Category Archives: Scaling

Your ICP Starts as an Aspiration and Becomes a Regression

Posted on August 30, 2025 | 3 comments

The concept of an ideal customer profile (ICP) has been around for a long time, but like its cousin, the minimum viable product (MVP), it is often misunderstood. In this post, I’ll offer some background commentary on the ICP concept and then build into one of my favorite sayings: your ICP starts out as an aspiration and becomes a regression.

There are four common questions around ICPs. Here they are, along with my answers:

  • Is the ICP about a person or a firm? Both. It should include firmographic as well as role (or persona) information. Example: VPs of sales at technology companies between $500M and $2B in revenues. Here, we included the size and industry of the company along with the target buyer’s title.
  • Should an ICP include a problem to be solved? Yes. VPs of sales have lots of different problems from recruiting to training to pipeline management to forecasting, just to name a few. Thus, your ICP should include the ideal person at the ideal company and the problem you’re looking to solve for them.
  • Should the ICP include adjacent systems? Yes. Deciding at the outset if you want to focus on customers using specific, adjacent systems is often critical (e.g., NetSuite vs. Oracle vs. Xero for core financials, Salesforce vs. HubSpot for CRM). The alternative is drowning in integration work while never having the time to support the idiosyncrasies of a given package which, when you do it, is usually adored by customers.
  • Should an ICP include sales qualification criteria? No. The ICP is about the buyer: this is the person we’re looking for. They have this job at this kind of company. Whether they’re out shopping right now, whether they have budget, whether they have a buying timeframe and purchasing authority are all important qualification questions, but they are not part of the ICP itself. People differ on this, I know [1].

Because the world is imperfect and it’s difficult to find “Mr. or Ms. Right” every time, it’s useful to think of the ICP as a bullseye. The absolute perfect customer is in ring 0, the next level off in ring 1, after that ring 2, et cetera. Note that I have no religion about the things you vary across the rings, but the usual candidates are: job title, industry, size, adjacent systems, and problem (aka use-case). And you might do them in unusual combinations. For example, if you think a director of finance with a budgeting problem is about as good as a manager of finance at a bigger company with an operational reporting problem, then you can put them both in ring 2.

The idea is to give you a simple and flexible model to agree on who to target and who to prioritize across sales, marketing, and product.

For a zero-to-one startup, you might focus exclusively on ring 0. As you grow you will typically get more use-cases, more industries, more adjacent systems, and thus more rings. That’s fine as long as you’re defining the rings clearly and triaging them into: hot pursue, pursue, and slow-roll or some similar encoding system.

With a few clearly established tiers you are now ready to report on ARR and pipeline by ICP tier to see if “you’re walking the talk” when it comes to your ICP. At many companies, you will find the majority of the ARR and pipeline [2] outside ring 2 or 3. In these cases, you simply aren’t living your ICP and instead suffering from a faux focus. The usual cause is an inability to control the sales force and prevent their default “chase anything” behavior [3].

The ICP is typically born in the founder’s head as an hypothesis. Think: I bet if we can build something like this, it will solve a problem like that. By the time a company has been founded and a product built, it becomes an aspiration. Think: I want to sell to people like this to solve a problem like that. So you sharpen your definitions of this and that, and add some additional targeting criteria like company size, industry, or adjacent systems. And then you go off and sell.

Let’s say it works. One day you look up and you’re now $50M or $100M in ARR. Congratulations. Should your ICP still be an intuition-driven aspiration? No. It should be a regression. Reality happened. Let’s find out what reality is telling us.

Are the people in our ICP ring 0 really our best customers?

Well, what do we mean by best? Do they have higher ASPs? Do they have shorter sales cycles? Do they renew at higher rates? Do they expand at higher rates (e.g., NRR)? Do we win new deals at higher rates? Do they give us higher CSAT scores?

At the first order, these are all just simple segmented metrics calculations that you can and should do. Your QBR and board decks should show these key metrics segmented by ICP tier [4]. And — since not all these metrics can be important — your e-team also needs to have the conversation about “what do we mean by best” so you can have a common, precise definition of the “best” customers that you are trying to target [5].

But the best answers to these questions are not performed using segment analysis [6]. Segment analysis is great for finding anomalies — e.g., why do we have a higher win rate in ICP tier 3 than tier 1? But it’s not a great technique for actually finding the impact of different variables on the success criteria.

For that, we need regression analysis. Regression analysis will tell us which variables most strongly correlate with the outcomes we want (e.g., that the strongest predictor of renewal is company size, not CSAT) [7]. A good regression analysis will tell you not only which factors most correlate with the outcome, but it can also be the best way to bucket those variables (e.g., the real breakpoint is at 250 employees, but your initial segment went from 0 to 500).

Odds are, when we do this kind of analysis we’ll find lots of surprises. Some of your intuition will be proven correct, but some won’t. And you’ll likely find entirely new variables (e.g., number of data scientists) that you didn’t even consider in your initial ICP exercises.

So this is why I like to say that your ICP starts as an aspiration — about who you want to sell to — and over time becomes a regression. Because one day you will have lots of data to analyze to determine who your best customers are — subject to your definition of best, of course — as opposed to who you thought they would be.

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Notes

[1] Regardless of where you land at least be aware there are two types of criteria: those that change slowly or not at all (e.g., company size, adjacent systems, industry) and those that can change overnight (e.g., out shopping, budget, authority). My analogy here is dating: you can meet the right person at the wrong time. It doesn’t change the fact that they’re the right person. (And that’s why God made nurture tracks.)

[2] Think of pipeline as a potential leading indicator of ARR. Well, it should be, at least.

[3] Using the ICP in territory and compensation plan definitions can help with that. Think: you only earn commissions on customers in ICP rings 1 through 3 within your geographic territory. That will get your sellers’ attention.

[4] Note that I’m kind of using ICP tier and ring synonomously here and that’s generally OK. However, in cases where you have lots of rings, I would then sort those rings into tiers, so ring is the more specific and tier the more general term. For me, because I like simplicity, I want to see ICP segmentation in at most 3-4 buckets, so if there are N rings underlying those, I’d prefer to hide those by using 3-4 tiers.

[5] You probably don’t want marketing targeting high LTV prospects when sales wants to target high win rate ones. We should all be on the same targeting page.

[6] One of the key problems being that the segments themselves were somewhat arbitrarily chosen. Sure, we did our best to guess who’d be our best customers. But who are they actually? We may have used not only the wrong bucket boundaries (e.g., 100 emps vs. 500 emps) but even the wrong dimensions (e.g., maybe company size is a poor predictor and industry or use-case a powerful one).

[7] I cheated here on purpose to see if you were paying attention. Thus far, we’ve largely said the ICP is about a company (firmographics) and a role/persona. But here I’ve said that company size is a better predictor or renewal than CSAT — and CSAT isn’t a ICP-style criteria. The reality is these tools can do precisely that, looking across a wide range of input variables to see which most influence the output. Obviously, for marketing targeting purposes we don’t want CSAT to be an input variable to the model, but for renewals analysis we sure would.

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Posted in Customer Success, Data Science, Entrepreneurship, Marketing, Sales, Scaling, Startups

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Transitioning from Founder-Led Sales: The “We Need More Schmedleys” Problem

Posted on March 2, 2025 | 3 comments

I remember how silly the board looked that day. Reviewing the slide with performance by salesrep, an alpha board member impatiently shouted the seemingly obvious conclusion: “Look, only one rep — Joe Schmedley — is performing. Everyone else is struggling. The solution to our problem is quite simple: we need more Schmedleys.”

I had to kick about three executives under the table to prevent them from bursting into uproarious laughter. The last thing we needed, the team knew, was more Schmedleys.

Joe Schmedley wasn’t a bad guy. A competent, if somewhat bumbling, enterprise rep. Affable. Could talk about local sports teams. Not a bad guy to have a beer with. Not a particularly good guy at driving paperwork through procurement. Average to a skooch above in most respects. The last thing we needed to do was define our hiring profile by his background and tell a recruiter to go find ten more of them.

So what was driving this false signal in the data? The numbers don’t lie, right? And by the numbers, Schmedley was crushing it. Consistently our top rep.

What’s going on here?

What if I told you:

  • Schmedley was hired to manage the company’s largest account.
  • That account was originally sold by the founders.
  • That account was effectively managed by the execs, specifically, the CRO, CTO and VP of professional services
  • That account was quite successful with our technology and expanding their use of it every year
  • Schmedley had little to no success outside that major account

Like some successful salesreps, Schmedley had found himself in the right place at the right time. We knew it. Heck, he wasn’t arrogant, I think he knew it. The only people who didn’t know it were the board, who was actively telling us to hire ten more Schmedleys, making him the archetype for all future sales hires.

The problem was, of course, that the big customer was effectively a “house account,” and Schmedley merely a steward. We were in the midst of the transition from founder-led sales to sales-led sales and the board was confusing the account’s success with Schmedley’s.

What can you do to avoid this problem?

  • Don’t hire affable stewards. No early-stage startup should. If you somehow convince yourself that all you want is an account manager, then hire a CSM or TAM. Not an salesrep.
  • Hire smart, aggressive salespeople who want to learn about success in order to replicate it. They shouldn’t be there to milk the house account. They should be there to learn deeply about it, so they can find ten more.
  • Don’t use a highly leveraged compensation plan. If you’re just running a house account, there is a serious question as to whether you should earn typical enterprise sales compensation — e.g., $300K on-target earnings (OTE). Personally, I’d take the $150K variable, put $50K on OKRs for managing the house account, and the remaining $100K on a leveraged new business plan.
  • Be consistent. You can’t tell the board in the morning that Schmedley’s success proves the industrialization of our sales model and then, three hours later, say that he’s just a steward. Most CEOs and CROs walk themselves into this problem by trying to have it both ways. Pick one.
  • Get ahead of the problem with metrics. Don’t make slides that lead the board to the incorrect conclusion. Pull out the house account from analytics. Split Schmedley’s new business performance from his house account performance. While we all made fun of the board for saying, “we need more Schmedleys,” we did create the slides that lead them to that conclusion.

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Posted in Boards, Sales, Scaling

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How to Calculate Cost Per Opportunity

Posted on March 1, 2025 | Leave a comment

My marketing professor once said, The answer to every marketing question is, “It depends.” Thus, the important part is knowing on what.

So, how do you calculate the cost/opportunity? Well, it depends! On what? On the specific question you’re trying to answer. When people ask about cost/opportunity, they usually have one of two things in mind:

  • An efficiency question — e.g., how efficiently does marketing spend convert into sales opportunities (oppties)?
  • A cost question — e.g., how much it would cost to get 50 more oppties if we needed them

Knowing which question you’re being asked has a big impact on how to calculate the answer. Let’s illustrate this by looking at this typical marketing budget, which is allocated roughly 45/45/10 across people, programs, and technology:

If this marketing team generated 1,000 oppties, then the average total marketing cost/oppty is $9,000 = $9M/1K oppties. You might argue that’s a good overall marketing efficiency metric and try to benchmark it. But those benchmarks will be hard to find.

Why?

Because there’s a better overall marketing efficiency metric: the marketing customer acquisition cost (CAC) ratio = (last-quarter marketing expense)/(this-quarter new ARR). Why is the marketing CAC a better marketing efficiency metric than average total marketing cost/oppty?

  • It’s more standard. While relatively few startups break their CAC ratio in two parts, virtually every startup already calculates CAC ratio or CAC payback period (CPP). People are familiar with the concept and the math mostly already done — just back out the sales expense.
  • There is less room for calculation debates. While neither total cost/oppty or marketing CAC is hard to calculate, because marketing CAC is a derivative of CAC, some nagging questions are already answered for you – e.g., Is it all marketing or just a part? Is it GAAP expense or cash expense? Answers: look at how you calculate your CAC ratio for guidance.
  • The phase shift. The CAC ratio compares last quarter’s expense to this quarter’s new ARR in an attempt to better match expenses and results.
  • There are more benchmark data sets. I can think of about ten sources for CAC ratio data (not all of which make the sales/marketing split). I can think of approximately zero for average total marketing cost/oppty. You can’t benchmark a metric without good data sets to compare against.

So if someone’s asking you about marketing efficiency by looking at average total marketing cost/oppty, I’d politely redirect them to the marketing CAC ratio.

But say they’re looking at cost. Specifically, that the company is forecasting a pipeline generation shortfall of about 50 oppties and the CEO asks marketing: How much money will it take for you to generate 50 more?

Is $9,000 * 50 = $450,000 even correct?

The answer is no. To get 50 more oppties, you don’t need to hire 5% more marketers, boost the CMO’s salary by 5%, up the PR agency retainer by 5%, increase the userconf budget by 5%, spend 5% more on billboards, or increase tech infra spending by 5%. Thus, you should not multiply the average total marketing cost of an oppty by the number of oppties. You should multiply the incremental cost of an oppty by 50.

And the best answer we have here, at our fingertips, for the incremental cost of an oppty is the average demandgen programs cost/oppty. In our example, that’s $3,250. So, to generate 50 more oppties would cost $162,500. That’s good news because it’s a whole lot less than $450,000 and because it’s correct.

In short, cost/oppty = total demandgen cost / number of oppties.

This begs a potential rathole question which I call the low-hanging fruit problem. Most demandgen marketers argue that picking oppties out of the market is like picking apples out of a tree. First, you pick the easy ones, which doesn’t cost much. But the more apples you need, the higher up the tree you have to go. That is, the cost of picking the 1,000th apple is a lot higher than the cost of picking the first one. That is, the average cost of picking 1,000 apples is less than the incremental cost of getting one more.

While I think there’s some truth to this argument — and a lot of truth when it comes to paid search — you can’t let yourself slide into an analytical rathole. As CMO, a key part of your job is to always know the incremental cost of generating 50 more opportunities. Because — as veteran CMOs know well — either or both of these things happen with some frequency:

  • There is an oppty shortfall and someone asks how much money you need to fill it. You should answer instantly.
  • There is a money surplus and on day 62 of the quarter the CFO approaches you, asking if you can productively spend $100K this quarter. The answer should always be, “yes” and you should start deploying the money the next day.

That’s what you might call “agile marketing.” And you get agile by doing the math in advance and having the incremental spending plan in your pocket, waiting for the day when someone asks.

To make things easy, unless and until you have a spending plan that answers the cost of getting 50 more oppties, just use your average demandgen cost/oppty and uplift it by 25% to adjust for the low-hanging fruit problem. That way you can answer the boss quickly and you’ve left yourself some room.

Let’s close this out by raising a common objection to using demandgen costs only. It sounds something like this:

If I use demandgen cost only, someone might say that I’m understating the true cost of a marketing-generated opportunity and I’m going to get in trouble.

Well, that certainly can happen. People can accuse you of anything. There are two ways to avoid this.

  • Speak precisely. If asked, say “the average demandgen cost of an oppty is $3,250.” And, “the incremental cost of getting 50 more will be around $4,050.” (An approximately 25% uplift.)
  • Use footnotes. If making slides, always put definitions in the footer. So, if a row is labeled “cost/oppty” then make a footnote that explains that it’s demandgen cost only. Better yet, label the row “demandgen cost/oppty” and use the footnote to explain why that’s a better proxy for an incremental cost — which is the thing most people are worried about.

And finally, remind them if they want to discuss overall marketing efficiency, they should change slides and look at the marketing CAC ratio, which does proudly include every penny of marketing expense. And if you’re really, really good, ask them to skip to the slide that shows the sales/marketing expense ratio and discuss that.

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Posted in Demandgen, Marketing, Metrics, SaaS, Scaling, Startups

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Think of Demandgen Like Any Other Sales Support Resource

Posted on February 21, 2025 | Leave a comment

Why is it that when we want to add an account executive (AE) to the plan, we always think about some ratios but not others? For example, most people think: Boom! Then we’re going to need:

  • 2/3rds of an sales consultant (SC)
  • 1/3rd of a sales development rep (SDR)
  • 1/6th of a sales manager

With the chosen ratios varying as a function of your sales model. If we’re good, we might even include:

  • 1/8th of an alliances manager
  • 1/10th of a salesops person
  • 1/12th of a sales enablement person

If we’re really good, and we have a large organization, we’ll also get the next layers of sales, SC, and SDR management.

But what’s the one thing that almost never comes up in these support ratio discussions? Demand generation (aka demandgen). Money for marketing to build pipeline for the incremental AE.

When we don’t treat demandgen as a ratio-driven, support resource, we get what I call the baby robin problem.

Sellers waiting for pipeline from marketing

We throw our model out of whack by hiring more sellers than planned and thus everyone ends up with insufficient pipeline. The sellers turn into baby robins, mouths extended upwards, waiting for someone — e.g., SDRs, marketing, alliances — to drop opportunities in.

How can we avoid the baby robin problem? By treating demandgen budget as you would any other sales support resource. We instinctively think about SDRs and SCs (even if we don’t always go hire them). But we don’t do the same for demandgen. So part of this is self-discipline. The other part is math.

Let’s assume steady state, so we can ignore timing and ramping:

  • If our AE has a quota of $300K/quarter
  • And we want 3x pipeline coverage
  • Then we need to generate $900K of pipeline each quarter
  • If our pipe/spend ratio is a healthy 15:1
  • Then we need $60K/quarter in demandgen spend per AE

That’s $240K/year. A lot more than 1/3rd of an SDR and 1/6th of a manager. Yet, we routinely model these lesser costs and forget the demandgen.

Why? Silos.

It’s a different budget. Oh, that’s marketing. But it’s sales that’s asking for incremental money to hire the seller. The marketing budget is someone else’s problem. Until you repeat this 5-10 times and now every seller is starving for pipeline. Then it’s everyone’s problem.

So how can you avoid this? I’ll say it a few different ways, so you can take your pick:

  • Work together. Hiring incremental sellers is a go-to-market (GTM) problem, not a sales problem.
  • Plan holistically.
  • Treat demandgen like any other sales support resource.

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Posted in Demandgen, Marketing, Pipeline, Sales, Sales Model, Scaling, Startups

Design Your Organization for the Conflicts You Want to Hear About

Posted on October 12, 2024 | 2 comments

Organization design seems a popular topic these days. Maybe it’s the downturn. Maybe it’s just planning season. But either way, many people are asking me questions about how to design their organizations for 2025 and beyond. Questions like:

  • Should marketing report into sales?
  • Should engineering and product management (PM) report into a combined product org?
  • Should we unite customer success and sales?
  • Should North American and Europe report into a single head of sales?

The argument for combining teams is always about reducing span of control. This is a goal that many CEOs (and some boards) share, but one that somehow escaped one of the world’s most successful entrepreneurs, Jensen Huang, who has about 60 direct reports.

While 60 seems a bit much, I’ve frankly never understood span-of-control reduction as a top organization design goal. As CEO, you should be managing senior people so they shouldn’t take that much time. So, why not have 8 or 10 direct reports? If you can’t handle that, maybe the problem isn’t that you have too many reports, but that you’re managing them too closely. Maybe the solution isn’t to reduce their number, but to loosen the reins.

I have two rules for organization design:

  • Design for conflict. Specifically, design your organization for the conflicts you want to hear about.
  • Ensure value-add. Don’t put thing B under thing A unless the executive in charge can add value to both.

Design for Conflict

When you put, for example, engineering under product, what don’t you hear about anymore? Conflicts between PM and ENG about the time and resources required to build things. Those conflicts get silenced because the SVP of Product will suppress them, resolving them in the family.

When you put marketing under sales, what don’t you hear about anymore? Conflicts about whether sales strategy is too unfocused to enable marketing targeting. Or whether sales follows-up on new oppties in a timely manner. Those get silenced because the CRO wants to manage their own house. “Let’s resolve that at the sales QBR, not the e-staff meeting.”

When you put customer success under sales, what don’t you hear about anymore? Conflicts about whether sales is overselling to the point that customers won’t be successful and ergo won’t renew. If churn looks high, well, it must be the product. It’s not delivering, but against what expectations, set by whom? All silenced.

The rule is simple. By combining two departments, you are asking one person to resolve the conflicts between them. They’re not evil to do so; it’s the job you asked them to do. They will keep these conflicts in the family. And, as the organization grows, you will hire increasingly senior people to do just that. But with each layer and with each combination, you get more insulated from the ground truth.

So the question is simple: which conflicts do you want to hear about? Which do you want to pay someone else to resolve and which do you want brought to your office? Which are strategic to the company and potentially involve Crux-level issues?

  • If you separate PM and ENG, you’ll hear a lot about specs, resources, and timelines.
  • If you separate sales and marketing, you’ll hear a lot about awareness, leads, and follow-up.
  • If you separate customer success and sales, you’ll hear a lot about over-selling.

There’s no magical answer here. Just a framework for thinking about it. Determine the conflicts you want to hear about — presumably because you can add the most value in resolving them — and then design the organization to make sure you do.

Ensure Value-Add

The other principle is to always ensure value-add, beyond the (sometimes merely assumed) alignment that comes from having a common boss. So, sales wants the SDRs to report to them? Why? Has the sales VP managed an SDR team before? Are they good at it? Are they even interested in it? Can they add value? Are they sufficiently metrics and process-oriented, particularly if the VP comes from an enterprise background?

This principle drives a number of positive effects:

  • It defeats empire building. Sometimes the VP wants the SDR team not because they care about them, but because they want a bigger organization. Or they think it will look good on their resume for their next job search. They’re not actually interested in the job. They’re interested only in being able to say that they did it. That’s not good enough.
  • It encourages learning and development. When the VP of sales first asks about managing the SDRs, you can tell them to go make themselves a valid candidate. Get close to the SDRs now. Understand their challenges and offer to help out. Network with friends and colleagues on SDR team management. Read up on best practices. Convince me that you’d make the short list of candidates and then we can have a conversation.
  • You attract stronger department heads. Everyone should work for someone they can learn from. Saying the boss is the boss because, “well, we had to plug the team in somewhere,” is a terrible reason for an organizational structure. If you apply the value-add rule, functions will tend to report higher in the chain, creating a flatter org, and be placed only under those who can add value to them. This, in turn, attracts stronger candidates to run them. Who wants to be the CMO when it reports to a CRO who understands nothing about marketing? Nobody.

One great example is whether the VP of European Sales should report to the existing VP of Sales when you expand into Europe. If your VP of Sales is clever, they’ve already given themselves the title “VP of Worldwide Sales,” and you let them do it because it was moot at the time. But now they’ll argue it’s a demotion if Europe doesn’t report to them. And they’ll argue that they know how to sell the software in North America (really, the USA) and that knowledge should translate anywhere. And that everybody does it this way. You can almost hear them screaming: pick me, pick me!

But what they should be screaming is: I can add value, I can add value! And if they can, you should listen. But my questions would be:

  • Do you have a passport? (This wipes out about half of Americans.)
  • Have you ever lived in Europe?
  • Do you speak any European languages?
  • Have you ever sold and/or managed people in Europe?
  • Do you you have a network of people we can hire in Europe?
  • Do you have relationships with contacts at target customers in Europe?
  • Do you know any strategic partners we can work with in Europe?

So, other than not having a passport, never having been there, knowing no one, and not being able to communicate, you strike me as an outstanding candidate for the job.

We do this all the time nevertheless, and Europeans have grown accustomed to reporting into people who can’t add value. But for my nickel, I’d rather hire a VP of EMEA who had great answers to my questions and reported directly to me.

Mitigation Strategies

As your organization grows, you will invariably combine teams and lose your line of communication into certain conflicts. I know three ways to mitigate this:

  • Build a culture of transparency where direct reports into e-staffers are encouraged to and rewarded for speaking frankly about in-the-family problems.
  • Run an extended QBR. Don’t just invite the e-staff to the quarterly business review, but also invite people among their direct reports. For example, the head of customer success if it reports into the CRO, or the head of engineering if it reports into product. Ask them to deliver the same, standard presentation that the e-staffers do. This effectively flattens the organization by creating an extended leadership team that goes beyond the CEO’s direct reports.
  • Use reporting. Good reporting can reach through organizational layers and keep you in touch with what’s happening. For example, even if customer support doesn’t report to you and isn’t represented on the extended leadership team, you can still keep an eye on metrics and KPIs as well as simply on OKRs.

In this post, I’ve argued that the primary goal in organization design should not be reducing of span-of-control, but in surfacing conflicts most important to the company. I’ve also introduced a value-add rule that says no department should report into an executive who can’t add value to it. And finally, knowing that consolidation is inevitable over time as a successful company scales, I’ve offered three strategies to mitigate some of the signal loss that comes with such expansion.

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