Category Archives: Management

The Single Biggest Myth about MBOs and OKRs

I’m a big believer in written quarterly goals.

The old way to do this was to adopt “management by objective” (MBO) and to write down a set of MBOs for each quarter for each team member.  Most folks would do this either in Word, or if they liked weightings and scores as part of calculating an MBO bonus, Excel.  Over time, larger enterprises adopted HR performance management software to help with managing and tracking those MBOs.  When writing individual objectives, you were advised that they be SMART (specific, measurable, attainable, realistic, time-bound).

Despite best intentions, over time MBOs developed a bad rap for several reasons:

  • People would make too many of them, often drowning in long lists of MBOs
  • Few people could write them well, so would-be SMART objectives ended SQUISH (soft, qualitative, unintelligible, imprecise, slang, and hazy) instead.
  • They were often hard-linked to compensation, encouraging system-gaming

The objective / key result (OKR) system is a more modern take on objective setting popularized by, among others, Google and venture capitalist John Doerr.  OKRs fix some of the key problems with MBOs.

  • A strong guideline to have no more than about 5 OKRs per person to avoid the drowning-in-MBOs problem.
  • Adding a tiny bit of structure (the key results) helps enormously with producing objectives that are specific and measurable.
  • A realistic and intelligently calibrated scoring system whereby 70% is considered a “good” grade.  The defeats a lot of the system gaming.

But, regardless of which system you’re using, you can still hear the following myth from some managers and HR professionals:

“Oh, wait.  The objectives shouldn’t list things in your core job.  They should be the things on top of your core job.”  Sometimes followed by, “who’d want to pay you a bonus just for doing your core job?”

This is just plain wrong.

Let’s make it clear via an example.  Say you’re a first-line technical support person whose job is to answer 20 cases per day.  To ensure you’re not just closing out cases willy-nilly, your company performs a post-case customer satisfaction (CSAT) survey and wants you to maintain a post-case CSAT rating of 4.5 out of 5.0.  In addition, the company wants you to do 6 hours of skills training and write 4 knowledge-base articles per month.

If you live by the myth that says written objectives should be above and beyond your core job then this person should have two quarterly objectives:

  • Write 4 knowledge-base articles per month.
  • Attend 6 hours of skills training per month.

This is simply insanity.  You are going to the trouble of tracking written objectives, but overlooking 90%+ of what this person actually does.  This person needs to have 3 quarterly objectives:

  • Close 100 cases per week with a 4.5+ CSAT rating
  • Write 4 knowledge-base articles per month
  • Attending 6 hours of skills training per month

And if we’re tying these to a bonus, most of the weight needs to be on the first one.

While I know I’ve argued this via reductio ad absurdum, I think it’s the right way to look at it.  If you’re going to track written objectives — by either MBO or OKR — then you should think about you the  entire job scope, be inclusive, and weight them appropriately.


My SaaStr Talk Abstract: 10 Non-Obvious Things About Scaling SaaS

In an effort to promote my upcoming presentation at SaaStr 2018, which is currently on the agenda for Wednesday, February 7th at 9:00 AM in Studio C, I thought I’d do a quick post sharing what I’ll be covering in the presentation, officially titled, “The Best of Kellblog:  10 Non-Obvious Things About Scaling SaaS.”

Before jumping in, let me say that I had a wonderful time at SaaStr 2017, including participating on a great panel with Greg Schott of MuleSoft and Kathryn Minshew of The Muse hosted by Stacey Epstein of Zinc that discussed the CEO’s role in marketing.  There is a video and transcript of that great panel here.


For SaaStr 2018, I’m getting my own session and I love the title that the folks at SaaStr came up with because I love the non-obvious.  So here they are …

The 10 Non-Obvious Things About Scaling a SaaS Business

1. You must run your company around ARR.  Which this may sound obvious, you’d be surprised by how many people either still don’t or, worse yet, think they do and don’t.  Learn my one-question test to tell the difference.

2.  SaaS metrics are way more subtle than meets the eye.  Too many people sling around words without knowing what they mean or thinking about the underlying definitions.  I’ll provide a few examples of how fast things can unravel when you do this and how to approach SaaS metrics in general.

3.  Former public company SaaS CFOs may not get private company SaaS metrics.  One day I met with the CFO of a public company whose firm had just been taken private and he had dozens of questions about SaaS metrics.  It had never occurred to me before, but when your job is to talk with public investors who only see a limited set of outside-in metrics, you may not develop fluency in the internal SaaS metrics that so obsess VC and PE investors.

4.  Multi-year deals make sense in certain situations.  While many purists would fight me to the death on this, there are pros and cons to multi-year deals and circumstances where they make good sense.  I’ll explain how I think about this and the one equation I use to make the call.

5.  Bookings is not a four-letter word.  While you need to be careful where and when you use the B-word in polite SaaS company, there is a time and place to measure and discuss bookings.  I’ll explain when that is and how to define bookings the right way.

6.  Renewals and satisfaction are more loosely correlated than you might think.  If you think your customers are all delighted because they’re renewing, then think again.  Unhappy customer sometimes renew and happy ones don’t.  We’ll discuss why that happens and while renewal rates are often a reasonable proxy for customer satisfaction, why you should also measure customer satisfaction using NPS, and present a smart way to do so.

7.  You can’t analyze churn by analyzing churn.  To understand why customers churn, too many companies grab a list of all the folks who churned in the past year and start doing research and interviews.  There’s a big fallacy in this approach.  We’ll discuss the right way to think about and analyze this problem.

8.  Finding your own hunter/farmer metaphor is hard.  Boards hate double compensation and love splitting renewals from new business.  But what about upsell?  Which model is right for you?  Should you have hunters and farmers?   Hunters in a zoo?  Farmers with shotguns?  An autonomous collective?  We’ll discuss which models and metaphors work, when.

9.  You don’t have to lose money on services.  Subsidizing ARR via free or low-cost services seems a good idea and many SaaS companies do it.  But it’s hell on blended gross margins, burns cash, and can destroy your budding partner ecosystem.  We’ll discuss where and when it makes sense to lose money on services — and when it doesn’t.

10.  No matter what your board says, you don’t have to sacrifice early team members on the altar of experienced talent.  While rapidly growing a business will push people out of their comfort zones and require you to build a team that’s a mix of veterans and up-and-comers, with a bit creativity and caring you don’t have to lose the latter to gain the former.

I hope this provides you with a nice and enticing sample of what we’ll be covering — and I look forward to seeing you there.

Quota Over-assignment and Culture

Here’s a great slide from the CFO Summit at Zuora’s 2017 annual flagship Subscribed event.


Since they talk about this as under-assignment, since people aren’t great at flipping fractions in their head, and since I think of this more intuitively as over-assignment, I’m going to invert this and turn it into a pie chart.

quota over

So, here you can  see that 22% of companies have 0-11% over-assignment of quota, 44% have 11-25% over-assignment, 23% have 25-43%, 5% have 43-100% over-assignment, and 7% have more than 100% over-assignment of quota.

Since this is a pretty broad distribution — and since this has a real impact on culture, I thought examine this on two different angles:  the amount of total cushion and where that cushion lives.

The 0-11% crowd either has a very predictable business model or likes to live dangerously.  Since there’s not that much cushion to go around, it’s not that interesting to discuss who has it.  I hope these companies have adequately modeled sales turnover and its effects on quota capacity.

The 11-25% crowd strikes me as reasonable.  In my experience, most enterprise software companies run in the 20% range, so they assign 120 units of quota at the salesrep level for an operating plan that requires 100 units of sales.  Then the question is who has the cushion?  Let’s look at three companies.


In company 1, the CEO and VP of Sales are both tied to the same number (i.e., the CEO has no cushion if the VP of Sales misses) and the VP of Sales takes all of the cushion, giving the sales managers none.  In company 2, the CEO takes the entire 20% cushion for him/herself, leaving none for either the VP of Sales or the sales managers.  In company 3, the cushion is shared with the CEO and VP of Sales each taking a slice, leaving nearly half for the sales managers.

While many might be drawn to company 3, personally, I think the best answer is yet another scenario where the CEO and VP of Sales are both tied to 100, the sales managers to 110, and the aggregate salesrep quota to 120.  Unless the CEO has multiple quota-carrying direct reports, it’s hard to give the VP of Sales a higher quota than him/herself, so they should tie themselves together and share the 10% cushion from the sales managers who in turn have ~10% cushion relative to their teams.

I think this level of cushion works well if you’re building it atop a productivity model that assumes a normal degree of sales turnover (and ramp resets) and are thus using over-assignment simply to handle non-attainment, and not also sales turnover.  If you are using over-assignment to handle both, then a higher level of cushion may be needed, which is probably why 22% of companies have 25-43% over-assignment in their sales model.

The shock is the 12% that together have more than 43% over-assignment.  Let’s ponder for a minute what that might look like in an example with 60% over-assignment.


So think about this for a minute.  The VP of Sales can be at 83% of quota, the sales managers on average can be at 71% of quota, and the salesreps can be at 63% of their quota — and the CEO will still be on plan.  The only people hitting their number, making their on-target earnings (OTE), and drinking champagne at the end of the quarter are the CEO and CFO.  (And they better drink it in a closet.)

That’s why I believe cushion isn’t just a math problem.  It’s a cultural issue.  Do you want a “let them eat cake” or a “we’re all in this together” culture.  The answer to that question should help determine how much cushion you have and where it lives.

Eight Words that Can Limit Your Career: “Let Me Get Back To You On That”

As executives there are certain things we are expected to know — in our heads — about our jobs and our functions.  Sometimes I call this “the 3:00 AM test” because someone should be able to wake you up at 3:00 AM in the middle of a sound sleep and you should be able to answer questions like:

  • What’s the forecast for the current quarter? (Sales, Finance)
  • How many MQLs did we generate last week?  (Marketing)
  • How many customer bugs are outstanding?  (Engineering)
  • What’s the monthly PR retainer?  (Marketing)
  • What’s the ending cash forecast for the quarter?  (Finance)
  • How many unique visitors did we get on the website last week?  (Marketing)
  • What are the top three deals in the current quarter?  (Sales)

In another post, I playfully called these the other kind of in-memory analytics, but I was focused mostly on numbers that you should be able to recall from memory, without having to open your laptop, without having to delegate the question to your VP of Ops (e.g., salesops, marketingops), and without having to say the dreaded, cringe-worthy, and dangerous eight words:  “let me get back to you on that.”

The same logic that applies to numbers applies to other basic questions like:

  • What’s our elevator pitch against top-rival?  (Marketing)
  • What’s the structure of the sales compensation plan?  (Sales)
  • Which managers are the top 2-3 hot spots in the company?  (People)
  • What are the top three challenges in your department and what are you doing about them?  (Any)

You see, when you say the dreaded eight words here’s what everybody else in the meeting is hearing:

“I can’t answer that question because I’m not on top of the basics, and I am either not sufficiently detailed-oriented, swapped-in, or competent to know the answer.”

And, worse yet, if offered unapologetically:

“I’m not even aware that this is the kind of question that everyone would reasonably expect me to be able to answer.”

Here are three tips to help you avoid falling into the eight-words trap.

  1. Develop your sensitivity by making a note of every time you hear them, how you feel about the specific question, and how it reflected on the would-be respondent.
  2. Make a list of questions you should be able to answer on-the-spot and then be sure you can.  (If you find a gap, think about what that means about how you approach your job.)
  3. If you feel the need to say the dreaded eight words see if offering a high-confidence range of values will be enough to meet the audience’s need — e.g., “last week’s web visitors were in the 10,000 to 11,000 range, up a few percent from the week before.”

And worst case, if you need to say the dreaded eight words and you think the situation warrants one, offer an apology.  Just be mindful that you don’t find yourself apologizing too often.

Handling Conflict with the “Disagree and Commit” and “New Information” Principles

In every executive team there are going to be times when people don’t agree on certain important strategic or operational decisions.  Some examples:

  • Should we split SDRs inbound vs outbound?
  • Should we map SCs to reps or pool them?
  • How should we split upsell vs new business focus in mid-market reps?
  • Should CSMs get paid on upsell or only renewals?
  • Should we put the new buzzword (e.g., AI, ML, social) into the release plan?
  • Should we change the company logo ?

The purpose of this post is to provide a framework to get decisions made and executed, without certain decisions becoming a form of weekly nagging at the e-staff meeting, a topic of discussion at every board meeting, or worst of all, a standing joke among the team.

The Disagree-and-Commit Principle

The first time I heard disagree-and-commit I thought it was corporate, doublespeak garbage.  What the heck did it mean?  I’m supposed to go to a meeting, say that I believe we should go left, get overrun by the group who eventually decides to go right, and then I’m supposed to say “sure, everybody, just kidding, let’s go right.”  How disingenuous — everybody knows I wanted to go left.  How controlling of the establishment.  How manipulative.  This is thought control!

“You may disagree, but you must conform … (wait, was that our outside voice) …  you must commit.”

(Recall my first professional job was as at a company we referred to as The People’s Republic of Ingres.)

Let’s just say I missed the point.  My older, wiser self now thinks it’s a great, but often misunderstood, rule.  (And that’s not just because now I am the establishment.)

Here’s a nice definition of disagree-and-commit from The Amazon Way via this blog post.

Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

I always missed two things:

  • I took commit to mean change your mind (or “get your mind right” in the Cool Hand Luke sense). It actually means committing to execute the decision wholly, i.e., as if it were the one you had voted for.  You can’t undermine or sabotage the decision just to prove yourself right.  This is a great rule.  People aren’t always going to agree, but if you want to work at the company, you must execute our decisions wholeheartedly once they are made.  There is no other option.


  • The obligation to disagree.  I love this part because some people lack the courage to speak up in the meeting, and then want to passive-aggressively work against the decision and/or attempt a pocket veto by going to the person who was in charge of the meeting and saying, “well, I didn’t feel comfortable saying this in the meeting, but, ….” Such behavior creates a potential paradox for the executive in charge — particularly if she agrees with the pocket veto argument.  Does she overrule the group decision based on the new argument (and reward dysfunctional behavior) or does she stick with a decision she no longer prefers in order to avoid incenting pocket vetoes.  In my opinion, in 95% of the cases you want say, “Sorry Joe, I wish you’d said something in the meeting because that’s an interesting point, but the decision stands.” Worst case call another meeting.  Never, ever just overrule the decision.

Explicitly embracing the disagree-and-commit principle is one great way to end endless, nagging disagreements:  we met to discuss the issue, we came to a conclusion, I know you didn’t agree with it, but you need to commit to execute it wholeheartedly.  (Else we’re going to have a conversation about insubordination.)  We want a rational culture.  We debate ideas.  But we need to make and execute decisions, and you’re not going to agree with every one.

The New Information Principle

But what if the issue keeps coming up anyway?  Perhaps via periodic serious requests to reconsider the decision.  Perhaps through a series of objections coming from someone not responsible for executing the decision (so “commit” is less relevant) — but who just can’t stand the idea.  Or maybe someone has a personal ax to grind (e.g., I know we’ve talked about this before, but can we please relocate the office) and who just won’t take no for an answer.

The problem is if you always shut down these requests, then you risk creating a big problem with corporate agility.  On one hand you want to shut down the constant nagging about adding data mining capabilities from the data mining zealot. On the other hand, you don’t want to make the subject taboo because maybe your top competitor launched a new data-mining addition last month and it’s hurting you in sales.

So, the principle is simple:  if you want to re-open discussion on something we’ve already decided, do you have any new information that wasn’t available at the time we made the decision?

If the answer is no, we’re not re-opening it here, and we can do at either next quarter’s ops review or next year’s strategy offsite (pending prioritization against other topics).

If the answer is yes, find out what the new information is, and then decide if it warrants an immediate or deferred re-examination of the decision.

With this principle you can keep a firm hand against those who won’t give up on an issue while still being open to new information that might cause the need for a  valid re-examination of it.

Don’t Let Product Management Turn Into “The Roadmap Guys”

At many enterprise software companies product management (PM) ends up defaulting into a role that I can’t stand:  The Roadmap Guys*.

Like a restaurant with one item on the menu, the company defaults into ordering one thing from product management:  a roadmap pitch.

  • “The VP of PM is in Boston and Providence this week, can she visit some customers and do a few roadmap presentations?”
  • “Hey, there’s a local user group in NY this week; can PM do a roadmap pitch?”
  • “There’s a big customer in the executive briefing center today; can the PM do a roadmap?”
  • “As part of our sales cycle with prospect X, we’d love to get PM in to discuss the roadmap.”
  • “We’ve got a SAS day with Gartner next week, can PM come in a present the roadmap?”

You hear it all the time.  And I hate it.  Why?

From a sales perspective, roadmap presentations are the anti-sales pitch:  a well organized presentation of all the things your products don’t do.  Great, let’s spend lots of time talking about that.

From a competitive perspective, you’re broadcasting your plans.  If you’re presenting roadmap to every prospect who comes through the briefing center and at every local user group meeting, your competition is going to learn your roadmap, and fast.  Then they can copy it and/or blunt it.

But what irks me the most is what happens from a product management perspective:  you turn PM into “the talking guys” instead of “the listening guys.”  Given enough time, PM starts to view itself as the folks who show up and pitch roadmaps.

But that’s not their job.

PM should be the listening folks, not the talking folks.  Just like sales, PM should remember the adage:  we have two ears and one mouth; use them in proportion.

Wouldn’t the world be a better place if we changed the five previous bullets as follows?

  • “The VP of PM is in Boston and Providence this week, can she visit some customers and observe how people actually use the product?”
  • “Hey, there’s a local user group in NY this week; can PM break off a small focus group to ask customers about how they use the product?”
  • “There’s a big customer in the executive briefing center today; can PM come in and interview them about their impressions on evaluating the product?”
  • “As part of our sales cycle with prospect X, we’d love to get PM in to discuss what specifically they are trying to accomplish and how the product can do that?”
  • “We’ve got a SAS day with Gartner next week, can PM come in and hear from Gartner about what they’re seeing in the market and in their interactions with customers?”

So every time you hear the word “roadmap” in the same sentence as “product management,” stop, pause, and think of a better way to use the PM team.  Sure, there are certainly times when a roadmap presentation is in order.  But don’t default to it.  Keep your PM team listening instead of talking.

# # #

* I’m using “guys” here in a gender-neutral sense like “folks.”

Kellblog (Dave Kellogg) Featured on the Official SaaStr Podcast

Just a quick post to highlight the fact that last week I was the featured guest on Episode 142 of the Official SaaStr  podcast produced by the SaaStr organization run by Jason Lemkin and interviewed by a delightful young Englishman named Harry Stebbings (who also runs his own podcast entitled The Twenty Minute VC).

In the 31-minute episode — which Harry very nicely says was “probably one of his favorite interviews to record” — we cover a wide range of my favorite topics, including:

    • How I got introduced to SaaS, including my experience as an early customer of Salesforce in about 2003.
    • Challenges in scaling a software business, learned at BusinessObjects as we scaled from $30M to $1B in revenues, as well as at MarkLogic and Host Analytics.
    • My favorite SaaS metric.  If you had to pick one, I’d pick LTV/CAC.
    • Why simple churn is the best way to value the annuity of a SaaS business.
    • The loose coupling of customer satisfaction and renewal rates.
    • Why SaaS companies need to “chew gum and walk at the same time” when it comes to driving the mix of new and renewal business.
    • User-based vs. usage-based pricing in SaaS and how the latter can backfire in disincenting usage of the application.
    • My thoughts on bookings vs. ARR as a SaaS metric.  (Bookings is generally seen as a four-letter word!)
    • Why SaaS companies should make “the leaky bucket” the first four lines of their financial presentation.
    • Why I think it’s a win/win when a SaaS company gives a multi-year prepaid discount that’s less than its churn rate.
    • Why I view non-prepaid, multi-year deals as basically equivalent to renewals (just collected by finance/legal instead of customer success.)
    • Why it’s OK to “double compensate” sales and customer success on renewals and incidental upsells, and why it’s OK to pay sales on non-incidental upsells to existing customers (don’t put your farmer against someone else’s hunter).
    • Why you can’t analyze churn by analyzing churn and why you should have a rigorous taxonomy of churn.
    • My responses to Harry’s “quick fire” round questions.

You can listen to the podcast via iTunes, here.  Enjoy!