of scaling is onboarding — then you’re going to need to recruit cohorts that are sufficiently homogeneous that you can actually build an effective training program.   I’d argue there are many other great reasons to define and enforce hiring profiles [2], but the clearest and simplest one is:  if you’re going to hire a completely heterogeneous group of sales folks, how in the heck are you going to train them?

# # #

Notes

[1] Though I’d argue that many startups over-diversify these roles too early.  Concretely put, if you have less than 25 quota-carrying reps, you should have no more than two roles.

[2] Which can include conscious, deliberate experiments outside them.

 

 

Book Review: Enablement Mastery by Elay Cohen

I had the pleasure of working with Elay Cohen during my circa year at Salesforce.com and I reviewed SalesHood, his first book, over four years ago.  We were early and happy customers of the SalesHood application at Host Analytics.  I’m basically a big fan of Elay’s and what he does.  With the average enterprise SaaS startup spending somewhere between 40% to 80%+ of revenue on sales, doesn’t it make sense to carve off some portion of that money into a Sales Enablement team, to make sure the rest is well spent?  It sure does to me.

I was pleased to hear that Elay had written a second book, Enablement Mastery, and even more pleased to be invited to the book launch in San Francisco several weeks back.  Here’s a photo of Cloudwords CEO Michael Meinhardt and me at the event.

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I have to say I simply love salesops and sales productivity people.  They’re uniformly smart, positive, results-oriented, and — unlikely many salespeople — process-oriented.  A big part of the value of working with SalesHood, for a savvy customer, is to tap into the network of amazing sales enablement professionals Elay has built and whose stories are profiled in Enablement Mastery.

I read the book after the event and liked it.  I would call it a holistic primer on sales enablement which, since it’s a relatively new and somewhat misunderstood discipline, is greatly in need in the market.

Elay’s a great story-teller so the book is littered with stories and examples, from his own considerable experience building the impressive Salesforce.com sales productivity team, to the many stories of his friends and colleagues profiled in the book.

Some of the more interesting questions Elay examines in Enablement Mastery include:

  • Why sales enablement?
  • Where to plug it organizationally?  (With pros and cons of several choices.)
  • What to do in your first 90 days in a new sales enablement role?
  • What to look for when hiring sales enablement professionals?
  • How to get organizational (and ideally strong CEO) buy-in to the sales enablement program?
  • How sales enablement can work best with marketing?  (Hint:  there is often tension here.)
  • What is a holistic process map for the sales enablement function?
  • How to measure the sales enablement function?  (And it better be more than instructor ratings on the bootcamp.)
  • How to enable front-line managers to be accountable for their role enabling and developing their teams?  (Elay wrote a whole chapter on this topic.)
  • How to conduct a quarterly business review (QBR)?
  • How managers can use basic Selling through Curiosity principles to coach using curiosity as well?
  • How to build an on-boarding plan and program?
  • What core deliverables need to be produced by the marketing and sales productivity teams?

Elay, never one to forget to celebrate achievement and facilitate peer-level knowledge sharing, also offers tips on how to runs sales kickoffs and quota clubs.

Overall, I’d highly recommend Enablement Mastery as a quick read that provides a great, practical overview of an important subject.  If you’re going to scale your startup and your sales force, sales enablement is going to be an important part of the equation.