Category Archives: Sales

What Are The Units On Your Lead SaaS Metric — And What Does That Say About Your Culture

Quick:

  • How big is the Acme deal?  $250K.
  • What’s Joe’s forecast for the quarter?  $500K
  • What’s the number this year?  Duh.  $7,500K.

Awesome.  By the way:  $250K what?  $500K what?  $7,500K what?  ARR, ACV, bookings, TCV, new ARR, net new ARR, committed ARR, contracted ARR, terminal ARR, or something else?

Defining those terms isn’t the point of this post, so see note [1] below if interested.

The point is that these ambiguous, unitless conversations happen all the time in enterprise software companies.  This isn’t a post about confusion; the vast majority of the time, everyone understands exactly what is being said.  What those implicit units really tell you about is culture.

Since there can be only one lead metric, every company, typically silently, decides what it is.  And what you pick says a lot about what you’re focused on.

  • New ARR means you’re focused on sales adding water to the SaaS leaky bucket — regardless of whether it’s from new or existing customers.
  • Net New ARR means you’re focused the change in water level in the SaaS leaky bucket — balancing new sales and churn — and presumably means you hold AEs accountable for both sales and renewals within their patch.
  • New Logo ARR means you’re focused on new ARR from new customers.  That is, you’re focused on “lands” [2].
  • Bookings means you’re focused on cash [3], bringing in dollars regardless of whether they’re from subscription or services, or potentially something else [4].
  • TCV, which became a four-letter word after management teams too often conflated it with ARR, is probably still best avoided in polite company.  Use RPO for a similar, if not identical, concept.
  • Committed ARR usually means somebody important is a fan of Bessemer metrics, and means the company is (as with Net New ARR) focused on new ARR net of actual and projected churn.
  • Terminal ARR means you’re focused on the final-year ARR of multi-year contracts, implying you sign contracts with built-in expansion, not a bad idea in an NDR-focused world, I might add.
  • Contracted ARR can be a synonym for either committed or terminal ARR, so I’d refer to the appropriate bullet above as the case may be.

While your choice of lead metric certainly affects the calculations of other metrics (a bookings CAC or a terminal-ARR CAC) that’s not today’s point, either.  Today’s point is simple.  What you pick says a lot about you and what you want your organization focused on.

  • What number do you celebrate at the all hands meeting?
  • What number do you tell employees is “the number” for the year?

For example, in my opinion:

  • A strong sales culture should focus on New ARR.  Yes, the CFO and CEO care about Ending ARR and thus Net New ARR, but the job of sales is to fill the bucket.  Someone else typically worries about what leaks out.
  • A shareholder value culture would focus on Ending ARR, and ergo Net New ARR.  After all, the company’s value is typically a linear function of its Ending ARR (with slope determined by growth).
  • A strong land-and-expand culture might focus on Terminal ARR, thinking, regardless of precisely when they come in, we have contracts that converge to a given total ARR value over time [5].
  • Conversely, a strong land and expand-through-usage culture might focus on New Logo ARR (i.e., “land”), especially if the downstream, usage-based expansion is seen as somewhat automatic [6].
  • A cash-focused culture (and I hope you’re bootstrapped) would focus on bookings.  Think:  we eat what we kill.

This isn’t about a right or wrong answer [7].  It’s about a choice for your organization, and one that likely changes as you scale.  It’s about mindfulness in making a subtle choice that actually makes a big statement about what you value.

# # #

Notes
[1] For clarity’s sake, ARR is annual recurring revenue, the annual subscription value.  ACV is annual contract value which, while some treat as identical to ARR, others treat as first-year total contract value, i.e., first-year ARR plus year-one services.  Bookings is usually used as a proxy for cash and ergo would include any effects of multi-year prepayments, e.g., a two-year, prepaid, $100K/year ARR contract would be $200K in bookings.  TCV is total contract value which is typically the total (subscription) value of the contract, e.g., a 3-year deal with an ARR stream of $100K, $200K, $300K would have a $600K, regardless of when the cash payments occurred.  New ARR is new ARR from either new customers (often called New Logo ARR) or existing customers (often called Upsell ARR).  Net New ARR is new ARR minus churn ARR, e.g., if a regional manager starts with $10,000K in their region, adds $2,000K in new ARR and churns $500K, then net new ARR is $1,500K.  Committed ARR (as defined by Bessemer who defined the term) is “contracted, but not yet live ARR, plus live ARR netted against known projected ARR churn” (e.g., if a regional manager starts with $10,000K in their region, has signed contracts that start within an acceptable time period of $2,000K, takes $200K of expected churn in the period, and knows of $500K of new projected churn upcoming, then their ending committed is ARR is $11,500K.  (Why not $11,300K?  Because the $200K of expected churn was presumably already in the starting figure.)  Terminal ARR the ARR in the last year of the contract, e.g., say a contract has an ARR stream of $100K, $200K, $300K, the terminal ARR is $300K [1A].  Contracted ARR is for companies that have hybrid models (e.g., annual subscription plus usage fee) and includes only the contractually committed recurring revenues and not usage fees.

[1A] Note that it’s not yet clear to me how far Bessemer goes out with “contracted” ARR in their committed ARR definition, but I’m currently guessing they don’t mean three years.  Watch this space as I get clarification from them on this issue.

[2] In the sense of land-and-expand.

[3] On the assumptions that bookings is being used as a proxy for cash, which I recommend, but which is not always the case.

[4] e.g., non-recurring engineering; a bad thing to be focused on.

[5] Although if they all do so in different timeframes it becomes less meaningful.  Also unless the company has a track record of actually achieving the contractually committed growth figures, it becomes less credible.

[6] Which it never actually is in my experience, but it is a matter of degree.

[7] Though your investors will definitely like some of these choices better than others.

 

Thoughts on Hiring Your First VP of Sales

There’s some great content out there on the subject of hiring your first VP of sales at a startup, so in this post I’m going to do some quick thoughts on the subject in an effort to complement the existing corpus.

In other words, this is not your classic TLDR Kelloggian essay, but some quick tips.

  • Hire them first.  That is, before hiring any salesreps.  The first VP of Sales should be your first salesrep.  Hire someone who wants to walk (and even discover) the path before leading others.  Hire someone who enjoys the fight.
  • Hire them hopelessly early.  Don’t wait for product availability.  Don’t wait until you’ve hired 3-4 reps and they need a manager.  Don’t wait until you have a bookings plan that needs hitting. Hire them as early as possible.
  • Glue yourselves together for 6-12 months.  You want to spend 6-12 months as Frick and Frack.  Why?  Most founders can sell their idea and their software.  The real question is:  can anyone else?  By gluing yourselves together you will transfer a huge amount of critical knowledge to the sales VP.  That, or you’ll drive each other crazy and discover you can’t work together.  Either way, it’s good to succeed or fail fast.  And the goal is total alignment.  [1]
  • Hire them before the VP of marketing.  I know some very smart people who disagree with me on this question, but as a three-time enterprise software CMO (and two-time CEO) I take no shame in saying that marketing is a support function.  We’re here to help.  Hire us after hiring sales.  Let the VP of Sales have a big vote in choosing who supports them [2].
  • Hire someone who is a first-line manager today.  Their title might be district manager or regional vice president, but you want someone close to the action, but who also is experienced in building and managing a team.  Why?  Because you want them to be successful as your first salesrep for 6-12 months and then build up a team that they can manage.  In a perfect world, they’d have prior experience managing up to 10 reps, but even 4-6 will do [3].  You want to avoid like the plague a big-company, second- or third-line manager who, while undoubtedly carrying a large number, likely spends more time in spreadsheets and internal reviews than in customer meetings.

# # #

Notes
[1] Hat tip to Bhavin Shah for this idea.

[2] A wise VP of Marketing often won’t join before of the VP of Sales anyway.

[3] On the theory that someone’s forward potential is not limited to their prior experience.  Someone who’s successfully managed 4-6 reps can likely manage 10-12 with one extra first-line manager.  Managing 36 through a full layer of first-line managers is a different story.  That’s not to say they can’t do it, but it is a different job.  In any case, the thing to absolutely avoid is the RVP who can only manage through a layer of managers and views the sales trenches as a distant and potentially unpleasant memory.

What To Do When You Need Pipeline in a Hurry

It’s that time of year, I suppose.  You’ve hopefully approved your 2021 operating plan by now — even if you’re on an increasingly popular 1/31 fiscal year end.  You’ve signed up for some big numbers to meet your aggressive goals (and fund those aggressive spending plans).  And now you might well be thinking one thing:

“Oh shit, we need some pipeline.  Fast.”

To really help you — in the long-term — we’ll need to have a stern talking to about driver-based planning, sales capacity models (particularly if you’re upside-down [1] on sales capacity), inverted funnel models to calculate the demandgen budget, and time-based closed rates to forecast conversion from your existing pipeline (and, I’ve increasingly seen, conversion from to-be-generated pipeline [2]).

And we’ll also need to review the seven words Mike Moritz said to me when I started as CEO of MarkLogic:  “make a plan that you can beat.”

But, I hear you thinking:  that all sounds great and I’m sure I should do it one day — but right now I have a problem.  I need some pipeline, fast.

Got it.  So here are three high-level things you need to do:

  1. Declare general quarters — all hands to battle stations.  You should never waste a good crisis, so call an all-hands meeting, start it with this audio file, and tell everyone you want them working on the problem.  You want zero complacency [3] or fatalism:  we don’t need people cueing the quartet to play Nearer My God To Thee [3a] when there are still lots of things we can do to affect the outcome.
  2. Focus on winning the opportunities you can win.  You think you need pipeline, but what you actually need is the new ARR that comes from it.  Let’s not forget that.  In math terms, we’re going to need high to record-high conversion of the opportunities (oppties) that are in the pipeline today.  So let’s put sales and executive management attention on identifying the winnable oppties and fighting like never before to win them — including potentially re-assigning your best oppties to your best reps [4].
  3. Focus on finding new opportunities that move fast.  Remember that nine-month sales cycle is an average; some opportunities close a lot faster.  Expansion oppties tend to move a lot faster than new logo oppties.  SMB oppties tend to move faster than enterprise ones.  Get salesops to figure out which ones move faster for you — remember you don’t need just any pipeline, you need fast-moving (and high-converting) pipeline.

In addition, if you’re not doing it already, you need marketing to start forecasting next-quarter’s day-one pipeline as of about week 3 of the current quarter, so we can increase our lead time on finding out about these problems next time.

Now, let’s dive a bit deeper into ways to accelerate existing pipeline and how to generate new, fast-moving pipeline when you need some more.

Pipeline Acceleration Tactics
Here is a list of common pipeline patterns and how you can use them and/or workaround them to accelerate your pipeline.

  • Expansion pipeline moves faster than new logo pipeline.  So have AEs, CSMs, or SDRs contact existing customers to discuss expansion opportunities.
  • It’s easier to accelerate planned expansions than create new ones.  Look at out-quarter expansion pipeline and have AEs reach out to customers to discuss moving them forward and/or offering incentives to do so.
  • Partner-sourced pipeline usually moves faster than marketing- or sales-sourced pipeline.  It also typically closes at a higher rate.  Now is a great time to sit down with partners to review opportunities and see what can be accelerated and what incentives you can offer them to help out.
  • Proofs of concept (POCs) stall oppties in the pipeline.  To remove them from your sales cycle try to substitute highly relevant customer references as alternative proof.  It’s a win/win:  you get your deal faster and the customer gets the benefits of your system faster.  Alternatively, reduce the customer’s need for up-front proof by offering a back-end guarantee [5].  Either way, we might be able to cut 90+ days out of your sales cycle.
  • Reheated, old pipeline often moves faster than new.  I’ve often quipped that the best patch in the company is the no-decision pile [6].  Now is a great time to have AEs and SDRs call up no-decision oppties.  “So, whatever happened with that evaluation you were doing?”  Hey, while we’re at it, let’s call up lost oppties as well.  “So, did you end up buying from Badco?  How’d that work out?”  Both types of reheated oppties have the potential to move faster than net new ones.
  • SDRs can delay entry into the pipeline.  We love our SDRs and they’re great for funnel optimization when times are good.  But when times are tough, selectively cut them out of the loop [7].  For example, make a rule that says for accounts of size X (or on list Y), when we get a contact with title Z, pass them directly to the salesrep.  Not only might you accelerate pipeline entry by a week or two, but the AE will likely do a better job in discovery.
  • Legal can stall you out on the two-yard line.  Get your legal team involved in your red zone offense by creating a fast-turn version of your contract that contains only your minimum required terms.  Then inform the customer that you’re giving them toned-down paperwork and incent them to turn quickly with you on signing it [8].

Techniques to Generate New, Fast-Moving Pipeline
When nothing other than net new pipeline will do, then here are some things you can do:

  • Run marketing campaigns to find existing evaluations.  If you can’t make your own party, then why not sneak into someone else’s?  Run a webinar entitled, “How to Evaluate a Blah” or “Five Things to Look for in a Blah.”  Record and transcribe it to get draft 1 of an e-book you can use as a gated asset.
  • Use search advertising to find existing evaluations.  Buy competitive search terms (brand names), evaluation-related search terms (“how to evaluate”), comparison search terms (e.g., “Gong vs. Chorus,” “Oracle alternatives”), or late-funnel search terms (e.g., “Clari pricing”).
  • Look for warm accounts, not just warm contacts.  Sometimes you can see more if you step back a bit.  Instead of looking at the lead/contact level, do an analysis of which accounts have high levels of activity across all their contacts.  That might be a good clue there’s an evaluation happening or starting.
  • Buy intent data. Several vendors — including 6Sense, Bombora, Demandbase, G2, TechTarget, and Zoominfo — look for data that signals companies are investigating given product categories.  Let someone else do the company-finding for you and then market to (and/or SDR outbound call) them.
  • Buy meetings.  While I’ve always heard mixed reviews about appointment-setting firms, I also know they’re a go-to resource when you’re in trouble — particularly if you’re bottlenecked up-funnel in marketing or SDRs.  Consider a service like Televerde or By Appointment Only.  While these vendors started out in appointment-setting, both have broadened into more full-service demand generation that can help you in many ways.
  • Stalk old customers in new jobs.  Applications like UserGems let you track customers as they change jobs.  What could be faster than selling an existing happy customer when they’re in a new position?  It won’t hit every time (e.g., if they already have and are happy with another system), but they’re certainly leads that can turn into fast-moving pipeline.  You can do roughly the same thing yourself manually with LinkedIn Sales Navigator.
  • Do LinkedIn targeted advertising.   I’m always surprised how many colleagues say LinkedIn doesn’t work that well despite its superior targeting abilities.  Perhaps that’s like anglers saying the “fishing is OK” regardless of  the action.  If you know who to target and think that target can move fast, then go for it.
  • Call blitzes.  Remember we said to never waste a good crisis.  It’s a great time to set up dedicated call blitzes to prospects or existing customers.  Just make sure we know who’s blitzing whom so the same person doesn’t get hit by an AE, an SDR, and a CSM all at once.
  • Contests and prizes.  Finally, why not make it fun?!  Nothing gets the sales blood flowing like competition and incentives.

Hopefully these ideas stimulated some thoughts to help you get the pipeline you need.  And, even more hopefully, realize that we should build many of these now-crisis activities as healthy habits going forward.

# # #

Notes
[1] Meaning that your plan number is larger than your sales productivity capacity.  An undesirable, but certainly not unheard of, situation.

[2] As I’m increasingly seeing time-based closed rates used, something to my surprise.  I’d really created the technique for short- to mid-term gap analysis.  I generally make an marketing budget purely off an inverted funnel model.  But that said, using time-based closed rates by pipeline source would be more accurate.

[3] If for no other reason to avoid the common fallacious complacency of “well, with a nine-month sales cycle, if we’re short of pipeline now there’s nothing we can do, so let’s just accept that we’re going to hit the iceberg.

[3a] While I make light of it in the post, it’s actually both an amazing and touching story.  “Sometime around 2:10 a.m. as the Titanic began settling more quickly into the icy North Altantic, the sounds of ragtime, familiar dance tunes and popular waltzes that had floated reassuringly across her decks suddenly stopped as Bandmaster Wallace Hartley tapped his bow against his violin. Hartley and his musicians, all wearing their lifebelts now, were standing back at the base of the second funnel, on the roof of the First Class Lounge, where they had been playing for the better part of an hour. There were a few moments of silence, then the solemn strains of the hymn “Nearer My God to Thee” began drifting across the water. It was with a perhaps unintended irony that Hartley chose a hymn that pleaded for the mercy of the Almighty, as the ultimate material conceit of the Edwardian Age, the ship that “God Himself couldn’t sink,” foundered beneath his feet.”  Hartley concluded in saying, “Gentlemen, it has been a privilege playing with you tonight.”

[4] Most compensation plans allow midstream territory changes and while moving oppties from bad reps to good reps cuts against the grain for most sales managers, well, we are in an emergency, andd we all know that the odds of an oppty closing are highly related to who’s working on it.  Perhaps soften the sting by uplifting and then splitting the quota.  Or just fire the bad rep.  But win the deal.

[5] Introduce a 90- or 120-day acceptance clause.  This will likely have accounting and/or bookings policy ramifications, but we are in an emergency.  Better to hit your target with a few customers on acceptance (especially if you’re sure you can deliver against the criteria) than to miss.

[6] That is, the oppties that were marked by their owners as neither won nor lost, but no decision.  Sometimes also called derailed oppties.  If you have discipline about reason codes you can find the right ones even faster.

[7] Perhaps using the freed-up time to prospect within the installed base, if your CSMs are not salesy.  Or doing longer-shot outbound into named accounts.

[8] I’m a little dusty legally, but the ultimate form of this was a clickwrap which, in a pinch, was sometimes used (with the consent of the customer) to work around the customer’s oft-bottlenecked legal department and get a baseline agreement in place that can later be revised or replaced.

The Holy Grail of Enterprise Sales: Is a Repeatable Sales Process Enough?

(This is the third in a three-part restructuring and build-out of a previous post.  See note [1] for details.)

In the first two posts in this series, we first defined a repeatable sales process and then discussed how to prove that your sales process is repeatable.

All that was just the warm-up for the big idea in this series:  is repeatability enough?

The other day I was re-reading my favorite book on data governance (and yes I have one), Non-Invasive Data Governance by Bob Seiner.  Reading it reminded me of the Capability Maturity Model, from Carnegie Mellon’s Software Engineering Institute.

Here’s the picture that triggered my thinking:

Did you see it?  Look again.

Repeatable is level two in a five-level model.  Here we are in sales and marketing striving to achieve what our engineering counterparts would call 40% of the way there.  Doesn’t that explain a lot?

To think about what we should strive for, I’m going to switch models, to CMMI, which later replaced CMM.   While it lacks a level called “repeatable” – which is what got me thinking about the whole topic in the first place – I think it’s nevertheless a better model for thinking about sales [2].

Here’s a picture of CMMI:

I’d say that most of what I defined as a repeatable sales process fits into the CMMI model as level 3, defined.  What’s above that?

  • Level 4, quantitively managed. While most salesforces are great about quantitative measurement of the result – tracking and potentially segmenting metrics like quota performance, average sales price, expansion rates, win rates – fewer actually track and measure the sales process [3].  For example, time spent at each stage, activity monitoring by stage, conversion by stage, and leakage reason by stage.  Better yet, why just track these variables when you can act on them?  For example, put rules in place to take squatted opportunities from reps and give them to someone else [4], or create excess stage-aging reports that will be reviewed in management meetings.
  • Level 5, optimizing. The idea here is that once the process is defined and managed (not just tracked) quantitatively, then we should be in a mode where we are constantly improving the process.  To me, this means both analytics on the existing process as well as qualitative feedback and debate about how to make it better.  That is, we are not only in continual improvement mode when it comes to sales execution, but also when it comes to sale process.  We want to constantly strive to execute the process as best we can and also strive to improve the process.  This, in my estimation, is both a matter of culture and focus.  You need a culture that process- and process-improvement-oriented.  You need to take the time – as it’s often very hard to do in sales – to focus not just on results, but on the process and how to constantly improve it.

To answer my own question:  is repeatability enough?  No, it’s not.  It’s a great first step in the industrialization of your sales process, but it quickly then becomes the platform on which you start quantitative management and optimization.

So the new question should be not “is your sales process repeatable?” but “is it optimizing?”  And never “optimized,” because you’re never done.

# # #

Notes

[1] I have a bad habit, which I’ve been slowly overcoming, to accidently put real meat on one topic into an aside of a post on a different one.  After reading the original post, I realized that I’d buried the definition of a repeatable sales model and the tests for having one into a post that was really about applying CMMI to the sales model.  Ergo, as my penance, as a service to future readers, and to help my SEO, I am decomposing that post into three parts and elaborating on it during the restructuring process.

[2] The nuance is that in CMM you could have a process that was repeatable without being (formally) defined.  CMMI gets rid of this notion which, for whatever it’s worth, I think is pretty real in sales.  That is, without any formal definition, certain motions get repeated informally and through word of mouth.

[3] With the notable exception of average sales cycle length, which just about everyone tracks – but this just looks at the whole process, end to end.  (And some folks start it late, e.g., from-demo as opposed to from-acceptance.)

[4] Where squatting means accepting an opportunity but not working on it, either at all or sufficiently to keep it moving.

The Holy Grail of Enterprise Sales: Proving a Repeatable Sales Process

(This is the second in a three-part restructuring and build-out of a previous post.  See note [1] for details.)

In the prior post we introduced repeatable sales process as the Holy Grail of enterprise software sales and, unlike some who toss the term around rather casually, we defined a repeatable sales process as meaning you have six things:

  1. Standard hiring profile
  2. Standard onboarding program
  3. Standard support ratios
  4. Standard patch
  5. Standard kit
  6. Standard sales methodology

The point of this, of course, is to demonstrate that given these six standard elements you can consistently deliver a desirable, standard result.

The surprisingly elusive question is then, how to measure that?

  • Making plan?  This should be a necessary but not sufficient condition for proving repeatability.  As we’ll see below, you can make plan in healthy as well as unhealthy ways (e.g., off a small number of reps, off disproportionate expansion and weak new logo sales).
  • Realizing some percentage of your sales capacity?  I love this — and it’s quite useful if you’ve just lost or cut a big chunk of your salesforce and are ergo in the midst of a ramp reset — but it doesn’t prove repeatability because you can achieve it in both good and bad ways [2].
  • Having 80% of your salesreps at 100%+ of quota?  While I think percent of reps hitting quota is the right way to look at things, I think 80% at 100% is the wrong bar.

Why is defaulting to 80% of reps at 100%+ of quota the wrong bar?

  • The attainment percentage should vary as function of business model: with a velocity model, monthly quotas, and a $25K ARR average sales price (ASP), it’s a lot more applicable than with an enterprise model, annual quotas, and a $300K ASP.
  • 80% at 100%+ means you beat plan even if no one overperforms [3] – and that hopefully rarely happens.
  • There is a difference between annual and quarterly performance, so while 80% at 100% might be reasonable in some cases on an annual basis, on a quarterly basis it might be more like 50% — see the spreadsheet below for an example.
  • The reality of enterprise software is that performance is way more volatile than you might like it to be when you’re sitting in the board room
  • When we’re looking at overall productivity we might look at the entire salesforce, but when we’re looking at repeatability we should look at recently hired cohorts. Does 80% of your third-year reps at quota tell you as much about repeatability – and the presumed performance of new hires – as 80% of your first-year reps cohort?

Long story short, in enterprise software, I’d say 80% of salesreps at 80% of quota is healthy, providing the company is making plan.  I’d look at the most recent one-year and two-year cohorts more than the overall salesforce.  Most importantly, to limit survivor bias, I’d look at the attrition rate on each cohort and hope for nothing more than 20%/year.  What good is 80% at 80% of quota if 50% of the salesreps flamed out in the first year?  Tools like my salesrep ramp chart help with this analysis.

Just to make the point visceral, I’ll finish by showing a spreadsheet with a concrete example of what it looks like to make plan in a healthy vs. unhealthy way, and demonstrate that setting the bar at 80% of reps at 100% of quota is generally not realistic (particularly in a world of over-assignment).

If you look at the analysis near the bottom, you see the healthy company lands at 105% of plan, with 80% of reps at 80%+ of quota, and with only 40% of reps at 100%+ of quota.  The unhealthy company produces the same sales — landing the company at 105% of plan — but due to a more skewed distribution of performance gets there with only 47% of reps at 80%+ and only a mere 20% at 100%+.

In our final post in this series, we’ll ask the question:  is repeatability enough?

# # #

Notes

[1] I have a bad habit, which I’ve been slowly overcoming, to accidently put real meat on one topic into an aside of a post on a different one.  After reading the original post, I realized that I’d buried the definition of a repeatable sales model and the tests for having one into a post that was really about applying CMMI to the sales model.  Ergo, as my penance, as a service to future readers, and to help my SEO, I am decomposing that post into three parts and elaborating on it during the restructuring process.

[2] Unless you’ve had either late hiring or unexpected attrition, 80% of your notional sales capacity should roughly be your operating plan targets.  So this is point is normally subtly equivalent to the prior one.

[3] Per the prior point, the typical over-assignment cushion is around 20%

The Holy Grail of Enterprise Sales: Defining the Repeatable Sales Process

(This is the first in a three-part restructuring and build-out of the prior post.  See note [1] for details.)

The number one question go-to-market question in any enterprise software startup is:  “do you have a repeatable sales process?” or, in more contemporary Silicon Valley patois, “do you have a repeatable sales motion?”

It’s one of the key milestones in startup evolution, which proceed roughly like:

  • Do you have a concept?
  • Do you have a working product?
  • Do you have any customer traction (e.g., $1M in ARR)?
  • Have you established product-market fit?
  • Do you have a repeatable sales process?

Now, when pressed to define “repeatable sales process,” I suspect many of those asking might reply along the same lines as the US Supreme Court in defining pornography:

“I shall not today attempt further to define the kinds of material I understand to be embraced… but I know it when I see it …”

That is, in my estimation, a lot of people throw the term around without defining it, so in the Kelloggian spirit of rigor, I thought I’d offer my definition:

A repeatable sales process means you have six things:

  1. Standard hiring profile
  2. Standard onboarding program
  3. Standard support ratios
  4. Standard patch
  5. Standard kit
  6. Standard sales methodology

All of which contribute to delivering a desirable, standard result.  Let’s take a deeper look at each:

  1. You hire salesreps with a standard hiring profile, including items such as years of experience, prior target employers or spaces, requisite skills, and personality assessments (e.g., DiSC, Hogan, CCAT).
  2. You give them a standard onboarding program, typically built by a dedicated director of sales productivity, using industry best practices, one to three weeks in length, and accompanied by ongoing clinics.
  3. You have standard support ratios (e.g., each rep gets 1/2 of a sales consultant, 1/3 of an SDR, and 1/6 of a sales manager).  As you grow, your sales model should also use ratios to staff more indirect forms of support such as alliances, salesops, and sales productivity.
  4. You have a standard patch (territory), and a method for creating one, where the rep can be successful.  This is typically a quantitative exercise done by salesops and ideally is accompanied by a patch-warming program [2] such that new reps don’t inherit cold patches.
  5. You have standard kit including tools such as collateral, presentations, demos, templates.  I strongly prefer fewer, better deliverables that reps actually know how to use to the more common deep piles of tools that make marketing feel productive, but that are misunderstood by sales and ineffective.
  6. You have a standard sales methodology that includes how you define and execute the sales process.  These include programs ranging from the boutique (e.g., Selling through Curiosity) to the mainstream (e.g., Force Management) to the classic (e.g., Customer-Centric Selling) and many more.  The purpose of these programs is two-fold:  to standardize language and process across the organization and to remind sales — in a technology feature-driven world — that customers buy products as solutions to problems, i.e., they buy 1/4″ holes, not 1/4″ bits.

And, most important, you can demonstrate that all of the above is delivering some desirable standard result, which will be the topic of the next post.

# # #

Notes

[1] I have a bad habit, which I’ve been slowly overcoming, to accidently put real meat on one topic into an aside of a post on a different one.  My favorite example:  it took me ~15 years to create a post on my marketing credo (marketing exists to make sales easier) despite mentioning it in passing in numerous posts.  After reading the prior post, I realized that I’d buried the definition of a repeatable sales model and the tests for having one into a post that was really about applying CMMI to the sales model.  Ergo, as my penance, as a service to future readers, and to help my SEO, I am decomposing that post into three parts and elaborating on it during the restructuring process.

[2] I think of patch-warming as field marketing for fallow patches.  Much as field marketing works to help existing reps in colder patches, why can’t we apply the same concepts to patches that will soon be occupied?  This is an important, yet often completely overlooked, aspect of reducing rep ramping time.

The Holy Grail of the Repeatable Sales Process: Is Repeatability Enough?

Most of us are familiar with Mark Leslie’s classic Sales Learning Curve and its implications for building the early salesforce at an enterprise startup.  In short, it argues that too many startups put “the pedal to the metal” on sales hiring too early – before they have enough knowledge, process, and infrastructure in place – and end up with a pattern that looks like:

  1. Hire 1 salesrep, which seems to be working so we …
  2. Hire 2 more salesreps, which seems to be mostly working so we think “Eureka!” and we …
  3. Hire 10 more salesreps overnight

With the result that 8 of the 10 salesreps hired in phase three flame out within a year.  You end up missing numbers and hiring a new VP of Sales who inherits a smoldering rubble of a salesforce which they must rebuild, nearly from scratch.  The cost:  $3-5M of wasted capital [1] and, more importantly, 12-18 months of lost time.

But let’s say you heed Leslie’s lessons and get through this phase.  Once you’re up to 20-30 reps, you don’t just need sales to be working, you need to prove that you have attained the Holy Grail of startup sales:  a repeatable sales process.

Everyone has their own definition of what “repeatable sales process” means and how to measure if you’ve attained it.  Here are mine.

A repeatable sales process means:

  1. You hire salesreps with a standard hiring profile
  2. You give them a standard onboarding program
  3. You have standard support ratios (e.g., each rep gets 1/2 of a sales consultant, 1/3 of a sales development rep (SDR), and 1/6 of a sales manager)
  4. You have a standard patch (and a method for creating one) where the rep can be successful
  5. You have standard kit including tools such as collateral, presentations, demos, templates
  6. You have a standard sales methodology that includes how you define and execute the sales process

And, of course, it’s demonstrating some repeatable result.  While many folks instinctively drift to “80% of salesreps at 100% (or more) of their quota” they forget a few things:

  • The percentage should vary as function of business model: with a velocity model, monthly quotas, and a $25K ARR average sales price (ASP), it’s a lot more applicable than with an enterprise model, annual quotas, and a $300K ASP
  • 80% at 100% means you beat plan even if no one overperforms [2] – and that hopefully rarely happens
  • There is a difference between annual and quarterly performance, so while 80% at 100% might be reasonable in some cases on an annual basis, on a quarterly basis it might be more like 50%
  • The reality of enterprise software is that performance is way more volatile than you might like it to be when you’re sitting in the board room
  • When we’re looking at overall productivity we might look at the entire salesforce, but when we’re looking at repeatability we should look at recently hired cohorts. Does 80% of your third-year reps at quota tell you as much about repeatability – and the presumed performance of new hires – as 80% of your first-year reps cohort?

Long story short, in enterprise software, I’d say 80% of salesreps at 80% of quota is healthy, providing the company is making plan.  I’d look at the most recent one-year and two-year cohorts more than the overall salesforce.  Most importantly, to limit survivor bias, I’d look at the attrition rate on each cohort and hope for nothing more than 20%/year.  What good is 80% at 80% of quota if 50% of the salesreps flamed out in the first year?  Tools like my salesrep ramp chart help with this analysis.

But all that was just the warm-up for the big idea in this post:  is repeatability enough?  Turns out, the other day I was re-reading my favorite book on data governance, Non-Invasive Data Governance by Bob Seiner, and it reminded me of the Capability Maturity Model, from Carnegie Mellon’s Software Engineering Institute.

Here’s the picture that triggered my thinking:

Did you see it?  Repeatable is level two in a five-level model.  Here we are in sales and marketing striving to achieve what our engineering counterparts would call 40% of the way there.  Doesn’t that explain a lot?

To think about what we should strive for, I’m going to switch models, to CMMI, which later replaced CMM.   While it lacks a level called “repeatable” – which is what got me thinking about the whole topic – I think it’s a better model for thinking about sales [3].

Here’s a picture of CMMI:

I’d say that most of what I defined above as a repeatable sales process fits into the CMMI model as level 3, defined.  What’s above that?

  • Level 4, quantitively managed. While most salesforces are great about quantitative measurement of the result – tracking and potentially segmenting metrics like quota performance, average sales price, expansion rates, win rates – fewer actually track and measure the sales process [2].  For example, time spent at each stage, activity monitoring by stage, conversion by stage, and leakage reason by stage.  Better yet, why just track these variables when you can act on them?  For example, put rules in place to take squatted opportunities from reps and give them to someone else [3], or create excess stage-aging reports that will be reviewed in management meetings.
  • Level 5, optimizing. The idea here is that once the process is defined and managed (not just tracked) quantitatively, then we should be in a mode where we are constantly improving the process.  To me, this means both analytics on the existing process as well as qualitative feedback and debate about how to make it better.  That is, we are not only in continual improvement mode when it comes to sales execution, but also when it comes to sale process.  We want to constantly strive to execute the process as best we can and also strive to improve the process.  This, in my estimation, is both a matter of culture and focus.  You need a culture that process- and process-improvement-oriented.  You need to take the time – as it’s often very hard to do in sales – to focus not just on results, but on the process and how to constantly improve it.

To answer my own question:  is repeatability enough?  No, it’s not.  It’s a great first step in the industrialization of your sales process, but it quickly then becomes the platform on which you start quantitative management and optimization.

So the new question should be not “is your sales process repeatable?” but “is it optimizing?”  And never “optimized,” because you’re never done.

# # #

Notes

[1] Back when that used to be a lot of money

[2] You typically model a 20% cushion between quota and expected productivity.

[3] The nuance is that in CMM you could have a process that was repeatable without being (formally) defined.  CMMI gets rid of this notion which, for whatever it’s worth, I think is pretty real in sales.  That is, without any formal definition, certain motions get repeated informally and through word of mouth.

[4] With the notable exception of average sales cycle length, which just about everyone tracks – but this just looks at the whole process, end to end.  (And some folks start it late, e.g., from-demo as opposed to from-acceptance.)

[5] Where squatting means accepting an opportunity but not working on it, either at all or sufficiently to keep it moving.