Category Archives: Sales

How To Get Sales and Marketing Working Together (Presentation)

I spoke this morning to a private equity (PE) firm’s gathering of portfolio company CEOs, CROs, and CMOs.  Our topic, one of my favorites, was how to get sales and marketing working together to drive business results.  While I talked about the predictable subject of alignment, I covered it with an interesting three-level angle (philosophical, strategic, operational).  I prefaced the alignment discussion with examples of what typically goes wrong in the sales/marketing relationship, later revealing that I believe most of the commonly-observed “problems” between sales and marketing are, in fact, symptoms of four underlying problems:

  • Unrealistic plans
  • Function-led mentality
  • Blame culture
  • Non-alignment

I’ve embedded the presentation below and it’s also available on Slideshare.

The Pipeline Chicken or Egg Problem

The other day I heard a startup executive say, “we will start to accelerate sales hiring — hiring reps beyond the current staffing levels and the current plan — once we start to see the pipeline to support it.”

To mix metaphors, what comes first: the pipeline or the egg?  To un-mix them, what comes first:  the pipeline or the reps to prosecute it?  Unlike the chicken or the egg problem, I think this one has a clear answer: the reps.

My answer comes part from experience and part from math.

First, the experience part:  long ago I noticed that the number of opportunities in the pipeline of a software company tends to be a linear function of the number of reps, with a slope in the 12-18 range as a function of business model [1].  That is, in my 12 years of being a startup CEO, my all-quarters, scrubbed [2] pipeline usually had somewhere between 12 and 18 opportunities per rep and the primary way it went up was not by doing more marketing, but by hiring more reps.

Put differently, I see pipeline as a lagging indicator driven by your capacity and not a leading indicator driven by opportunity creation in your marketing funnel.

Why?  Because of the human factor:  whether they realize it or not, reps and their managers tend to apply a floating bar on opportunity acceptance that keeps them operating around their opportunity-handling capacity.  Why’s that?  It’s partially due to the self-fulfilling 3x pipeline prophecy:  if you’re not carrying enough pipeline, someone’s going to yell at you until you do, which will tend to drop your bar on opportunity acceptance.  On the flip side, if you’re carrying more opportunities than your capacity — and anyone is paying attention — your manager might take opportunities away from you, or worse yet hire another rep and split your territory.  These factors tends to raise the bar, so reps cherry pick the best opportunities and reject lesser ones that they’d might otherwise accept in a tougher environment.

So unless you’re running a real machine with air-tight definitions and little/no discretion (which I wouldn’t advise), the number of opportunities in your pipeline is going to be some constant times the number of reps.

Second, the math part.  If you’re running a reasonably tight ship, you have a financial model and an inverted funnel model that goes along with it.  You’re using historical costs and conversion rates along with future ARR targets to say, roughly, “if we need $4.0M in New ARR in 3 quarters, and we insert a bunch of math, then we’re going to need to generate 400 SALs this quarter and $X of marketing budget to do it.”  So unless there’s some discontinuity in your business, your pipeline generation doesn’t reflect market demand; it reflects your financial and demandgen funnel models.

To paraphrase Chester Karrass, you don’t get the pipeline you deserve, you get the one you plan for.  Sure, if your execution is bad you might fall significantly short on achieving your pipeline generation goal.  But it’s quite rare to come in way over it.

So what should be your trigger for hiring more reps?  That’s probably the subject of another post, but I’d look first externally at market share (are you gaining or losing, and how fast) and then internally at the CAC ratio.

CAC is the ultimate measure of your sales & marketing efficiency and looking at it should eliminate the need to look more deeply at quota attainment percentages, close rates, opportunity cost generation, etc.  If one or more of those things are badly out of whack, it will show up in your CAC.

So I’d say my quick rule is if your CAC is normal (1.5 or less in enterprise), your churn is normal (<10% gross), and your net dollar expansion rate is good enough (105%+), then you should probably hire more reps.  But we’ll dive more into that in another post.

# # #

Notes

[1]  It’s a broad range, but it gets tighter when you break it down by business model.  In my experience, roughly speaking in:

  • Classic enterprise on-premises ($350K ASP with elephants over $1M), it runs closer to 8-10
  • Medium ARR SaaS ($75K ASP), it runs from 12-15
  • Corporate ARR SaaS ($25K ASP) where it ran 16-20

[2] The scrubbed part is super important.  I’ve seen companies with 100x pipeline coverage and 1% conversation rates. That just means a total lack of pipeline discipline and ergo meaningless metrics.  You should have written definitions of how to manage pipeline and enforce them through periodic scrubs.  Otherwise you’re building analytic castles in the sand.

Ten Pearls Of Enterprise Software Startup Wisdom From My Friend Mark Tice

I was talking with my old friend, Mark Tice, the other day and he referred to a startup mistake as, “on his top ten list.”  Ever the blogger, I replied, “what are the other nine?”

Mark’s been a startup CEO twice, selling two companies in strategic acquisitions, and he’s run worldwide sales and channels a few times.  I first met Mark at BusinessObjects, where he ran our alliances, we worked together for a while at MarkLogic, and we’ve stayed in touch ever since.  Mark’s a seasoned startup executive, he’s go-to-market oriented, and he has some large-company chops that he developed earlier in his career.

Here’s an edited version of Mark’s top ten enterprise software startup mistakes list, along with a few comments prefaced by DK.

1. Thinking that your first VP of Sales will take you from $0 to $100M.  Startups should hire the right person for the next 18-24 months; anything beyond that is a bonus.  (DK:  Boards will often push you to hire someone “bigger” and that’s often a mistake.) 

2. Expecting the sales leader to figure out positioning and pricing.  They should  have input, but startups should hire a VP of Marketing with strong product marketing skills at the same time as the first VP of Sales. (DK:  I think the highest-risk job in Silicon Valley is first VP of Sales at a startup and this is one reason why.)

3. Hiring the wrong VP Sales due to incomplete vetting and then giving them too much runway to perform.  Candidates should give a presentation to your team and run through their pipeline with little to no preparation (and you should see if they pay attention to stage, last step, next step, keys to winning).  You should leverage backdoor references.  Finally, you should hire fast and fire faster — i.e., you’ll know after 3 months; don’t wait for more proof or think that time is going to make things better.  (DK:  a lot of CEOs and boards wait too long in denial on a bad VP of Sales hire.  Yes, starting over is difficult to ponder, but the only thing worse is the damage the wrong person does in the meantime.)

4. Marketing and selling a platform as a vertical application.  Having a platform is good to the extent it means there is a potentially large TAM, but marketing and selling it as an application is bad because the product is not complete enough to deliver on the value proposition of an application.  Align the product, its positioning, and its sales team — because the rep who can sell an analytic platform is very different from the rep who can sell a solution to streamline clinical trials.  (DK:  I think this happens when a company is founded around the idea of a platform, but it doesn’t get traction so they then fall back into a vertical strategy without deeply embracing the vertical.  That embrace needs to be deeper than just go-to-market; it has to include product in some way.)

5. Ignoring churn greater than 15%.  If your churn is greater than 15%, you have a problem with product, market, or most likely both. Don’t ignore it — fix it ASAP at all costs.  It’s easy to say it will get better with the next release, but it will probably just get a bit less bad.  It will be harder to fix than you think. (DK:  if your SaaS bucket is too leaky, you can’t build value.  Finding the root cause problem here is key and you’ll need a lot of intellectual honesty to do so.)

6. Waiting too long to create Customer Success and give it renewals.  After you have five customers, you need to implement Customer Success for renewals and upsells so Sales can focus on new logos. Make it work. (DK:  Truer words have never been spoken; so many startups avoid doing this.  While the upsell model can be a little tricky, one thing is crystal clear:  Customer Success needs to focus on renewals so sales can focus on new ARR.)

7. Pricing that doesn’t match the sales channel.  Subscriptions under $50K should only be sold direct if it’s a pilot leading to a much larger deployment.  Customers should become profitable during year two of their subscription. Having a bunch of customers paying $10K/year (or less) might make you feel good, but you’ll get crushed if you have a direct sales team acquiring them. (DK:  Yes, you need to match price point to distribution channel. That means your actual street price, not the price you’re hoping one day to get.)

8. Believing that share ownership automatically aligns interests.  You and your investors both own material stakes in your company.  But that doesn’t automatically align your interests.  All other things being equal, your investors want your company to succeed, but they also have other interests, like their own careers and driving a return for their investors.  Moreover, wanting you to succeed and being able to offer truly helpful advice are two different things.  Most dangerous are the investors who are very smart, very opinionated, and very convincing, but who lack operating experience.  Thinking that all of their advice is good is a bit like believing that a person who reads a lot will be a good author — they’ll be able to tell you if your go-to-market plan is good, but they won’t write it for you. (DK:  See my posts on interest mis-alignments in Silicon Valley startups and taking advice from successful people.)

9. Making decisions to please your investors/board rather than doing what’s best for your company. This is like believing that lying to your spouse is good for your marriage. It leads to a bad outcome in most cases.  (DK: There is a temptation to do this, especially over the long term, for fear of some mental tally that you need to keep in balance.  While you need to manage this, and the people on your board, you must always do what you think is right for company.  Perversely at times, it’s what they (should, at least) want you to do, too.)

10. Not hiring a sales/go-to-market advisor because they’re too expensive.  A go-to-market mistake will cost you $500K+ and a year of time. Hire an advisor for $50K to make sure you don’t make obvious mistakes.  It’s money well spent.  (DK:  And now for a word from our sponsor.)

Thanks Mark.  It’s a great list.

Measuring Ramped and Steady-State Sales Productivity: The Rep Ramp Chart

In prior posts I have discussed how to make a proper sales bookings productivity model and how to use the concept of ramped rep equivalents (RREs) in sales analytics and modeling. When it comes to setting drivers for both, corporate leaders tend to lean towards benchmarks and industry norms for the values.  For example, two such common norms are:

  • Setting steady-state (or terminal) productivity at $1,200K of new ARR per rep in enterprise SaaS businesses
  • Using a {0%, 25%, 50%, 100%} productivity ramp for new salesreps in their {1st, 2nd, 3rd, 4th} quarters with the company (and 100% thereafter)

In this post, I’ll discuss how you can determine if either of those assumptions are reasonable at your company, given its history.

To do so, I’m introducing one of my favorite charts, the Rep Ramp Chart.  Unlike most sales analytics, which align sales along fiscal quarters, this chart aligns sales relative to a rep’s tenure with the company.

You start by listing every rep your company has ever hired [1] in order by hire date.  You then record their sales productivity (typically measured in new ARR bookings [2]) for their series of quarters with the company [3], up to and including their current-quarter forecast (which you shade in green).  Reps who leave the company are shaded black.  Reps who get promoted out of quota-carrying roles (e.g., sales management) are shaded blue.  Future periods are shaded grey.  Add a 4+ quarter average productivity column for each row, and average each of the figures in the columns [4].

Here’s what you get:

full

Despite having only a relatively small amount of data [5], we can still interpret this a little.

  • The relative absence of black lines means we’re pretty good at sales hiring.   I’ve seen real charts with 5 black lines in a row, usually down to a single bad management hire.
  • The absence of black lines that “start late”  — for example {0, 25, 75, 25, 55, black} — is also good.  Our reps are either “failing fast” or succeeding, but things are not dragging on forever when they’re not working.
  • Over average 4Q+ productivity is $308K per quarter, almost exactly $1,200K per year so it does seem valid to use that figure in our modeling.
  • Entering $300K as target productivity then shows the empirical rep ramp as a percent of steady-state productivity, exactly how sales leaders think of it.  In this case, we see a {10%, 38%, 76%, 85%, 98%} empirical ramp across the first five quarters.  If our bookings model assumed {0%, 25%, 50%, 100%, 100%} you’d say our model is a little optimistic in the first two quarters, a little pessimistic in the 3rd, and a little optimistic in the fourth.  If we had more data, we might adjust it a bit based on that.

I love this chart because it presents unadulterated history and lets you examine the validity of two hugely important drivers in your sales bookings capacity model — drivers, by the way, that are often completely unquestioned [6].  For that reason, I encourage everyone to make this a standard slide in your Sales ops review (aka, QBR) template.  Note that since different types of rep ramp differently and hit different steady-state productivity levels, you should create one rep ramp per major type of rep in your company.  For example, corporate (or inside) sales reps will typically ramp more quickly to lower productivity levels than field reps who will ramp more slowly to higher productivity.  Channels reps will ramp differently from direct reps.  International reps may need their own chart as well.

You can download the spreadsheet I used here.

# # #

Notes

[1] Sales management may want to omit those no longer with the company, but that also omits their data, and might omit important patterns of hiring failure, so don’t omit anyone.  You can always exclude certain rows from the analysis without removing them from the chart (i.e., hiding them).

[2] New ARR bookings typically includes new ARR to both new and existing customers.

[3] You’ll need as many columns to do this as your longest tenured rep has been with the company, so it can get wide.  Let it.  There’s data in there.

[4] Ensuring empty cells are not confused with cells whose value is zero.  Excel ignores empty cells in calculating averages but will average your 0’s in when you probably don’t want them.

[5] In order to keep it easily and quickly grasped

[6] Particularly the ramp.

Marketing Exists to Make Sales Easier

Many moons ago when I was young product marketing manager, I heard a new VP of Marketing speak at a marketing all-hands meeting.  He spoke with a kiwi accent and his name was Chris Greendale.  What he said were six words that changed my career:

Marketing exists to make sales easier

While this has clearly been a theme in Kellblog posts over the years, I realized that I’ve actually never done a dedicated post on it, despite having written reductionist mission statement posts for both professional services (“maximize ARR without losing money”) and human resources (“help managers manage”).

Being a math type, I love deriving things from first principles and this seemed the perfect first principle from which to derive marketing.  First, you hire a team to build your product.  Then, you hire a team to sell it.  The only reason you need marketing is to help the second team do its job better.

At my next job, I remember bumping into Larry, our fresh from the used-car lot VP of Business Development, who in frustration (as he often was), one day came to work with a bunch of t-shirts that looked something like this

Enterprise software is a two-engine plane and those two engines are quota-carrying salesreps (QCRs) who sell the software and storypoint-burning developers (DEVs) who write it [1].

Everyone else is “the help” — including marketing, finance, sales supporting roles (e.g., SCs, SDRs), engineering-supporting roles (e.g., QA, PM, TPM), customer service, and yes, the CEO.  The faster you understand this, in my humble opinion, the better.

And, while we’re in realization mode, the other thing to internalize is that it costs about twice as much to sell an enterprise software product as it does to build it.  Per KeyBanc, typical S&M spend is 45% of revenue and R&D runs about half that.

But back to the mantra, make sales easier.  Why did I like it so much?

First, it put marketing in its proper place.  At the time, there was something of a power struggle between sales and marketing, and CPG/brand management types were trying to argue that product marketing mangers should be the generals and that sales were just the foot-soldiers.  Looking both around me and at the P&L that just seemed wrong.  Maybe it worked in consumer products [2] but this was enterprise software.  Sales had all the budget and all the power to go with it.  We should help them and, ego aside, there’s nothing wrong with being a helper.

In fact, if you define your mission statement as “help” and remember that “help is defined in the mind of the recipient,” you’ve already gone a long way to aligning your sales and marketing.

Second, there was nothing written in stone that limited the scope of that help. Narrow thinking might limit marketing to a servile role.  That’s not my intent.  Help could take many forms, and while the primary form of requested help has evolved over time, help can include both the tactical and the strategic:

  • Giving sales qualified leads to work on.
  • Building training and tools that helps sales sell more.
  • Providing competitive information that helps win more deals.
  • Creating an ideal customer profile (ICP) that helps sales focus on the most winnable deals.
  • Building industry-specific messaging that helps sell in given verticals
  • Working with PM [3] to build product that is inherently more salable [4].
  • Corporate strategy development to put the company in the right markets with the right offerings.

When I say help, I don’t mean lowercase-h tactical help.  I mean help in all its forms, which can and should include the “tough love” form of help:  “I know you think you want that, but let me demonstrate that I’ve heard your request and now explain why I think it’s not a good idea.”

Being helpful doesn’t mean saying yes to everything.  I hearken back to Miracle on 34th Street whenever I’m drawn into this problem (quote adapted):

Kris Kringle:  No, but don’t you see, dear?  Some <salespeople> wish for things they couldn’t possibly use like real locomotives or B-29s.

If sales is asking you for a real locomotive or a B-29 you need to tell them.

For the rest of my marketing career, I took Greendale’s mantra and made it my own.  If sales were my customer and I were helping them, then:

  • We’d run sales satisfaction surveys to see how happy sales was with marketing and where they wanted us to invest and improve [5].
  • We’d make ourselves accountable.  One of the biggest stresses in the sales/marketing relationship was, to paraphrase an old joke, sales felt like the pig while marketing was the chicken.  We’d publish objectives, measure ourselves, and be honest about hits and misses.
  • We’d bring data to the party.  We’d leverage syndicated and custom research to try and made data-driven as opposed to opinion-driven decisions.
  • We’d stop back-seat drivers.  I’d remind anyone that got too uppity that “quotas are available” and they should go take one [6].
  • We wouldn’t be the marketing police, scolding people for using out-of-date materials.  If sales were using a deck we’d decommissioned quarters ago, our first response wouldn’t be “stop!” but “why?”
  • We’d market marketing.  We’d devote some time to internal marketing to let the sales organization know what we were doing and why.

We’d even do something that tested the limits of HR (particularly when I was in France).  I’d use the sales satisfaction survey to rank every customer-facing marketer on a matrix.

This gave me hard data on who sales knew in the department and what they thought of them.  If we’re going to make messaging for sales to present to customers, we’d better prepared to — and be good at — presenting it ourselves [7].

Overall, the mantra served me well, taking me from product marketing director to VP of product marketing to VP of corporate marketing to overall VP of marketing and a great run at Business Objects.  I’ve had plenty of people challenge me on it over the years — usually it’s because they understand it as purely tactical.  But it’s served me well and I encourage you to use it as your North Star in leading your marketing team.

After all, who doesn’t like help?

# # #

Notes

[1] You’d be wise to add those two figures to your one-page key metrics.  Somehow it’s always easier to hire the supporting staff than the “engine” staff, so keep an eye on the raw numbers of QCRs and DEVs and, for more fun, track their density in their respective organizations (QCRs/sales and DEVs/eng).

[2] Shout out to my daughter Stephanie who works in brand management on a consumer product and who can now inform me directly of how things work in that world — and it is different.

[3] PM = product management.

[4] Either in the sense of better solves the problem or in the tactical sense of wipes out competitive differentiation.

[5] One of my favorite results was the sales and SCs often wanted exactly the same thing, but that sales wanted it more (i.e., roughly the same priority curve but sales would rank everything even more important than the SCs).

[6] Most didn’t, but a few did, and some did remarkably well.

[7] We were probably a $100M company around the time we started this, so I’m not suggesting it for a 2-PMM startup.  And yes, I’d put myself on the matrix as well.

Should Customer Success Report into the CRO or the CEO?

The CEO.  Thanks for reading.

# # #

I was tempted to stop there because I’ve been writing a lot of long posts lately and because I do believe the answer is that simple.  First let me explain the controversy and then I’ll explain my view on it.

In days of yore, chief revenue officer (CRO) was just a gussied-up title for VP of Sales.  If someone was particularly good, particularly senior, or particularly hard to recruit you might call them CRO.  But the job was always the same:  go sell software.

Back in the pre-subscription era, basically all the revenue — save for a little bit of services and some maintenance that practically renewed itself — came from sales anyway.  Chief revenue officer meant chief sales officer meant VP of Sales.  All basically the same thing.  By the way, as the person responsible for effectively all of the company’s revenue, one heck of a powerful person in the organization.

Then the subscription era came along.  I remember the day at Salesforce when it really hit me.  Frank, the head of Sales, had a $1B number.  But Maria, the head of Customer Success [1], had a $2B number.  There’s a new sheriff in SaaS town, I realized, the person who owns renewals always has a bigger number than the person who runs sales [2], and the bigger you get the larger that difference.

Details of how things worked at Salesforce aside, I realized that the creation of Customer Success — particularly if it owned renewals — represented an opportunity to change the power structure within a software company. It meant Sales could be focused on customer acquisition and that Customer Success could be, definitionally, focused on customer success because it owned renewals.  It presented the opportunity to have an important check and balance in an industry where companies were typically sales-dominated to a fault.  Best of all, the check would be coming not just from a well-meaning person whose mission was to care about customer success, but from someone running a significantly larger amount of revenue than the head of Sales.

Then two complications came along.

The first complication was expansion ARR (annual recurring revenue).  Subscriptions are great, but they’re even better when they get bigger every year — and heck you need a certain amount of that just to offset the natural shrinkage (i.e., churn) that occurs when customers unsubscribe.  Expansion take two forms

  • Incidental:  price increases, extra seats, edition upsells, the kind of “fries with your burger” sales that are a step up from order-taking, but don’t require a lot of salespersonship.
  • Non-incidental:  cross-selling a complementary product, potentially to a different buyer within the account (e.g., selling Service Cloud to a VP of Service where the VP of Sales is using Sales Cloud) or an effectively new sale into different division of an existing account (e.g., selling GE Lighting when GE Aviation is already a customer).

While it was usually quite clear that Sales owned new customer acquisition and Customer Success owned renewals, expansion threw a monkey wrench in the machinery.  New sales models, and new metaphors to go with them, emerged. For example:

  • Hunter-only.  Sales does everything, new customer acquisition, both types of expansion, and even works on renewals.  Customer success is more focused on adoption and technical support.
  • Hunter/farmer.  Sales does new customer acquisition and non-incidental expansion and Customer Success does renewals and incidental expansion.
  • Hunter/hunter.  Where Sales itself is effectively split in two, with one team owning new customer acquisition after which accounts are quickly passed to a very sales-y customer success team whose primary job is to expand the account.
  • Farmers with shotguns.  A variation of hunter/hunter where an initial penetration Sales team focuses on “land” (e.g, with a $25K deal) and then passes the account to a high-end enterprise “expand” team chartered with major expansions (e.g., to $1M).

While different circumstances call for different models, expansion significantly complicated the picture.

The second complication was the rise of the chief revenue officer (CRO).  Generally speaking, sales leaders:

  • Didn’t like their diminished status, owning only a portion of company revenue
  • Were attracted to the buffer value in managing the ARR pool [3]
  • Witnessed too many incidents where Customer Success (who they often viewed as overgrown support people) bungled expansion opportunities and/or failed to maximize deals
  • Could exploit the fact that the check-and-balance between Sales and Customer Success resulted in the CEO getting sucked into a lot of messy operational issues

On this basis, Sales leaders increasingly (if not selflessly) argued that it was better for the CEO and the company if all revenue rolled up under a single person (i.e., me).  A lot of CEOs bought it.  While I’ve run it both ways, I was never one of them.

I think Customer Success should report into the CEO in early- and mid-stage startups.  Why?

  • I want the sales team focused on sales.  Not account management.  Not adoption.  Not renewals.  Not incidental expansion.  I want them focused on winning new deals either at new customers or different divisions of existing customers (non-incidental expansion).  Sales is hard.  They need to be focused on selling.  New ARR is their metric.
  • I want the check and balance.  Sales can be tempted in SaaS companies to book business that they know probably won’t renew.  A smart SaaS company does not want that business.  Since the VP of Customer Success is going to be measured, inter alia, on gross churn, they have a strong incentive call sales out and, if needed, put processes in place to prevent inception churnThe only thing worse than dealing with the problems caused by this check and balance is not hearing about those problems.  When one exec owns pouring water into the bucket and a different one owns stopping it from leaking out, you create a healthy tension within the organization.
  • They can work together without reporting to a single person.  Or, better put, they are always going to report to a single person (you or the CRO) so the question is who?  If you build compensation plans and operational models correctly, Customer Success will flip major expansions to Sales and Sales will flip incidental expansions back to Customer Success.  Remember the two rules in building a Customer Success model — never pair our farmer against the competitor’s hunter, and never use a hunter when a farmer will do.
  • I want the training ground for sales.  A lot of companies take fresh sales development reps (SDRs) and promote them directly to salesreps.  While it sometimes works, it’s risky.  Why not have two paths?  One where they can move directly into sales and one where they can move into Customer Success, close 12 deals per quarter instead of 3, hone their skills on incidental expansion, and, if you have the right model, close any non-incidental expansion the salesrep thinks they can handle?
  • I want the Customer Success team to be more sales-y than support-y.  Ironically, when Customer Success is in Sales you often end up with a more support-oriented Customer Success team.  Why?  The salesreps have all the power; they want to keep everything sales-y to themselves, and Customer Success gets relegated to a more support-like role.  It doesn’t have to be this way; it just often is.  In my generally preferred model, Customer Success is renewals- and expansion-focused, not support-focused, and that enables them to add more value to the business.  For example, when a customer is facing a non-support technical challenge (e.g., making a new set of reports), their first instinct will be to sell them professional services, not simply build it for the customer themselves.  To latter is to turn Customer Success into free consulting and support, starting a cycle that only spirals.  The former is keep Customer Success focused on leveraging the resources of the company and its partners to drive adoption, successful achievement of business objectives, renewals, and expansion.

Does this mean a SaaS company can’t have a CRO role if Customer Success does not report into them?  No.  You can call the person chartered with hitting new ARR goals whatever you want to — EVP of Sales, CRO, Santa Claus, Chief Sales Officer, or even President/CRO if you must.  You just shouldn’t have Customer Success report into them.

Personally, I’ve always preferred Sales leaders who like the word “sales” in their title.  That way, as one of my favorites always said, “they’re not surprised when I ask for money.”

# # #

[1] At Salesforce then called Customers for Life.

[2] Corner cases aside and assuming either annual contracts or that ownership is ownership, even if every customer technically isn’t renewing every year.

[3] Ending ARR is usually a far less volatile metric than new ARR.

Stopping the Sales & Marketing Double Drowning

I earned my spending money in high school and partially paid for college by working as a lifeguard and water safety instructor. Working at a lovely suburban country club you don’t make a lot of saves. One day, working from the deep-end chair, I noticed two little kids hanging on a lane line. That was against the rules. I blew my whistle and shouted, “off!”

Still young enough to be obedient (i.e., under 11), the two kids let go of the line. The trouble was they couldn’t swim. Each grabbed the other and they sank to the bottom. “Oh my God,” I thought as I dove off the chair to make the save, “I just provoked a double drowning.”

While that was happily the last actual (and yes, averted) double drowning I have witnessed, I’ve seen a lot of metaphorical ones since. They involve adults, not kids. And it’s always the VP of Sales in a deadly embrace with the VP of Marketing. Sure, it may not be an exactly simultaneous death — sometimes they might leave a few months apart — but make no mistake, in the end they’re both gone and they drowned each other.

How To Recognize the Deadly Embrace

I believe the hardest job in software is the VP of Sales in an early-stage startup. Why? Because almost everything is unknown.

  • Is the product salable?
  • How much will people pay for it?
  • What’s a good lead?
  • Who should we call on?
  • What’s the ideal customer profile?
  • What should we say / message?
  • Who else is being evaluated?
  • What are their strengths/weaknesses?
  • What profile of rep should I hire?
  • How much can they be expected to sell?
  • What tools do they need?
  • Which use-cases should we sell to?
  • What “plays” should we run?

You might argue every startup less then $50M in ARR is still figuring out some of this. Yes, you get product-market fit in the single-digit millions (or not at all). But to get a truly repeatable, debugged sales model takes a lot longer.

This painful period presents a great opportunity for sales and marketing to blow each other up. It all begins with sales signing up for (or being coerced into) an unrealistic number. Then, there aren’t enough leads. Or, if there are, the leads are weak. Or the leads don’t become pipeline. Or pipeline doesn’t close.

At each step one side can easily blame the other.

Sales SaysMarketing Says
There aren’t enough leadsThere are, but they’re all stuck with your “generation Z” SDRs
The SDRs are great, I hired themThe SQL acceptance rate says they are passing garbage to sales.
The SQLs aren’t bad, there just aren’t enough of themYour reps are greasing the SDRs by accepting bad SQLs
We’re not getting 80% of pipeline from marketingWe’re delivering our target of 70% and then some
But the pipeline is low quality, look at the poor close rateThe close rate is poor because of your knuckleheaded sellers
Those knuckleheads all crushed it at my last companyYour derail rate’s insane
Lots of deals in this space end up no-decisionMaybe they derail because we don’t follow-up fast enough
Our message isn’t crisp or consistentOur messaging is fine, the analysts love it
We’re the greatest thing nobody’s ever heard of We’ve got a superior product that your team can’t sell
We’re being out-marketed!We’re being out-sold!

Once this ping-pong match starts, it’s hard to stop. People feel blamed. People get defensive. Anecdotal bloody shirts are waived in front of the organization — e.g., “marketing counted five grad students who visited the booth as MQLs!” or “we lost an opportunity at BigCo because our seller was late for the big meeting!”

With each claim and counter-claim sales and marketing tighten the deadly embrace. Often the struggling CRO is fired for missing too many quarters, guns still blazing as he/she dies. (Or even beyond the grave if they continue to trash the CMO post departure.) Sometimes the besieged CMO quits in anticipation of termination. Heck, I even had one quit after I explicitly told them “I know you’re under attack, but it’s unfair and I’ve got your back.”

Either way, in whatever order, they go down together. Each one mortally wounds the spirit, the confidence, or the pleasure-in-work of the other.

How to Break Out of It

Like real double drownings, it’s hard for one of the participants to do an escape maneuver. The good news is that it’s not hard to know there’s a problem because the mess is clearly visible to the entire organization. Everyone sees the double downing. Heck, employees’ spouses probably even know about it. However, only the CEO can stop it and — trust me — everyone’s waiting for them to do so.

The CEO has four basic options:

  • Take some pressure off. If the primary reason you’re missing plan is because the plan is too aggressive, go to the board and reduce the targets. (Yes, even if it means reducing some expense budget as well.) As Mike Moritz said to me when I started at MarkLogic: “make a plan that you can beat.” Tell them both that you’re taking off the pressure, them them why (because they’re not collaborating), and tell them that you’ve done your part and now it’s time for them to do theirs: collaborate non-defensively to solve problems.
  • Force them to work together. This the old “this shit needs to stop and I’m going to fire one of the two of you, maybe both, if you can’t work together” meeting. A derivation is to put both in a room and tell them not to leave until either they agree to work together or come out with a piece of paper with one name on it (i.e., the one who’s leaving). The key here for them to understand that you are sufficiently committed to ending the bullshit that you are willing to fire one or both of them to end it. In my experience this option tends not to work, I think because each secretly believes they will be the winner if you are forced to choose.
  • Fire one of the participants. This has the effect of rewarding the survivor as the victor. If done too late (before death but after the mortal wound — i.e., after the victor is far along in finding another job), it can still result in the loss of both. To the extent one person clearly picked the fight, my tendency is to want to reward the victim, not the aggressor — but that discounts the possibility the aggressor is either correct and/or more highly skilled. If they are both equally skilled and equally at fault, a rational alternative is to flip a coin and tell them: “I value you both, you are unable to work together, I think you’re equally to blame, so I’m going to flip a coin and fire one of you: heads or tails.” An alternative is to fire one and demote the other — that way it’s very clear to all involved that there was no winner. If fights have winners, you’re incenting fighting.
  • Fire both. I love this option. While it’s not always practical, boy does it send a strong message about collaboration to the rest of the organization: “if you fight, are asked to stop, and you don’t — you’re gone.” Put differently: “I’m not firing them for fighting, I’m firing them for insubordination because I told them not to fight.” Odds are you might lose both anyway so one could argue this is simply a proactive way of dealing with the inevitable.

One of the hardest things for executives is to maintain the balance between healthy cross-functional tension and accountability and unhealthy in-fighting and politics. It’s the CEO’s job to set the tone for collaboration in the company. While Larry Ellison and his disciplines may love “two execs enter, one exec leaves” cage fights as a form of corporate Darwinism, most CEOs prefer a tone of professional collaboration. When that breaks down, weak CEOs get frustrated and complain about their executive team. Strong ones take definitive action to define what is and what isn’t acceptable behavior in the organization and put clear actions behind their words.