Category Archives: Marketing

The Role of Professional Services in a SaaS Business

I love to create reductionist mission statements for various departments in a company.  These are designed to be ultra-compact and potentially provocative.  My two favorite examples thus far:

I like to make them based on real-life situations, e.g., when someone running a department seems confused about the real purpose of their team.

For example, some police-oriented HR departments seem to think their mission is protect employees from management.  Think: “Freeze, you can’t send an email like that; put your hands in the air and step away from the keyboard!”

I think otherwise. If the HR team conceptualizes itself as “helping managers manage,” it will be more positively focused, help deliver better results, and be a better business partner — all while protecting employees from bad managers (after all, mistreating employees is bad management).

Over the past year, I’ve developed one of these pithy mission statements for professional services, also known as consulting, the (typically billable) experts employed by a software company who work with customers on implementations after the sale:

Professsional services exists to maximize ARR while not losing money.

Maximizing ARR surprises some people.  Why say that in the context of professional services?  Sales brings in new ARR.  Customer Success (or Customers for Life) is reponsible for the maintenance and expansion of existing ARR.  Where does professional services fit in?  Shouldn’t they exist to drive successful implementations or to achieve services revenue targets?  Yes, but that’s actually secondary to the primary mission.

The point of a SaaS business is to maxmize enterprise value and that value is a function of ARR.  If you could maximize ARR without a professional services team then you wouldn’t have one at all (and some SaaS firms don’t).  But if you’re going to have a professional services team, then they — like everybody else — should be there to maximize ARR.  How does professional services help maximize ARR?  They:

  • Help drive new ARR by supporting sales — for example, working with sales to draft a statement of work and by building confidence that the company can solve the customer’s problem.  If you remember that customers buy “holes, not bits” you’ll know that a SaaS subscription, by itself, doesn’t solve any business problem.  The importance of the consultants who do the solution mapping is paramount.
  • Help preserve/expand existing ARR by supporting the Customer Success (aka, the Customers for Life) team, either by repairing blown implementations or by doing new or expanded implementations at existing customers.  This could entail anything from a “save” to a simple expansion, but either way, professional services is there maximizing ARR.
  • Help do both by enabling the partner ecosystem.  Professional services is key to enabling partners who can both provide quality implementation services for customers and who can extend the vendor’s reach through go-to-market partnering.

Or, as our SVP of Services at Host Analytics says, “our role is to make happy customers.”

I prefer to say “maximize ARR without losing money” but we’re very much on the same page.  Let’s finish with the “not losing money” part.  In my opinion,

  • A typical on-premises software vendor drove 25% to 30% gross margins on professional services.  Those were the days one big one-shot license fees and huge multi-million dollar implementations.  In those days, customers weren’t necessarily too happy but the services team had a strong “make money” aspect to its mission.
  • A typical SaaS vendors have negative 20% to negative 10% gross margins on services (and sometimes a lot more negative than that).  That’s because some vendors subsidize their ARR with free or heavily discounted services because ARR recurs whereas services revenue does not.

I believe that professional services has real value (e.g., our team at Host Analytics is amazing) and that if you’re driving 0% to 5% gross margins with such a team that you are already supporting the ARR pool with discounted services (you could be running 25% to 30% margins).  Whether you make 0% or 10% doesn’t much matter — because it won’t to someone valuing your company — but I think it’s a mistake to shoot for the 30% margins of yore as well as a mistake to tolerate -50% margins and completely de-value your services.

The Dogshit Bar: A Memorable Market Research Concept

I can’t tell you the number of times I’ve seen market research that suffers from one key problem.  It goes something like this:

  • What do you think of PRODUCT’s user interface?
  • Do you think PRODUCT should be part of suite or a standalone module?
  • Is the value of PRODUCT best measured per-user or per-bite?
  • Is the PRODUCT’s functionality best delivered as a native application or via a browser?
  • Would you like PRODUCT priced per-user or per-consumption?
  • Rank the importance of features 1-4 in PRODUCT?

The problem is, of course, that you’ve never asked the one question that actually matters — would you buy this product — and are pre-supposing the need for the product and that someone would pay something to fulfill that need.

So try this:  substitute “Dogshit Bar” (i.e., a candy bar made of dog shit) for every instance of PRODUCT in one of your market research surveys and see what happens.  Very quickly, you’ll realize that you’re asking questions equivalent to:

  • Should the Dogshit Bar be delivered in a paper or plastic wrapper?
  • Would you prefer to buy the Dogshit Bar in a 3, 6, or 9 oz size?
  • Should the Dogshit Bar be priced by ounce or some other metric?

So before drilling into all the details that product management can obsess over, step back, and ask some fundamental questions first.

  • Does the product solve a problem faced by your organization?
  • How high a priority is that problem?  (Perhaps ranked against a list of high-level priorities for the buyer.  It’s not enough that it solves a problem, it needs to solve an important problem.)
  • What would be the economic value of solving that problem?  (That is, how much value can this product provide.)
  • Would you be willing to pay for it and, if so, how much?  (Which starts to factor in not just  value but the relative cost of alternative solutions.)

So why do people make this mistake?

I believe there’s some feeling that it’s heretical to ask the basic questions about the startup’s core product or the big company’s new strategic initiatiave that the execs dreamed up at an offsite.  While the execs can dream up new product ideas all day long, there’s one thing they can’t do:  force people to buy them.

That’s why you need to ask the most basic, fundamental questions in market research first, before proceeding on to analyzing packaging, interface, feature trade-offs, platforms, etc.  You can generate lots of data to go analyze about whether people prefer paper or plastic packaging or the 3, 6, or 9 ounce size.  But none of it will matter.  Because no one’s going to buy a Dogshit Bar.

Now, before wrapping this up, we need to be careful of the Bradley Effect in market research, an important phenomenom in live research (as opposed to anonymous polls) and one of several reasons why pollsters generally called Trump vs. Clinton incorrectly in the 2016 Presidential election.

I’ll apply the Bradley Effect to product research as follows:  while there are certain exception categories where people will say they won’t buy something that they will (e.g., pornography), in general:

  • If someone says they won’t buy something, then they won’t
  • If someone says they will buy something, then they might

Why?  Perhaps they’re trying to be nice.  Perhaps they do see some value, but just not enough.  Perhaps there is a social stigma associated with saying no.

I first learned about this phenomenom reading Ogivly on Advertising, a classic marketing text by the father of advertising David Ogilvy.  Early in his career Ogilvy got lucky and learned an important lesson.  While working for George Gallup he was assigned to do polling about a movie entitled Abe Lincoln in Illinois.  While the research determined the movie was going to be a roaring success, the film ended up a flop.  Why?  The participants lied.  After all, who wants to sound unpatriotic and tell a pollster that you won’t go see a movie about Abe Lincoln?  Here’s a picture of Ogilvy doing that research.  Always remember it.

ogilvy

The Evolution of Marketing Thanks to SaaS

I was talking with my friend Tracy Eiler, author of Aligned to Achieve, the other day and she showed me a chart that they were using at InsideView to segment customers.  The chart was a quadrant that mapped customers on two dimensions:  renewal rate and retention rate.  The idea was to use the chart to plot customers and then identify patterns (e.g., industries) so marketing could identify the best overall customers in terms of lifetime value as the mechanism for deciding marketing segmentation and targeting.

Here’s what it looked like:

saas-strategic-value

While I think it’s a great chart, what really struck me was the thinking behind it and how that thinking reflects a dramatic evolution in the role of marketing across my career.

  • Back two decades ago when marketing was measured by leads, they focused on how to cost-effectively generate leads, looking at response rates for various campaigns.
  • Back a decade ago when marketing was measured by opportunities (or pipeline), they focused on how to cost-effectively generate opportunities, looking at response and opportunity conversion rates.
  • Today, as more and more marketers are measured by marketing-sourced New ARR, they are focused on cost-effectively generating not just opportunities, but opportunities-that-close, looking all the way through the funnel to close rates.
  • Tomorrow, as more marketers will be measured on the health of the overall ARR pool, they will be focused on cost-effectively generating not just opportunities-that-close but opportunities that turn into the best long-term customers. (This quadrant helps you do just that.)

As a company makes this progression, marketing becomes increasingly strategic, evolving in mentality with each step.

  • Starting with, “what sign will attract the most people?” (Including “Free Beer Here” which has been used at more than one conference.)
  • To “what messages aimed at which targets will attract the kind of people who end up evaluating?”
  • To “who are we really looking to sell to — which people end up buying the most and the most easily – and what messages aimed at which targets will attract them?”
  • To “what are the characteristics of our most successful customers and how can we find more people like them?”

The whole pattern reminds me of the famous Hubspot story where the marketing team was a key part forcing the company to focus on either “Owner Ollie” (the owner of a <10 person business) or “Manager Mary” (a marketer at a 10 to 1000 person business).  For years they had been serving both masters poorly and by focusing on Manager Mary they were able to drive a huge increase in their numbers that enabled cost-effectively scaling the business and propelling them onto a successful IPO.

hubspot

What kind of CMO does any CEO want on their team?  That kind.  The kind worried about the whole business and looking at it holistically and analytically.

A Key Lesson Marketers Can Learn from Donald Trump

While we won’t go into my views on the election here, I will say that all marketers and solution sellers can learn one “yuge” lesson from Donald Trump:  understanding your audience and talking to them in their terms will take you a long, long way.

I’ve always said that solution selling entails getting the customer to conclude three things:

  1. They understand my problem.
  2. They can solve my problem.
  3. I want to work with them.

I put this in reverse form (i.e., calling the company “they”) as a reminder that these are not assertions — they are conclusions.  These are three conclusions that we want the customer to draw.  Asserting them is probably one of the worst ways to get customers to conclude them.  So how might we get a customer to conclude these things?

They Understand My Problem

How might we lead someone to conclude that your organization understands their problem?

  • Hire people who have had the customer’s job and walked in their footsteps.
  • Speak to the customer in their own language about the problem.
  • Active listen to the customer, playing back what they are telling you about the problem.
  • Complete their sentences, saying “and I bet you saw this problem next.”

The ultimate goal is to get the customer to think “Holy Cow, these people might understand my problem even better than I do.”

They Can Solve My Problem

They are several ways to get someone to conclude you can solve their problem

  • Talking about similar reference customers — where similar is defined in the mind of the buyer — whose problems you have solved.
  • Bringing in staff who have worked on solving those very problems.  Telling Pearson, “oh, when we were over at McGraw-Hill we worked on the XYZ system.”
  • Filling in requirements documents but beware that these are often, dare I say “rigged,” by the vendors who got in first as they attempt to set their differentiators on the agenda.
  • Performing a prototype or proof of concept (POC) that shows how key requirements are met using your solution.

I Want To Work With Them

How do you get someone to conclude you they want to work with you?

  • Execute the basics:  show up on time, be prepared, do your homework, communicate status.  (I’m stunned how many people screw up these things and still expect to win.)
  • Be reliable.  Say what you’ll do and do what you say.  Customers want to know they can count on you.  Don’t surprise them.
  • Be personal, build relationships, get to know people, and make them understand you want their business and care about their success.

Back To Trump

Now I have always believed that the first of these tests was the most important:  getting someone to believe you understand their problem.  But Trump has taken my belief in this to a whole new level.

By driving hard on two fronts:

  • A huge dose of “I understand your problem” — with his speeches aimed at a segment of the public who feels unacknowledged and misunderstood, he energizes crowds largely by simply active listening their problems back to them.
  • With a small dose of “I want to work with him” — the whole political outsider, straight-talking guy image.

He has been able to “get the order” from a large number of Americans without providing much detail at all about the second — and one would think rationally very important — point:  the “I can solve your problems” point.  Put differently, I’d say he put nearly 100% of his eggs in the “I understand your problem” basket and virtually none in the “I can solve it” basket (i.e., a huge amount of what and a stunning lack of how when it comes to policy).

This is all more proof that by simply demonstrating that you understand the customer’s problem and by being someone the customer wants to work with, that you can get the order without actually convincing them that you can solve the problem.

In most corporate sales cycles people incorrectly assume all the importance is on the second point — can they solve the problem?  In reality, salespeople and marketers should put emphasis on all three points and on leading the customer to conclude, in this order, that:

  • They understand my problem
  • I want to work with them
  • They can solve my problem

[Reposted and slightly revised post election.]

Aligned to Achieve: A B2B Marketing Classic

Tracy Eiler and Andrea Austin’s Aligned to Achieve came out today and it’s a great book on an important and all too often overlooked topic:  how to align sales and marketing.

I’m adding it to my modern SaaS executive must-read book list, which is now:

So, what do I like about Aligned to Achieve?

The book puts a dead moose issue squarely on the table:  sales and marketing are not aligned in too many organizations.  The book does a great job of showing some examples of what misalignment looks like.  My favorites were the one where the sales VP wouldn’t shake the new CMO’s hand (“you’ll be gone soon, no need to get to know you”) and the one where sales waived off marketing from touching any opportunities once they got in the pipeline.  Ouch.  #TrustFail.

Aligned to Achieve makes great statements like this one:  “We believe that pipeline is absolutely the most important metric for sales and marketing alignment, and that’s a major cultural shift for most companies.”  Boom, nothing more to say about that.

The book includes fun charts like the one below.  I’ve always loved tension-surveys where you ask two sides for a view on the same issue and show the gap – and this gap’s a doozy.

sm gap

Aligned to Achieve includes the word “transparency” twenty times.  Transparency is required in the culture, in collaboration, in definitions, in planning, in the reasons for plans, in process and metrics, in data, in assessing results, in engaging customers, and in objectives and performance against them.  Communication is the lubricant in the sales/marketing relationship and transparency the key ingredient.

The book includes a nice chapter on the leadership traits required to work in the aligned environment:  collaborative, transparent, analytical, tech savvy, customer focused, and inspirational.  Having been a CMO fifteen years ago, I’d say that transparent, analytical, and tech savvy and now more important than ever before.

Aligned to Achieve includes a derivative of my favorite mantra (marketing exists to make sales easier) in the form of:

Sales can’t do it alone and marketing exists to make sales easier

The back half of that mantra (which I borrowed from CTP co-founder Chris Greendale) served me well in my combined 12 years as a CMO.  I love the insertion of the front half, which is now more true than ever:  sales has never been more codependent with marketing.

The book includes a fun, practical suggestion to have a bi-monthly “smarketing” meeting which brings sales and marketing together to discuss:

  • The rolling six-week marketing campaign calendar
  • Detailed review of the most recently completed campaigns
  • Update on immediately pending campaigns
  • Bigger picture items (e.g., upcoming events that impact sales and/or marketing)
  • Open discussion and brainstorming to cover challenges and process hiccups

Such meetings are a great idea.

Back in the day when Tracy and I worked together at Business Objects, I always loved Tracy’s habit of “crashing” meetings.  She was so committed to sales and marketing alignment – even back then – that if sales were having an important meeting, invited or not, she’d just show up.  (It always reminded me of the Woody Allen quote, 80% of success is showing up.)  In her aligned organization today, the CEO makes sure she doesn’t have to do that, but by hook or by crook the sales/marketing discussion must happen.

Aligned to Achieve has a nice discussion of the good old sales velocity model which, like my Four Levers of SaaS, is a good way to think about and simplify a business and the levers that drive it.

Unsurprisingly, for a book co-authored by the CMO of a company that sells market data and insights, Aligned to Achieve includes a healthy chapter on the importance of data, including a marketing-adapted version of the DIKW pyramid featuring data, insights, and connections as the three layers.  The nice part is that the chapter remains objective and factual – it doesn’t devolve into an infomercial by any means.

The book moves on to discuss the CIO’s role in a sales/marketing-aligned organization and provides a chapter reviewing the results of a survey of 1000 sales and marketing professionals on alignment, uncovering common sources of misalignment and some of the practices used by sales/marketing alignment leaders.

Aligned to Achieve ends with a series of 7 alignment-related predictions which I won’t scoop here.  I will say that #4 (“academia catches up”) and #6 (“account-based everything is a top priority”) are my two favorites.

Congratulations to my long-time friend and colleague Tracy Eiler on co-authoring the book and to her colleague Andrea Austin.

The Era of Consumer Deception:  Why Do We Tolerate Such Price Opacity?

I was wondering the other day why Southwest would spend millions of dollars to remind people that Bags Fly Free.  I’d argue there are two reasons:

  • It generally supports their friendly and transparent, low fees brand strategy
  • It reminds customers that a $500 fare on United might actually cost you more than a $550 on Southwest if you’ve got a few bags

Price have become so opaque over the past few decades that not only are consumers routinely surprised when they receive a bill, but companies now feel compelled to spend millions to remind them that quoted prices are often apples/oranges comparisons.

It’s not hard to find examples of price opacity:

  • Mortgages with variable rate structures people don’t understand and which exposes them to massive increase in payments (i.e., the 2008 crisis).
  • Bank accounts that have no monthly fee, but are laden with subtle and not-inexpensive fees that seem to silently sneak back in as terms are quietly changed.
  • Numerous airline refundability tiers, change fee policies, per-seat premium economy seat fees, and baggage fees that make true price comparison next to impossible.
  • Rental car policies like Hertz’s usurious $10/gallon refueling fee or the maze of overpriced and often unneeded insurance options that can double the price of a rental
  • Teaser rates for many services, including cellular and Internet, that bear no resemblance to the actual monthly fees

Most, but not all, of the time I manage to sidestep these problems because I’m sophisticated and can figure them out (when I take the time), because I carry balances that preclude most of the sneaky banking fees, and because I fly a lot and get exempt from some of the change fees and seat fees.

But just the other day, while I was in the midst of congratulating myself for avoiding the Hertz $10/gallon refueling fee, I looked on the receipt and saw a per-mile fee that nearly doubled the cost of my rental — when was the last time a rental car didn’t have unlimited miles?

It’s a cat-and-mouse game and companies keep getting better at playing it.

Now you could argue that this opacity is a company’s way of fighting back against price competition, and particularly the price transparency and comparability that the Internet brought.  In an era of price comparison engines that scour the Internet for the best deal, why not sneak in some fees that give you an edge?

You can argue, as people often do when it comes to the airlines, that we’ve done it to ourselves – our consumer behavior has trained the companies towards these strategies.  And that may be true, but we need to accept that these strategies are often fundamentally dishonest.

I realized this as my kids got older and I had to explain how rental cars work (which I still don’t know that well apparently), how airfares work (self-insure against cancellation by throwing out a ticket every now and then as opposed to getting gouged on refundable fares – or just fly SouthWest), how credit cards work (that’s a long one), how mortgages work, and on and on.

It’s what in Texas they call a boiled frog problem. It’s happened so slowly and incrementally that we’ve just gotten accustomed to it and the people most hurt by the practices tend to be at the bottom of the socioeconomic ladder (e.g., payday loans) and have the least voice.

And this society of deception already extends well beyond consumer pricing.  Contests and prizes are another huge area, like fake $1M TV show prizes (e.g., America’s Got Talent) that are actually a 40-year annuity worth more like $300K, fake unwinnable TV contests like American Ninja Warrior (which has only been completed twice) which are made harder every year so nobody wins the fake 40-year $1M annuity, or even state lotteries (which started the annuity deception) which typically pay out over 20 years, slashing prize values by about half.

But where we’ve ended up is not acceptable.  Ironically, after the Internet brought a brief wave of price transparency, we have ended with potentially more opacity than we had before as fees and terms and packaging get ever more complex.  We’re eroding consumer trust by living in an era of manufactured confusion and price deception.

You may not think this is a big deal, but I’d argue it’s like Malcom Gladwell’s broken window theory.  If we tolerate constant small deceptions in our lives, we open the doors to the big ones.

How I Got One Marketing VP Job: A Quick Lesson

I think great learning can come from studying what cost your predecessor his/her job (on the assumption they weren’t promoted out of it onto greener pastures).  While such matters are invariably complex (“oh, there were a lot of factors, boss relationship, objectives attainment, sales confidence, …”), if you poke around hard enough you can almost always find a high-level, simple explanation of what went wrong (“in the end, it all came down to this.”)

Studying those simple explanations can teach you a lot.

How I Got One Product Marketing Job

I remember my first day at the company.  It was two weeks before my official start date, but I was invited to attend the quarterly business review, so I did.  The team was great.  The company was doing well.  The vibe was positive.

Then the marketing guy stood up to deliver his quarterly update.  The crowd turned aggressive.  They hit the presenter with rapid-fire questions.  He appeared off-balance, under-attack, and at times a bit deer-in-the-headlights.  It wasn’t pretty to watch.

I remember thinking that no matter what happens here, I don’t want to be that guy.  I never want to be in that situation.  I never want to be attacked by sales, put on the defensive, and bobbing and weaving for answers.  I want to be data-driven, confident, and educational.  I want to inform sales of our plans, up-front, get their buy-in on the program, go execute it, and then clearly share past results and future objectives.  Sales considers itself the most accountable corporate function.  If I show accountability before them, they will respect me.

After the corporate lynching ended, I figured this dynamic was what caused his downfall.  But when I went asking around, it wasn’t.  The performance may well have been a symptom of the problem, but it turned out the last straw was simple.

We launched version 6 of the product and a month later all we still had was version 5 data sheets.

Boom.  Basic execution.  That’s what will get you knocked out.  While you may be so busy doing 1000 things — and most marketers are — it’s not the bad article or the average presentation or the blown objective that will get you killed.

It’s the basics:  if the company launches version 6 of the product and a month later marketing is still only providing version 5 content, there’s a problem.  It’s black and white, de facto, proof that something is wrong.  It’s like handing sales a loaded gun and daring them to fire.

The moral:  prioritize your work.  Use a Maslow pyramid or concentric circles to understand what is core, what is next layer, and what’s after that.  And never miss on core.