Category Archives: Uncategorized

How To Run a Sales Kickoff

Since we’re wrapping up what has been a simply amazing Host Analytics 2016 sales kickoff, I thought I’d share some of the rules I’ve developed, learned, appropriated, discovered, et cetera during my career.

Rule 1:  for salespeople, your signed compensation plan is your admission ticket to kickoff.  This is incredibly important because comp plans define what you want your sales people to do and too many companies don’t get them finalized early enough in the quarter, leaving sales in a directionless limbo for weeks or months.

Rule 2:  the purpose of the kickoff is to send salesreps home from the event fired up and having everything they need to be successful in the new year.  When they get on the plane home, they should know their territory, their compensation plan, all the new messaging, all the latest competitive information, the new pricing, and have all the new kit required for their success.

Rule 3:  be inclusive.   At the companies I’ve run, we follow a simple philosophy: the event is a sales kickoff to which the whole company is invited.  So don’t complain if the content is too rah-rah or too salesy because it can’t be — it’s a sales kickoff.  But invite everyone so they can benefit both from the communications of plans, goals, and changes for the new year, and also from the contagious enthusiasm of hanging out with the sales force at a rah-rah event.

Rule 4:  mix it up.  Don’t run all day on a single-track, keynote-only format.  Yes, do some keynotes.  But have track sessions as well.  Mix in some panel discussions.  A game or contest is always fun — particularly if you take the trouble to ensure it’s on-message.  Ideally, let people choose freely about which track sessions they attend and which they don’t.

Rule 5:  invite some customers.  There’s nothing like a customer panel to communicate the reality of the product-market back to the organization.  They’re usually honored to come and their comments make a big impact.

Rule 6:  remember EMDI as the four major things to do at a kickoff.  Educate / Motivate / Decorate / Inebriate.  For “decoration,” have an awards dinner where you recognize achievement across the organization.   On “inebriation,” remind employees to do so within bounds.  At almost every kickoff I’ve been too, there’s been at least one person who takes it far — my favorite story was a salesrep who urinated on a roulette table at a Vegas kickoff and who, subsequently barred from the casino, was unable to traverse it to gain access to the ballroom and fired for non-attendance at the general session.

Rule 7:  Have an open-mic executive Q&A.  These can be awkward and some CEOs hate doing them, but in a healthy organization you should be able to put the exec team in front of the company to answer questions.

Rule 8:  Invite analysts as speakers.  You get a double win when you do this — you get to hear what the analyze has to say and the analysts get to see all the many happy smiling faces in your company — and how much it has grown since the last time they were by.

Rule 9:  Have some silly time.  Do things to break down hierarchical barriers and make the CEO and execs more approachable.  Costumes, videos, et cetera can go a long way in this department.

Rule 10:  Make it better every year.  This is hard, but we did successfully both at MarkLogic and at Host Analytics.  Always add some new twist, some new event, some new thing, some increased production values, a better guest speaker, something every year.

Bonus Rule 11:  Work with a top-quality events person and a top quality production company to execute it.  This means zero time gets wasted on production-related problems and all your energy can be focused on your people and your content.

Best of Kellblog 2015

Here’s a quick post to highlight some of my top blogs in 2015 — just in case you missed any of them.

Thanks, as always, for your readership and support and Happy New Year to all.


The Second Agenda: Why No Executive Should Ever Have One

Sometimes leaders have second agendas:

  • CEO:  I want to win for my shareholders and prove I can take a company public.
  • Founder:  I want to win for my shareholders and destroy the great evil at Microsoft.
  • Volleyball coach:  I want to win the league and prove to the world that I can convert an average outside hitter into a great libero.
  •  CMO:  I want to beat the plan targets and develop my protege.

I’m going to argue that in basically all cases these are bad.  Why?  Because when a leader has two primary agendas they can come into conflict.

  • The CEO will turn down a potentially great buy-out offer because he/she personally wants to ring the bell at the NYSE.
  • The Founder will turn down a fantastic deal from Microsoft because he does not want to do business with the great (perceived) evil.
  • The volleyball coach might lose the game by not playing the best players to win it.
  • The CMO might miss plan targets by focusing more on his/her protege than on delivering MQLs to sales.

This is, of course, not to argue that leaders can only focus on one goal.  Running a company requires a whole set of goals that map across the organization.  But leaders should have one mission, one cause, one agenda:  to win.

Any other agenda, no matter how well intentioned will eventually come into conflict with winning and start to tear the team apart.

  • Investors find out a prospective buyer was snuffed without due consideration and lose trust in the CEO (and potentially either fire or sue him/her).
  • The Founder ends up distanced by his organization which now sees him as fighting religious wars instead of running a business.  Employees leave because they wonder what other great deals won’t be pursued for non-business reasons.  (Think:  Yahoo!)
  • The volleyball coach is seen as subjective and someone who “plays favorites” and thus fails to recruit top players to his/her team in following years.
  • The CMO is seen as political and his team starts to distrust his motivations for assigning projects, leading to general distrust on the team, and the loss of several key players.

I remember one day, years ago, when I felt that our CEO had not been loyal enough to a teammate.  I thought “that’s shitty, he prioritized winning over loyalty to a long-term colleague.”  And then I thought some more.  And then I realized that’s exactly the kind of CEO you want to work for.

I’m not saying we should treat people as disposable and that loyalty shouldn’t exist.  Managers should be creative and try to find win/win solutions to issues with employees.  But when you can’t, when there appears to be no win/win to be had then no secondary agenda* — even loyalty — should trump the leader’s primary objective.

# # #

* Obviously I view things like “ethics” and “the law” not as secondary agendas, but as constraints on the solution.

One More Time: What Drives SaaS Company Valuation? Growth!!

About two years ago, I did a post with a chart from JMP that showed the correlation between the value of a SaaS business and its growth rate.  Today, I’m back with a chart from RBC [1] that shows things haven’t changed.

saas growth

The correlation here is pretty amazing.  What’s even more amazing is that valuation is also closely correlated to customer acquisition cost (CAC) ratio [1].

cac correlation

Because of how RBC defines CAC, a low percentage above equates to a high customer acquisition cost.  That is, 50% above means that the company is getting 50 cents of ARR growth for every $1 of S&M.  Or, in my preferred form, the company is spending $2 for every $1 in new ARR.

Now, if I’m thinking correctly, if thing X and thing Y are each correlated to thing Z, then they are also correlated to each other, which implies that growth rate and CAC are themselves correlated.  I suppose this makes sense because it’s more expensive to grow fast when you spend a lot on customer acquisition, therefore companies that grow more efficiently can also grow faster.


[1] RBC Analysis:  The Economics of SaaS in Public Markets, April 2015.

[2]  RBC defines the CAC upside down relative to the Kellblog CAC — i.e., the RBC definition is ARR growth / prior-quarter S&M expense.

Short Video on the Host Analytics Mission

This is just a quick post to highlight a short video we made that answers three questions about Host Analytics:

  • What is our core mission at Host Analytics?
  • How is Host Analytics transforming the EPM market?
  • What’s in store for Host Analytics?

Here it is:

Make a Plan That You Can Beat

Seven words that changed the world:  “make a plan that you can beat.”

This pithy piece of wisdom was first passed onto me by the sage of Sequoia Capital, Mike Moritz, on the first day of my six-year journey at MarkLogic, during which time we grew the company from effectively zero to an $80M run-rate.  Thanks to Mike’s advice, we made plan in about 90% of those 24 quarters.

What’s so important about making a plan that you can beat?

  • For starters, it helps keep you employed. Few CEOs get axed when they are making plan.  (It can be done, but takes real skill at board alienation.)
  • It forces you to make a balanced plan: sufficiently realistic and sufficiently aggressive.  (“Can beat” means neither “will certainly beat” nor “can achieve if a miracle occurs.”)
  • It means you can predictably manage your cash – the oxygen of any startup. As another quotable Sequoia partner, Don Valentine, used to say:  “all companies go out of business for the same reason; they run out of money.”
  • It forces you to debate important issues up front. To the extent the board wants 80% growth  in 2015 and you believe that you can only deliver 30%, it is far better to have that uncomfortable conversation during the planning process in November 2014 (while you are still achieving this year’s plan) than in July 2015, after you’ve missed Q1 and Q2.   (In July, the uncomfortable conversation is more likely to be about your severance package than the aggressiveness of the approved plan.)
  • It says that you are in control of your business. Whether or not the board loves the plan the eventually approve, the first step in running any business is to be in control of it.  That means being able to predict with reasonable accuracy the results you can achieve.
  • It reduces the tendency to sign up for too much bookings/revenue to “get” more expense. Often managers somewhat arbitrarily decide what expenses they need to be successful, anchor emotionally to that number, and then get “talked up” on the bookings/revenue side in order to hit a given cash flow or EBITDA goal.  This is exactly backwards.  You should put a huge amount of energy into your bookings/revenue plan and work from that to set expense targets.  If you can’t find a workable solution, then argue you have the wrong EBITDA or cashflow goal.  Don’t get talked up on revenue because it’s unpleasant to ask your passionate and anchor-biased managers to cut expenses.
  • It is philosophically aligned with most executive compensation plans. Most boards like gated compensation plans where, for example, executives get 0% of their target bonus up to 85% of plan performance (the “gate”), payout 50% of target at 80% of plan, go linearly to 100% payout at 100% of plan, and then have accelerators beyond that.  These plans reward above-plan performance and severely punish below-plan performance.  As such, any executive who looks at his/her compensation plan should understand the not-so-subtle message it sends:  beat plan [1] (which is, of course, most easily achieved by making a plan that you can beat).
  • You can always speed up later. If you’re ahead of plan after Q1 and your leading indicators look solid for Q2, no board on Earth will not approve a revision to the plan that accelerates growth.   Think of your plan growth rate not as what you aspire to achieve, but rather as what you are willing to be fired for not achieving.  It takes real skill to grow a company at 100% and get fired for missing plan, but I’ve seen that done, too [2].

Some of you may be thinking:  isn’t this all a fancy of way of saying “sandbag” [3].  I think not.  Even if you reject every other argument above, you cannot deny that cash is oxygen to startups, that startups that run out of cash get crushed by dilution when they need to raise money when running on fumes, and thus making a plan that you can beat is critical to managing cash, and indirectly, to the eventual value of company’s common stock.

Make a plan that you can beat.  Seven words to understand.  Seven words to internalize.  Seven words to live by.

 # # #


[1] Whether boards should like this style of compensation plan is debatable because they arguably do not incent risk-taking.  That debate aside, the fact remains that most board do like this style of plan so managers should listen to the message that is very clearly sent.

[2] The real way to know if 100% is good enough should be to look at the market.  If you’re gaining share when growing 100% but missing plan of 120% then in my book you are planning poorly, but executing well.  However, if you are losing share when growing at 100%, you are in a hot market but not executing aggressively enough to win it.  Performance measures should always be normalized to the market, otherwise target-setting and plan-performance ratings are more about negotiating skills than actual performance in the market.  (I’ve seen this one done wrong many times, too.)

[3] Aside:  I believe there are two different types of sandbagging:  (1) consistently under-forecasting – i.e., landing at a result significantly higher than you forecast early in the quarter, and (2) consistently overachieving plan – i.e., landing well above operating plan targets.  Type 1 is bad because it leads to either to needlessly cutting quarterly expenses in response to a weak early-quarter forecast (if you believe it) or simply ignoring the forecast (if you don’t) – in which case what good is it?  Type 2 means either the company is performing tremendously or they are too good at negotiating targets.  Looking at whether you’re gaining or losing market share (or grabbing a greenfield opportunity fast enough) will tell you which.

The Box S-1, Delayed IPO, and the Genius of Tien Tzuo

While I did my own post on the Box S-1, I also noticed that fellow CEO blogger, Tien Tzuo of Zuora, had done a post of his own with the catchy title These Numbers Show That Box CEO Aaron Levie is a Genius.  I saw the post, clipped it to Evernote, and I decided to read it on my next flight.

That trip was a few days ago and at 35,000 feet I decided that Tien Tzuo was also a genius.  Not because he did a nice post on Box, but because he is devising an new accounting for SaaS companies which reflects them more accurately than current GAAP, and – rather amazingly– I’m guessing he came up with this more than 5 years ago.

You see, being a natural cynic, I had tended to dismiss Zuora’s “subscription economy” mantra as part Silicon Valley narcissism (lots of businesses have been selling subscriptions for a long time —  just because it’s new to us doesn’t mean it’s new to the world) and part marketing pitch.  In hindsight, I think I dismissed it too quickly.

While I’d seen one of Tien’s presentations, the concepts didn’t resonate with me until I read his post on the Box S-1.

I’ve always believed two things about SaaS companies and GAAP:

  •  GAAP P&Ls are not particularly reflective of the state of a SaaS business.  (Because expenses are taken now, but revenue is amortized going forward.)
  • The faster a SaaS company is growing, the less reflective the GAAP P&L is.

Box provides an extreme example of the second point, so it’s a good one to study.

However, with the exception of the CAC ratio, I’d defaulted to using other existing metrics that I thought captured things better, such as bookings and cashflow.  What I’d never tried to do was invent a new set of metrics that actually capture a SaaS business better – and that’s exactly what Tien has done.

Here are Tien’s core SaaS metrics:

  •  ARR (annual recurring revenue).  Everybody uses this one.  Tien however makes the clever and basic observation that current quarter subscription revenues * 4 is a good proxy for starting-quarter ARR.
  •  Gross recurring margin (GRM).  ARR – annualized COGS.  Tien argues this is the true gross margin on the business, and is equivalent to the steady-state gross margin if the business shut down all sales and marketing and stopped growing.  By Tien’s math, Box has GRM of 79%, Workday 83%, ServiceNow 78%, and Salesforce 85%.
  • Recurring revenue margin (RRM).  ARR – annualized ( COGS + R&D + G&A).  Tien argues this is margin on the recurring part of the business, including the recurring costs of delivering the service, enhancing it (as SaaS customers expect) and operating the business.  It notably excludes S&M, which is seen as a discretionary expense driver by how fast you want to grow.  By Tien’s math, Box has an RRM of 20%, Workday 28%, ServiceNow 40%, and Salesforce 57%.
  •  Customer acquisition cost (CAC) ratio.   I’ve covered this ratio extensively already, so I won’t redefine it.  I will note that Tien calculates Box’s CAC at around 2.0, which is higher than my estimate of 1.6.  However, we define CAC slightly differently (mine is based on new ARR, his on net new ARR) so I would expect mine to be lower since it’s not offset by churn.

And when you look on Tien’s metrics, Box looks pretty good.

If Tien’s Right, Why has the Box IPO Been Delayed?

Because Wall Street doesn’t care right now.  I think there are a number of reasons for that:

  • The general shellacking that SaaS stocks have taken in the past few months.  Many are off around 50%.
  • The unsustainable cash burn.  You might think it’s easy to back off growth, but it’s not. Growing fast means hiring like crazy and hiring like crazy adds the annualized cost of the new staff to your run rate.  Last I checked, Box was burning $20M+ per quarter and unless cash comes from somewhere that hiring party will end abruptly and unpleasantly — in the short-term at least.
  • Lifetime value concerns.  Tien’s math is silently predicated on a 100% renewal rate, and thus a high customer lifetime value (LTV).

Let’s look at this in more detail.

Tien’s metrics assume that if you have $150M in ARR and you turn off growth sales and marketing that you stay $150M forever.  That’s not true.  You actually enter a decay curve where you shrink by your churn rate each year.

Upsell and price increases can more than offset churn resulting in the hallowed negative churn rate, in which case you would actually grow every year, even without sales and marketing.  This appears to be the case at Box which claims a 123% net customer expansion rate.

So if the future looks like the past, things look pretty good for most SaaS companies and for Box in particular.  But what driver underlies that assumption?

Switching costs:  the cost of switching from offering A to offering B.  High switching costs ensure a high renewal rate regardless of whether you are delighting customers.  (Think of all those folks who write big maintenance checks to SAP or Oracle; they’re usually not “delighted” in my experience.)

And low switching costs, in my opinion, are Box’s potential Achilles’ Heel.  As a customer, and a happy one, I intend to renew for a while.  But if something better came along, well, it’s just not that hard to switch.

Put differently, Box’s file sharing isn’t that “sticky” — compared to a CRM or ERP system (and all the work you do to configure it, write reports, et cetera).

Put differently once more, what Box sells is much more of a commodity than other enterprise software offerings.

Despite that, this issue isn’t obvious in my opinion:

  • Switching costs can take subtle forms.  You can argue that part of Amazon’s success has been of the switching costs associated with account setup.  It’s not a huge cost, per se, but seemingly enough to cause me to just buy off Amazon instead of using Google Shopping or another price comparison engine.  Electronic wallets were supposed to fix this, but they didn’t.
  • Brand/trust.  Switching costs can also include what you lose in brand/trust by moving off an existing known supplier.  Box will certainly try to argue that leadership, trust, and brand are a big part of their value, and a cost to those who move away from them.
  • Entry barriers.  Box and Dropbox have both raised huge amounts of money and will work hard to create barriers to entry.  Switching costs to new entrants are only relevant to the extent there actually are new entrants.  The fundraising Box and Dropbox have done have basically scared, for the time being, everybody else out of the category.

So is Box theoretically very sticky?  In my opinion, no.

Might Box end up sticky in practice?  Quite possibly yes.

In which case Tien is right, and he’s a genius.  Which in turn makes Aaron Levie one, too.