Driven newsletter archive
Issue 11. December 15, 2019
Your SaaS health check | Call to battle | Revenue Ops to the rescue? | The right home for your SDRS | Managing seasonal overwhelm
You’re heading down the home stretch toward the end of your calendar year.
And also the end of another decade.
Maybe it’s also the end of your fiscal year.
So what’s on your mind this week?
Let me guess:
- Revenue targets to achieve
- Holidays, and the conflicts between business and personal priorities.How to manage overwhelm and stress for both yourself and your team.
- Thinking ahead to 2020. New year. New decade. How to start the year strong. How to make your sales kickoff as good as it can be.
- Hiring and staffing. Maybe letting go of some people. Onboarding and ramping new hires. Updated comp plans.
- New organization? New go-to-market approaches.
- Tech stack for next year
What to expect this week
Between this week and next, I’ll try to address as many of these topics as space allows.
You’ll notice ongoing changes to format from week to week. That’s because I’m still experimenting. It’s a work in progress
- The rise of revenue operations. Finally.
- Should your SDRs report to sales or marketing?
- 6 key charts for a SaaS health check
- Manage seasonal overwhelm
- Close more deals with competitive battlecards
Your estimated reading time is about 11 minutes if you read everything. But don’t freak out about the length, because you’ll skim a lot of it.
SALES | MARKETING | REVENUE | OPERATIONS
Can RevOps fix the toxic relationship between sales and marketing?
The relationship between Sales and Marketing is like a tortured marriage without hope of divorce.
At least that’s that’s way it’s been in all the 20-plus B2B SaaS companies I’ve worked with over several decades. It doesn’t seem to be getting much better.
But a new trend offers hope – even in its infancy.
The trend is called revenue operations or RevOps..
This article is for revenue leaders in B2B SaaS companies that engage in complex sales. That group includes CEOs, chief revenue officers, sales leaders, and marketing leaders.
Why it matters
The sales and marketing functions both feel a sense of frustration, disappointment, and even betrayal in many B2B SaaS companies. The problem seems to be worst in bigger, more mature companies.
Any dysfunction between sales and marketing impairs growth.
To be competitive, SaaS companies must coordinate growth plans, metrics, and incentives across several business functions – not only sales and marketing.
Just a new name for old ‘solutions’ that didn’t work?
Maybe RevOps just another name for what companies have been trying to do for years, with little success.
You can’t have missed the recent flood of articles about sales and marketing alignment.
For all the talk of alignment, many studies show a persistent gulf between sales and marketing in B2B SaaS companies.
Am I naif to think RevOps has a better chance of working?:
I hope I’m not wishing for the Tooth Fairy here. Because something has to work.
The alternative is for SaaS companies to die a slow death. The laggards risk losing to companies that get it right.
What is revenue operations, and what hope does it offer?
RevOps encompasses the strategy, execution, and optimization of all systems, processes, people, and tactics related to generating cash for the business.
It promises these benefits:
- Accelerated revenue growth
- Streamlined go-to-market (GTM) execution
- Operational alignment that improves processes and the customer experience.
The ultimate goal is to maximize profit.
It’s more than sales and marketing alignment
One RevOps leader describes it as a machine that helps improve the performance of sales, marketing, and customer success (CS).
Some companies have expanded their RevOps teams to also include business development, data analytics, channel strategy, product, and other internal organizations.
Regardless of its scope, RevOps helps overcome the tendency of organizations to lapse into unorganized growth and shifting revenue demands. It focuses and defines cross-functional responsibilities for driving growth and ROI.
RevOps bridges internal gaps
The functions that participate in RevOps align their vision, planning, processes, goals, and measurement. They also their align systems, technologies, and data.
Each participating function gains a full and consistent view of the customer journey. Customers enjoy a more consistent experience in working with your company.
It gets business functions cooperating without merging
RevOps doesn’t try to merge sales, marketing, customer success, and other functions into a single team. It leaves their structures intact.
Instead it strives for deep coordination across participating functions.
The coordination occurs from the operating level up to leadership. It extends across people, processes, data, and technology.
Companies set up planning sessions so that all stakeholders share a common vision.
Participating functions share metrics and KPIs. They also track and share them so they’re transparent to all other functions.
Why the idea may be new to you
It’s still early days for RevOps.
Only about 20% of companies have a RevOps a team, and about 15% more are building one. This is according to a Lean Data study that surveyed 800 sales and marketing respondents in 2018.
About 56% of respondents said their company doesn’t have a revenue ops team.
What’s driving the shift to RevOps?
Companies are exploring RevOps for 4 main reasons:
- The growing complexity of data and technology. The complexity arises because many companies now have more complex tech stacks and more systems of record than in the past.
- The fast-growing adoption of account-based marketing (ABM).The disciplines of ABM require close alignment.across revenue-generating business functions.
- Recognition of the critical role of customer success (CS) as an important revenue channel. Companies see the need to align it with sales and marketing.
- The old revenue-generation model isn’t working so well.Marketing used to generate qualified leads (MQLs) and pass them to sales (as SQLs). Increasingly, marketing must help sales beyond the point of passing along qualified leads.
Companies face 3 main challenges
In Lean Data’s 2018 survey, respondents cited three main challenges in adopting RevOps:
- They lack knowledge about how to build a RevOps team (about 30%).
- Business leaders are falling behind in their ability to establish the right team structure (about 20%).
- Business leaders are skeptical about RevOps.
In addition, it’s hard to get all teams to agree on the same revenue ops KPIs. It’s especially hard in areas such as marketing attribution, where sales and marketing may not trust each other’s numbers.
Despite the challenges, early leaders in Revenue Operations are making good progress.
To learn about how to structure a team and how to coordinate responsibilities, see the following resources.
Defining Revenue Operations: The Essential Guide to Getting Started. 2019. Lean Data. [14-page downloadable PDF].
“Revenue Ops: Our Proven Framework for Massive Pipeline.” Sales Hacker and Lean Data. December 10, 2019. [YouTube video, webinar replay, about 58 min.]
“The State of Revenue Ops 2018: A Survey of B2B Sales & Marketing Professionals.” Lean Data and Sales Hacker. [19-page downloadable PDF.]
“The Rise of Revenue Operations [infographic].” Vahe Habeshian. MarketingProfs. December 10, 2019.
“Revenue Operations: A Game Changer.” Fred Shilmover. MarketingProfs. December 10, 2019.
SALES | MARKETING | PROSPECTING | BUSINESS DEVELOPMENT | ADMINISTRATION
Most sales-development teams report to the sales organization. The proportion was as high as 46% in a 2016 survey by TOPO.
Sales dev teams that handle inbound inquiries are more than twice as likely to report to marketing. At least that was the case in 2016.
More recently, several experts have proposed that most sales development reps (SDRs) should report to marketing. That includes both indound and outbound SDRs.
What’s the right answer? How can you know what’s likely to be best for yours?
This article is for leaders of revenue, sales, and marketing in B2B SaaS that have a team of SDRs or are considering setting one up. It applies to companies of all sizes.
Why it matters
A well-managed team of SDRs can make a big contribution to revenue growth.
The reporting structure for the SDR team has a big influence on the effectiveness of the team, its morale, and its turnover rate.
Marketing may provide SDRs with more process and structure
Several knowledgeable writers have made a solid case for SDRs to report to marketing:
- Marketing is often a more metrics- and process-driven discipline than sales. Outbound and inbound business development are also highly process driven. So SDRs are likely to be a better fit under the marketing organization.
- SDRs need a lot of coaching and mentoring. Sales management often does a poor job of coaching and mentoring. SDRs are more likely to get the help they need from marketing.
- Marketing is typically the home for account-based marketing (ABM) activity. Inbound business development and outbound prospecting are both key activities in ABM.
- It’s marketing’s job to create opportunities and hand qualified leads to sales. It’s the job of sales to close them.
Sales may offer more leadership, sales skills, and career direction than marketing
You can also make a strong case for having SDRs report to sales:
- SDRs are on a career path that often leads to higher sales responsibility. So SDRs belong in the sales organization, where they can learn a broader set of skills.
- In some situations, outbound prospecting requires deeper skills than marketing can transfer to SDRs. Marketers often lack training, skills or experience in outbound prospecting.
It doesn’t matter where SDRs report, as long as they get the support they need
One source suggests that no matter where SDRs report, sales should be responsible for hiring and training them. And marketing should be responsible for coordinating SDR activities and playbooks.
That rationale doesn’t persuade me.
Each of the foregoing arguments has weaknesses and exceptions. You can’t rely on best practices to answer the question of where SDRs should report.
The right answer depends on the circumstances in your company and your target markets.
Ask the right questions
To decide which reporting structure is best for your company, ask these questions:
1. How big is your total addressable market (TAM)? Do your target accounts number in the hundreds or tens of thousands? The bigger your TAM, the more you can afford to have junior-level SDRs calling on them. If your TAM is small, you can’t afford to burn bridges in target accounts. You’ll probably want more senior, better-trained SDRs.
2. What portion of your prospecting is inbound versus outbound?
3. What is the likely career path for your SDRs? If it’s sales, your SDRs may be better off reporting to sales.
4. In which organization – sales or marketing – do you have a leader who understands data-driven sales? Where do you have a leader who wants to manage this function and has capacity to do a good job of it?
How big is your average contract value (ACV)? The bigger your ACV, the more carefully your prospect will evaluate your offering. Your prospect will also see more risk in buying. With higher-consideration sales, you may want more senior SDRs calling on prospects.
What level of prospect will your SDRs be calling on? Middle- and low-level managers? Or senior executives? The more senior the prospects your SDRs will be calling, the more business experience and training they should have.
What systems, process, and people do you have in place to manage in inbound or outbound SDR function? Which organization – sales or marketing – can better manage a team that needs a lot of guidance?
What do you expect your SDRs to achieve? Will they just generate appointments or leads? Or do you expect them to have valuable business conversations with prospects? If you expect your SDRs to have serious business conversations, you probably want more senior people in the role.
How big is your SDR team? The bigger the team, the more it needs formal management structure.
Is quantity or quality of customer engagement more important to you? If quality is more important, you may will want more senior SDRs.
How much experience does your marketing team have in outbound prospecting – especially cold calling and social selling? How well can they train and coach your SDRs in these essential skills?
How well prepared is your marketing organization to manage a senior SDR team that has advanced sales skills? How much knowledge and experience does your marketing team have in managing complex sales?
Where will your SDRs get the most love and attention?
“Who Should the SDR Team Report to? Sales or Marketing?” Brandon Redlinger. Business2Community blog. October 29, 2018.
“Should SDRs Report to Sales or Marketing?” David Kellog. Kellblog. November 26, 2019.
“Best Practices for Managing SDRs: How to Build and Manage an SDR Team.” Sammy Addullah. Crunchbase blog. October 30, 2018.
“Should SDRs Report into Sales or Marketing?” Kristina McMillan. TOPO blog. Undated, but apparently published in 2016. .
“Why Tech SDRs Should Report to Marketing.” Todd Berkowitz. Gartner blog. January 6, 2017.
“Is Your SDR Team Reporting to the Right Function?” Gabe Larson. LinkedIn blog post. September 27, 2014.
SALES | COMPENSATION | ADMINISTRATION | STAFFING
6 key charts for a SaaS health check
What data is most important for evaluating the health of your SaaS company?
That’s a key question for CEOs, investors, and revenue leaders.
And Nathan Latka tries to answer it with six of his favorite charts. He draws his data from his database of metrics from more than ____ public and private SaaS companies.
If the following graphs are too small to read, go to Latka’s post here.
How much money should you be burning at $1m annual recurring revenue (ARR), $10m, and $100mm?
This chart plots free cash flow against ARR growth rate. It uses a metric called E40.
Most of the enterprise value in the SaaS public market is owned by companies where the E40 is more than 40.
This means 2018 free cash flow % + 2019 ARR growth rate % is greater than 40.
Customer Acquisition Cost
Are you spending too much or too little to acquire customers?
This graph compares the customer acquisition cost (CAC) against the ARR for companies in the data set.
Averages can be misleading, but in this case they still offer good insights.
As you’d expect, companies that have raised more capital (dark blue line) can afford to spend more to get new customers than their counterparts that bootstrapped.
Average Contract Value versus Customer Count
Do you have a shot at reaching $100m ARR at your current price points?
This graph plots the average annual contract value (ACV) against the number of customers a company has.
It shows that the wrong price point won’t kill you. that the right price point can dramatically improve your chances to build a company with $100m in annual recurring revenue company.
It’s helpful on Day 1 to ask yourself: “Can I get enough customers at our initial price point to build to $100m in revenue?”
The companies in the dotted rectangle toward the bottom left are stuck. They must do either of 2 things:
- Increase their price drastically.
- Decrease their price and dramatically increase the number of customers they serve.
Is your churn high or low relative to your price point?
This graph shows the average annual contract value (ACV) on the right. It shows the annual gross revenue churn along the bottom.
Many founders give up on trying to improve churn. Their rationale: “Our customers churn because they’re small and go out of business.”
This chart tells you whether your churn is high or low compared to other SaaS companies that serve customers of the same size.
Annual Recurring Revenue (ARR) per Employee
How much of your ARR should you make from your employees, based on their roles?
You’re more profitable than most of your competitors if you’re making more than $150,000 in annual recurring revenue (ARR) per full-time equivalent (FTE) employee.
Be careful. Factors such as outsourced development teams, salaries that vary by location, and competition for hiring in local markets can dramatically influence the targets in the chart.
Funding vs. annual recurring revenue (ARR)
How to raise your next round of funding, if your growth is behind target
Money from venture capital and private equity firms is flowing freely these days to SaaS companies. It’s especially true for companies in Silicon Valley and New York City.
But the funding trends in the Valley and NYC are highly inflated compared to the rest of the United States.
Those inflated funding levels could lead you to think you need much more funding than you do. Or even more funding than you should want.
You can avoid the disadvantages of getting too much investment.
How much funding is right for your company?
It is possible to overfund your company, and you want to avoid doing so.
Most companies raise capital ahead of revenue growth. If you do so, you’ll constantly be trying to get revenue up to drive a higher valuation on your next round. You’ll do so to avoid a down round and dilution.
To maintain leverage as a founder, Latka recommends never raising more than 3x your current ARR after you’re past $1m in ARR.
The rule doesn’t work at ARR lower than $1m. It’s fine, he says, for companies to raise $200k seed money before generating revenue if your goal is to build a minimum viable product (MVP).
The strongest companies in this chart are in the bottom right.
MANAGEMENT | LEADERSHIP | HEALTH
Don’t let stress blow your fuse this season… or cause your team to burn out
You and your revenue teams face a lot of stress, especially this time of year.
What can you do to help relieve or avoid the stress? How can you help both yourself and the people who report to you?
Here are some resources that may help:
“3 Ways to Motivate Your Sales Team–Without Stressing Them Out.” C.J. Burton. HBR. November 21, 2019 [Registration required. Limited number of free views.]
“How We Take Care of Ourselves.” From the Women at Work Podcast. Harvard Business Review. November 11, 2019. [Registration required. Limited number of free views.]
“Making Work Less Stressful and More Engaging for Your Employees.” Natalia Pert. November 5, 2019. Harvard Business Review. [Registration required. Limited number of free views.]
“Heading Off PTSD-esque Stress, and Taking Care of Yourself.” Jason Lemkin. SaaStr blog. November 2, 2019.
SALES | ENABLEMENT | MANAGEMENT
Create competitive battle cards to win more deals
The typical SaaS application now faces at least 9 competitors.
In this intensely competitive environment, it’s important for your salespeople to be able to position your product effectively.
They must be ready for the inevitable question from prospects: How are you different from…?
When you have so many competitors, it’s hard to have that information handy.
Your senior sales reps may know it off the top of their heads, but your junior sales reps probably don’t.
So how do you make this information available to your whole team? Through competitive battlecards.
For more on this, see these resources:
Guide to Competitive Battlecards: Win More Competitive Deals with Intelligent, Dynamic Battlecards. Crayon. 2019. [Downloadable PDF. 20 pages.]
“Four Issues Facing the SaaS Industry in 2019.” Thomas Smale. SaaS Mag. Undated.
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