The Weekly Aggregate

8) 12/16/20 - Adaptability in Sales Leadership 

The When/How/Why of Sales Leadership Hiring is a core theme and focus area of this blog.  But one subcomponent, adapting a sales playbook, hasn't received its requisite airtime. 

Here, Mark Roberg shares with Tom Tunguz three questions which help to ferret out a Sales Leader's ability to fine-tune and tweak their preferred and familiar revenue machine to the needs and context of their new employer. 

In Mark's words:   "Most founders fail to understand that 95% of sales leaders will implement exactly the total market strategy they employed at the last company. They will hire the same people from their network, structure the compensation plan identically, and apply the same sales processes and strategies." 

In a perfect world, a newly hired Sales Leader brings to bear both the Conviction to run her desired playbook, with the Humility to start from a place of learning, seeking to understand the aspects of her Funnel Strategy which need to be tweaked around the edges to incorporate the context, nuance, and any hard/won internal learnings from her new home. 

Mark recommends 3 questions to help suss out this ability:  

1. Knowing what you do about our business, what kind of sales methodology would you run? And how does that compare to your previous role? What are the differences between your previous company and this one?
2. What kind of salespeople would you hire, and how do they differ from the people you have hired in the past?
3. How would you structure the compensation plan to meet the needs of our business?

As Tom instructs, "Founders and board members should determine whether or not a candidate can combine what they have learned to previous roles, and the new information about this particular company, to forge an alloyed go to market strategy that serves this business well. The right candidate needs to be an alchemist, someone who is willing to experiment and tinker with the model, not just copy a previous model by rote." 

This concept seems intuitive and obvious, yet an unwillingness to depart from any aspect of a prior Sales Playbook is among the most common hiccups in new Sales Leadership. 

- kbr

7) 10/26/20 - Sales Operations & Go-To Resources

Sales Operations (also known as Revenue Ops) is a business function which has existed for decades.  Yet it seems to be gaining an increasing amount buzz in tech circles and Startup Land.  

It's easy to understand the utility of Sales Ops.  Modern, specialized sales and marketing functions create huge amounts of data.  And his data can help to drive strategy, create processes, and identify efficiency gains and operational improvements for any sales or marketing playbook.  

This all sounds simple and intuitive, but here is the catch:  collecting and translating data isn't an activity set which most sellers (and sales managers) gravitate towards nor have a natural affinity for.  After all, folks tends to choose sales as a career in order to bet on their EQ, trust-building ability, and problem solving to (you guessed it) sell to customers.  And maybe make some good coin in the process. 

They're not in it to make sense of numbers.  Nor do they tend to be strong across that dimension.  

And thus the absence of Sales Ops creates both sub-optimized sales processes but also a distraction for your sellers.  And thus at it's core, Sales Ops is about 3 things:  (i) removing this burden from your sellers; (ii) making sense of data across each layer of your funnel; & (iii) translating it to strategy in simple and digestible ways. 

In my experience, the major "Watch Out" when it comes to Sales Ops is delayed implementation.  Once G2M Fit has been established, and a Commercial Leader has been brought in to optimize your sales playbooks and hire reps 3 to 3000 . . . at this point you're ready for a Sales Ops resource to provide guidance to sellers, synthesize data from CRM to optimize strategy, and provide revenue reporting etc.

This early bet on Sales Ops avoids the expensive and destabilizing headache of retroactively fixing processes that could've been easily avoided with a front-footed Ops posters. 

Below are three quick and insightful reads that speak to both the value of sales ops as well as actionable steps to drive implementation. 

a. When to Start and Scale Sales Operations (Storm Ventures) 

b. The Founder's Guide to Sales Operations (Close Blog)

c. The Only Kick-ass Guide to Sales Operations You'll Ever Need (Close Blog)

-kbr

6) 9/12/20 - The Babe Ruth Effect

Much is written about how Venture Capital investing follows a "Power Law" distribution, in which a few outlier bets generate the Lion's Share of returns.  Scores of publicly available data reinforce that VCs optimize not for "Picking Winners" but rather for taking "Home Run Swings."  In fact, according to data from Horsley Bridge, a reputable LP in many VC funds, 4.5 percent of invested capital generates 60 percent of returns across top performing VCs.  

This Power Law ideology is foundational to venture capital portfolio construction and at the heart of any winning venture strategy. 

I've recently stumbled upon alternative terminology for this phenomenon which feels more intuitive and less jargon-y:  the "Babe Ruth Effect," as dubbed by Michael Mauboussin.  He writes: 

“…in any probabilistic exercise: the frequency of correctness does not matter; it is the magnitude of correctness that matters…. even though Ruth struck out a lot, he was one of baseball’s greatest hitters…. Internalizing this lesson, on the other hand, is difficult because it runs against human nature in a very fundamental way.”

While I fully subscribe to the Babe Ruth Effect -- it is neither controversial nor complicated -- I too have found it to be counterintuitive and at odds with my nature.  As behavioral economists point out, people tend to hurt more from losses than they feel good from gains of the same size!

And like most people, I'm predisposed to avoid losses.  Getting comfortable betting on statistically improbable outcomes, and accepting that losses are necessarily part of the strategy, both cause me uneasiness to this day.  

Yet this orientation wins not only venture investing, but in so many facets of life which present limited downside yet unlimited upside.  In VC, all you stand to lose is your principal investment...but betting on an Snowflake or Uber of Facebook has minted billionaires. 

I frequently remind myself of these outcomes to stay honest and avoid any implicit risk-avoidance bias. Maybe Babe Ruth did the same way when he stepped up to the plate a century ago and swung for the fences :)

Whatever his self-talk, he understood this upside/downside calculus.  And it didn't hold him back:  

 I swing big, with everything I’ve got. I hit big or I miss big.”  –Babe Ruth

-kbr

5) 9/5/20 - "Letter to a Friend Starting a Hedge Fund"

Graham Duncan of EastRock Capital is a brilliant investing mind and thoughtful writer.  I selfishly wish he blogged more frequently.  

My favorite of his posts, titled "Letter to a Friend Starting a Hedge Fund," is packed with insights and a Must Read for anyone pondering whether to roll the dice on a new venture (whether on the investing or operating side).  He structures his advice and learnings into 7 thought-provoking questions: 

1) Are you ready to fully own the ambiguity of a new initiative?

2) Is your spouse fully on board?

3) How will you accelerate the process of building trust with new partners?

4) How will you protect the climate within your skull?

5) How are you going to source enough good ideas?

6) What are you compulsive about? Is it possible to put that at the center of the platform’s activity?

7) Are you really focusing on what you’re going to value over the long term?

A summation from me wouldn't do his piece justice; however there are two tidbits which jumped out to me and that I wanted to share with you all:   

(i) Re "owning the ambiguity of the new initiative," Duncan writes: 

"Start-ups of any kind are awash in ambiguity. It’s the founder’s responsibility to hold that ambiguity for everyone, which is often a lonely job. As you move from “refining reality” in your old job to “asserting reality” as you create something from nothing, you will inevitably encounter the cognitive dissonance borne of having to act as though everything is going to come together when there’s obviously a real chance, for reasons outside your control, it may not. . .' 

'This initial process can be easier for sales people, who are used to asserting reality through storytelling, than for those who, like you, have spent their careers investing."

This bit resonated with me as sales (like fundraising) boils down to an ability to communicate and cultivate buy-in around an uncertain vision, in a way that compels your audience beyond the ambiguity. For that reason, so much of launching any new venture is predicated on someone's sales and storytelling chops.  

(ii) I love the vocabulary he used to unpack his "value over the long term" principle: 

"Money and remaining healthy conscious time on the planet are just two of many currencies. A billion seconds is roughly 31 years. I think Rupert Murdoch or some other aging billionaire might enviously see you as a time billionaire — I imagine he’d pay multiple dollar billions for the next five years of your life if he could magically add your sand to his own hourglass.

What price would you sell the next five years to Murdoch for? Stop and actually come up with a true number. I found my own number in answer to that question has gone parabolic — now approaching infinity — as I have young kids and I found what ball I like to hit and started to play only that game. In retrospect I wish it had gone parabolic even earlier."

I found this perspective to be refreshing and a useful sanity-check for many folks professional ambitions!

-kbr

4) 8/28/20 - "Your VP Sales Shouldn't be Perfect"

SaaStr's Jason Lemkin has published a bunch of winning sales-related content over the years and I've referenced many of his greatest hits throughout the TRT Blog.  This summer, he added another to this collection:  "Your VP Sales Shouldn't Be Perfect."   

And there is a core philosophical theme to understand:  there are dozens of different flavors of Sales Leaders.  For instance, if your VP Sales comes from a high-velocity, small-ticket, inside selling environment.....it's probably unrealistic to think she'll also be an expert when it comes to the longer salecycle, matrixed decision making process of big-ticket, enterprise sales. 

Same holds true for folks coming from Inbound vs Outbound sales backgrounds -- two approaches with a common goal (predictable revenue growth) yet which require their own playbooks, skill-sets, unique sales/marketing hand-off, and opposing lead generation and qualification techniques.

These nuances make finding a candidate who checks every box for your deal size, customer type, sales velocity, and G2M motion pretty unlikely.  So how do you triage and prioritize across a pool of "imperfect candidates"?  

A Sales Leader's ability to build a World Class team is always consideration #1.  But beyond recruiting chops, I agree with Lemkin's premise to let experience at your target ACV be your guiding principle.   Deal size is tightly correlated with both your sales velocity and the suit of tactics which will help to win your core clients.  It's your best shortcut towards finding someone with the most applicable playbook. 

For that reason, common deal size experience -- whether at $x,000 or $x0,000 or x00,000 -- is the most salient attribute in the sales leader you're recruiting (again, other than a talent-first orientation).  Optimize your candidate funnel accordingly. 

-kbr

3)  8/21/20 – A Metric for Judging Sales Team Growth 

I’m always interested in learning new ways to value the ROI of sellers and sales teams.  So I was excited to read Tom Tunguz’s Month Zero Cash on Cash Payback (ZCP for short) and to add this metric to my Sales Measurement Toolkit.  In Tom’s words: 

"ZCP answers the question: if we invest $1 in sales costs (e.g., salaries & sales commissions), how long does it take to recoup that dollar and see it in our bank account?”  

I found it helpful that Tom contrasted ZCP with the Magic Number, a popular SaaS unit economics test, which provides insight into how many new bookings you should expect to generate from an incremental $1 investment in sales and marketing. 

In effect, ZCP provides a winning measure of a sales team’s cash efficiency. A “cash out” (i.e. total sales headcount expenses) to “cash in” (e.g. upfront payments on annual deals) ratio of 1.0 indicates a rep payback period of zero months. And this in turn signals an ability to expand sales without increasing your burn. 

Pretty cool and useful, right?

One quick caveat to note:  anyone who has been an AE or who has managed sellers understands first-hand that sales is a roller coaster – cyclical highs and lows. For this reason most sales compensation plans have moved towards quarterly variable/commission payments.  This same line of thinking applies when utilizing this ZCP metric: absent an extraordinarily consistent sales machine, it is best served on a trialing QoQ basis.   That quarterly timeline will offset the volatility and swings and allow for ZCP to paint a true picture. 

Nonetheless, it’s a useful and novel tool for making sense of how growing a sales team will impact cash.  Let me know if you find application for ZCP at your business and what you think. 

-kbr

2)  8/12/20 - Growth Debt Facilities 

I've become a big fan of Howard Lindzon's newsletter and podcast:  "Panic with Friends."  Howard unsurprisingly leans on his success as an entrepreneur (Stock Twits), Investor (Social Leverage Capital), and the rolodex he's built along the way to attract high-powered guests to his show.   

But more than that, he is a winning combination of funny/irreverent and insightful....and the ability to teach and entertain at the same time is a timeless recipe for accumulating an audience base.  NYU professor Scott Galloway has similar programming and has leveraged this sort of "learn and laugh" style to blow up the past couple years across various mediums. 

Anyway, today's guest on Panic with Friends, Bill Libby, discusses with Howard his Growth Debt fund, Upper90. It made for an interesting conversation about another way to skin the cat outside of the traditional equity raises through venture financing.  While credit facilitates aren't right for every startup -- they likely require collateral or predictable revenue streams -- it can be an awesome way to take on non-dilutive capital.  

And while venture funds tends to be media darlings and the sexiest way to raise capital, it's no secret they can lead to misaligned incentives, excessive dilution, premature scaling, and other negative second-order consequences. 

Folks in the fundraising process are smart to consider all of their capital options, included creative structured financing and credit facilities.   This podcast touched on that theme and unpacked this specific alternative. 

-kbr 

1)  8/7/20 – Revenue Multiples:

Alex Immerman and David George of a16z published a technical piece this week called the Role of Entry Multiples in Valuations. 

It unpacks historical context of earnings multiples, why they’re leveraged and how they work, and provides guidance for when they do and don’t make for practical gut checks and shortcut-heuristics for comparing relative valuations of similar companies. 

It’s a smart and informative piece on a complicated subject = a worthwhile read.

But while reading it my head went to the same place I seemingly always return to when I stumble upon Revenue Multiple thought leadership:  Bill Gurley’s classic 2011 article All Revenue is Not Created Equal. 

9 years later, it is still the most helpful and clear-thinking piece I’ve read on the subject.  And I find myself regularly referencing Bill’s outlined characteristics which help to define revenue quality.  Of course, the better the revenue quality, the greater the chance a company can command and justify high price/revenue multiples.  

Suffice to say, not all startups have software-like margins, LinkedIn-like network effects, a Cocacola-like brand and economic moat, and the other traits which would warrant inclusion into the 10x revenue club.  But that hasn't and won't stop [most] entrepreneurs from arguing that they do :)

-kbr