Category Archives: Management

Slides and Video Link for Emerging Stronger from the Downturn Webinar

Here are the slides from the Balderton Capital webinar I did today with Michael Lavner, entitled How to Emerge Stronger from the Downturn than You Went In.  For people who can’t use Slideshare, they are also available here.

Balderton has posted a video of the Zoom recording of the event, available here.

We discuss:

  • The importance of how founders/CEOs frame challenges to the organization.
  • What we mean by “stronger.”
  • Focus, how to do fewer things, better — including reading The Crux by Richard Rumelt.
  • M&A, from either the buy or sell side.
  • Reorientation of use-cases and messaging, how to adapt your point of sail to the changing winds.
  • Playing into SaaS rationalization, how to try and take an ostensibly negative trend and turn it to your advantage.
  • Upgrading your talent.

Thanks to everyone who attended.  See you next month (Feb 9th) for a same-time, same-place, same-format webinar on the Balderton Founder’s Guide to B2B Sales.  I’ll drop a link to the event in here, once available.

Emerging Stronger from the Downturn Than You Went In — A Balderton Webinar

I’m writing this post to promote an upcoming webinar entitled How To Emerge From The Downturn Stronger Than You Went In.  The webinar will be held on Tuesday, January 24th and is hosted by Balderton Capital, where I work as an EIR.  The webinar will start at 3:00 pm UK time, 10:00 am Eastern, and 7:00 am Pacific (lucky me), and will last one hour.

While Balderton invests in European (broadly defined) companies, the webinar is nevertheless open to all.  Some Balderton content necessarily takes the European angle on issues (e.g., my USA expansion mistakes series), but for this webinar the material should be 95%+ equally applicable worldwide.  So please join us if you’re interested, regardless of where you work or your fundraising plans.

I’ll be rejoined with Balderton’s Michael Lavner, who partnered with me on the Balderton Founder’s Guide to B2B Sales.  The format will be as follows:

  • I’ll do a 30-minute presentation.
  • Michael will run a 30-minute Q&A session that pulls from questions submitted by the audience (and/or that pop into his head).

I love live Q&A so there should be a lot of interaction and it should be a lot of fun.

Here’s a preview of the five ways to Emerge Stronger that we’ll be discussing at the event.

  1. Sharpen focus.  As they saying goes, “never waste a good crisis.”  Use the downturn to force yourself to answer some hard questions about your strategy.  Are we focused enough?  Do we remember our Latin teacher who taught us that focus was singular?  Are we putting all our executive energy into The Crux of our strategic challenge?  Are we “throwing bones” to board or team members?  Can we afford to?
  2. M&A.  Depending on your situation, you’re either a buyer or seller —  but, either way, companies will be trying to broaden their product lines to get more leverage from their clostly go-to-market machines.  (Think:  “we need put more things in sales’ bag.”)  Multiples are down, so it’s a good time to buy.  And if you lack the cash or strategic position to ride out the storm, it’s not necessarily a bad time to sell — especially when you compare the expected value of your equity between a potentially dirty term sheet and a solid, clean M&A offer.
  3. Play into SaaS rationalization.  To quote Jim Lovell, “there are people who make things happen, there are people who watch things happen, and there are people who wonder what happened.”  Be the the first type.  SaaS spend rationalization is going to happen, whether we like it or not.  How can you position your company to be on the right side of that trend?  How can we turn this threat into an opportunity?
  4. Re-orient your use-cases and messaging.  Can you grow faster than the competiton by tapping into the new concerns of your buyers?  How have their priorities changed?  How does that map to the various use-cases of your product?  If you’re selling conversation intelligence, should you switch campaigns from “onboard faster” to “drive increased productivity?”
  5. Upgrade talent.  The labor market was pretty brutal during the past 5 years.  How can you exploit the easier labor market to upgrade key members of your team?  How do you balance this upgrade opportunity with a dance with who brung ya ethos of employee loyalty?  How can you build a culture that lets you do both?

It should be a great event and both Michael and I look forward to seeing you there.  You can register here.

The Balderton Founder’s Guide to B2B Sales

Working in my capacity at as an EIR at Balderton Capital, I have recently written a new publication, The Balderton Founder’s Guide to B2B Sales, with the able support of Balderton Principal Michael Lavner and the entire Balderton Capital team.  This guide is effectively a new edition, and a new take, on the prior, excellent B2B Sales Playbook.

The guide, which is now published as a microsite, will soon be available in PDF format for downloading.

I’ll put the opening quote here that the editors omitted because it’s nearly unparseable:

“I have learned everything I need to know about sales.  Sales is saying ‘yes’ in response to every question.  So, now, when a customer asks if the product has a capability that it currently lacks, I say, ‘yes, the product can’t do that.'”

— Anonymous CS PhD founder who didn’t quite learn everything they needed to know about sales.

In short, this guide’s written for you, i.e., the product-oriented founder who thought they founded a technology business only to discover that SaaS companies, on average, spend twice as much on S&M as they do on R&D, and ergo are actually running a distribution business.

The guide has seven parts:

  • Selling: what founders need to know about sales
  • Building: how to build a sales organization
  • Managing: how to manage a sales organization
  • Renewing/expanding: teaming sales and customer success
  • Marketing: using marketing to build sales pipeline
  • Partnering: how to use partners to improve reach and win rate
  • Planning: planning and the role of key metrics and benchmarks

While there are numerous good SaaS benchmarking resources out there, the guide includes some benchmark figures from the Balderton universe (i.e., European, top-tier startups) and — hint, hint — we expect to release those benchmarks more fully and in a more interactive tool in the not-too-distant future.

The guide is also chock full of links which I will attempt to maintain as sources change over time.  But I’ve written it with both in-line links (often to Kellblog) and end-of-section links that generally point to third-party resources.

I’ve packed 30 years of enterprise software experience into this.  I come at sales from an analytical viewpoint which I think should be relatable for most product-oriented founders who, like me, get turned off by claims that sales has to be artisanal magic instead of industrial process.

I hope you enjoy the guide.  Feel free to leave comments here, DM me on Twitter, or reach me at the contact information in my FAQ.

How to Fix a Broken Go-To-Market Motion Using a Steady-State Funnel

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.”

# # #

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.

Key Takeaways from the 2022 KeyBanc SaaS Metrics Survey

KeyBanc Capital Markets (KBCM) recently published their 13th annual private SaaS company survey.  This post has three purposes:  to let you know it’s out, to provide you with a link so you can get it, and to offer some quick takeaways on skimming through the results.

The first thing to remember about this survey is that it’s private SaaS companies.  Unlike Meritech Public Comps, where you can see metrics for the best [1], public SaaS companies, this private company data is somewhat harder to come by (the only other source that springs to mind is RevOps Squared) and, for most of us, it provides much more realistic comparables than Meritech [2].

The second thing to remember is that there are a lot of smaller companies in the sample:  about 20% of respondents are less than $5M in ARR and about 40% are less than $10M.   (The overall median is $13MM.)  Depending on who you want to compare to, this may be a good or a bad thing.  In addition, for most of the metrics they exclude companies <$5M in ARR from the calculations, which brings up the overall median for that set to $17.6M.

Net:  this is not VC-backed SaaS companies (62% are), this is not IPO-track SaaS companies (presumably some small subset of that 62%).  This is all private SaaS companies, including 22% PE-backed and 13% boostrapped.

One of my new benchmarking themes is that people need to pay more attention to matching their benchmarks with their aspirations. If your aspirations are to raise money from top VCs at a good valuation, my guess is you should be thinking 75th precentile of this data set; if they’re to IPO, you should be thinking 90th.

That said, let’s meet the Joneses, who have median:

  • ARR growth of 31%, lower than I’d hope.
  • Forecast 2022 ARR growth of 36%, so they’re planning to accelerate.  Everyone’s an optimist.
  • Expansion ARR of 46%, higher than I’d hope.
  • Net dollar retention (NDR) of 109%.
  • Customer acquisition cost (CAC) ratio of 1.2 blended, 1.8 new, and 0.6 expansion, in line with my expectations.
  • Gross churn of 14%, in line, perhaps a tad high, relative to my guess.
  • Available to renew (ATR) gross churn of 10%, but it’s hard to understand how ATR rate can be lower than gross churn rate [3].
  • Margin profile of 77% subscription, 73% blended.  In line.
  • Sales and marketing (S&M) expense of 40% of revenues.  They’re frugal, but they’re not growing that fast, either.
  • Free cashflow (FCF) margin of -5%.
  • New ARR per seller of $673K, which I if I understand, is what I’d call sales productivity.
  • Contract length and billing frequency of one year.
  • ARR/FTE of $143K, lower than I’d guess (for public companies it’s nearly double that).
  • Valuation of 6.1x ARR at their most recent round (in 2021 or later).

Since I don’t want to lift too many of their slides, I’ll extract just two.  The first shows S&M spend as a function of growth rate.

If there’s one area where you really need to look at metrics as a function of growth rate, it’s customer acquistion cost and, by extension S&M spend, on the theory that in enterprise SaaS you need to invest up front to grow.  Therefore a high-growth company is theoretically carrying the cost of as-yet-unproductive capacity where as a steady-state one is not.  You can see this pretty clearly here where the sub-20% growth companies spend 27% on S&M, which surprisingly drops to 17% at the 30-40% bucket, but then begins a steady upward march to 59% for those growing faster than 80%.

The second discusses a concept I’ve called The Rule of 56789

Here, KeyBanc is saying roughly what I say, which is [4]:

  • 5 years to $10M (5.6 years, per KCBM)
  • 6 years to $20M (7.1 years, but to $25M)
  • 7 years to $50M (7.6 years)
  • 8 years to $75M (they have no threshold here)
  • 9 years to $100M (9.3 years)

I’m glad they’re now tracking this, along with net burn rate (aka, cash conversion score) though I’d say their implied cash conversion scores are more efficient than I’d guess based on my experience and Bessemer’s data.

Overall, this is a seminal report for SaaS companies.  Every private SaaS company should read it.  Grab yours here.

Notes

[1]  In the sense that even a “bad” public SaaS company (dare I suggest Domo or C3 as two of my favorites to scrutinize) was still good enough to get public in the first place and ergo creme de la creme when viewed more broadly.

[2]  As I said in a recent speech, it’s the difference between benchmark off all SAT test takers and Ivy League applicants.  See slide 13 of this presentation.

[3]  KBCM calls this non-renewal rate, but I think it’s 1 – ATR churn.  The reason it’s hard to believe it’s lower is that it should be the same numerator over a smaller denominator.

[4]  I was looking at European 75th percentiles and they are looking at worldwide (but US-weighted) medians