Author Archives: Dave Kellogg

How Quickly Should You Grow to Key ARR Milestones? The Rule of 56789

Question:  what do you call a 10-year old startup with $10M in ARR?
Answer:  a small business [1].

When you make a list of key SaaS metrics, you’ll rarely find age listed among them.  That’s correct in the sense that age by itself tells you little, but when size is measured against age, you get a rough measure of velocity.

It’s a lot like people.  Tell me you can play Mozart’s Piano Concerto No. 23 and I’ll be impressed [2].  Tell me you can play it at age 12, and I’ll think you’re an absolute prodigy.  Tell me you have $10M in ARR after 10 years and I’ll be impressed [3].  Tell me you have it 3 and I’ll run for my checkbook.

All this begs the question of growth velocity:  at what age is a given size impressive?  Towards that end, and working with my friends at Balderton Capital, I’ve come up with what I’m calling the Rule of 56789.

  • 5 years to break $10M
  • 6 years to break $20M
  • 7 years to break $50M
  • 8 years to break $75M
  • 9 years to break $100M

Concretely put, if you walk through the doors to Balderton’s London offices with $54M in ARR after 7 years, you’ll be in the top quartile of those who have walked before you.

Commentary

  • I’m effectively defining “impressive” as top quartile in the Balderton universe of companies [4].
  • Remembering 56789 is easy, but remembering the milestones is harder.  Once you commit the series {10, 20, 50, 75, 100} to memory, it seems to stick [5].
  • Remember that these are milestones to pass, not ending ARR targets, so this is not equivalent to saying grow 100% from $10M to $20M, 150% from $20 to $50M, and so on.  See note [6] before concluding {100%, 150%, 50%, 33%} is an odd growth trajectory.
  • For example, this is a 56789-compliant growth trajectory that has no whipsawing in growth rates.

Three Situtions That Break The Rule
Rules are made to be broken, so let’s talk about three common situations which confound the Rule of 56789.

  • Bootstraps, which are capital constrained and grow more slowly.  Bootstraps should largely ignore the rule (unless they plan on changing their financing strategy) because they are definitionally not trying to impress venture capitalists [7].
  • Platforms, that require years of time and millions of dollars before they can go to market, effectively resetting the starting clock from company inception to beta product release [8].
  • Pivots, where a company pursues strategy A for a few years, abandons it, and takes some salvage value over to a new strategy B. This effectively resets the starting clock from inception to pivot [9].

Alternative Growth Velocity Rules
Let’s compare the trajectory we showed above to similar one generated using a slightly different rule, which I’ll call the 85% Growth Retention Rule, which says to be “impressive” (as defined above), you should:

  • Pass $1M in ARR at a high growth rate (e.g., above ~180%)
  • Subsequently retain 85% of that growth rate every year

I view these as roughly equivalent rules, or more precisely, alternate expressions of nearly the same underlying rule.  I prefer 56789 because it’s more concrete (i.e., do X by Y), but I think 85% growth retention is somewhat more general because it says no matter where you are and how you got there, try to retain 85% (or more) of your growth rate every year.  That said, I think it stops working at 8-10 years because the asymptote on great company growth is somewhere around 40% [10] and some would argue 60% [11].  It also fails in situations where you need to reaccelerate growth.

There’s one well-known growth velocity rule to which we should also compare.  The triple/triple/double/double/double (T2D3) rule, which says that once you hit $2M in ARR, you should triple to $6M, triple again to $18M, then double three times to $36M, $72M, and $144M.

Let’s compare the 56789 and the 85% Growth Retention rules to the T2D3 rule:

Clearly T2D3 is more aggressive and sets a higher bar.  My beef is that it fails to recognize the law of large numbers (by failing to back off on the growth rates as a function of size across considerable scale), so as an operator I’m more intuitively drawn to the 85% Growth Retention rule.  That said, if you want to be top 5% to 10% (vs. top 25%), then go for T2D3 if you can do it [12].  You’ll clearly be creating a lot more value.

I like all of these rules because they help give you a sense for how quickly you should be getting to a certain size.  Growth conversations (e.g., trying to get a CRO to sign up for a number) are never easy.  Rules like these help by providing you with data not about what the average companies are doing, but what the great ones are.  The ones you presumably aspire to be like.

The limitation, of course, is that none of these rules consider the cost of growth.  There’s a big difference between a company that gets to $100M in 9 years on $100M in capital vs. one that does so on $400M in capital.  But that’s why we have other metrics like cash conversion score.  Different metrics measure different things and these ones are focused solely on size/growth vs. age.

A big tip of the hat to Michael Lavner at Balderton Capital for working with me on this post.

# # #

Notes

[1] See the definition of small business, which is somewhat broader than I’d have guessed.

[2] Even though it’s only classified as “less difficult” on this rather amazing scale from less difficult to difficult, very difficult, extremely difficult, ridiculously difficult, and extraordinarily difficult.  (Perhaps CEO’s can use that scale to classify board members.)

[3] It’s not as if just anybody can do either.  Founding a company and building it to $10M is impressive, regardless of the timeframe.

[4] Balderton universe = European SaaS startups who wanted to raise venture capital, who were sufficiently confident to speak with (what’s generally seen as) a top-tier European firm, and who got far enough into the process to submit performance data.

[5] I remember it by thinking that since it’s still pretty early days, jumping from $10M+ to $20M+ seems more reasonable than from $10M to $25M+.

[6] Don’t equate this rule with a growth vector of {100%, 150%, 50%, 33%} in years 5 through 9.  For example, years in which companies break $10M often don’t conclude with $10.1M in ARR, but more like $15M, after having doubled from a prior year of $7 to $8M.

[7] The rule would probably be more useful in projecting the future of VC-backed competitor.  (I think sometimes bootstrapped companies tend to underestimate the aggressiveness of their VC-backed competition.)  This could help you say, “Well, in N years, BadCo is likely to be a $50M business, and is almost certainly trying to be.  How should that affect our strategy?”

[8] That said, be sure you’re really building a mininum viable product and not overengineering either because it’s fun or it allows you to delay the scary of moment of truth when you try to sell it.

[9] Financings after a pivot sometimes require a recapitalization, in which case the company’s entire lifeclock, from strategy to product to cap table, are all effectively reset.

[10] Current median growth in Meritech Public Comps is 32% at median scale $657M in ARR.

[11] 0.85^10 = 0.2 meaning you’ll cut the starting growth rate by 80% after ten years.  So if you start at 200% growth, you’ll be down to 40% after 10 years with 85% growth retention.

[12] I’ll need to take a homework assignment to figure out where in the distribution T2D3 puts you in my data set.

 

The More Cons than Pros of the Backdoor Search

You’ve decided you need to replace one of your executives.  Hopefully, the executive already knows things aren’t going great and that you’ve already had several conversations about performance.  Hopefully, you’ve also already had several conversations with the board and they either are pushing for, or at least generally agree with, your decision.

So the question is how to do you execute?  You have two primary options:

  • Terminate and start search.  Arguably, the normal order of operations.
  • Start search and then terminate.  This is commonly known as a backdoor search, I guess because you’re sneaking out the back door to interview candidates.  More formally, it’s known as a confidential search.

Yes, there are a lot of sub-cases.  “Search” can mean anything from networking with replacement CXOs referred by your network up to writing a $100K+ check to Daversa, True, and the like.  “Terminate” can mean anything from walking the CXO out the door with a security escort to quietly making an agreement to separate in 60 days.

As someone who’s recruited candiates, been recruited as a candidate, and even once hired via a backdoor search, let me say that I don’t like them.  Why?

  • They make a bad impression on candidates.  Think:  so, this company is shooting their CMO and that person doesn’t even know it yet?  (Sure, I’d love to work for them.)
  • They tie the recruiter’s hands behind their back.  Think:  I have this great opportunity with a high-growth data workbench company — but I can’t tell you who it is.  (Call me when you can.)
  • They erode trust in the company culture.  The first rule of confidential search is there are no confidential searches.  Eventually, you get busted; the question is when, not if.  And when you do, it’s invariably a bad look for everyone involved.
  • They are super top-down.  Peers and employees are typically excluded from the process, so you neither build consensus around the final candidate nor let them meet their team.
  • You bypass your normal quality assurance (QA) process.  By involving fewer people you disregard a process that, among other things, helps vet the quality of candidates.  If the candidate turns out a mishire you are going to feel awfully alone.
  • If you somehow manage to pull one off, the candidate gets off to a rough start, typically never having had met with anyone on their team.

That said, the advantages of confidential searches are generally seen as:

  • No vacant seat.  There’s no awkward period where the CXO’s seat is empty and/or temporarily filled by one of their direct reports.
  • Short transition period.  You elminate the possibility of an extended period of ambiguity for the CXO’s team.  Colloquially, you rip off the band-aid.
  • One transition, not two.  Some positions (e.g., CFO, CMO) have active fractional (or rent-a-CXO) markets.  If you terminate first, hire an interim replacement, and then search for a permanent replacement, you end up putting the team through two transitions.

I’d argue that for conflict-averse CEOs, there’s one bad “advantage” as well — they get to put off an unpleasant conversation until it’s effectively irreversible.  Such avoidance is unhealthy, but I nevertheless believe it’s a key reason why some CEOs do backdoor searches.

All things considered, I remain generally against backdoor searches because the cost of breaking trust is too high.  Lady Gaga puts it well:

“Trust is like a mirror, you can fix it if it’s broken, but you can still see the crack in that mother f*cker’s reflection.”

So what can you do instead of a backdoor search?  You have three options:

  1. Run the standard play, appointing an interim from the CXO’s directs or doing it yourself.  (If you have the background, it’s relatively easy and sometimes it’s even better when you don’t —  because it helps you learn the discipline.  I’ve run sales for 18 months across two startups in this mode and I learned a ton.)
  2. Run with an interim.  In markets where you can do this, it’s often a great solution.  Turns out, interim CXOs are typically not only good at the job, but they’re also good at being interim.  Another option I like:  try-and-buy.  Hire an interim, but slow starting your search.  This de-risks the hire for both sides if you end up hiring the interim as permanent.  (Beware onerous fees that interim agencies will charge you and negotiate them up front.)
  3. Agree to a future separation.  This is risky, but a play that I think best follows the golden rule is to tell the CXO the following:  “you go look for a job, and I’ll go look for a new CXO.”  A lot can go wrong (e.g., undermining, hasty departure, mind changing) and you can’t really nail it all down legally (I’ve tried several times), so you can only do this option with someone you really trust.  But it allows you to treat the outgoing CXO with respect and enables them to not have to ask you for a reference (as they’re still working for you).  You’re basically starting a search that is “quiet” (i.e., unannounced internally), but not backdoor because the CXO knows it’s happening.

Hat tip to Lance Walter for prompting me to write on this topic.

Crowdsourced Marketing:  Hey, We Can Put on a Show!

The plot of so-called backstage musicals usually centers around the production of a show, often created to avoid imminent financial peril, as you’d find in many of the depression-era Our Gang movies.  Invariably, as the characters realize their predicament, someone shouts the solution, “Hey, we can put on a show!”  (The ticket sales from which presumably generate enough money to save the day.)

The purpose of this post is to discuss one of the more serious forms of software marketing desperation, which I refer to variously as a backstage musical, a bake sale, or what one might more contemporaneously call crowdsourced marketing.

Since I’m mixing more metaphors than someone burning the midnight oil on both ends, let me quickly elaborate on each:

  • Backstage musical. Think: “Jimmy can tap dance, Mary can sing, and John plays the trumpet.  We can put on a show!”
  • Bake sale. Think: “You make the brownies, I’ll make the cookies, and Anne can make the cupcakes.  We can have a bake sale!”
  • Crowdsourced marketing. Think: “We can have a Sales town hall, set up a Slack channel, and call a meeting with Product to figure out how to generate sales.  We can crowdsource marketing!”

In all three cases, the presumption is basically, if only we had professional performers, bakers, or marketers, they’d know what to do, but since we don’t – well, let’s throw it together the best we can.  For the Our Gang financial dilemma or the classroom fundraiser, that might be good enough.  For your marketing department, it’s not.

I’ve spoken to CEOs who ask:

If we have all the performance data and conversion rates by (marketing) channel, and we understand that things aren’t purely linear but opportunity generation happens over time in response to numerous touches, and we can test the effectiveness of a various messages used in various segments, then how are we supposed to take all that information and decide what to do?

If only, I think, you had a strong head of marketing.  That is their job.  In most marketing organizations, it’s not their only job and they may have delegated a lot of it to the head of demandgen, but wafting through all that data and all those ideas, building a plan, getting buy-in to that plan from sales, selling it to the CEO, and maybe the board — well, that’s what of head of marketing is supposed to do.

You can’t hire an agency to decide it for you.  You can’t decide it in a board meeting or a call.  The CEO can’t decide it after looking at some reports.  The CEO and/or board can and should question any proposed plan, but making that plan is the head of marketing’s job.

And, let me be clear, it’s hard.  Which is precisely why no one else can really do it.   It’s a mix of art and science.  It’s a mix of re-running proven campaigns while testing new hypothesis.  It’s a mix of proven messaging and new messaging to address new trends, products, or partnerships.  It’s knowing the channel performance data cold, but also knowing the limitations on its interpretation and the scaling opportunity and cost per channel going forward (think:  exhaustion of low hanging fruit).  It’s hard.

There are zillions possible combinations.  There is no one right answer.  No report will ever tell you or John Wanamaker which half of the marketing budget is wasted.  Attribution throws a drowning victim an anvil, not a buoy; the best we can likely do is to make attribution suck less.

Believe it or not, I’m actually a big believer in crowdsourcing certain aspects of marketing – but not the plan.  The plan needs to be made by someone who understands the market and who is immersed in the data of the business.  If you don’t trust your marketing head to make the plan, you need a new marketing head.  Period.

When it comes to crowdsourcing and marketing, I believe there’s a time and a place for it.

  • It is extremely effective for review. Share a draft logo and you might learn it’s too close to an indirect competitor’s.  Share a draft name to learn it’s a bad word in another language.  Share a draft webpage to find errors.   Share a draft white paper to get your arguments torn apart.   Many marketers (and most agencies) are afraid of this because such feedback can interrupt your timeline.  But it can also help you catch mistakes, before they go live.  The great thing about marketing is that everyone is going to get a chance to review your work anyway.  You may as well find problems before the launch, not after.  Don’t be an unveiler.
  • It’s great for brainstorming. It’s great to sit down with a bunch of sellers and say, “tell me what would make your lives easier.”  Or, “I noticed we’re having troubles with our demo-to-close rate, what can we do to help improve that?”  Be ready for the usual answers and bring data to address them – e.g., “no one’s ever heard of us.”  Whip out your recent awareness study to present the actual state of relative awareness and then describe your plan to address it.  Some marketers develop a fear of ideas because they see each new idea as work.  Don’t be that person.  Love ideas.  Get as many as you can and then pick the best ones.
  • It’s great for guerilla marketing. We’ve got no more budget, but we still have a problem.  What can we do, on the cheap, to help solve it?  This often comes up in the context of field and/or regional marketing.  It’s arguably a form of brainstorming, but not the kind where you are at the start of an exercise, generating ideas.  Here, you’re in the middle of it, things aren’t going according to plan, and people need help.  What we can we do (given our constraints)?  The best marketers will go sixty minutes after the official end of the day, wringing brains, asking:  any more ideas, anything else anyone can think of?   Sometimes you get the best ideas on the third wring.

In this post, I’ve tried to convince CEOs to not turn their marketing into a bake sale.  If you’re a CMO and you feel like your CEO or CRO is trying to do just that, then you need sit down and have a talk.  You are a professional, you’re immersed in the data, and you understand the business.  Ask them to work with you to make a plan, explain in detail why you’re proposing what you’re proposing, and listen carefully to their ideas and concerns.

Then, as depression-era Grandpa Kellogg would say, “plan your work, and work your plan.”

If everyone else nevertheless insists on a bake sale, you probably have a bigger problem.

Official Video of my SaaStr Europa Presentation

Just a quick post to highlight that SaaStr has posted the official video of my SaaStr Europa 2022 presentation entitled, The Top 5 Scale-Up Mistakes, that I gave in Barcelona in June.  They also published a blog on the session and packaged it into a podcast episode.

The video includes a 30-minute delivery of the presentation followed by a open-mike Q&A for another 30 minutes.  Note that I’ve since re-recorded the presentation into a slightly more relaxed 45-minute delivery that is posted on the Balderton Build site.

So, if you want the live version with Q&A, watch this.  If you want the studio version, here it is on the Balderton site.

Thanks to everyone who attended and thanks to SaaStr for having me.

Everything You Need to Know About the CRO and CMO Working Relationship: In One Story

I had a chat with a CMO a while back.

DK:  How’s the relationship with your CRO going?
CMO: Solid. We collaborate really well.
DK: I’ve heard you’ve had some trouble hitting sales targets.
CMO: Yes, well you know the targets are pretty aggressive and we just had some major turnover in the sales force. But that’s all settled now. The new CRO joined 6 months ago and things are pretty stable now.  
DK: So when you say you’re collaborating does that just mean you’re working together without incident or are you deeply collaborating — e.g., joined at the hip?  
CMO: Deeply collaborating.  We’re not just going through the motions.  We talk about the hard problems.  We answer each other’s calls on the first ring.  The CRO always tells me that we have each other’s backs.
DK:  So what are those problems?  By the way, the CEO told me they think it’s a top-of-funnel issue.
CMO: Well, yes, it’s certainly part top-of-funnel, but our close rates are pretty grim as well.
DK: How grim?
CMO: We close about 5% of our opportunities.
DK: You close 5% of your sales-accepted opportunities? 
CMO: Well, we’re actually closing 5% of our post-demo opportunities. That’s stage 4. The CRO thinks it makes more sense to calculate the close rate from the demo stage [1].  
DK: I see.  What else?
CMO:  The slip rate is bad, more than half of deals slip out of the quarter.  No-decision is our top loss reason code in the CRM.
DK: Sounds to me like a pretty standard emerging space problem.  Everyone’s trying to figure out the market. Nobody has budget in the category. People aren’t sure what it is. But a lot of people are interested.
CMO:  Yes, a lot of tire kickers.
DK:  Are any of your direct competitors crushing it or are you all dealing with the same issues?
CMO:  As far as I can tell, we’re all largely in the same boat.
DK:  So is this a top-of-funnel problem or is it broader?  
CMO:  It’s broader.  Both the CRO and I agree that we have two problems:  we are not closing enough of the pipeline we have and we need more pipeline.  Because of the second problem, we’ve raised our pipeline coverage goals to 4x.  Originally the CRO wanted 5x but I negotiated it down.
DK:  What’s the budget situation?
CMO:  Well, in order to improve efficiency in CAC ratio, we’re holding the marketing budget basically flat over last year.  The sales budget is going up 50%, though, in order to pay for those hires needed for growth.
DK:  I see.
DK:  Last question, who spends more time with the CEO, you or the CRO?
CMO:  Oh the CRO does. They spend a lot of time together, working on board slides, financing decks, and operating models and such.  The CEO leaves me pretty empowered to run marketing.

There’s Something Happening Here.  What It Is, Is Actually Clear.
Paraphrasing Buffalo Springfield, there’s a ton in this all-too-common scenario to chew on [2].  Before addressing the key point of this post — about the CMO/CRO relationship — let’s take a quick minute to discuss the business situation, because I’m guessing that Kellblog readers can’t wait to tackle that first.

My Take on the Situation
Given that conversation, here’s what I think about the business.

  • It’s in a new space and they haven’t figured out the model yet.
  • Everyone in the space seems to have the same challenges — lots of interest, but few deals, nobody has budget, lots of slipped deals, and few purchase decisions.
  • Strategically the space appears to be more vitamin than pain-killer.  They need to get better at giving people a compelling reason to buy and helping them find budget to do so.
  • They likely need to segment the space better, to try and find a subsegment where the pain is high enough to do something now and where the company can build out a whole product (aka, cross the chasm).
  • They need to be very aware of premature scaling.  While the financing model may say to hire 12 reps this year, the empirical indicators do not.  See my SaaStr Europa talk on this topic.

That’s it, in my opinion.  No more, no less.  Like any Silicon Valley startup with top investors, the company [3] likely has a founder who knows the space, a qualified management team [4], and has built a product that delivers against the initial vision.

The reality is that once in a while you land in the exact right place at the exact right time and everything takes off.  Pretty often, however, you don’t.  It doesn’t mean your vision is wrong or your product doesn’t work or your team sucks.  You just need to debug your model, refine your focus, and give yourself some time.

If the CEO has hired a strong CRO and a strong CMO, the worst thing they can do at this point is start a blame game.  What you want is a Three Musketeers  team with an all for one and one for all spirit.  The CEO, CRO, and CMO all working together to solve the company’s fairly obvious if also fairly challenging problems.

What you don’t want is a simplistic explanation and a circular firing squad that results in one, two, or even all three of those musketeers getting shot while the company struggles.  That’s what is likely happening in our scenario, and because it’s somewhat subtle, let me spell it out.

The Blame Game
The first rule of being a CMO:  if you look up and see this, you’re under the bus.

The view from under the bus

The CMO is squarely under the bus here.  How do I know?

  • “It’s a top-of-funnel problem.”  If the CEO thinks it’s a top-of-funnel problem, that is definitionally a marketing problem because marketing typically has the most top-of-funnel responsibility.  There are fifty things going on, but when we net it all out:  it’s a top-of-funnel problem.  Hum.  I bet the board thinks it’s a top-of-funnel problem, too.
  • The CRO has likely shaped that perception.  Remember when I asked who spent more time with the CEO?  That’s because it’s usually a great proxy for who more shapes their opinions and worldview [5].
  • The deal conversion rate is quite low and somehow that’s not included in the reduced problem statement.  A typical close rate in enterprise software is 15% to 25%.  This sales team is closing 5%.   The company may be light on top-of-funnel, but it can’t close deals either.  Yet somehow, the second problem gets eliminated from the reduced form [6].
  • The conversion rate is off the wrong stage.  This is a real tell-tale.  Sales doesn’t even want to calculate the close rate off stage 2 opportunities, where stage 2 is usually defined as sales-accepted opportunity.  There must be a handoff point from marketing to sales where an opportunity is accepted or not and, after acceptance, sales takes responsibility for a close rate.  By the way, closing 15% to 25% of them means you can not close 75% to 85%, so it’s not exactly a high bar.  I increasingly see companies push the close rate calculation further into the sales cycle (e.g., demo to close) which has the effect of pushing more responsibility onto marketing [7].
  • They increased the pipeline coverage target to 4.0x.  This  further transfers the problem to marketing.  First, note that the CRO tried to increase the target to 5.0x and only “dropped” it to 4.0x after negotiation.  How kind.  The effect of this is to further say, it’s a marketing problem; we don’t have enough pipeline.  To do a reductio, I once worked with a company that had 100x pipeline coverage.  Guess what?  They still missed their number.  Because there was zero accountability around pipeline.
  • The CRO never signed up to increase the close rate.  The company seemed quick to increase marketing’s pipeline generation targets, but never got around to setting a goal to increase the 5% close rate.  Hum.
  • Bookings capacity is not part of the conversation.  Sales turnover means ramp resets means ramped-rep-equivalents is potentially a lot lower than total reps.  How much of this problem is due to turnover-driven sales booking capacity shortfalls?  Nobody seems to be asking.
  • The CMO is getting ratioed, but not in the social media sense.   By default, the sales and marketing budget should scale together so the ratio between them should stay constant.  Unless, of course, there’s some bottom-up reason for why the ratio changing, why we think it’s possible to feed 50% more sales on flat marketing, and why potentially 100% of the CAC efficiencies are being demanded of marketing.  Here, the sales/marketing expense ratio is increasing 50%, without much of a reason except that “sales needs it.”
  • The CRO does not have the CMO’s back.  Real partners in problem-solving don’t let the boss think it’s the other person’s fault, let alone lead them to that conclusion.  Especially when they seem to actually know otherwise.

What To Do Instead
While I’ve touched on it above, solving the company’s strategy problem is worth a book if not a full post, so here I’ll focus on the CMO/CRO relationship.

  • Real collaboration is hard.  You need to drop the us vs. them relationship and truly work together to solve problems.
  • For the CEO, it means creating a safe space where the CRO and CMO can do that.  Think:  “Look, I think you’re both great.  We’re just working on some hard problems.  Let’s work together to solve them.”  Don’t point fingers.  Don’t encourage finger pointing.  Don’t tolerate it, whether blatant or subtle.
  • If the CEO has hired well in the first place, the odds are not great that a replacement will do any better.  Make it about success and teamwork, not accountability in the form of termination.  (Exception:  if you didn’t hire well in the first place, go fix that problem.)
  • For the CRO and CMO, it means admitting weakness to each other.  Yes, we generated less opportunities than plan.  Yes, the 5% close rate is unacceptable.
  • It means doing what you can do to help, regardless of who’d be blamed if you fail.  Think:  CMO — what can I do to help that close rate?  Sales training?  Tools?  ROI calculator?  What?  Think:  CRO — how can my team help us hit the opportunity generation goal?
  • It means holding each other accountable.  This is really hard.  Think:  I’ve been listening to discovery calls on Gong and we need to train our AEs to do better discovery.  Or, we need to cut AEs 1 and 4.  Or think:  I attended our webinar demo last week and the presentation started late and failed to demo the admin side of the product.
  • It means going to the CEO with a single message.  We’ve been working on this together, we think the root cause is we are early days in the market, we are going to focus marketing on generating opportunities in these specific areas, we are going to focus sales on pipeline discipline, we are going to track MQL-to-S2 and S2-to-close as our key conversion rates, and we are working together on sales hiring profiles and onboarding training to ensure we can better close what we get.

This doesn’t always work.  Sometimes the company is just in a rough position in the market.  However, sometimes it does.  And when it does, it skips an entire executive replacement cycle, allowing the company to answer its key questions faster, and gain important time-to-market advantages, not to mention avoiding costs related to momentum and morale.

All for one and one for all.  It works.  Try it!

# # #

Notes
This post evolved from a Twitter thread I posted.  Thanks to everyone who participated.

[1]  Sorry, demo is not a sales cycle stage!

[2]  Perhaps the better lyric to borrow is:  “there’s battle lines being drawn, nobody’s right when everybody’s wrong.”

[3]  As with any Kellblog post, all examples are derived from reality but ultimately not any one company, but a hybrid of scores of companies and situations I’ve seen over three decades in enterprise software.  Everyone always seems to think it’s about them!

[4]  As I have actually said to VCs who took no comfort in the statement:  “it’s improbable that our off-plan performance is due to our own incompetence;  we are all hiring the same SDRs, reps, and managers, all from the same hiring pool, giving them roughly equivalent marketing support hired from the same marketing pool, and paying them on the same compensation plans.”  Standardization of the model and labor pool serve as risk isolators in Silicon Valley.  VCs know that, which is why in general they prefer hiring veterans to up-and-comers.  They still hated the statement and I wouldn’t recommend saying it, even if you might think it once in a while.

[5]  You might argue that I’m a partisan former CMO contriving an example against sales, but remember I was also CEO of two startups for over a decade.  More importantly, as a consultant / director / advisor, all I want to do is solve the problem.  That perch makes it easier to see what’s actually happening.  I don’t care whose to blame.  If I met someone I think is incompetent I’ll say so.  If I think it’s a bunch of good people in a tough situation, I’ll say that, too.

[6]  Some would instantly blame this weak conversion rate on marketing:  “see, the 5% conversion rate proves the pipeline is junk.”  Marketing could fire back:  “but sales accepted these opportunities, that means definitionally they were qualified, and sales couldn’t close them.”  In my balanced view, I’m not assigning blame to anyone.  I’m simply saying the company has two problems:  light pipeline coverage and a weak conversion rate.   Saying there’s only one is what’s partisan.

[7]  To be clear, this means that marketing is not just responsible for creating sales-accepted opportunities, but for ensuring they reach the demo stage (typically two stages later).  Sales then become responsible for closing say 20% of those, instead of 20% of stage 2s, which have been subjected to two additional layers of filtering.  The lowers the bar for sales and raises it for marketing.  Most important, it renders effectively meaningless the notion of sales-accepted opportunity.