When asked, “how is it going?” many companies will respond with something akin to, “things are looking strong, the pipeline is up to $50M.”
Not a bad statement, but certainly an imprecise one. “Over what timeframe?” you might ask. To which you’ll typically hear one of two answers
“Uh, that’s the whole thing.” I don’t love this answer as many companies –particularly the ones who answer with all-quarter pipeline — let junk opportunities get parked in the 5Q+ pipeline. (You can fix this by including a timeframe as part of the definition of opportunity and ensuring you review the entire pipeline whenever you do a pipeline scrub.)
“That’s the rolling four-quarter (R4Q) pipeline.” I don’t love this answer either because, in my experience, companies who focus on R4Q pipeline as their top pipeline metric tend not to put enough emphasis on pipeline timing. It’s too easy to say in January, “this year’s number is $20M and we’ve got $50M in the pipeline already (2.5x pipeline coverage) so we are golden.” The problem, of course, is if 80% of that pipeline is backloaded into Q4, then while “the year may look great,” you’re going to need to survive three wasteland quarters to get there. Even if that $40M Q4 pipeline were real, which it usually isn’t, most sales VPs won’t be around in October to close it.
I never look at rolling-four-quarter pipeline for the simple reason that I’ve never had a rolling-four-quarter sales target. We have quarterly targets. Instead of looking at R4Q pipeline and hoping it’s well distributed (over time and across sellers), my philosophy is the opposite:
Once you accept this viewpoint, a few things happen:
Someone needs to start forecasting day-1 next-quarter pipeline coverage. What’s the point of focusing on next-quarter coverage if no one is tracking it and taking corrective actions as needed? As mentioned, I think that person should be the CMO.
We need to start tracking the progression of the pipeline over time. This quarter’s starting pipeline is largely composed of last-quarter’s next-quarter pipeline and so on. Since there are so many ebbs and flows in the pipeline the best way to track this is via periodic snapshots.
Towards that end, here’s a chart I find useful:
Let’s examine it.
Each row is a snapshot of the pipeline, broken down by quarter, taken on the first day of the quarter. (Some allow a week or two, for pipeline cleanup before snapshotting, which is fine.)
We’re tracking pipeline dollars, not opportunity count, which generally works better if you have a range of deal sizes and/or a multi-modal distribution of average sales prices. Doing so, however, can leave you overconfident if you create new opportunities with a high placeholder value. (See this post for what to do about that.)
We show pipeline coverage in the block on the right. Most people want this-quarter coverage of around 3.0. Targets for next-quarter and N+2 quarter are usually less well understood because many people don’t track them. Coverage needed in the out quarters is a function of your sales cycle length, but the easiest thing is to just start tracking it so you get a sense for what out-quarter coverage normally is. If you’re worried about that 1.6x next-quarter coverage shown on the 7/1 snapshot, read this post for ideas on how to generate pipeline in a hurry.
It’s good to carry at least one year’s prior snapshots so you can see historical progression. Even more is better.
I’m assuming bigger deals and longer sales cycles (e.g., 6 to 12 months) so you will actually have material pipeline in the out-quarters. For a velocity model with 25-day sales cycles, I’d take this template but just switch the whole things to months.
The most fun part of this chart is this you read it diagonally. The $7M in starting this-quarter pipeline at the 7/1/21 snapshot is largely composed of the $6.5M in next-quarter pipeline at the 4/1/21 snapshot and the $3M in pipeline at the 1/1/21 snapshot. You can kind of see the elephant go through the snake.
When you add this chart to your mix, you’re giving yourself an early warning system for pipeline shortages beyond simply forecasting starting next-quarter pipeline. You should do this, particularly with big deals and long sales cycles, because one quarter’s notice is usually not enough time to fix the problem. Yes, you can and should always try to mitigate problems (and never give-up saying, “looks like we’re going to hit the iceberg”), but if you give yourself more advance notice, you’ll give yourself more options and a better chance at reaching the goal: starting every quarter with 3.0x coverage.
“Advertising is legitimized lying,” said the English writer HG Wells. Pop marketing guru Seth Godin wrote a book entitled, All Marketers Are Liars (but cleverly redacted the title). Google suggestions reveal that people have plenty of questions about the authenticity of marketing:
Let’s just say that in the minds of many people marketing seems to have an uncomfortable relationship with the truth. In this post we’ll explore that relationship via a number of stories I have seen and experienced over the course of my career.
Telling the Truth in the Most Positive Possible Manner
One of the first press releases I reviewed when I took over product marketing at Business Objects (long, long ago) bore this title:
Business Objects Ranked #97 on the Software 100
Was that true? Yes, we were number 97 on this; we just squeaked in there. Phew. But were there alternative also-true ways to say the same thing? Indeed, yes:
Business Objects Named to the Software 100 Ranking
Both statements are true. Marketing should be about telling the truth in the most positive possible manner. But does it have to be the truth? Yes. That was a constraint in my mind for three reasons:
Moral. I don’t want to lie. I don’t want my craft to be about lying.
Effectiveness. I want my marketing to be effective. That means it must be credible. If you believe that customers always figure it out in the end, then lying is not only immoral, but ineffective.
Legal. There are numerous laws in play here and companies get sued for breaking them. While I’m no lawyer, I do believe that a good marketer should not expose their company to needless legal risk, especially when doing what’s both otherwise immoral and ineffective marketing — a potential triple crown of shame.
Unlike this TechTarget article, I don’t think “spin” is intentionally misleading. It is, however, intentionally positive both in expression and point of view.
Truth in Advertising
Say you walked into a store and someone promised you this:
Whopper as Advertised
So you ordered one, and then they gave you this:
Whopper as Delivered
You’d likely be a bit disappointed, as was Walter Coleman who bought a Whopper (excuse the double entendre) in the state of New York and who, according to the class-action complaint, “expected the burgers that he purchased to be similar in size to the pictures of the burgers in Burger King’s advertisements and on Burger King’s store menu ordering board.”
This is a class action against Burger King for unfair and deceptive trade practices concerning the sale of certain falsely advertised menu items. Burger King advertises its burgers as large burgers compared to competitors and containing oversized meat patties and ingredients that overflow over the bun to make it appear that the burgers are approximately 35% larger in size, and contain more than double the meat, than the actual burger.
The legal system will decide how Burger King fares against these claims. At a high level, I believe you can make one of two arguments:
The marketing is deceptive, portraying a burger that is larger, fresher, and presumably tastier than the one delivered.
The second point argues that the pictures are effectively visual puffery, i.e., marketing claims that are harmless exaggerations that no reasonable person would believe (e.g., our detergent makes towels whiter than white).
The Lanham Act
While there have been some changes since my first encounters with it, the law that immediately springs to my mind is the Lanham Act, because that was the law usually referenced when I was on the receiving end of complaints.
Enacted in 1946, the Lanham Act addresses both trademarks (which we’ll largely skip today) and competitive practices, the latter including false advertising, which includes:
Advertising as well as other forms of promotion such as brochures, flyers, and presentations — and even, if widely disseminated, oral statements. (So be careful what you train your sellers to say.)
False or misleading claims about your products (e.g., our snake oil cures baldness).
False or misleading comparative claims whether explicit (e.g., we have feature X and competitor Y doesn’t) or implicit (e.g., only we have feature X).
To prevail on a false-advertising claim under the Lanham Act, a plaintiff must satisfy the following elements: (1) a false or misleading statement of fact; that is (2) used in a commercial advertisement or promotion; that (3) deceives or is likely to deceive in a material way; (4) in interstate commerce; and (5) has caused or is likely to cause competitive or commercial injury to the plaintiff.
Thus, defending a claim made under the Lanham act usually takes the form of:
Truth. The claim is true, regardless of whether it’s negative about or injury-causing to the other party.
Puffery, which is not likely to cause deceit because, by definition, no reasonable person would believe the claim (e.g., “the world’s best cup of coffee,” Buddy the Elf notwithstanding).
Opinion. Testimonials are unlikely to cause deceit as the audience should realize that when the endorser says, “it’s the best coffee I’ve ever tasted,” that this is a statement of opinion, not fact.
Precision. I didn’t see this in the legal articles I found, but I know there is a difference between saying, “our widget reduces energy consumption by 80%” and “our widget reduces energy consumption by up to 80%.” I believe such precision (aka, weasel wording) can help you defend a claim provided the claim, in its context, isn’t otherwise proved misleading, even if precisely true.
Product Marketing Claims
The beauty of solutions-oriented marketing is that you generally get to steer free of legal problems. As long as you describe a problem faced by a buyer (e.g., forecast accuracy) and how your product helps the buyer solve that problem (e.g., AI/ML-based forecasting), you should generally be safe. As long as your product actually does help solve that problem.
Product marketing gets a bit more tricky for a few reasons:
The veracity of feature/benefit claims. Does your distributed architecture really deliver improved scalability? Or do other implementation bottlenecks limit scaling well before architecture becomes the limiting factor?
The veracity of speeds-and-feeds claims. Precision, ranges, and limits are your friends here. Reduce energy consumption by up to 80%. Cut typical processing time, by 20 to 40%.
The desire for differentiating claims. Sales wants silver bullet features: only we have feature X or Y. Reality is seldom that black and white. Don’t fall victim to pressure to position something as unique when it isn’t.
Aside: Setting the Agenda
Tech marketers sometimes get confused and think that a customer evaluation framework (e.g., a multi-column spreadsheet with features in the rows, a weight column to weight the importance of each feature, and a score column per vendor to rate each offering) is fixed — and thus their job is to maximize their product’s scores relative to the competition.
That view is myopic. The most powerful technical marketing influences the framework itself by selling which features should qualify as rows. Sometimes called “defining the playing field” — or if you’re changing an already-established evaluation framework, “moving the goal post” — these are both forms of what I call, “setting the agenda.” That is, convincing people that your most powerful, differentiated features are the ones that matter most, and if you’re successful, then the matrix takes care of the rest.
To pick a real, but ancient, example. Back before databases could execute procedural code, they could only evaluate SQL statements to select, update, insert, or delete rows in tables. More than 30 years ago, Sybase changed all that by introducing stored procedures that included SQL statements, variables, and conditional logic. The benefits of stored procedures were speed thanks to compilation (as opposed to repeatedly re-interpreting the same statements) and reduced network traffic (due to less client/server communication).
But instead of either patenting the invention or trademarking the name, they decided to set the agenda. Give the feature a common name (i.e., not a trademarked name like Intelliprocs), make sure the market knew they invented the feature (through PR/AR and product marketing), and explain to buyers why they should shop for that feature (i.e., why that feature deserved a row in their evaluation spreadsheets). When you do product marketing in this way, you’re not making Harvey Balls that competitors will sue you over and that customers won’t believe anyway. Instead, you’re fighting to get your truly differentiated features rows in the spreadsheet and then, well, the rest takes care of itself.
Over time, of course, competitors counter these features and you need to make new ones. But over time analysts will remember who’s innovating in the market, and in which direction (so ensure you have a bigger strategic narrative) and they’ll know who’s copying. For more on how to stay ahead of this process, see my post entitled, The Market Leader Play.
Back to our subject, this approach keeps you out of messy and sometimes litigation-prone business of making specific comparative claims about features and benefits. But sometimes, you have to do just that.
My first job in marketing was competitive analyst. There is a time and a place for specific competitive claims and we’ll cover that now.
There are two types of situations in competitive:
Choir preaching. You’ve already won the deal in the mind of the buyer and they are looking for reassurance and/or to help sell the decision, typically against light resistance, internally. If you oversell here you can risk losing the deal so you want simple, high-level messages and tools that confirm the buyer is making the right, safe, and logical choice.
Mind changing. You’ve lost the deal and you need to fight your way back in. You need hard-hitting messages and tools to say, “you’re about to make a serious mistake and I’m trying to help you prevent that.” While this is inherently a Hail Mary pass, you need to be careful you don’t do anything so crazy that you preclude your fallback plan of, “Only sign a one-year deal with BadCo and then you can re-evaluate and pick us. Let’s stay friends. You’ll see.”
There are three types of messages in competitive:
Positioning. High-level messages that physically or metaphorically lay out a map of the market and position vendors on it. For example, they’re a last-generation solution with an old architecture. Or, they’re a point-solution for 1/3rd of stated problem. Or, they’re an SMB solution trying to come up-market (and you have an enterprise-class problem). Positioning is imprecise and non-scientific, but powerful. It is great for choir-preaching and can be effective for mind-changing if it’s good. Legally, it tends to be safe because the claims are high-level and imprecise. My favorite technique here is what I call a 3+1 repositioning.
Product differentiation. Detailed messages that map customer problems to features and compare the effectiveness of your vs. your competitor’s features to solve the problem. These are hard to do and they have to be 100% correct from both a marketing and legal viewpoint. Remember, in enterprise sales there are typically champions for each finalist vendor and they will fight this out. It works best when the “feature” is high-level (e.g., an AI engine, an entire product) and the differentiation is black/white vs. gray. Otherwise, it’s quicksand.
Character assassination (i.e., vendor viability attacks). These are common in enterprise software — particularly when there is size/funding disparity among the vendors — and while these fear-based attacks can leave a bad taste in the buyer’s mouth, they nevertheless often work. Also known as selling FUD, these attacks take the form of, “I hear they’re running out of cash.” There is nothing more pathetic than watching a seller who’s spent their entire career at large, market-leading companies go deer in the headlights when first hit with one of these attacks at a startup (think: “We are? I knew it!”) A skilled CFO is the best person to answer these questions and smart sellers nonchalantly offer to setup a call with the CFO to address any concerns. To my chagrin, I’ve never found a lawyer who finds such tactics actionable, so I’ve come to accept them as a sales problem, not a legal problem — even if in the back of my head, I sometimes still wonder.
Does All This Matter? A Closing Story
The net of all this is pretty simple. Understand the law as part of your professional responsibility as a marketer. Then:
Talk about solutions first
And when you make claims, be precise and careful that they’re true
In a world where it’s pretty clear that many marketers don’t do this, once in a while you start to wonder if it’s all worth it. Why not be sloppy and fail to make precise leadership, uniqueness, and differentiation claims? Even the faithful sometimes do wonder.
Then one day, you do an investor meeting at a public company. The investor works at a large fund that has a $60M position in your employer. They show up with your last three press releases, highlighted. They walk through each release, in order, challenging you on every highlighted phrase. You have conversations that sound like this:
Investor: It says here that you’re the leading query, reporting, and analysis tool. That’s not true. Cognos is bigger.
You: No, it doesn’t. It says we’re the leading integrated query, reporting, and analysis tool. Cognos isn’t integrated. PowerPlay and Impromptu are separate products.
And then, for me at least. It was all worth it. Maybe a lot of people fail to notice when you’re rigorous and truthful in your marketing claims. But some important ones do.
# # #
Disclaimer: I am not now nor have I ever been a lawyer. This post is not legal advice. See FAQ for additional terms, conditions, and disclaimers.
The risks of math and MBA types becoming over-reliant on numbers / models, and how to manage them. Remember the George Box quote: “all models are wrong, some are useful,” which I discussed in my SaaStr 2021 presentation.
Mitigating this problem by “just talking” and doing periodic win-touch analysis to keep you connected to reality.
The attribution problem and my new favorite mug. How to present attribution data to avoid problems and over-reactions (hint: put disclaimers up front).
In the land of disruption, there’s always something dying and something lining up to replace it, so we’re pretty used to hearing things like “on-premise is dead, long live SaaS.” Sometimes, they’re right. Despite the 2008-era views of our resident luddite below, SaaS really did kill on-premises.
Sometimes they’re wrong. Despite years of hearing, “the data warehouse is dead, long live the data lake,” the data warehouse is doing just fine, thanks. Snowflake can tell you 60 billion reasons why.
Sometimes, they’re both right and wrong. Data lakes are doing pretty well, too. Not everything is zero sum.
You don’t hear this just about technologies, but business models, too.
When the Internet eliminated sellers’ monopoly power over information, I heard, “traditional B2B sales is dead, long live facilitating buying processes.” This was right and wrong. B2B sales wasn’t dead, it just changed. When buyers can get more information themselves and advance further without needing sellers, reframing sales as facilitating buying is a good idea.
I think of PLG as embracing the continuation of a trend already started by the Internet. In phase one, buyers no longer needed sellers to get basic product information. (It’s almost hard to believe, but back in the day, if you wanted even a white paper let alone a demo, you had to talk to a seller.) In phase two, buyers no longer needed sellers to get hands-on product trial. It’s the same transformation, just applied to the next two phases down the funnel.
While some companies consider trials customers (and ergo need to count them in churn), I think most enterprise startups should consider trials leads, and the ones who do the right things with the product become leads worthy of passing to sales. Because they’re qualified by product usage and not marketing actions, they’re called PQLs instead of MQLs. (Ask my friends at Correlated, or any of the new PLG CRMs, to learn more.)
The other day an old friend of mine, now a highfalutin GM at a big-name software company, forwarded me this article, Traditional B2B Sales and Marketing are Becoming Obsolete. So, anticipating the content, I donned my “it’s PLG and enterprise, not PLG or enterprise,” gloves and got ready to fight.
But I was surprised. Instead of saying, “B2B sales is dead, long live PLG,” the article threw me a curveball:
“B2B sales is dead, long live the unified commercial engine (UCE).”
Huh. The what?
Who wrote this, I think? Ah, it’s some guy from Gartner. Before I can add, “and they should stick to IT prognostication,” I see that “some guy” is Brent Adamson, coauthor of The Challenger Sale, one of my top five favorite sales books.
The Article: Summary and Analysis
The article argues that it’s no longer enough to try and integrate (in the sense of align) sales and marketing, we should instead unify them. That’s because buyers have more access to information (including hands-on trials), buyers have access to that information via multiple channels (e.g., vendor websites, review sites), and buyers don’t want to interact with salespeople (which is not exactly new, though he argues that younger people want to interact with sellers even less than older ones).
Sales is thus fighting for relevancy in the buying process and seeking to regain customer access. The linear model is dead, long live the unified model. In short:
Helping today’s B2B buyers buy isn’t a sales challenge, nearly so much as an information challenge (or, alternatively, an information opportunity).
He begins with motherhood and apple pie:
The companies that best provide customers the information they most urgently seek, specifically through the channels they most clearly prefer, are in a far better position to drive commercial success in today’s rapidly evolving digital commercial landscape.
While once a relatively accurate proxy for the underlying buying behavior it was meant to approximate, the serial commercial engine is hopelessly out of date — and dangerously out of sync — with how today’s B2B buyers buy.
With a requisite Gartner dash of profundity:
Today’s buyers are not only channel agnostic in terms of behavior, they’re digitally dominant in terms of preference.
I think that means people like to research shit online before buying it. Got it. Stipulated.
I always say that any good sales pitch is 80% tee-up and 20% knockdown. Now, on the receiving end of such a pitch, I need to advise some caution in that approach. At some point people want to hear your solution; I’m on page 6 of what’s barely 8 pages and still waiting. It’s always easier to agree on the problem than the solution (e.g., child poverty, wealth inequality, climate change). It’s why the 80/20 formula works — you get people agreeing with you, sounding smart, heads nodding, and then you shift to a credible solution that drives your agenda.
But you can’t wait too long to shift to the solution (so I should probably revise my rule to 60/40). And you should introduce the solution from first principles, not via a case study (which you can always present later, as proof). And if you’re going to introduce the solution via a case study anyway, it shouldn’t be a 1300-person company based in Calgary that I’ve never heard of.
Yet, here I am, about to learn how SMART Technologies found the answer to this pervasive problem by “rebuilding it from the ground up.” But first, I need to learn about SMART Technologies. I am now at page 6.75 of an 8.25 page article and still not heard the solution.
The answer: completely dismantle traditional sales, marketing, success, and service altogether and reconfigure them into a unified commercial engine (UCE).
I’m now thinking:
Can you partially dismantle something?
Can you completely dismantle something without it being altogether?
Where did success and service sneak into things? While I’d certainly, almost definitionally, want to put all customer-facing teams into a unified engine, how is it that success and service are totally omitted from the argument’s tee-up?
You create a UCE by:
Careful mapping of customers’ buying journeys across a range of predictable “jobs to be done” as part of a typical educational technology purchase.
Never one to miss a gratuitous Clayton Christensen reference, I have to observe that while I am big believer in his work and the jobs-to-be-done framework, I think this is something of a misapplication. Christensen’s point was about innovation — if you think of products as hired instead of bought, and hired to do specific jobs, then you will anchor yourself in the customer’s point of view when contemplating new products and features. Think: not how can we make this milkshake tastier, but how can we make this milkshake more effective when it’s hired as a one-handed commuter breakfast. What we’re talking about at SMART is simply mapping customer journeys.
When you do that careful mapping, this happens (or, at least, this is what happened at SMART):
Through that initiative the team identified five common buying jobs (Learn, Buy, Order/Install, Adopt, Support) and established an internal team specifically deployed to support each one, reassigning nearly every member of legacy marketing, sales, service, and success staff as a result. In all, over 250 team members received new job designations as part of the process.
You can’t do a re-org these days without creating a center of excellence, so SMART created three:
SMART created three centers of excellence, where they consolidated otherwise duplicative efforts across traditional functional boundaries, one for data and analytics, and one for customer insights and positioning, and one for creative and digital experience.
Those, by the way, sound like a good idea. I like centralized, specialized support teams, particularly in areas where we’re trying to present one face to the customer.
And then, the re-organization:
Finally, the team then deployed their staff in geographically aligned “pods,” where each pod contains members supporting each of the respective five buying jobs. So, the pod for the southeast United States, for example, is made up of combination of individuals tasked with supporting the entire range of customer jobs from Learn to Support across all relevant digital and in-person channels (including third-party distribution).
In short, run your regions in the USA more like you run countries in Europe.
It’s neither a bad idea nor some insanely different approach. It does create the need, however, for sophisticated regional leaders who are capable of aligning on both dimensions of the matrix. Concretely: is the French country marketing manager part of the French team or the marketing team? Answer: it’s a trick question. The answer is both and they need to learn which way to look, when, as they face managerial decisions — e.g., look to the CMO for questions on messaging and positioning, look to the French country manager when prioritizing campaigns and investments.
I’m going to ignore the end of the article where the VPs of sales and marketing proudly introduce themselves “the former heads” of their respective departments, because they both seem to still work at the company and do something, though the article doesn’t say what their new titles and jobs are. I’ll assume, hype and semantics aside, that they’ve implemented some sort of functional vs. pod matrix. As one does with countries in Europe.
Before wrapping up, let me challenge some of the more detailed points in the tee-up.
Yes, the machine is by default linear. But that’s just the first pass.
Contacts that don’t make it MQL or SQL get put into nurture and nurture is not linear. Nurture is a popcorn machine where we dump kernels in, expose them to heat, and over time and in a pretty random order, the kernels pop into recycled MQLs. I’ve run companies where half of all MQLs are recycled.
There’s the question of whether we should nurture people or accounts, as we would in account-based marketing. Nurturing accounts is definitely not linear, it’s like having one popcorn machine per account.
There is no 11th Commandment where God said that nurture shalt be digital only. While a lot of nurture is automated digital, marketers should remember that a nurture track, broadly defined, can also involve live events (e.g., C-level dinners), dimensional marketing (e.g., mailing a coffee-table book or a Moleskine), and live interactions (e.g., SDR or AE outreach). Nurture doesn’t definitionally mean a sequence of emails, nor should it.
The part of the linear handoff I detest is when sales “waives off” marketing once an opportunity is in play. This happens less frequently than it used to, but it reveals a deep lack of trust that should be fixed by destroying walls, not erecting them.
I’ll conclude by saying I think the article misses the most important point in organizational design. When it comes down the game on the field, who calls the plays and the audibles? Sure, we have a playbook, and we all know the play we’re supposed to be running. But things have changed. There’s a new participant in the meeting. They mentioned a new competitor who we didn’t know was in the deal.
With a group of talented people, they’ll usually be several different and vocal opinions expressed on how to proceed. The AE may want to reschedule the meeting. The SC wants to proceed with the demo. The consultant thinks we shouldn’t be in the deal in the first place. The sales manager thinks we can win it because the champion has our back. What do we do? Who calls the plays and the audibles that modify them?
In my mind, the person with the quota wins. As the old joke goes about breakfast: the chicken is participating, but the pig is committed. In a world where accountability for results legitimizes decision-making authority, it’s not enough to have a pod/commune and say we can all work it out. Sometimes we can’t. And often we can’t fast enough.
Whether you call that person the regional pod leader or the country manager, the role needs to exist and they need to take lead on deal strategy. Everything else is a supporting resource. Which is why I think marketing alignment with sales is enough. Yes, we need to collaborate and yes we need smart managers to work in the functional/regional matrix. Yes, in the case of marketing, we need field marketing to ensure ground-level local alignment.
But do we need to reorganize everything into regional pods? No. We just need to work together and be aware that buyers have more information, options, and control than ever before.
# # #
The irony is I ran a company in a pod structure, MarkLogic, where we had vertical pods (aka, business units) where we didn’t have sellers, SCs, and consultants. We had Federal sellers, Federal SCs, and Federal consultants — all working for a VP/GM of Federal. Ditto for information & media. But we did it not in the name of “traditional B2B sales is dead because buyers have more information,” but in the name of a vertical go-to-market strategy where we wanted specialization and alignment. Pods can work. It’s all about strategy first and organizational design to support strategy.
A great revops or FP&A person will give the answer from multiple sources and explain the differences among them. Moreover, they’d observe that sales and marketing (S&M) expense really should vary with growth rate, and they’d know that KeyBanc tracks that:
So if that $15M SaaS company is growing at 25%, then median S&M spend is 20% of revenue, whereas if it’s growing at 70%, then median S&M spend bulks up to 46%.
But that’s all SaaS Metrics 101. Today, I’d like to hop to the 201 level by introducing a simple that metric that can reveal a lot and on which few people focus: the sales/marketing expense ratio, which just equals sales expense divided by marketing expense.
To introduce the idea — quick, tell me what’s happening at this company:
The company is high relative to the benchmark
The company is not making much progress towards the benchmark
Sales is getting less efficient while marketing is getting more efficient
This situation is very common. Sometimes, it’s justified bottom-up — e.g., we’re building a partners function in sales that is only slowly becoming productive and we’ve upgraded both marketing leadership and the martech stack to improve marketing efficiency.
Normally, it’s not. In fact, normally, there’s no justification whatsoever. When you ask, you get, “well, that’s just how the budget process worked out, the real focus was on improving S&M and we did. Next question, please.”
Yes, you did improve S&M, but you put the “S&M” improvement 100% on the back of marketing (in fact, 200%) and with no bottom-up justification for why sales needs to get more expensive while marketing is going to magically become more efficient. This is a mistake. The likely result is underfed sellers screaming for pipeline, forming an angry mob with dogs and torches headed to the CMO’s office.
Let me tell you what’s going on when this happens:
Your CRO is a better negotiator than your CMO. They better be. If they’re not, you have an additional problem.
Your CRO has more negotiating leverage than the CMO. They are negotiating the company number directly with the CEO and indirectly with the board. This is high-stakes, board-level poker.
There’s usually no broken-out benchmark, typically only a combined benchmark, and given the prior two points, the CRO is just fine with that.
It’s easy to think that hiring sellers “leads directly” to new ARR than investing in marketing. Why? Because in enterprise software the bookings capacity model is typically driven off the number of sellers. Yes, this is intellectually lazy and only works on the margin, but deep down, it’s what a lot of CEOs and CFOs feel.
So the CMO gets asked to suck it up, the board doesn’t notice the problem, the CFO notices but doesn’t want to rock the boat, and the CEO is just happy to get the plan approved.
Hopefully the CRO has the decency to attend the CMO’s going-away party in the fall. Because if this process repeats itself for even a few years, that’s how it’s going to end.
So how do we fix this?
1. Shine a light on the problem, by adding the sales/marketing ratio to the in-line metrics presented in the plan.
I prefer to show it this way, which makes it clear we used to spend $2 in sales for every $1 in marketing, but that has crept up to over $3. Showing the metric gives people the chance to ask the all-important question: why?
The other way to show this is via “sales composition,” i.e., sales as a percent of sales and marketing:
In this case, you can say that sales has risen from two-thirds to three-quarters of S&M expense, and again ask why. I think the former presentation is more intuitive, but the advantage of this presentation is that KeyBanc benchmarks it in this form:
2. Shine a light on your inverted funnel model. Sometimes you can squeeze marketing expense just on the people side, but the real way you usually cut to these targets is by making a series of seemingly innocuous assumptions in your funnel. Consider:
Saying, we need to take MQL to SQL from 10% to 12%, SQL to SAL up from 65% to 70%, and SAL to close up from 15% to 20% all sounds pretty reasonable. When you combine these effects, however, you’re saying that you’re going to cut the cost of generating an opportunity by more than a third, from $2700 to $1800. That should get some attention — without any explanation other than the compound effect of small tweaks, it sounds like an Excel-induced hallucination to me.
3. Get the CRO on your side. Make them understand that squeezing marketing too hard for purely top-down reasons increases their risk on the plan. Get them to go to bat for you saying, “we need to ensure we feed the sellers enough pipeline.” Most boards solve for growth with one eye on the CAC and not the opposite.
4. Get the CFO on your side. In my experience, the hardest person to convince in these debates is the CEO, not the CFO. Why? Because the CEO is the one and only person who must negotiate the plan target with the CRO and that’s always something of a painful process. So, if you get the CRO and CFO on your side, you will greatly increase your odds of getting the CEO to along with you. You win the CFO over by emphasizing risk. Think: “we’ve (finally) got the CRO signed up for the number, but we’ve squeezed marketing too hard and that’s adding risk to the plan” and then say the magic words, “we don’t want to miss plan — do we, CFO?” They never do.
In a world where sales has more political power, better negotiating skills, and more negotiating leverage than their marketing colleagues, the somewhat natural state of affairs is for this ratio to slowly increase over time. The question is: should it? Everyone on the e-team needs to take accountability for thinking about that and ensuring the company gets the right, not just the easy, answer. And the CMO has the unique responsibility of ensuring they do.
I’m Dave Kellogg, advisor, director, consultant, angel investor, and blogger focused on enterprise software startups. I am an executive-in-residence (EIR) at Balderton Capital and principal of my own eponymous consulting business.
I bring an uncommon perspective to startup challenges having 10 years’ experience at each of the CEO, CMO, and independent director levels across 10+ companies ranging in size from zero to over $1B in revenues.
From 2012 to 2018, I was CEO of cloud EPM vendor Host Analytics, where we quintupled ARR while halving customer acquisition costs in a competitive market, ultimately selling the company in a private equity transaction.
Previously, I was SVP/GM of the $500M Service Cloud business at Salesforce; CEO of NoSQL database provider MarkLogic, which we grew from zero to $80M over 6 years; and CMO at Business Objects for nearly a decade as we grew from $30M to over $1B in revenues. I started my career in technical and product marketing positions at Ingres and Versant.
I love disruption, startups, and Silicon Valley and have had the pleasure of working in varied capacities with companies including Bluecore, Cyral, FloQast, GainSight, MongoDB, Pigment, Recorded Future, and Tableau.