Pulse 2021 Slides: Net Dollar Retention (NDR) Benchmarks and Thoughts

This is a quick post to share the slides I presented today at the GainSight Pulse Everywhere 2021 conference in a session entitled Net Dollar Retention, Key Benchmarks at $50M, $200M, and $1B in annual recurring revenue (ARR).

In the session we discuss:

  • The answer, which is 104%.  (Median NDR which is surprisingly invariant across size.  Exception:  public company NDR median is 111%.)
  • Problems with historical installed-base valuation metrics such as churn, customer lifetime (CLT), and lifetime value (LTV), building on my SaaStr 2020 presentation, Churn is Dead, Long Live NDR.
  • The rise of NDR as the SaaS metric of choice.
  • How NDR is currently the most powerful predictor (among common alternatives) of a company’s revenue multiple (EV/R).
  • The “dollar” in net dollar retention and why global companies should look at NDR using constant currencies, not dollars converted at a spot rate.
  • How NDR should vary as a function of stage, expansion model, business model, target market, sales motion, and pricing model.
  • How usage-based (aka, consumption-based) pricing models will be as transformation to subscription SaaS as subscription SaaS was to perpetual license software.

The deck has an rich appendix with interesting information clipped from a variety of my favorite sources, including RevOps^2, Meritech Enterprise Public Comps, OpenView Expansion SaaS Benchmarks, OpenView Usage-Based Playbook, Bessemer State of the Cloud, KeyBanc SaaS Survey (PDF), SEC filings, and others.

Here are the slides, which I’ve also embedded below:

 

I’d like to thank Ray Rike at RevOps^2 for giving me early access to his upcoming FY20 B2B SaaS Benchmarks report.

If GainSight makes a video available online, I’ll add a link to it, here.  Meantime, thanks to GainSight for having me and hope you enjoy the presentation.

Three People To Call When You Need Help with Positioning

Lately, I’ve received some consulting inquiries where companies are asking for help with positioning and messaging.  While that’s definitely an area of interest and passion, my business model is advice-as-a-service (AaaS) — I work with a smaller set of companies, on a broader set of issues, over a longer period of time.  So I’m not really looking for such consulting projects myself.

Thus the purpose of this post is to offer a little quick advice on the subject and then refer readers to three people I’d recommend to help with positioning and messaging in enterprise software.

Quick advice:

The three people I’d call for help with positioning would be:

  • Crispin Read, the single best positioning and messaging person with whom I’ve ever worked.  With a scalpel of a marketing mind, he’s not going to tell you what you want to hear, but he will cut through the junk in your thinking and distill your message to its essence.  I’m not sure how much consulting he’s doing these days because he’s trying to drive scale with his product marketing community (PMMHive) and Product Marketing Edge.  But I’d ping him.
  • Jeffrey Pease, who runs a NY-based consulting business, Message Mechanics.  Like Crispin, he was on the marketing team at Business Objects back in the day, and he is very, very good at messaging.  He popped up back in my life via Bluecore who was droning on about this messaging wizard they loved working with — only for me to discover that I’d worked with him in the past.  Testimonials on Jeffrey’s website include Bluecore, Coupa, Veeva, and well, Crispin (when he was at Microsoft).  So it’s really all just one big, happy positioning family.
  • April Dunford.  This one’s slightly premature — as I’ve not yet finished her book and haven’t worked with her yet.  But based on the part of the book I’ve read, her Twitter feed, and her work with related portfolio companies and PE sponsors, I am simply certain that we are kindred positioning spirits and that I’m going to love working with her — as we’re slated to do in upcoming months with one of my portfolio companies.

Good luck, happy positioning, and keep it simple out there.

Product Power Breakfast with Chris McLaughlin on Big/Small, US/Euro, and Marketing/Product

This week’s episode of the SaaS Product Power Breakfast is Thursday, June 10th, at 8am Pacific and we welcome a special friend and unique guest, Chris McLaughlin, currently CMO at France-based powerhouse LumApps, a collaboration and communications platform backed by top European investors including Idinvest and Goldman Sachs.

I got to know Chris by working together in his prior gig as joint CMO and CPO at Nuxeo, a France-based content services platform that had a great exit earlier this year to Thoma Bravo / Hyland Software, and where I sat on the board of directors for the past 4 years.

Chris has a unique background because of its dualities, working:

  • As a senior executive for both US-based and European-based companies.
  • At both growth startups and large megavendors (e.g., EMC/Documentum, IBM/FileNet)
  • In leadership roles on both the Product and the Marketing side.

In this week’s episode we — and the audience — will ask Chris many questions, including:

  • How to get product and marketing working together, especially when they aren’t under a common boss.
  • How European startups should organize their go-to-market functions to enter and grow in the US market
  • The role of both the product and marketing leaders in startups with either a technical founder or business founder
  • When is the right time to hire your first CPO and/or CMO
  • How to align product, marketing, and sales around a strategy — and dealing with the normal challenges in focusing that strategy

See you there, Thursday 6/10 at 8 am Pacific — and bring a friend.

As always, the room will be recorded and posted.  We think of the show as a podcast recorded in front of a live, studio audience.

How To Be A Good Independent Board Member

I’m writing this from both the perspective of a former CEO (who would occasionally get sideways with his board) and that of a six-time independent board member.  I’ll look first from the CEO perspective, examining what I wanted in an independent board member (aka non-executive director), and second from the board director perspective [1].

The CEO Perspective:  What I Wanted in an Independent Director

As a CEO, I wanted:

  • An advisor.  Someone I could use as a sounding board for ideas and decisions.  As CEO, you have no peer group within the company [2], so it’s valuable to have someone who knows the company, is current on industry best practices [3], but who feels less boss-like than the VCs/investors on the board.
  • An expert.  Someone the board would look to for opinions.  This is important — when the board is leaning left and the CEO wants to go right, an expert who has been-there, done-that and whose opinion is respected by the board can be quite influential.
  • A supporter.  Someone who would have my back both in board meetings and, more importantly, if and when board members get together outside board meetings to discuss the company [4].  When things go sideways, this can be the difference between a reconciliatory conversation and a replacement CEO search [5].  Remember Sequoia founder Don Valentine’s famous quote:  “I am 100% behind my CEOs right up until the day I fire them.”
  • A diplomat.  Someone who, when times are tense, can work as an intermediary between the differing parties, often but certainly not always, the investors on one side and founders/management on the other. Former sales leaders often perform well in this situation [6].
  • A coach.  Someone who can help make the game plan for getting something done (e.g., decomposing and sequencing) while providing a pep talk or a kick in the butt, as indicated, along the way of doing it.

I think (and I’m obviously biased here) that current/former GMs and CEOs make better advisors than current/former functional heads [7] because they have wrestled with more of the issues that CEOs face.  The hardest part of the CEO job (for me at least), and the part for which climbing the corporate ladder leaves you most unprepared, is working for a board, not a boss [8].

I should add that ensuring proper corporate governance is an important duty for for the board, but while critical, I view it as table stakes and have thus excluded governance-related items from the list of differentiating attributes above.

The Board Member Perspective:  What I Think Makes a Good Independent Director

From my position on several boards, I think a good independent director is:

  • Someone who acts as an advisor, not a consultant.  People sometimes confuse the two.  Advisors respond and consultants create.  Advisors provide feedback on your ideas, plans, and deliverables.  Consultants play a role in making them.  Put differently, advisors can show up to a discussion without doing any homework; consultants do the homework to create the materials for the discussion.
  • Someone who builds a 1-1 relationship with the CEO and delivers the vast majority of their value-add through that relationship [9].  Board meetings are great, but they typically involve a large group of people and are part performance art and part working group.  Important decisions do get made in board meetings, but a lot of education, detail-driving, consensus-building, and other value-add happens outside.
  • Someone who brings ideas and best practices.  It’s easy to get myopic when you’re building a company; there is so much to do inside, it’s easy to forget to look outside.  Good independent directors stay current on best practices (e.g., systems, methodologies, tools) and bring them to the CEO and the company.  See my current Gong evangelization as an example.
  • Someone who’ll have hard conversations.  Nobody likes being told things that they don’t want to hear, but somebody needs to do it.  The good independent director tells the CEO when their go-to-market analysis is weak, their hiring plan is completely unrealistic, or they should pay more attention to a competitor who’s intent on eating their lunch.  These contrapuntal conversations aren’t always pleasant, but they can add a lot of value.
  • Someone who challenges the CEO on strategy and executive team hiring and composition.  These are absolutely key CEO duties.  Too often strategies lack focus, and executive recruiting processes lack discipline.   Executive team composition, at a high-growth company, is a constant struggle [9A].  Someone needs to say things like, “you’re trying to be everything to everybody,” “the three CFO finalists have completely different profiles,” or “why is every e-staff member in the biggest job they’ve ever hard?”  We need a focused strategy that we can execute.  We need finalists to fit an agreed-to profile [10].  We need a team that balances up-and-comers with veterans.
  • Someone who inspects the troops.  Call me old school, but I think an important part of every (post-quarter) board meeting is a brief operational review where each functional heads presents the status of their department.  While experience has taught me that this is a better way to discover bad apples than identify good ones [11], I nevertheless believe it’s an important part of a meeting.  As a former operating executive, the independent director should take the lead in this inspection.
  • Someone who pushes for standard metrics and templates.  This is not primarily because I like metrics, but because it is human nature to cherry-pick metrics and the only way I know to prevent such cherry-picking is to design standard, holistic templates and use them at every meeting.  That eliminates any possibility of only talking about the good metrics and omitting the bad ones.  If the board doesn’t know about a problem, they can’t help solve it.  Standard templates ensure they know.

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Notes

[1] Knowing full well that the CEOs you’re supporting should be the final judge of that.

[2] Which why it’s a nice idea to get one outside the company via one of many CEO groups

[3] Some operating execs let themselves get pretty rusty in this regard.  Having worked with highly pedigreed but anachronistic advisors, I work hard to stay current in operating models and topics.

[4] This might be a closed-closed session after the usual board/CEO closed session, or it might be separate formal or ad hoc meetings where non-executive board members and investors have discussions.

[5] Founders typically worry about the latter less, but hired CEOs do and probably should worry about it more.

[6] Who later go into GM or CEO jobs to best pass all my tests.

[7] With the exception of CFOs for audit committees and such.

[8] This is particularly true on venture-backed startup boards where there is comparatively more “cat herding” than on PE boards which, while they have their own challenges, are usually more clear and singular in what they want.

[9] It should always include the CEO.  It might also include relationships with the CRO, CFO, CMO or other advisor-relevant functional head.

[9A] The fundamental tension between the cliché conflict between:  “dance with who brung ya” and “the people that got us to this level aren’t [necessarily] the ones to take us to the next.”  (See slides 11 to 16 of this presentation.)  [Necessarily] added because some people seem to think that getting the company to Level X is actually a liability in the climb to Level X+1.

[10] Deciding whether you want a CFO from an accounting/controller background or a finance/FP&A background should be decided long before you have a list of finalists.

[11] If someone is bad at presenting their department, they are typically bad at running it.  However, the converse is not true:  if someone is good presenting their department they may or may not be good at running it.  Some execs “give good meeting” such that they paint a rosy picture of a broken function.

Private Equity Funcast: A Board Perspective on Peopleops

I’m back for my second appearance on the ParkerGale Private Equity Funcast, this time speaking with Jimmy Holloran on topics related to Peopleops and the Chief People Officer (CPO) in a session entitled A Board Perspective on Peopleops.

Topic we cover include:

  • The role of HR and my mantra:  help managers manage
  • What help means and taking pride in a supporting role
  • Help who?  (Managers or employees)
  • Hiring and recruiting
  • Conflict aversion
  • The three golden rules of feedback
  • 9-box models
  • Giving a successful People update at board meetings
  • Scorecards and the infamous “it’s all green” story
  • How to tell if the CPO is helping (hint: ask)

The episode is available on the ParkerGale site, Apple Podcasts, and Spotify.  For those interested, my first appearance — a romp that contrasts the PE and VC worlds with my old friend Jim Milbery — is available here.

SaaS Product Power Breakfast: AMA with Me

Last week’s episode of the SaaS Product Power Breakfast was, to paraphrase Jerry Garcia, “crackling with energy” as we interviewed Stephanie McReynolds on category creation.

In this week’s episode, Thomas is out (I guess he’s getting another degree as a result of his latest mid-life crisis), so I’ll be flying the room solo.  Moreover, I haven’t lined up a guest (see How’s Work Going for an indication on why), so I’ll be doing an Ask Me Anything Session on strategy, product marketing, and product management.

I’ll open the room with a few opening comments on:

  • What I think makes for greatness in product management
  • What most often interferes with that
  • What to do about it — i.e., how to execute a strategic job strategically

And then we’ll cut to an open mike Q&A / AMA.  Please don’t leave me alone — and please do bring some questions!  We’ve not yet run the room in this format — and a big part of this project is to experiment with and understand Clubhouse as a new medium — so I’m excited to give it a try.  Please join in and learn with us (or, in this case, me).

Fear not, by the way, in response to some outreach I have been doing, I have some great candidate guests in the pipeline, including:

  • Andy MacMillan, CEO of UserTesting
  • Evan Kaplan, CEO of InfluxDB
  • Nick Mehta, CEO of GainSight
  • Heidi Vasconi, noted Analyst Relations consultant
  • Chris McGlaughlin, CMO and CPO of Nuxeo

Several folks have requested Lelya Seka (don’t let it go to your head), but last I checked with her that might have to wait until (and if) we ever move to Spaces.

I know Thomas has a great pipeline as well.  So, tell a friend, block your calendar Thursday mornings at 8:00 am (pacific) and join in the fun!

See you Thursday for the AMA session with me on product.

SaaS Product Power Breakfast with Stephanie McReynolds on Category Creation

Please join us for our next episode of the SaaS Product Power Breakfast at 8am Pacific on 5/20/21 as we have a discussion with former Alation CMO Stephanie McReynolds on the topic of category creation and her learnings as she helped drive the creation of the data catalog category and establish Alation as the leader in it [1].

In addition to her gig at Alation, Stephanie’s had a great career at many leading and/or category-defining vendors including E.piphany, Business Objects, PeopleSoft, Oracle, Aster Data, ClearStory, and Trifacta.

Questions we’ll address include:

  • Does a vendor create a category or do market forces?
  • In creating a category do you lead with product or solution?
  • How do you know if you should try to create a category?
  • What role do industry analysts play in category creation?
  • What happens once you’ve successfully created a category?  What next?

This should be great session on a hot topic.  See you there.  And if you can’t make it, the session will be available in podcast form.  We think of our show, like Dr. Phil, as a podcast recorded before a live (Clubhouse) studio audience.

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[1] I am an angel investor in and member of the board of directors at Alation.