Category Archives: Sales

Should Your Startup Have a Quota Club? (And How Much to Spend on It.)

December is when most SaaS startups are closing out the year, trying to finalize next year’s operating plan (hint:  I know a software company that can help with that), starting to get a clear view on which salespeople are going to make their number, and thus beginning the process of figuring out who to invite to the annual “Quota Club” (a.k.a. President’s Club, Achiever’s Club, or Sales Club).

In this post, I’ll discuss why Quota Clubs are so controversial and how I learned to think about them after, frankly, way too much time spent in meetings discussing a topic that I view nearly as difficult as religion or politics.

Quota Club is always highly controversial:

  • It’s exclusionary.  Consider this quote my friend Lance Walter heard years ago (I think at Siebel): “the last thing I want at Quota Club is to be lying on a chaise lounge by the pool, roll over, and see some effing marketing guy next to me.”  Moreover, the sales personality tends not to blend well with other departments, so a well-intentioned attempt to send the top documentation writer on a trip with 30 sales people is as likely to be perceived as punishment as it is reward.
  • It’s expensive.  The bill can easily run in the hundreds of thousands of dollars for companies in the tens of millions of annual recurring revenue (ARR) and in the millions for those above that.  That doesn’t help your customer acquisition cost (CAC) ratio.
  • Even the basics of qualification are somehow complicated.  Now, on the face of it, you might that “making quota” would be sufficient to qualify for Quota Club, but in some people’s minds it’s not:  “no, at this company we expect people to make quota, so Quota Club should only be for those at 120% of quota.”  (The idea that maybe quotas are set too low doesn’t seem to occur to these people.)  That’s not to mention minimum attainment rules required to avoid accidents with ramped quotas (e.g., a new rep who sells $400K on a $200K quota.)  Or the intractable problem in decentralized organizations where Country A runs large numbers of junior reps at low quotas while Country B runs small numbers of senior reps at high quotas — so someone who sells $1.25M in Country A attends club while someone who sells $1.75M in Country B does not.
  • Invitations beyond quota-carrying reps (QCRs) are always controversial.  Do consultants who hit their utilization target get invited?  (No.)  Do sales development reps (SDRs) who hit their opportunity goals? (No.)  On what basis do sales consultants (SCs) get invited?  (Depends on SC model.)  Do CSMs who hit their renewals goals?  (Maybe, depends on your customer success model and how much selling they do.)  What about the executive staff?  What about a regional VP or CRO when he/she didn’t make their number?  Who presents the awards to their people?  And this isn’t to mention companies that want to inclusionary and invite some hand-picked top performers from other departments.
  • Guest policies can be surprisingly tricky.  Normally this is simple — each qualifier gets to invite a spouse or partner, with the implication that the company wants to reward the chosen guest for the sacrifices they made while the qualifier was working long hours on the big deal and doing extended travel. What if the guest is a friend as opposed to spouse or partner?  (Well, that’s OK if not quite the intent.)  But what if that friend is coworker?  (Hum, less so.)  What if that friend is another quota-carrying rep who failed to make their number?  (Even harder.)  Or, changing angles, what if their spouse is a sales rep at your top competitor?  What if they run competitive intelligence at your top competitor?
  • Opinions diverge on family policy.   Should qualifiers be encouraged to bring their children?  How about Grandpa to watch them?  Are these family members invited to any events or activities?  Can their pay their own way on the snorkeling cruise if they want to?  Is babysitting covered?  Is the reward for spending too much time away from your family a mandatory vacation away from your family?
  • The business meeting can be a religious issue.  Many sales VPs think Club should be a 100% reward — a complete vacation with no work.  If so, the CFO will take an income tax withholding from each qualifier.  Hence most companies have a business meeting that keeps Club a business affair  — and off the W-2s of the attendees.  Some sales VPs thus think:  do the absolute minimum to stave off the tax man.   More enlightened folks think:  what a great opportunity to meet with our top performers to talk about the business.
  • People can’t even agree on the dress code.  Should the awards dinner be California Casual, Summer Soiree, Creative Black Tie, Brooklyn Formal, or just a regular Black Tie Affair.  (And where do they get these names?)
  • Picking the location is difficult.   The Caribbean isn’t exotic for East Coasters and Hawaii isn’t exotic for West Coasters.  Some people think Clubs should always have a beach location, some think European cities are more exotic.  (By the way, try to find a reliably warm beach location in February or April.)  Should you invest your money in flights to a relatively inexpensive place or get cheaper flights to a more popular and presumably expensive place?  And this isn’t to mention any debates about hotel brands and their significance.
  • In-room gifts can jack up the price.  Club planners seem to love to include special gifts each night.  A welcome bottle of champagne the first night, a beach kit the second, a Tumi backpack the third, and a farewell mini-Margarita kit can quickly add up to $500 in extra cost per qualifier.
  • Planning is intrinsically difficult.   It’s inherently hard to plan when you have 30 QCRs and you’re not sure if 10, 20, or 30 are going to qualify — this is particularly difficult when you plan sales-only Clubs because you have less to fudge in terms of non-QCR attendees.  What do you do mid-year when you’ve planned for 20 and forecast that only 10 are going to make it?  Devalue Club by dropping the qualification bar for some reps or (the same act seen through a diametrically opposed lens) preserve the incentive value of Club by making it a realistic goal for the reps who otherwise had no realistic hope?

Holy Cow, just making this list gets my blood pressure up.  Are we sure we want to do this?  My answer remains yes.

Most startups, once you’re beyond $5M to $10M in ARR, should have some sort of Quota Club.  Here is my advice on how to do it:

  • Define it as the CEO’s club.  You can call it Quota Club or President’s Club, but make it clear to everyone that it’s the CEO’s event.  It’s a big expense (with a huge opportunity to waste a lot of money on top) and it’s full of decisions that are both subjective and polarizing.  Listen to what your current sales VP wants, but make those decisions yourself.
  • Start small.  At MarkLogic our first Quota Club was something like 10-15 people for two nights at the Bellagio in Vegas.
  • Leave room to make it incrementally better each year.  This is what I call Narva’s Rule, after my friend Josh Narva who came up with it.  (By the way, had we better applied his rule, we’d have held the first MarkLogic Club at Caesar’s Palace, saving the Bellagio for the following year — but at least we got the two days part right, leaving room to later expand to three.)  Don’t cover every bite or drink that goes in someone’s mouth in the early years:  folks can get a breakfast croissant at Starbucks or a drink by pool on their own nickel. You don’t need a group breakfast and a pool party to cover it.
  • Be inclusive of other functions.  This lets you recognize a few folks outside of non-quota-carrying sales each year.  (It also makes planning a little easier.)  Don’t be so inclusive that QCR/QCM attendance is less than 50%.  But take all your qualifying QCRs and quota-carrying managers (QCMs).  Add your selected SCs.  Add your qualifying CSMs (according to whatever rules you establish).  Then perhaps add a few folks — based on their helpfulness to sales — maybe from consulting, marketing, product, or salesops.  Helpful e-staff are also good candidates and can benefit from the direct feedback they will get.  Think:  I’d rather run a bit less luxurious event and invite a few more folks from across the company than the converse.
  • Do it at a beach in April, alternating East and West coasts.  Or, if you have a strong ski contingent, alternate between a ski resort in February and a beach in April.  Beware the sales VP will gripe about too much first-quarter time in meetings with a January kickoff and February Club.  But who says you can’t still ski in April?
  • Be family-friendly.  Be clear that kids and family are welcome at the event (at the attendee’s cost) and at most, but not all, activities.  If you have two dinners, make one a bring-the-clan affair and make the awards dinner spouse/guest only.  Let family opt-in to an any easily inclusive activities like snorkel trips. Help folks find and/or pool babysitting.
  • Take the business meeting seriously.  Run the meeting on the morning of day 2.  I like doing attendee surveys in advance (e.g,. via SurveyMonkey) and then doing a detailed review of the results to drive discussion.  This sets the tone that the event is for both fun and business and that the company isn’t going to miss the chance to have a great conversation with its top performers.  Discussing business at Club isn’t a party foul.  It’s part of why you have Club.
  • Stay aligned with event planner, particularly in the early days when you are trying to run a discount event as they will, by default, try to run a standard one.  Skip the bells and whistles like custom event logos, fancy signage, custom beach bags and towels, in-room gifts, and all-meals coverage. Define what your program is going to be and deliver against that expectation.  Then make it better next year.
  • Make and hold to a sensible budget.  Know, top of mind, the total event cost and cost/attendee — and remember that cost/qualifier is about double the cost/attendee, since each qualifier invites a guest.  As part of Narva’s Rule, increase that cost every year. Because I like to make things concrete, I think cost/attendee should range from $2.5K to $5.0K as a function of your typical salesperson’s on-target earnings (OTE) and your company’s lifecycle.  This means the “prize value” of the Quota Club invitation is $5K to $10K, equivalent to a roughly 2-4% bonus against typical OTEs.  On this sort of budget, you can offer a very nice, high-quality event, but you won’t be doing the truly unique, memorable, over-the-top stuff that some CROs like.
  • If you want to have an ultra-club do what we did at BusinessObjects.  While during most of my tenure at BusinessObjects we ran in nice-but-not-crazy mode, towards the end of my tenure there was a movement to make Club truly exceptional and unique.  That first led to discussions on how to trim down Club in order to increase the spend/qualifier, including potentially increasing the attainment bar from 100% to 125% and ending our inclusive philosophy.  I’m glad we didn’t do that.  Instead, we ended up creating an intimate ultra-club as a few days tacked on to the end of Quota Club.  It provided some niche cachet when the attendees were whisked off onto their continuation trip.  It allowed “the movement” to do some truly exceptional things for a small number of people.  Most of all, I think we correctly figured out who the “right people” were — not the one-hit wonder reps who had one big year, but instead the consistent reps around which you truly build a company.  I believe we set 5 years of consecutive Quota Club attainment as the criteria for an invitation to the ultra-club.  I’d invest extra in those people any day of the week.

 

How To Present a Quarterly Sales Forecast to Your SaaS Company Board

While most companies put real thought into how they present numbers in their post-quarter board decks and other management reports, one area in which you’ll find a lack of discipline is in how they present quarterly sales forecasts to the board.

They’re typically done as a quick update email to the board.  They’ll usually mention the forecast number this quarter (but only usually) and only sometimes include the plan and almost never include the prior-sequential or year-over-year quarter.  Sometimes, they’ll be long, rambling updates about deals with no quarterly number at all — only ARR per deal on an list of deals with no idea which permutations are likely to close.  Sometimes, they’ll confuse “commit” (a forecast category status) with “booked QTD” — a major confusion as “commit” is only “done” in the eyes of an optimistic sales VP — I have little interest in the former (unless it’s part of a general, proven stage-weighted expected value) and a lot of interest in the latter (what actually has been sold thus far).  They’ll often use terms like “forecast,” “commit,” “upside,” “worst case,” and “best case” without defining them (and questions about their definitions are too often met with blank stares or squishy replies).

In this post, I’ll discuss how to present these forecasts better.  If you follow this advice, your board will love you.  Well, they’ll love your communication at least.  (They’ll only love you if the numbers you’re presenting are great to boot.)

The Driving Principles
I think CEOs write these hastily dashed-off forecast emails because they forget some basics.  So always remember:

  • Your board members have day jobs.  They’re not necessarily going to remember your plan number, let alone what you did last year or last quarter.  So help them — provide this context.  (And do the percent math for them.)
  • Your board members care about deals, but only at a summary level and only after they’ve been given the numbers.  They typically care about deals for two reasons:  because they might be able to help if they know an executive at the target company and because they like to see if the deals that close are the same ones management said were “key deals” all quarter.
  • Communication with your board members will be more effective if you have standard definitions for “forecast” or “best case.”  I like to define “forecast” (at the VP of sales level) to be 90% confidence in beating and “best case” to mean 20% confidence in beating.  This means you get to miss your forecast once every 2.5 years and you should beat your best case once every 5 quarters.  See How to Train Your VP of Sales to Think About the Forecast for more.
  • After hearing a forecast the next question most board members will have is about pipeline coverage.  Ergo, why not answer that up front and provide them with the current quarterly pipeline and a to-go coverage ratio to get to plan.  To-go coverage = (current quarterly pipeline) / (new ARR bookings needed to get to plan).

How to Present a SaaS Company Quarterly Forecast
So, now that we’ve covered the logic behind this, let’s show you the spreadsheet that I’d embed or attach in a short email to the board about the current quarter forecast.

how to present forecast 2

Using “Win Themes” to Improve Your Sales Management and Increase Win Rates

At most sales review meetings what do you hear sales management asking the reps?  Questions like these:

  • What stage is this opportunity in?
  • What value do you have it at in the pipeline?
  • Is there upside to that value?
  • What forecast category is it in?
  • In what quarter will it close?
  • What competitors are in the deal?
  • What products will they be buying?
  • Do they have budget for the purchase?
  • How do we meet their primary requirements for a solution?
  • How have we demonstrated that we can meet those requirements?
  • What are the impacts of not solving those problems?
  • How did they attempt to solve those problems before?
  • Who is impacted by the consequences of those impacts?
  • Who is the primary decision maker?
  • What is the decision-making process?
  • Who else is involved in the decision and in what roles?
  • Who have you developed relationships with in the account?
  • What risk is there of a goal-post move?

And on and on.

Some of these questions are about systems and process.  Some are about forecasting.  Ideally, most are about the problem the customer is trying to solve, the impacts of not solving it, how they tried to solve it before, the ideal solution to the problem, and the benefits of solving it.  But in our collective hurry to be process-oriented, methodology-driven, systems-compliant, and solutions-oriented, all too often something critical gets lost:

Why are we going to win?

What?  Oh shoot.  Yep, forgot to ask that one.  And, of course, that’s the most important one.  As I sometimes need to remind sales managers, while the process is great, let’s not forget the purpose of the process is to win.

(I’ve even met a few sales managers so wedded to process and discipline that I’ve wondered if they’d rather crash while flying in perfect formation than win flying out of it.)

Process is great.  I love process.  But let’s not forget the point.  How can we do that?  With win themes — two to three simple, short, plain-English reasons why you are going to win the deal.  Here’s an example.  We are going to win because:

  • Joe the CFO saw first-hand how Adaptive didn’t scale in his last job and is committed to purchasing a system he can grow with.
  • Our partner, CFO Experts, has worked with Joe in the past, has a great relationship with him, and firmly believes that Host is the best fit with the requirements.

Build win themes into your systems and process.  Don’t add win themes to the bottom of your Salesforce opportunity screen; put them right up top so the first conversation about any deal — before you dive into the rabbit hole — is “why are we going to win?”   Two to three win themes should provide a proposed answer and a healthy platform for strategic discussion.

(And, as my friend Kate pointed out, in case it didn’t come up in the win theme conversation, don’t forget to ask “why might we lose?”)

How To Sales Manage Upside and Unlikely Deals

If your sales organization is like most, you classify sales opportunities in about four categories, such as:

  • Commit, which are 90% likely to close
  • Forecast, which are 70% likely to close
  • Upside, which are 33% likely to close
  • Unlikely, which are 5% likely to close

And then, provided you have sufficient pipeline, your sales management team basically puts all of its effort into and attention on the commit and forecast deals.  They’re the ones that get deal reviews.  They’re the ones where the team does multiple dry runs before big demos and presentations.  They’re the deals that get discussed every week on the forecast call.

The others ones?  No such much.  Sure, the salesreps who own them will continue to toil away.  But they won’t get much, if any, management attention.  You’ll probably lose 75% of them and it won’t actually matter much, provided you have enough high-probability deals to make your forecast and plan.

But, what a waste.  Those opportunities probably each cost the company $2500 to $5000 to generate and many multiples of that to pursue.  But they’re basically ignored by most sales management teams.

The classical solution to this problem is to tell the sales managers to focus on everything.  But it doesn’t work.   A smart sales manager knows the only thing that really matters is making his/her number and doing that typically involves closing almost all the committed and most of the forecast deals.  So that is where their energy goes.

jumpballThe better way to handle these deals is to recognize they’re more likely to be lost than won (e.g., calling them jump-balls, 50/50 balls, or face-offs, depending on your favorite sport), find the most creative non-quota-carrying manager in the sales organization (e.g., VP of salesops) and have him/her manage these low-probability, high-risk deals in the last month of the quarter using non-traditional (i.e., Crazy Ivan) tactics.

This only works if you have happen to have a VP of salesops, enablement, alliances, etc., who has the experience, passion, and creativity to pull it off, but if you do it’s a simply fantastic way to allow core sales management to focus on the core deals that will make or break the quarter while still applying attention and creativity to the lower probability deals that can drive you well over your targets.

This is not as crazy as it might sound, because those in sales ops or productivity positions typically do have prior sales management experience.  Thus, this becomes a great way to keep their saw sharp and keep them close/relevant to the reality of the field in performing their regular job.  What could be better than a VP of sales productivity who works on closing deals 4 months/year?

If your VP of sales ops or sales enablement doesn’t have the background or interest to do this, maybe they should.  If not, and/or you are operating at bigger scale, why not promote a salesperson with management potential into jump-ball, overlay deal management as their first move into sales management?

The Two Archetypal Marketing Messages: “Bags Fly Free” and “Soup is Good Food.”

There are only two archetypal marketing messages, exemplified by:

  • Bags Fly Free, a current advertising slogan used by Southwest airlines.
  • Soup is Good Food, a 1970s campaign slogan used by Campbell’s soup [1].

Screen-Shot-2014-12-29-at-11.26.14-PM

soup

Quick, what’s the difference between these two messages?

Soup is Good Food answers the question “why buy one (at all)?” while Bags Fly Free answers the question “why buy mine?”  Soup is Good Food markets the category while Bags Fly Free markets one vendor’s product/service within it.  In short, Soup is Good Food is about value.  Bags Fly Free is about differentiation.

Once you see things through his lens, you will be shocked how many marketers confuse one with the other.  Some never get the difference sorted out in the first place.  Others mix up value and differentiation messages, because they are bowing to adages or dictums [2] (e.g., “always sell value” or “benefits, not features”), instead acting based on the company’s business situation.

The simple fact is that some situations call for messaging value and others call for messaging differentiation. Somewhat perversely, the hotter your market, the less you need to message around value.  The cooler your market, the less you need to message around differentiation.

Why?  Hot markets definitionally have lots of buyers.  Those buyers already understand the value of the category and are trying to figure out which product to buy within it.  That’s why in hot markets you need a strong differentiation message.

During our hypergrowth phase at BusinessObjects nobody called up saying “why should I buy a BI tool?”   Everybody called up saying, “I’m going to buy a BI tool, my boss said to evaluate three, and Gartner said to look at BusinessObjects, Cognos, and Brio.”

When that buyer asks “why should I buy BusinessObjects?” think about how stupid you’ll look if you answer like this (thinking you need to sell value):

“Whoa, slow down there.  First, let’s talk about the business benefits of using BI in general.  We’ve found that compared to writing your own SQL queries and doing centralized report generation that you can lower IT support costs, reduce the backlog of requested reports, and empower end users to do their query and reporting.  This is why someone should buy an BI solution.”

The whole time you’re blabbering, the customer is wondering if Cognos or Brio can do a better job of answering their question.  In a hot category, you better be darn good at answering “why buy mine?” in a clear and compelling way.

Similarly, in hot categories, people don’t typically ask about return on investment (ROI) [3]:  they already know they want to buy one.  Ironically — and this surprises some — when you have a lot of people asking about ROI, you are probably in a cold category, not a hot one [4].

This is why some salespeople have such a hard time when they move from hypergrowth market leaders to early-stage startups.  In their prior job, all they had to sell was differentiation — “let me explain why mine’s better.”  In the new job, they can’t survive without selling value — “wait, before you hang up, please give me a second to explain why to buy one at all.”

If you’re not sure whether you’re in a hot or a cold category, I will refer you to Kellblog official Simple, Definitive, One-Step Hot Category Test:

If you have to ask whether you’re not a hot category, you’re not in one.

If you were, you’d be too busy to ask.  You’d be growing too fast.  In too many deals.  Running around with your hair on fire.  If you have time to sit around in meetings debating whether you’re in a hot category, I can assure you that you’re not in one.

Let’s look at cold markets for a bit.  I’ll pick the early days at MarkLogic when we were selling an XML database system.  There were two not-so-subtle indicators that it was not a hot market:  first, we had the time to ask and second, Gartner had literally published a note declaring that it wasn’t (“XML Database:  The Market That Never Was“).

The value of our system (to the information industry) was that we could help companies build new, powerful information products faster.  The differentiation was that we used a unique termlist-based indexing mechanism that allowed us to process essentially any XQuery statement with constraints on both structure and text at extremely high performance.

Imagine calling the SVP of Digital Strategy at McGraw-Hill and delivering the differentiation, instead of the value, message.

Sales:  Hi, I’m from MarkLogic and we have the world’s best XML database system.

Customer (if they didn’t hang up already):  I thought XML databases were, like Snake Plissken, dead.  Gartner said so.  Nobody’s using them, I need to —

Sales:  — Wait, don’t worry about that.  Let me explain for a minute why we have the best XML database because how we use termlists instead of traditional b-tree indices to process queries.

Customer: [dial tone]

You’re telling the customer why something she doesn’t want to buy is different from something else she doesn’t want to buy.  Instead, imagine delivering the value message, telling her why she should want to buy one:

Sales:  Hi, I’m from MarkLogic and we help media companies quickly build powerful information products.

Customer:  I’m in charge of our strategy for doing that.  Who uses you and what are they doing?

Ah.  Much better.

Another way to look at this is from a Geoffrey Moore lifecycle perspective:

messaging value vs diff

Early on, you need to message value — why do you want to buy one?  Once you cross the chasm into the high-growth “tornado,” you need to message differentiation — why buy from me. Once the market cools down, you need to start working to expand it by once again messaging value.  In three phases, Soup is Good Food, then My Soup’s Better, then Soup is Good Food.

All marketers should be able to answer both questions (e.g., why buy yours, why buy one at all) [5] about their product.  But which one you develop most deeply and push most in the market should be a function of your business situation.

Think value:  Soup is Good Food
Think differentiation:  Bags Fly Free

# # #

Notes
[1] And in my humble opinion much better than current messaging:  “Discover Flavor.  Convenient tasty solutions for everyone and every occasion.  Campell’s soups are made for real, real life (TM).”  First, let me save Campell’s $50K in legal fees — don’t bother registering that trademark — nobody’s ever going to steal it.  Presumably Discover Flavor is an attempt at differentiation, but … do the other guys’ soups really lack flavor?  I thought Campbell’s was getting hit at the high-end by tasty premium soups, not at the low-end with cheap, flavorless ones.  Seen in that light, Discover Flavor seems more a defensive message than either a differentiation or value message.  (“I know you may not think it, but our soups have flavor, too!”)  Finally, I can’t even classify “made for real, real life” as a message (other than as puffery) because it doesn’t mean anything.  Are other soups made for “fake, real life” or “real, fake life”?  Drivel, but I’m sure somehow it “tested well” in focus groups.

discover flavor

[2] Apologies to my high school Latin teacher, Mr. Maddaloni, for not using the more proper, dicta.

[3] As I often said when I lived in France, “ROI is King” (in cold categories, at least).

[4] The exception would be in a hot category where the ROI is quite different among competing solutions.  Usually, this is not the case — the return is generally more a property of the category than any given product.  When there is a difference, it’s typically due not to return, but investment — i.e., the total cost of ownership (TCO) can often vary significantly among different systems.

[5] We’ll leave the next logical question (“why buy now?”) for another post.

The Two Engines of SaaS: QCRs and DEVs

I remember one day, years ago, when I was a VP at $10M startup and Larry, the head of sales, came in one day handing out t-shirts that said:

“Code, sell, or get out of the way.”

Neither I, nor the rest of marketing team, took this particularly well because the shirt obviously devalued the contributions of F&A, HR, and marketing.  But, ever seeking objectivity, I did concede that the shirt had a certain commonsense appeal.  If you could only hire one person at a startup, it would be someone to write the product.  And if you could only hire one more, it would be someone to sell it.

This became yet another event that reconfirmed my belief in my “marketing exists to make sales easier” mantra.  After all, if you’re not coding or selling, at least you can help someone who is.

Over time, Larry’s t-shirt morphed in my mind into a new mantra:

“A SaaS company is a two-engine plane.  The left engine is DEVs.  The right is QCRs.”

QCR meaning quota-carrying (sales) representative and DEV meaning developer (or, for symmetry and emphasis, storypoint-burning developer).  People who sell with truly incremental quota, and people who write code and burndown storypoints in the process.

It’s a much nicer way of saying “code, sell, or get out of the way,” but it’s basically the same idea.  And it’s true.  While Larry was coming from a largely incorrect “protest overhead and process” viewpoint, I’m coming from a different one:  hiring.

The two hardest lines in a company headcount plan to keep at-plan are guess which two?  QCRs and DEVs.  Forget other departments for a minute — I’m saying is the the hardest line for the VP of Engineering to stay fully staffed on is DEVs, and the hardest line for the VP of Sales to stay fully staffed on is QCRs.

Why is this?

  • They are two, critical highly in-demand positions, so the market is inherently tight.
  • Given their importance, the hiring VPs can be gun-shy about making mistakes and lose candidates due to hesitation or indecision.
  • Both come with a short-term tax and mid-term payoff because on-boarding new hires slows down the rest of the team, a possible source of passive resistance.
  • Sales managers dislike splitting territories because it makes them unpopular, which could drive more foot-dragging.
  • It’s just plain easier to find the associated support functions — (e.g,. program managers, QA engineers, techops, salesops, sales productivity, overlays, CSMs, managers in general) than it is find the QCRs and DEVs.

Let me be clear:  this is not to say that all the supporting functions within sales and engineering do not add value, nor is this to say that supporting corporate functions beyond sales and engineering do not add value — it is to say, however, that far too often companies take their eye off the ball and staff the support functions before, not after, those they are supporting.  That’s a mistake.

What happens if you manage this poorly?  On the sales side, for example, you end up with an organization that has 1 SVP of Sales, 1 VP of sales consulting, 4 sales consultants, 1 director of sales ops, 1 director of sales productivity, 1 manager of sales development reps (SDRs), 4 SDRs, an executive assistant, and 4 quota-carrying salespeople.  So only 22% of the people in your sales organization actually carry a quota.

“Uh, other than QCRs, we’re doing great on sales hiring,”  says the sales VP.  “Other than that, Mrs. Lincoln, how did you find the play?” thinks the board.

Because I’ve seen this happen so often, and because I’ve seen companies accused of it both rightfully and unjustly, I’d decided to create two new metrics:

  • QCR density = number of QCRs / total sales headcount
  • DEV density = numbers of DEVs / total engineering headcount

The bad news is I don’t have a lot of benchmark data to share here.  In my experience, both numbers want to run in the 40% range.

The good news is that if you run a ratio-driven staffing model (which you should do for both sales and engineering), you should be able to calculate what these densities should be when you are fully staffed.

Let’s conclude with a simple model that does just that on the sales side, producing a result in the 38% to 46% range.

qcr dens

Finally, let me add that having such a model helps you understand whether, for example, your QCR density is low due to slow QCR hiring (and/or bad retention) against a good model, or on-pace hiring against a “fat” model.  The former is an execution problem, the latter is a problem with your model.

“Always Scrubbing the Pipeline” Means “Never Scrubbing the Pipeline.”

Perhaps you’ve seen this movie:

CEO:  “Wow the quarterly pipeline dropped 20% this week.  What’s going on sales VP?”

Sales VP:  “Well, that’s because we cleaned it up this week.”

CEO:  “That sounds great, but you said that last week.”

VP of Sales: “Well, that’s because we scrubbed it then, too.”

CEO:  “So shouldn’t it have been clean after last week’s cleaning?  Why did it require so much more cleaning that it dropped another 20% this week.”

VP of Sales:  “Well, you know it’s a big job and you can’t clean up the whole pipeline in a week.”

CEO:  “Should I expect it to drop another 20% next week?”

VP of Sales:  “Uh.”

CEO:  “Soon you’re going to say that we don’t have enough to make our numbers.”

VP of Sales:  “Well, I did mean to mention that I’ve been thinking of cutting the forecast because we just don’t have enough opportunities to work on.”

CEO:  “But we started the quarter with 3.2x pipeline coverage, shouldn’t that be enough?”

VP of Sales:  “Normally, yes.  But the pipeline wasn’t really clean.  Some of those opportunities weren’t real opportunities.” [1]

CEO:  “What does ‘clean’ mean?  When does it get clean?  Once clean, how long does it stay clean.”

VP of Sales:  “Well, look our view here is that we should always be scrubbing, so we’re constantly scrubbing the pipeline, always finding new things.”

What’s wrong with this conversation?  A lot. This Sales VP:

  • Has no clear definition of a scrubbed pipeline.
  • Has no process for scrubbing the pipeline.
  • Takes no accountability for the pipeline and its quality.

In my experience, the statement “we always scrub the pipeline” means precisely one thing:  “we never scrub the pipeline.”

Should that matter?  Well, using some quick assumptions [2], the average first-line enterprise sales manager is managing pipeline that cost $50,000 to generate per rep, so if they’re managing 6-8 reps they are managing pipeline that cost the company $300,000 – $400,000.  Sales managers need to manage that pipeline.  The way to manage it is through periodic, disciplined scrubs [3].

Now some managers don’t play the “always scrubbing” card.  Instead, they say “we scrub the pipeline every week on my sales forecast call.”  But once understand what a pipeline scrub looks like and remember the purpose of a forecast call [4], you realize that it’s impossible to do both at once.

How to Properly Scrub the Pipeline

While everyone will want to take their own unique angle on how to approach this, the core of a pipeline scrub is to review all the opportunities (this quarter and out quarters) in every sales rep’s pipeline to ensure that they are classified correctly with respect to:

  • Close date (which determines what quarter pipeline it’s in)
  • Stage (along a series of well defined and verifiable stages)
  • Forecast category (e.g., forecast, commit, upside)
  • Value (following specific rules about how and when to value opportunities)

These rules should be documented in a living document called something like Pipeline Management Rules (PMR) to which managers should refer during the pipeline scrub (e.g., “Jimmy, tell me what’s the rule for picking a close date in the PMR document”).

The other important thing about pipeline scrubs is timing, because pipeline scrubs will affect your sales analytics (e.g., pipeline coverage ratios, pipeline conversion rates, stage- and forecast-category weighted expected values).  Ergo, I picked a few fixed weeks per quarter (weeks 3, 6, and 9) to present scrubbed pipeline and then we typically use the week 3 snapshot for most of our early-quarter pipeline analytics [5].

The goal of the pipeline scrub is to ensure that the entire pipeline is fairly represented with respect to those rules.  By following this disciplined procedure you can ensure that your sales forecasting and analytics are not a castle built on a sand foundation, but an edifice built on bedrock.

Notes

[1] If you haven’t gone insane yet, this one should push you over.  Wait, whose job it is to accept opportunities into the pipeline?  Sales!  Once an opportunity gets into what’s known as either “stage 2” or “sales accepted lead” status, sales doesn’t get to play that card.  This represents a total failure to accept accountability.

[2] 10 this-quarter and 10 out-quarter opportunities per rep * $2,500 mean cost per opportunity = $50,000.

[3]  I am not arguing that you can’t also clean up opportunities along the way, but that needs to be a supplement to, not a substitute for, a proper pipeline scrubbing process.

[4] A forecast call is usually focused on the current quarter and on the opportunities that are expected to close in order to make the forecast.  Thus, low-probability and out-quarter opportunities are easily overlooked.

[5] Implying of course that sales perform the scrubs during weeks 2, 5, and 8 so the resulted can be presented on Monday morning of weeks 3, 6, and 9.