Predictable Revenue – Every CEO’s Holy Grail

January 28, 2009

Predictable (and growing) revenue is the holy grail of every CEO.  If a CEO can achieve and sustain this goal, the company will most likely prosper, and the executive can focus on other critical priorities, such as strategic planning and team building.  Without visibility into the revenue stream, too often the CEO is stuck fighting fires and dealing with irate investors/board members.

Aaron Ross consults on sales force effectiveness, manages a blog that focuses on creating predictable revenue, and previously managed a highly successful inside sales organization at Salesforce.com.  The following advice, excerpts and paraphrases are taken from an interview of Aaron conducted by Phil Fernandez, CEO of marketing automation vendor Marketo. (full disclosure – Aaron is my son).

 

Phil: The function of marketing …

Aaron: Marketing leads and magnifies what happens in sales. If marketing and lead generation are working together, sales will follow. If marketing & lead generation aren’t coordinated, sales will struggle. Unfortunately, although things are changing, there’s still a lot of thinking that “to increase revenue, the first thing I need to do is add salespeople.” In The Fatal Mistake Boards and VP Sales Will Make In 2009 Planning, I discuss how lead generation causes new customer acquisition and salespeople fulfill it.

Phil: Your blog is called “Build A Sales Machine.”  What does that mean?

Aaron:  A “sales machine” is an organization that sustainably generates predictable revenue. It begins with repeatable lead generation programs, continues with consistent sales processes, and is sustained through ongoing customer success. This means the organization understands the causes, effects and measurements of the different processes related to lead generation, closing and renewing, and can consistently execute them. It’s simple to say, hard to do :)

My team at Salesforce.com could confidently predict the people and investment needed to increase revenue by a certain amount the next year. It took quite awhile to create the conditions for that kind of predictability. However, once we got it going, it was like a flywheel and just kept on turning. The first $1 million was much harder than the next $100 million!

The single best piece of advice I give to executives is to break the sales process into well-defined roles: 1) qualification of inbound leads; 2) outbound prospecting; 3) closing deals; and 4) account management/renewals. This will increase conversion rates on your leads and your ability to work with sales teams on executing programs, improve tracking and measurability, and increase the overall flow of leads through sales to revenue.

Phil:  What role should marketing play in the sales machine?

Aaron:  1. Track leads in your funnel but don’t over-measure. A CEO/board caring too much about detailed marketing activity metrics is like a CEO or board caring about how many calls salespeople make per day, instead of caring about opportunities generated (if yours do, have them read “Stop Measuring Calls Per Day.”)

 2. Less collateral is more. Salespeople will always say they need more materials, which they receive and throw over to prospects, who never read it. Be thoughtful in what and how much you create, to avoid collateral and program clutter. Remember – everything you create will need to be maintained!

3. Invest in sales lead generation. Leads that salespeople generate on their own tend to be higher quality than marketing leads, but because these leads come in much lower volumes and marketing has the budgets, organizations under-invest in spending on tools to help salespeople generate leads.

4. Lead prioritization & lead scoring: All leads are not created equal, and lead categorization or scoring is critical to sales productivity.

Phil:   On the working relationship between sales and marketing…

Aaron:   The problem is the lack of a bridge between the two functions.  The same sales-marketing frictions have existed as long as sales and marketing have existed, even though solutions (common goals, communication, etc) are well-publicized and discussed ad nauseum.

My belief is that most companies also need a ’structural’ solution, in the form of a junior sales team that sits between marketing and sales. This team reviews and contacts all new leads, and then passes qualified ones to the quota-carrying sales reps who close them…

Phil:  Any last reminders

Aaron:   Even though business seems to move faster than ever, that’s just the activity of business. Sustainable (predictable) revenue results are taking longer to create. So, be “aggressively patient” rather than “aggressively impatient.” Focus on continually doing bite-sized experiments that you can execute and iterate in hours or days, while being patient for revenue than can take several weeks or months.

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Hail To The Chief (Executive)

January 14, 2009

With the nation’s attention on next week’s inaugural events, speculation around President-elect Obama’s agenda for his first weeks in office is the focus of presidential scholars and leadership experts alike.  Whether elected or appointed, every new CEO must gather information, understand challenges and opportunities, set priorities, and communicate with a variety of constituents during their first 100 days in office.  I’ve taken the helm more than a dozen times as a founder, “hired” CEO and interim CEO, and over the years I’ve developed a new CEO’s to-do list that’s proven effective in achieving these goals, which I’ll summarize below.

 

Executive-staff Interviews

  • Listen carefully – Learn about their strengths, weaknesses and issues (you’ll also hear a lot about other members of the executive staff).  Try to ferret out names of others, lower in the organization, who are especially well-respected.  These latter individuals can be key to future organizational changes.
  • Identify common themes – people, products, technology, etc.
  • Go back and do it again, trying to organize your thoughts and interview points based upon what you learned the first time.

Short-term Budget/Cash Flow

  • Understand the company’s short-term financial status – Cash issues will take priority over everything else if there are short-term problems.  If you have breathing room (or positive cash flow) so much the better.
  • Focus on immediate actions, if necessary

Products

  • Understand current offerings/programs/services.
  • Get demos from current product managers.
  • Identify key product priorities.

Customers

  • Meet customers – listen to their concerns and priorities.
  • Note: Make sure you do this after you’ve gained a basic understanding of the people, products and issues.

Keep an Open Door (and an Open Email Box)

  • It’s amazing who will wander in and unburden themselves with issues and concerns.  This is a great source of information to cross-reference against executive-staff interviews.

Communication 

  • Communicate frequently and often with investors, customers, board members and employees.  It goes without saying that all of these stakeholders are nervous and anxious for information from a new CEO.

President-elect Obama has had 11 weeks to prepare, and as he takes the helm, he’ll be employing some of these very same techniques.  For example, we can already see his focus on budgets and cash flow, though, unlike any of us, he can “print money” to overcome it (in the short-term).  And he is focused on taking the immediate actions he believes are necessary to remedy the problem.  Like any CEO, he needs to persuade various constituents to support his efforts.  Regardless of our political leanings, the nation needs Obama to succeed, so let’s hope his “getting started” list stands him in good stead. 

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The New Dynamics of Venture Capital

January 5, 2009

A few weeks ago, Scott Duke Harris of the San Jose Mercury News wrote an article titled, “Will Undone Deals Be The Next Big Thing in Silicon Valley?”.   The article evolved from a conversation about two recent ExpertCEO posts. The posts were entitled “VCs Yanking Funding” and  “Series A Deals Getting Undone”.

A friend of mine, who is a general partner of a top tier venture fund, related another “busted financing” anecdote.  His firm is a shareholder in an early-stage company that, like many others, found itself unable to find a new investor when it sought financing about six months ago.  The existing investors agreed, instead, to raise an “inside” round, to be parceled out in two tranches, the second of which would be triggered by the company’s achievement of three milestones.  The first tranche was funded, as expected, in late summer.  Subsequently, the company met 2 of the 3 milestones, and the investor syndicate agreed to loosen the criteria of the third milestone, making way for the last tranche to be paid out.  However, one of the investors also decided to require the company to make a final presentation to its partnership, prior to closing.  The presentation took place in mid-December, but ultimately, the partnership elected not to participate in the final tranche.  This unfortunate surprise left the remaining investors with two options:  put in more money than they had planned to support the company, potentially indefinitely and in the face of a no-confidence vote from an existing, top tier investor, or drop out, leaving the company high and dry.  In the end, the existing investors opted for the second option.

 

Issues Faced by VCs are Similar to Those of Venture-Backed Companies

Many venture capital firms are either experiencing or are fearful of facing their own cash shortfalls (just like their portfolio companies). Their source of funding (their limited partners) have been hard-hit by the market’s precipitous decline.  Venture funds collect or “call” cash periodically as they need it.  As these capital calls are issued, some venture firms are finding that their limited partners are either unable or unwilling to meet their contractual commitments, leaving the funds with fewer resources than they’d anticipated. 

As a result, venture firms, which typically “budget” funds for each of their investments, are being forced to rethink these plans (again, just like CEOs) – because of the possibility of the reduced size of their funds, as well as the probable need for greater total investment in each portfolio company than was budgeted.  And liquidity events will be few and far between due to a less forgiving stock market and a reduced pace of acquisitions at lower valuations.

Facing these new realities, many venture funds are carefully re-evaluating their portfolios, deciding which companies to support with their scarce cash and which to “abandon.”  To conserve cash, venture firms must categorize their investments.  They are requiring those with existing revenue streams, where expenses can be cut to quickly achieve positive cash flow (the Sequoia Capital approach), to survive on their own, while supporting those that are promising but pre-revenue.  Others will be allowed to fail or forced into a sale.  These issues are well chronicled in the following two articles.

The Wall Street Journal – Venture Capital Hits a Cash Call Crunch

Forbes – Venture Capital’s Coming Collapse

What Should Venture-Funded CEOs Do?           

The operational aspects of managing in this environment have been discussed at length (cutting costs, etc.).  A more complicated task for a CEO is how to manage his or her investors!  Assuming you can’t reach cash flow breakeven via the Sequoia route:

1.     Be creative when considering funding sources.  The organized venture community is one, but by no means the only option when seeking financing for your business.  Identify potential strategic partners or large customers with a vested interested in your success.  They can fund development, make large purchases, and provide cash in a variety of other ways.  One company I work with just received a 7 figure (cash) payment on a large product license from one of the big 3 U.S. automakers!

2.     Communicate often and frequently with your investors.  Level with them about your opportunities and challenges.  Let then know you expect the same from them.  Don’t be afraid to probe the extent of their commitment and understand their problems in a respectful way—you owe the diligence to all the shareholders. Most of all, be prepared for necessary financing parameters to change often.

3.     Don’t rule out acquisition as a potential avenue.  What was unthinkable just months ago could well be the best outcome for you and your shareholders.  If you’re flush with cash or have liquid stock to use as currency, acquisition opportunities will be more numerous than your ability to consolidate them—so prioritize!  And if you’re running low on capital, don’t wait to explore possible combinations.  The process is time-consuming, and many more potential marriages are considered than are consummated.

4.     Plan for the worst – hope for the best. Whether you’re seeking funding or a merger partner, assume the process will take longer than you think.  Read my blog entry titled “Crisis Management.” 

 

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