In my consulting and advising work, I’ve worked with a number of enterprise SaaS companies that get stuck with a broken go-to-market (GTM) motion. What do I mean by broken?
- Chronic plan misses, and not by 5-10%, but by 30-50% [1]
- Weak sales productivity, measured either relative to the company’s model or industry averages (median $675K) [2]
- Scarce quota attainment, measured by percentage of reps hitting quota. Instead of 80% at 80%, they’re more like 80% at 40% [3]
- High sales turnover. Good sellers quit when they’re not making money and they perceive themselves in a no-win situation.
- Poor pipeline conversion, closing perhaps 10-20% of early-period pipeline instead of 30% to 40% [4]
- Poor close rates, eventually winning only 5-10% of your deals as opposed to 20-30% [5]
In such situations, it’s easy to conclude “that dog don’t hunt” when examining the company’s go-to-market. It’s harder to know what to do about it. Typical reactions include:
- Fire everyone, a popular response which is sometimes correct, but risks wasting an additional year due to chaos if the people were, in fact, not the problem.
- Pivot the company, making a major change in strategy or sales model. Let’s go product-led growth (PLG). Let’s sell our platform instead of our application. Let’s do only enterprise accounts and account-based marketing (ABM). While these pivots may make sense, many companies should get called for strategic “traveling” because they pivot too often [6].
- Hope it will get better. If I only had a dollar for every time that I heard a CRO say,” all the changes are on track, the only thing I need is time for them to work.” Maybe they will, maybe they won’t. But what are the tell-tales will let us know before we miss three more quarters and execute plan-A, above?
It’s an utterly soul-sucking exercise to watch sales, marketing, and finance talk about these issues when the players are not all quantitative by nature, using the same metrics definitions, using the same models, all aware of the differences between averages and distributions, and all having a good understanding of ramping and phase lags [7]. That is, well, the vast majority of the time.
So, if you’re in this situation, what should you do about it? Three things:
- Agree on the problem, which is often shockingly more difficult than it appears
- Build a steady-state funnel, which among other things focuses everyone on the present
- Ensure your leadership team is part of the solution, not part of the problem
Agree on the Problem
You can’t make a coherent plan to fix something unless you have a clear, shared, data-driven understanding of what’s causing it. To get that, you need to block a series of meetings with a single topic: why are we missing plan?
You want a series of meetings because you will likely need to iterate on data collection and analysis. Someone will assert something (e.g., saying that pipeline coverage is weak) and – unless your metrics are already in perfect shape — you’ll want to look at the data you have, clean it up, get historical data for trend analysis, and then reconvene. It’s more effective to have a series of meetings like this than it is to have one mega-meeting where you’re committed to leaving the room with a plan, but you’re simply debating opinions. As Jim Barksdale used to say, “if we have data, let’s look at the data; if all we have is opinions, let’s go with mine.” So, get the data.
There will invariably be some blame games in this process. Focus on the assertions, not who made them, and focus on the data you’d need to see to back them up.
Example:
CMO: “I think conversion rates are the problem.”
CEO: “Based on what data are you arriving at conclusion?”
CMO: “Overall pipeline is up, but the results are flat.”
CEO: “Please put up the slides from the last QBR on pipeline conversion.”
CEO: “OK, this only shows one quarter so we can’t analyze historical trends, and it’s looking at rolling four-quarter pipeline so we can’t tell if actual current-quarter pipeline is sufficient. Salesops, how can you help?”
Salesops: “I can make a trailing-five-quarter count- and dollar-based, week 3 pipeline conversion chart and make a pipeline progression chart that shows a better view of how the pipeline is evolving.” [8]
CEO: “Great, do that, and let’s reconvene on Friday to see what it says.”
Finally, ensure that you keep the conversion moving by forcing people to answer questions. Call out people who “Swiss village” their answers [9]. Ask people who are being defensive to focus on the go-forward. Interrupt people when they’re waxing poetic. Time is of the essence and you can’t waste it.
Build and Focus on a Steady-state Funnel
To make things simple, concrete, and focused on the immediate future, I think the best thing you can do is build a steady-state funnel model.
If you’re missing plan consistently and significantly, there’s no need to have in-depth future hiring, ramping, and capacity conversations, phase-lagging lead generation to opportunity creation and then opportunities to deals. That’s all besides the point. The point is your model isn’t working and you need to get back on track.
Here are the magic words that change the conversation: “what if we just wanted to add $1M in ARR per quarter?” No ramps, no phase lags, no ramp resets, none of that planning for future scaling that actually doesn’t matter when you’re presently, chronically missing plan [10]. None of the complexity that turns conversations into rabbit holes, all for invalid analytical reasons.
Think: how about before we start planning for sequential quarterly growth, we start to consistently add ARR that closely resembles the plan number from two quarters ago that we never came close to hitting? Got it?
Here’s what that steady-state funnel model looks like:
Let’s be clear, you can build much more complex funnel models, and I’ve written about how. But now is not the time to use them. The purpose here is simple. Think: “team, if we want to add $1M in ARR per quarter …”
- Can we get (usually down) to 7 sellers?
- Can we get the deal size to $50K
- Can each seller close 4 deals per quarter?
- Can we generate 112 oppties per quarter?
- Can we close 25% of early-period oppties?
- Can we generate oppties for $3.5K?
For each assumption, you need to look at historical actuals, have a debate, and decide if the proposed steady-state model is realistic. Not, “does finance think the math works,” but “can the GTM team sign up to execute it?” If you’re trying to move the needle on a metric (e.g., taking deal size from $30K to $50K) there has to a clear and credible reason why.
If you can’t convince yourself that you can deliver against the model, then maybe it’s time to let the company find someone who does. It’s far better to part ways with integrity than to “fake commit” to a model you don’t believe in and then unsurprisingly fail to execute. Or, if the whole team can’t commit to the model, or you can’t find a model to which they would commit that produces an investable CAC ratio, then maybe it is time to pivot the company. These are hard questions. There are few easy answers.
Ensure Leadership is Part of the Solution
As you move forward, you need to ensure that your leadership team is part of the solution and not part of the problem. This is always a difficult question, not only for relationship reasons, but for more practical ones as well.
- If you replace an exec, what are the odds their successor will be better? If you have a solid, competent person in place, odds are the next person (who will be knowingly joining a company that’s off-rails) will be no better. But who’s to decide if someone’s solid and competent? Board members, your peer network, and advisors can certainly help (but beware halo effects in their assessments). So-called “calibration meetings” can help you make your own assessment, by simply meeting – not in a recruiting context – other CXOs at similar and next-level companies.
- If you replace an exec, how long will the resultant turmoil last? Four quarters is not uncommon because the new person will frequently rebuild the organization over their first two quarters and then you’ll need at least two additional quarters to see if it worked. A failed replacement hire can easily cost you (another) year. It’s criminal to incur that cost only to replace reasonably-good person X with reasonably-good person Y.
Other questions you should consider in assessing if you want to weather the storm with your current team:
- Do they really believe in the plan? Execs can’t just be going through the motions. You need leaders on your team who can enlist their teams in the effort.
- Are they truly collaborating? Some execs don’t internalize the Three Musketeers attitude that’s required in these situations. You need leaders on your team who want to see their peers succeed. One for all and all for one.
- Are they still in the fight? Sometimes execs decide the situation is hopeless, but lack the nerve to quit. They’ll pay lip service to the plan, but not give their best effort. You need leaders on the team who are still in the fight and giving their best each day.
If you’re going through a rough situation, my advice is stay strong, stay data-driven, leverage the resources around you, and demand the best of your team. Focus on first diagnosing the problem and then on building and attaining a steady-state funnel model to get things back on track.
It may feel like you’re going through hell, but remember, as Winston Churchill famously said, “if you’re going through hell, keep going.”
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Notes
[1] Plan meaning New ARR bookings and not Ending ARR balance. The latter can mask problems with the former. If we’re trying to measure sales performance, we should look the amount of ARR sales pours into the SaaS leaky bucket and not what happens to its overall level.
[2] New ARR per seller per year. Remember this is a median across all SaaS companies and my guess is enterprise is more $800K to $1200K and SMB is more $400-500K. Introducing ramping to this discussion is always a superb way to burn a few hours of your life. The pragmatic will just look at ramped rep productivity, excluding momentarily the effects of ramping reps. Pros will use ramped req equivalents and then look at ARR/RRE.
[3] See prior point. The pragmatic will look only at ramped rep attainment. Pros will look at attainment relative to ramped quota.
[4] For companies on quarterly cadence: new ARR booked / week 3 new ARR pipeline.
[5] Don’t confuse early-period pipeline conversion with opportunity close rate. The former looks within one period. The latter measures what closes in the fullness of time. Example: you can have a week 3 pipeline conversion rate of 33% (which suggests the need for 3x starting pipeline coverage) and an opportunity win rate of 20%. See my post on time-based close rates for more.
[6] In the basketball sense that a player is called for a traveling violation when they pivot off more than one foot.
[7] Phase lags here meaning the time between generating a lead and it becoming an opportunity or generating an opportunity and it becoming a deal.
[8] This begs the question why those charts aren’t in the QBR template. Hopefully, going forward, they’ll ensure they are. Odds are, however, that they don’t exist so hopefully a good debate and a Google search on Kellblog pipeline will help people find the analytical tools they need.
[9] The expression is based on this quip: “When you ask them the time, some people tell you how to build a watch. Some tell you how to build a Swiss village.”
[10] To state the obvious, for your company that magic number might be $2M, $5M or $10M – but the same principle applies. Let’s pick a steady-state, per-quarter, net-new ARR number and keep focusing on it until we start to achieve it.