On Recruiting: The Must-Have / Nice-to-Have List

I’m amazed by the number of times I see companies performing searches, even for key positions, without a clear idea of what they’re looking for.  Rephrasing Lewis Carroll, “if you don’t know what you’re recruiting for, any candidate looks great.”

lewis

I liken executive recruiters to Realtors.  If you don’t give a Realtor specific guidance on what you want to see, they’ll show you whatever’s on the market.  Moreover, even if you do tell a Realtor that you want a 4-bedroom on a cul de sac with great schools, you are likely to end up visiting a 3-bedroom “charmer” on a main thoroughfare that they just had to show you because it has a certain “je ne sais quoi.”  That know-not-what, by the way, is that it’s for sale.

This is a moment of truth for your relationship with your Realtor because if you do not say “if you show me another house that doesn’t meet my must-have criteria I’ll be working with another Realtor,” then three years hence you’ll be wondering, to the sound of passing traffic, why you live in a 3-bedroom and the kids are in private school.

Let’s stick with the house metaphor.  It’s actually fairly easy to make a list of criteria.  Make a two-column list, with one column titled “Must Have” and the other “Nice to Have.”  (One way things go wrong is when you mix up the two.)

Must Have Nice to Have
4 bedrooms Hot tub
3 baths Ranch (one level)
Quarter-acre lot Half-acre lot
Great schools (K-12) Less than 20 years old
No swimming pool Walk to downtown
$1.0 to $1.5M price

This process has a number of advantages:

  • It forces you and your spouse to discuss what you really want.  What’s truly a must-have vs. a nice-to-have criteria?  You might be surprised.
  • It provides a crystal-clear basis of communication with your Realtor.
  • If you provide the list before engaging with Realtor, they have the chance to refuse the business if they think your criteria are unrealistic, e.g., given your price point.
  • Once engaged, it gives you the basis for holding the Realtor accountable for showing you only what you want to see.

Let’s switch to executive recruiting.  What do we typically find in an executive job specification?  This is excerpted from a real CEO spec:

The ideal candidate will be or have:

  • A track record in building and leading high-performance teams
  • Confidence to interact with and inspire belief from present and future investors
  • The ability to articulate and define relevant methodology
  • An excellent communicator, effective in front of Customers, Employees, Analysts
  • Sound judgment and maturity
  • A leader who recognizes and respects talent outside of his/her own and recruits that talent to work close to and complement him/her within the company
  • Unquestionable integrity
  • Organizational tolerance:  ability to work with fluidity and ambiguity

That ambiguity tolerance starts right with this spec.  Think for a minute:

  • Are these as clear as our house spec?  A track record for how long, two quarters or ten years?
  • Are they measurable in any way?   How do I know if they respect talent outside their own or have sound judgement?
  • Are they well thought out?  (“There, I just questioned your integrity. We’re done.”)
  • Are they specific?  Which relevant methodology should they be able to define?

Compared to our house criteria, this is a mess.  And there are 17 more bullets.

How does this happen?  It’s just a tradition in executive recruiting; these sorts of specs get created. These bullets were probably selectively copied and pasted from other specs by an associate at the search firm.  While the selection was likely based a conversation with the company about what they want, it’s clear that nobody did any hard thinking about what they really needed.

A big clue that they have no must-have criteria is this “ideal candidate” nonsense.  Our house spec didn’t say “the ideal house will have” and then describe some fantasy house we can never afford.  We decided what the house must have, and then added some things that would be nice to have as well.

Let’s make an example of what an must-have / nice-to-have list could look like for an EVP of Sales at $50M startup.  This list makes a lot of assumptions about company needs and is far from perfect.  But it’s a heck of a lot better than the bullets above.

Must Have Nice to Have
Previously led all sales at an enterprise SaaS startup as it grew from $50M to $100M in ARR Knowledge of the CRM space
Has previously established detailed operational metrics and processes to run a velocity sales model Ability to quickly recruit a strong VP of salesops
A network including top reps and regional managers that can be  immediately recruited Prior experience creating and growing a sales enablement  function with onboarding and certification
At least 3 years’ experience managing international sales Prior experience selling or managing outside of North America
At least 5 years’ experience managing a three-level sales organization with at least 50 sellers Early-career experience in a technical or pre-sales role
Demonstrated compatibility with the organization’s culture and values Technical undergraduate degree plus MBA

What’s most important is that the process of making this list — writing it down, talking to peers about it, sharing it with the board, discussing it with prospective search firms — will clarify your own thinking and help you build consensus around precisely who is needed to do the job.

Otherwise, you’ll just get an “athlete” that the recruiter had in inventory.

Why I’m Advising Cyral

When I sign up to advise a company, I’ll often do a post to let readers know and discuss the reasons why I like the company.  This post is about Cyral, a cloud data security company I’m advising that I’ve been talking with for over a year.

Earlier this year, Cyral announced an $11M series A led by Redpoint, Costanoa, and others.  That was on top of a $4.1M in angel seed financing, bringing the total invested capital to $15.1M.

Cyral_logo_for_web.e28367f0

Cyral does cloud data security.  I indirectly referred to the company in my 2020 Predictions post, where I talked about a new, data-layer approach to security.  Cyral acts as a database proxy on top of every data endpoint in your data layer, watching all the traffic, figuring out (via machine-learning) what is normal, detecting what is not, and either alerting or stopping threats in real-time as they occur.

I remember when I first met co-founder Manav Mital at Peet’s Coffee to discuss the company.  He was surprised that I actually understood a thing or two about databases [1], which was fun. During the meeting a light-bulb went off in my head:  why were data breaches always measured megarows or terarows (hundreds of millions to billions of rows) as opposed say rows or kilorows?  Can’t we stop these things while they’re going down?

I initially viewed Cyral as a next-generation data loss prevention (DLP) company because I thought DLP was about stopping security problems in real-time.  But DLP was more about content than data, more about classification than anomaly detection, and more about business rules than machine learning.  DLP could do things like detect email attachments that contained source code and intercept an outbound email with such an attachment.  It had nothing to do with monitoring traffic to the data endpoints in a company’s both on-premise and (increasingly) cloud data layer, providing visibility into activity, fine-grained data access control, and real-time protection against data exfiltration.  That’s Cyral.

Here are some of the reasons I decided to work with the company.

  • Manav is not only a great guy and (a fellow) member of the illustrious Aster Data mafia [2], he is a second-time entrepreneur, having co-founded Instart Logic, which raised $140M from a top set of investors and built a strong business before eventually hitting hard times in the highly competitive CDN space, ultimately being acquired by Akamai.  It’s great to work with Manav because he has the wisdom from both his successes and his failures on his nearly decade-long journey at Instart.

 

  • I think security is a race without a finish line and thus a great and growing market space.  In addition to data-layer anomaly detection, Cyral provides fine-grained access control in a world where too many applications defeat security using shared data-layer logins.  Cyral can distinguish different users even if they’re coming into the database through the same username/password.  What’s more, Cyral provides more than just security, it provides insight by giving you visibility into who’s doing what.

 

  • New cloud data endpoints from Snowflake to Redshift to Kafka introduce complexity that breaks traditional approaches to security.  The old approach to security was largely about building a strong perimeter.  In a hybrid cloud world, that mixes traditional and cloud data sources, there is no perimeter to defend.  The perimeter is dead, long live data-layer security!

 

When talent meets opportunity, great things can happen.

# # #

Notes

[1] Having worked in technical support at Ingres (RDBMS), as VP of Marketing at Versant (ODBMS), as CMO at BusinessObjects (a BI tool, but with an embedded micro-multidimensional DBMS), as CEO at MarkLogic (XML DBMS), as board member at Aster Data (SQL/MapReduce DBMS), advisor to MongoDB (document-oriented DBMS),  and as CEO of Host Analytics (which included a multidimensional modeling engine) well, heck, you think I might have picked something up.

[2] Aster Data was an amazing well of entrepreneurship and the success of its mafia is an untold story in Silicon Valley.  A large number of companies, some of them amazingly successful, were founded by Aster Data alumni including:  ActionIQ, Arcadia Data, ClearStory, Cohesity, DataHero, Imanis Data, Instart Logic, Level-Up Analytics, Moveworks, Nutanix, The Data Team, ThoughtSpot, and WorkSpan.

 

Should Customer Success Report into the CRO or the CEO?

The CEO.  Thanks for reading.

# # #

I was tempted to stop there because I’ve been writing a lot of long posts lately and because I do believe the answer is that simple.  First let me explain the controversy and then I’ll explain my view on it.

In days of yore, chief revenue officer (CRO) was just a gussied-up title for VP of Sales.  If someone was particularly good, particularly senior, or particularly hard to recruit you might call them CRO.  But the job was always the same:  go sell software.

Back in the pre-subscription era, basically all the revenue — save for a little bit of services and some maintenance that practically renewed itself — came from sales anyway.  Chief revenue officer meant chief sales officer meant VP of Sales.  All basically the same thing.  By the way, as the person responsible for effectively all of the company’s revenue, one heck of a powerful person in the organization.

Then the subscription era came along.  I remember the day at Salesforce when it really hit me.  Frank, the head of Sales, had a $1B number.  But Maria, the head of Customer Success [1], had a $2B number.  There’s a new sheriff in SaaS town, I realized, the person who owns renewals always has a bigger number than the person who runs sales [2], and the bigger you get the larger that difference.

Details of how things worked at Salesforce aside, I realized that the creation of Customer Success — particularly if it owned renewals — represented an opportunity to change the power structure within a software company. It meant Sales could be focused on customer acquisition and that Customer Success could be, definitionally, focused on customer success because it owned renewals.  It presented the opportunity to have an important check and balance in an industry where companies were typically sales-dominated to a fault.  Best of all, the check would be coming not just from a well-meaning person whose mission was to care about customer success, but from someone running a significantly larger amount of revenue than the head of Sales.

Then two complications came along.

The first complication was expansion ARR (annual recurring revenue).  Subscriptions are great, but they’re even better when they get bigger every year — and heck you need a certain amount of that just to offset the natural shrinkage (i.e., churn) that occurs when customers unsubscribe.  Expansion take two forms

  • Incidental:  price increases, extra seats, edition upsells, the kind of “fries with your burger” sales that are a step up from order-taking, but don’t require a lot of salespersonship.
  • Non-incidental:  cross-selling a complementary product, potentially to a different buyer within the account (e.g., selling Service Cloud to a VP of Service where the VP of Sales is using Sales Cloud) or an effectively new sale into different division of an existing account (e.g., selling GE Lighting when GE Aviation is already a customer).

While it was usually quite clear that Sales owned new customer acquisition and Customer Success owned renewals, expansion threw a monkey wrench in the machinery.  New sales models, and new metaphors to go with them, emerged. For example:

  • Hunter-only.  Sales does everything, new customer acquisition, both types of expansion, and even works on renewals.  Customer success is more focused on adoption and technical support.
  • Hunter/farmer.  Sales does new customer acquisition and non-incidental expansion and Customer Success does renewals and incidental expansion.
  • Hunter/hunter.  Where Sales itself is effectively split in two, with one team owning new customer acquisition after which accounts are quickly passed to a very sales-y customer success team whose primary job is to expand the account.
  • Farmers with shotguns.  A variation of hunter/hunter where an initial penetration Sales team focuses on “land” (e.g, with a $25K deal) and then passes the account to a high-end enterprise “expand” team chartered with major expansions (e.g., to $1M).

While different circumstances call for different models, expansion significantly complicated the picture.

The second complication was the rise of the chief revenue officer (CRO).  Generally speaking, sales leaders:

  • Didn’t like their diminished status, owning only a portion of company revenue
  • Were attracted to the buffer value in managing the ARR pool [3]
  • Witnessed too many incidents where Customer Success (who they often viewed as overgrown support people) bungled expansion opportunities and/or failed to maximize deals
  • Could exploit the fact that the check-and-balance between Sales and Customer Success resulted in the CEO getting sucked into a lot of messy operational issues

On this basis, Sales leaders increasingly (if not selflessly) argued that it was better for the CEO and the company if all revenue rolled up under a single person (i.e., me).  A lot of CEOs bought it.  While I’ve run it both ways, I was never one of them.

I think Customer Success should report into the CEO in early- and mid-stage startups.  Why?

  • I want the sales team focused on sales.  Not account management.  Not adoption.  Not renewals.  Not incidental expansion.  I want them focused on winning new deals either at new customers or different divisions of existing customers (non-incidental expansion).  Sales is hard.  They need to be focused on selling.  New ARR is their metric.
  • I want the check and balance.  Sales can be tempted in SaaS companies to book business that they know probably won’t renew.  A smart SaaS company does not want that business.  Since the VP of Customer Success is going to be measured, inter alia, on gross churn, they have a strong incentive call sales out and, if needed, put processes in place to prevent inception churnThe only thing worse than dealing with the problems caused by this check and balance is not hearing about those problems.  When one exec owns pouring water into the bucket and a different one owns stopping it from leaking out, you create a healthy tension within the organization.
  • They can work together without reporting to a single person.  Or, better put, they are always going to report to a single person (you or the CRO) so the question is who?  If you build compensation plans and operational models correctly, Customer Success will flip major expansions to Sales and Sales will flip incidental expansions back to Customer Success.  Remember the two rules in building a Customer Success model — never pair our farmer against the competitor’s hunter, and never use a hunter when a farmer will do.
  • I want the training ground for sales.  A lot of companies take fresh sales development reps (SDRs) and promote them directly to salesreps.  While it sometimes works, it’s risky.  Why not have two paths?  One where they can move directly into sales and one where they can move into Customer Success, close 12 deals per quarter instead of 3, hone their skills on incidental expansion, and, if you have the right model, close any non-incidental expansion the salesrep thinks they can handle?
  • I want the Customer Success team to be more sales-y than support-y.  Ironically, when Customer Success is in Sales you often end up with a more support-oriented Customer Success team.  Why?  The salesreps have all the power; they want to keep everything sales-y to themselves, and Customer Success gets relegated to a more support-like role.  It doesn’t have to be this way; it just often is.  In my generally preferred model, Customer Success is renewals- and expansion-focused, not support-focused, and that enables them to add more value to the business.  For example, when a customer is facing a non-support technical challenge (e.g., making a new set of reports), their first instinct will be to sell them professional services, not simply build it for the customer themselves.  To latter is to turn Customer Success into free consulting and support, starting a cycle that only spirals.  The former is keep Customer Success focused on leveraging the resources of the company and its partners to drive adoption, successful achievement of business objectives, renewals, and expansion.

Does this mean a SaaS company can’t have a CRO role if Customer Success does not report into them?  No.  You can call the person chartered with hitting new ARR goals whatever you want to — EVP of Sales, CRO, Santa Claus, Chief Sales Officer, or even President/CRO if you must.  You just shouldn’t have Customer Success report into them.

Personally, I’ve always preferred Sales leaders who like the word “sales” in their title.  That way, as one of my favorites always said, “they’re not surprised when I ask for money.”

# # #

[1] At Salesforce then called Customers for Life.

[2] Corner cases aside and assuming either annual contracts or that ownership is ownership, even if every customer technically isn’t renewing every year.

[3] Ending ARR is usually a far less volatile metric than new ARR.

The Zero-Sum Fallacy: ARR vs. Services

Some SaaS startups develop a form of zero-sum delusion early in their evolution, characterized by following set of beliefs.  Believing that:

  • A customer has a fixed budget that is 100% fungible between ARR (annual revenue revenue) and services
  • It is in the company’s best interest to turn as much of the customer’s budget as possible into ARR
  • Customers never think to budget implementation services separately from annual software licensing
  • A $25K StartFast offering that walks through a standard checklist is everything a customer needs for a successful implementation
  • If the StartFast doesn’t work, it’s not a big deal because the Customer Success team’s mission is to offer free clean-up after failed implementations
  • Since the only thing consultants do is implementations, their job title should be “Implementation Consultant”
  • Any solutions practices or offerings should be built by our partners
  • The services team should be introduced as late as possible in the sales cycle; ideally after contract signing, in order to eliminate the chance a post-sales consultant will show up, tell the customer “the truth,” and ruin a deal
  • It is impossible and/or not meaningful to create and run a separate services P&L
  • The need for services is a reflection of failure on the part of the product (even in an enterprise setting)

Zero-sum delusion typically presents with the following metrics:

  • Services being less than 10% of total company revenues
  • Services margins running in the negative 20% to negative 60% range
  • High churn on one-year deals (often 25% or higher) due to failed implementations
  • Competitors winning bigger deals both on the ARR and services side (and associated internal confusion about that)
  • Loss reports indicating that prospects believed the competition “understood our problem better” and acted “more like a partner than a vendor”

Zero-sum delusion is a serious issue for an early-stage SaaS business.  It is often acquired through excess contact with purely financial venture capitalists.  Happily, with critical thinking and by challenging assumptions, it can be overcome.

zerosum

OK, let’s switch to my normal narrative mode and discuss what’s going on here.  First, some SaaS companies deliberately run with a low set-up product, little to no services, and a customer success team that takes care of implementation issues.  Usually these companies sell inexpensive software (e.g., ARR < $25K), use a low-touch sales model, and focus on the small and medium business market [1].  If delivering such an offering is your company’s strategy then you should disregard this post.

However, if your strategy is not to be a low-touch business model disruptor, if you do deals closer to $250K than $25K, if your services attach rate [2] is closer to 10% than 40%, if you consider yourself a somewhat classic enterprise SaaS vendor — basically, if you solve big, hard problems for enterprises and expect to get paid for it — then you should read this post.

Let’s start with a story.  Back in the day at Business Objects, we did a great business grinding out a large number of relatively small (but nevertheless enterprise) deals in the $100K to $200K range.  I remember we were working a deal at a major retailer — call them SeasEdge — against MicroStrategy, a self-funded competitor bootstrapped from a consulting business.

SeasEdge was doing a business intelligence (BI) evaluation and were looking to use BI to improve operational efficiency across a wide range of retail use cases, from supply chain to catalog design.  We had a pretty formulaic sales cycle, from discovery to demo to proposal.  We had financials that Wall Street loved (e.g., high gross margins, a small services business, good sales efficiency) so that meant we ran with a high salesrep-to-SE (sales engineer) ratio and a relatively small, largely tactical professional services team. I remember hearing our sales team’s worries that we were under-servicing the account — the salesrep had a lot of other active opportunities and the SE, who was supporting more than two salesreps, was badly overloaded.  Worse yet, MicroStrategy was swarming on the account, bringing not only a salesrep and an SE but about 5 senior consultants to every meeting.  Although they were a fraction of our size, they looked bigger than we did in this account.

SeasEdge taught me the important lesson that the deal you lose is not necessarily the deal your competitor wins.  We lost a $200K query-and-reporting (Q&R) deal.  MicroStrategy won a $4M retail transformation deal.  We were in the business of banging out $200K Q&R deals so that’s what we saw when we looked at SeasEdge.  MicroStrategy, born from a consultancy, looked at SeasEdge and saw a massive software and services, retail transformation opportunity instead.

I understand this is an extreme example and I’m not suggesting your company get in the business of multi-million dollar services deals [3].  But don’t miss the key lessons either:

  • Make sure you’re selling what the customer is buying.  We were selling Q&R tools.  They were buying retail transformation.
  • People may have more money than you think.  Particularly, when there’s a major business challenge.  We saw only 5% of the eventual budget.
  • A strong professional services organization can help you win deals by allowing you to better understand, more heavily staff, appear more as a partner in, and better solve customer problems in sales opportunities.  Internalize:  a rainmaker professional services leader is pure gold in sales cycles.
  • While partners are awesome, they are not you.  Once in a while, the customer wants “one throat to choke” and if you can’t be that throat then they will likely buy from someone who can.

I call this problem zero-sum delusion because I think the root cause is a fallacy that a zero-sum trade-off exists between ARR and professional services.  The fallacy is that if a customer has only $250K to spend, we should get as much of that $250K as possible in ARR, because ARR recurs and professional services doesn’t [4].  The reality is that most customers, particularly when you’re selling to the information technology (IT) organization, are professional buyers — this isn’t their first rodeo, they know that enterprise software requires professional services, and they budget separately for it.  Moreover, they know that a three-year $250K ARR deal represents a lot of money for their company and they darn well want the project associated with that investment to be successful — and they are willing to pay to ensure that success.

If you combine the zero-sum fallacy with purely financial investors applying pressure to maximize blended gross margins [5] and the fantasy that you can somehow run a low-touch services model when that isn’t actually your company and product strategy, you end up with a full-blown case of zero-sum delusion.

Curing the Zero-Sum Delusion

If your organization has this problem, here are some steps you can take to fix it.

  • Convince yourself it’s not zero sum.  Interview customers.  Look at competitors.  Look at you budget in your own company.  Talk to consultants who help customers buy and implement software.  When you do, you will realize that customers know that enterprise software requires services and they budget accordingly.  You’ll also understand that customers will happily pay to increase the odds of project success; buying quality services is, in effect, an insurance policy on the customer’s job [6].
  • Change your negotiation approach.  If you think it’s zero sum, you’ll create a self-fulfilling prophecy in negotiation.  Don’t frame the problem as zero sum.  Negotiate ARR first, then treat that as fixed.  Add the required services on top, negotiating services not as a zero-sum budget trade-off against ARR, but as a function of the amount of work they want done.  I’ve won deals precisely because we proposed twice the services as our competition because the customer saw we actually wanted to solve their problem, and not just low-ball them on services to sell subscription.
  • Change sales’ mental math.  If you pay salesreps 12% on ARR and 2% on services, if your reps have zero-sum delusion they will see a $250K ARR, $100K services deal as $5K to $10K in lost commission [7].  Per the prior point we want them to see this as a $30K ARR commission opportunity with some services commissions on top — and the higher the services commissions the higher the chance for downstream upsell.  Moreover, once they really get it, they see a 50% chance of winning a 250/25 deal, but a 80% chance of winning a 250/100 deal.  An increase in expected value by over $10K.
  • Put a partner-level, rainmaker leader in charge of your services organization and each region of it.  The lawyer who makes partner isn’t the one with the best legal knowledge; it’s the one with the biggest book of business.  Adopt that mentality and run your services business like, well, a services business.
  • Create a services P&L and let your VP of Services fully manage it.  They will know to get more bookings when the forecast is light. They will increase hiring into a heavy forecast and cut weak performers into a light forecast.  They know how to do this.  Let them.
  • Set your professional services gross margin target at 5-10%.  As an independent business it can easily run in the 30-40% range. As a SaaS adjunct you want services to have time to help sales, time to help broken customers (helping renewals), time to enable partners, and the ability to be agile.  All that costs you some margin.  The mission should be to maximize ARR while not losing money.
  • Constrain services to no more than 20% of revenue.  This limits the blended gross margin impact, is usually fine with the board, keeps you well away from the line where people say “it’s really a services firm,” usually leaves plenty of room for a services partner ecosystem, and most importantly, creates artificial scarcity that will force you to be mindful about where to put your services team versus where to put a partner’s.
  • Force sales to engage with services earlier in the sales cycle.  This is hard and requires trust.  It also requires that the services folks are ready for it.  So wait until the rainmakers in charge have trained, retrained, or cleared people and then begin.  It doesn’t take but a few screw-ups to break the whole process so make sure services understand that they are not on the sales prevention team, but on the solving customer problems team.  When this is working, the customer buys because both the VP of Sales, and more importantly, the VP of Services looked them in the eye and said, “we will make you successful” [8].
  • Outplace any consultant who thinks their mission is “tell the truth” and not help sales.  Nobody’s saying that people should lie, but there is a breed of curmudgeon who loves to “half empty” everything and does so in the name of “telling the truth.”  In reality, they’re telling the truth in the most negative way possible and, if they want to do that, and if they think that helps their credibility, they should go work at independent services firm [9].  You can help them do that.
  • Under no circumstances create a separate services sales team — i.e., hire separate salespeople just to sell services [10]. The margins don’t support it and it’s unnecessary.  If you have strong overall and regional leadership, if those leaders are rainmakers as they should be, then there is absolutely zero reason to hire separate staff to sell services.

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Notes

[1] Yes, they can eventually be enterprise disruptors by bringing this low-touch, cheap-and-cheerful approach to the enterprise (e.g., Zendesk), but that’s not the purpose of this post.

[2] Services attach rate is the ratio of professional services to ARR in a new booking.  For example, if you sell $50K of services as part of a $500K ARR deal, then your attach rate is 10%.

[3] We had neither that staffing levels nor the right kind of consultants to even propose, let alone take on, such an engagement.  The better strategy for us would have been to run behind a Big 4 systems integrator bidding who included our software in their proposal.

[4] Sales compensation plans typically reinforce this as well.  Remediating that is hard and beyond the scope of this post, but at least be aware of the problem.

[5] At the potential expense of maximizing ARR — which should be the point.

[6] If you think from the customer’s perspective.  Their job is to make sure projects succeed.  Bad things sometimes happen when they don’t.

[7] On the theory that the perfect deal, compensation wide, is 100% ARR.  Math wise, 0.12*250+0.02*100 = $32K whereas 0.12*350+0.02*0 = $42K.  More realistically, if they could have held services to $50K, you’d get 0.12*300+0.02*50 = $37K.  Note that this way of thinking is zero-sum and ignores the chance you can expand services while holding ARR constant.

[8] And, no offense, they believed the latter more than the former.  And they know the latter is the person on the hook to make it happen.

[9] Oh, but they want the stock-options upside of working at a vendor!  If that’s true, then they need to get on board and help maximize ARR while, yes, still telling the truth but in a positive way.

[10] Wanting to do so is actually a symptom of advanced zero-sum delusion.

How Startup CEOs Should Think About the Coronavirus, Part III — Useful Links

This post in part III in a series.  Part I covers the basics of employee communications.  Part II provides information on how several leading companies are handling the situation and offers specific thoughts on financial planning.  This part, a set of curated links that I have found useful, was formerly at the end of part II, but I figured it really should be a standalone post.

While I will try to prevent the list from getting too long, I will update this post from time to time as I find high-quality information resources.

Coronavirus Resources: Silicon Valley / Business Orientation

Coronavirus Resources: Authorities on Twitter

Coronavirus Resources: Public Health Agencies

 

A Missive to Marketing: Impose Simplicity

Markets are complex. Customers are complex. Products are complex, sometimes very. Heck, the world is complex. What’s a marketer to do?

Great marketing is about making things simple. We do that by imposing simplicity on a complex world. We might be attacked for so doing — people might accuse us of over-simplification. And we don’t want that either because we need to stay credible. Paraphrasing Einstein, we want to make things as simple as possible, but no simpler.

Consider product marketing. Enterprise software products are enormously complex, built by scores (or hundreds) of developers across quarters and years. They have deep functionality and subtle differences.

But a product marketer, operating in a TLDR world, can never say:

The difference between our product and their product is actually quite subtle and ultimately is about 100 little things; there’s really no one big thing that separates them.

No, no, no. The successful product marketer finds the most important subtle differences, groups them, and amplifies them. Here are our three silver bullet features. Here’s our white paper on The Five Things You Should Look For in a Schmumble.

In so doing, black-and-white is infinitely superior to gray. While sometimes unavoidable, speaking gray (i.e., “our schmumble is better than their schmumble”) is infinitely inferior to speaking black-and-white (e.g., “we have a schmumble; they don’t.”)

The successful product marketer takes a complex, gray world and transforms it into a simple, black-and-white one. If you don’t have row-level locking, you’re screwed. If you don’t have semi-additive measures, you’re screwed. If you don’t financial consolidation, you’re screwed.  If you don’t have hyperblocks, you’re screwed. 

The great marketer imposes simplicity on the product.

Consider corporate marketing, where the goal is simple. Take a complex competitive landscape and position the company as the leader. Not a leader. The leader. “A leader” is complex because it means there are multiple different companies, each of a different size, and each with its own angle on what constitutes the best product. That means customers need to understand all the competitors and their relative strengths and weaknesses. That’s a lot of work.

“The leader” is simple. Define the space in as simple terms as possible — carving it up to make yourself the leader — and then declare yourself the leader. It’s not always possible to do this — at one point, I called out Brio for effectively claiming they were the leading business intelligence vendor — on Great America Parkway in Santa Clara, California.

But if you can do it credibly, then back it up with awards, customer wins, customer counts, and financing rounds. It’s safe to buy from the leader.

The great marketer imposes simplicity on the market.

Consider customer targeting. The world is complex and gray when it comes to targeting. An ideal customer profile (ICP), typically the result of a regression used to identify the best target companies, isn’t black and white. It might output a score that varies from to 0.0 to 1.0. That’s gray. You need to make that black-and-white so sales can use it — e.g., by using it to identify named accounts for sales and account-based marketing (ABM), by using the score to create tiers that follow different processes in the high funnel, or by looking at the model to derive simple rules to say when some opportunities look better than others (e.g., we double our win rate when the customer is using Spark).

The great marketer imposes simplicity on targeting.

Consider messaging. The database reveals that the key contacts at our top 50 customers have over 80 different titles. If we stopped there, we’d end up wasting money buying overly broad lists and with an overly generic message. The great marketer interviews a broad set of customers and discovers there effectively two canonical personas in that set. Precise titles and hierarchical levels aside, there are two different animals: data analysts and data architects. And a VP of data architecture thinks a lot more like a director of data architecture than a VP of data analysis.

They look at things differently. The have different missions within the organization. They have different career backgrounds. They will respond different to sales and marketing messaging. If you want architects to come to your webinar, talk about data transformation initiatives and enterprise architecture. If you want data analytics people to come to your webinar talk about better decisions made more quickly on higher-quality data.

If you want to sell a data architect convince them your system is built for scalablity. If you want to sell a data analyst, convince them they’ll be more productive and make better analyses.

The great marketer imposes simplicity on messaging.

The hardest part of all this is believing with conviction that you have to do it. You’ll be accused of being inaccurate. Others will say you’re over-simplifying. You’ll be told, “well, it’s really not that simple” over and over again. You yourself will start to wonder.

Don’t forget that simplicity isn’t easy. Just as it takes a tough man to make a tender chicken, it takes a tough marketer to make a simple message. It’s your job.  A key skill in marketing is the ability to impose simplicity on a complex world.

Your career will depend on it.

Stopping the Sales & Marketing Double Drowning

I earned my spending money in high school and partially paid for college by working as a lifeguard and water safety instructor. Working at a lovely suburban country club you don’t make a lot of saves. One day, working from the deep-end chair, I noticed two little kids hanging on a lane line. That was against the rules. I blew my whistle and shouted, “off!”

Still young enough to be obedient (i.e., under 11), the two kids let go of the line. The trouble was they couldn’t swim. Each grabbed the other and they sank to the bottom. “Oh my God,” I thought as I dove off the chair to make the save, “I just provoked a double drowning.”

While that was happily the last actual (and yes, averted) double drowning I have witnessed, I’ve seen a lot of metaphorical ones since. They involve adults, not kids. And it’s always the VP of Sales in a deadly embrace with the VP of Marketing. Sure, it may not be an exactly simultaneous death — sometimes they might leave a few months apart — but make no mistake, in the end they’re both gone and they drowned each other.

How To Recognize the Deadly Embrace

I believe the hardest job in software is the VP of Sales in an early-stage startup. Why? Because almost everything is unknown.

  • Is the product salable?
  • How much will people pay for it?
  • What’s a good lead?
  • Who should we call on?
  • What’s the ideal customer profile?
  • What should we say / message?
  • Who else is being evaluated?
  • What are their strengths/weaknesses?
  • What profile of rep should I hire?
  • How much can they be expected to sell?
  • What tools do they need?
  • Which use-cases should we sell to?
  • What “plays” should we run?

You might argue every startup less then $50M in ARR is still figuring out some of this. Yes, you get product-market fit in the single-digit millions (or not at all). But to get a truly repeatable, debugged sales model takes a lot longer.

This painful period presents a great opportunity for sales and marketing to blow each other up. It all begins with sales signing up for (or being coerced into) an unrealistic number. Then, there aren’t enough leads. Or, if there are, the leads are weak. Or the leads don’t become pipeline. Or pipeline doesn’t close.

At each step one side can easily blame the other.

Sales SaysMarketing Says
There aren’t enough leadsThere are, but they’re all stuck with your “generation Z” SDRs
The SDRs are great, I hired themThe SQL acceptance rate says they are passing garbage to sales.
The SQLs aren’t bad, there just aren’t enough of themYour reps are greasing the SDRs by accepting bad SQLs
We’re not getting 80% of pipeline from marketingWe’re delivering our target of 70% and then some
But the pipeline is low quality, look at the poor close rateThe close rate is poor because of your knuckleheaded sellers
Those knuckleheads all crushed it at my last companyYour derail rate’s insane
Lots of deals in this space end up no-decisionMaybe they derail because we don’t follow-up fast enough
Our message isn’t crisp or consistentOur messaging is fine, the analysts love it
We’re the greatest thing nobody’s ever heard of We’ve got a superior product that your team can’t sell
We’re being out-marketed!We’re being out-sold!

Once this ping-pong match starts, it’s hard to stop. People feel blamed. People get defensive. Anecdotal bloody shirts are waived in front of the organization — e.g., “marketing counted five grad students who visited the booth as MQLs!” or “we lost an opportunity at BigCo because our seller was late for the big meeting!”

With each claim and counter-claim sales and marketing tighten the deadly embrace. Often the struggling CRO is fired for missing too many quarters, guns still blazing as he/she dies. (Or even beyond the grave if they continue to trash the CMO post departure.) Sometimes the besieged CMO quits in anticipation of termination. Heck, I even had one quit after I explicitly told them “I know you’re under attack, but it’s unfair and I’ve got your back.”

Either way, in whatever order, they go down together. Each one mortally wounds the spirit, the confidence, or the pleasure-in-work of the other.

How to Break Out of It

Like real double drownings, it’s hard for one of the participants to do an escape maneuver. The good news is that it’s not hard to know there’s a problem because the mess is clearly visible to the entire organization. Everyone sees the double downing. Heck, employees’ spouses probably even know about it. However, only the CEO can stop it and — trust me — everyone’s waiting for them to do so.

The CEO has four basic options:

  • Take some pressure off. If the primary reason you’re missing plan is because the plan is too aggressive, go to the board and reduce the targets. (Yes, even if it means reducing some expense budget as well.) As Mike Moritz said to me when I started at MarkLogic: “make a plan that you can beat.” Tell them both that you’re taking off the pressure, them them why (because they’re not collaborating), and tell them that you’ve done your part and now it’s time for them to do theirs: collaborate non-defensively to solve problems.
  • Force them to work together. This the old “this shit needs to stop and I’m going to fire one of the two of you, maybe both, if you can’t work together” meeting. A derivation is to put both in a room and tell them not to leave until either they agree to work together or come out with a piece of paper with one name on it (i.e., the one who’s leaving). The key here for them to understand that you are sufficiently committed to ending the bullshit that you are willing to fire one or both of them to end it. In my experience this option tends not to work, I think because each secretly believes they will be the winner if you are forced to choose.
  • Fire one of the participants. This has the effect of rewarding the survivor as the victor. If done too late (before death but after the mortal wound — i.e., after the victor is far along in finding another job), it can still result in the loss of both. To the extent one person clearly picked the fight, my tendency is to want to reward the victim, not the aggressor — but that discounts the possibility the aggressor is either correct and/or more highly skilled. If they are both equally skilled and equally at fault, a rational alternative is to flip a coin and tell them: “I value you both, you are unable to work together, I think you’re equally to blame, so I’m going to flip a coin and fire one of you: heads or tails.” An alternative is to fire one and demote the other — that way it’s very clear to all involved that there was no winner. If fights have winners, you’re incenting fighting.
  • Fire both. I love this option. While it’s not always practical, boy does it send a strong message about collaboration to the rest of the organization: “if you fight, are asked to stop, and you don’t — you’re gone.” Put differently: “I’m not firing them for fighting, I’m firing them for insubordination because I told them not to fight.” Odds are you might lose both anyway so one could argue this is simply a proactive way of dealing with the inevitable.

One of the hardest things for executives is to maintain the balance between healthy cross-functional tension and accountability and unhealthy in-fighting and politics. It’s the CEO’s job to set the tone for collaboration in the company. While Larry Ellison and his disciplines may love “two execs enter, one exec leaves” cage fights as a form of corporate Darwinism, most CEOs prefer a tone of professional collaboration. When that breaks down, weak CEOs get frustrated and complain about their executive team. Strong ones take definitive action to define what is and what isn’t acceptable behavior in the organization and put clear actions behind their words.