3 Crucial roles you need from your Sales Leaders even if you don’t have one.
last several weeks, I’ve held discussions with founders, CMOs and business
operators about enhancing their revenue operations teams and one thing has
struck me as very odd. There is no real sales
leadership resident to the current business.
I mean none: no managers, no trainers, no recruiters, no leaders.
Now to be fair, in many of these organizations, there are less than twenty team members and thus the CEO or COO acts the revenue and sales leader. Unfortunately, these CEOs and COOs appear to be delegating crucial sales management and leadership roles like recruiting, training, and retention to others in the organization who have little or no experience in any of these tasks.
As a result, the sales leader (ie. CEO, Founder, CMO, COO etc.) never really get the performance that they’re seeking from their sales team and they’re routinely disappointed. And welcome to churnsville… insert salesperson 1, 2 and 3 out comes sales person 1, 2 and 3….
might be asking yourself: why are they acting as the sales leader in the first
It seems that in Startup land and other smaller organizations that the hiring of sales leadership is considered a luxury. So instead we get sales leaders who are either inexperienced and learning on the job or those that are filling the role of player-coaches.
For small businesses and start-ups sales leadership is treated as a luxury so there is no sales leadership
What’s a Player-Coach?
Let me explain.
Up until the “modern era” of most professional sports, it was common for there to be one seasoned or more experienced player who was near the end of their career to be on the team as an active player that would also act as an assistant or full coach. For example, the most recent player-coach on a professional team occurred when the Chicago Cubs signed Manny Ramirez, a hall of fame player, to their Triple-A affiliate in Iowa to both play and mentor some of the “big club’s” younger players – a la Kevin Costner’s “Crash Davis” in the 1988 classic Bull Durham. While in Iowa, Manny got the chance to continue to play baseball as his passion and also help out the Cubs organization.
Sounds like a great idea, no? You get an All-Star caliber player who’ll help some of the younger experienced members of your team, put some numbers on the board – and all for a price that’s usually below the cost of both (a coach and a leader).
what’s happened to the player-coach role in professional sports over the last
The last player-coach in professional sports before Manny was Craig Berube who served as a player-coach for the AHL Philadelphia Phantoms in the 2003-04 season. And before Craig, Pete Rose worked as a player-coach for his hometown Cincinnati Reds from 1984 to 1986. So Craig was 10 years before Manny and almost 20 years after Pete. BTW, the last reported NFL player-coach was when Dan Reeves suited up for the Dallas Cowboys in the late 1960s.
professional sports the role of the coach has become so extensive and
all-encompassing that coaches can no longer play the game and keep coaching at
the highest level. Craig Berube understood this and that’s the main reason he
quit playing midway through the 2004 AHL season so that he could focus on being
behind be bench instead of on the ice.
Sean McVay, the Head Coach of the Los Angeles Rams was just shy of 31 years of age when he lead his team to Superbowl 53 this past February. While he might have been the youngest coach to do so, there is plenty of precedent for the venerable NFL hiring coaches that are just a few years older than many of their players. In fact, John Gruden, Bill Cowher, Don Shula, Al Davis, John Madden, Mike Tomlin and many others all started their head coaching careers in their early 30s.
To date, there are no more player-coaches in professional sports.
Revenue Operations needs Sales Leaders
While leadership is needed throughout your revenue operations team, it’s most appropriate for the sales operations team.
for sales leaders to be most effective and operating a high velocity sales
attack they should not be selling to prospects or managing accounts, they
should be teaching and training others to do so.
If you’re asking your senior sales professionals to “help out” or “mentor” the younger professionals then you’re doing both groups a disservice.
need is a professional sales leader.
As goes the leader, so goes the sales organization
Mike Weinberg, Sales Management Simplified
tell me that your small business or start-up can’t afford one.
The good news is that you can rent sales leadership.
There are plenty of experienced sales leadership professionals who are prepared to act as consultants and coaches to your team. They’ll charge you a modest retainer or fee to gain access to their experience and skils, run events and keep your team accountable to their mission. They might even have organizations that focus on helping sales teams grow and become exceptional (for example Jeb Blount runs SalesGravy.com and Grant Cardone runs CardoneUniversity.com).
Three Crucial Roles for your Sales Leader
that you know what to expect from you sales leader, here’s the 3 crucial tasks
of Sales Leadership:
For a variety of reasons, sales personnel are constantly changing roles; a sales leader needs to understand the nature of the talent market at all times. By having an active and robust candidate pipeline, the sales leader is going to have clarity on the market for sales talent. If you’re handing this task off to HR or anyone else, then you’re likely not going to achieve the results you’re seeking from the team members you receive.
Culture & Accountability
The sales leader is the primary influencer in the creation and
maintenance of the culture of the sales team.
This starts with setting objectives for activities, outcomes and behaviours
and continues with recruiting the right people into the right positions. In
addition, sales leaders will make their team accountable for their results
through the use of team and individual coaching.
Through one-to-one and team meetings, sales leaders should be interacting with ales team members almost daily. These weekly or bi-weekly meetings should focus on reviewing activities, results and challenges that your team and members face with the intention of creating incremental improvements.
General team meetings should focus on learning about elements of the sales process, market and product and celebrating all victories (large and small). Individual meetings should focus on removing obstacles to growth, encouraging hearts and, sometimes, providing the team member with a good nudge.
The result of this coaching is incremental growth that’s both immediate and extensive. As in sailing, a small course corrections can be as effective as full breakdown and analysis of an impending opportunity or process.
If a sales leader is not coaching their team every day, then they’re quickly sliding off into irrelevance. And the market will punish irrelevance with stagnant results.
Channel your Inner Sales Leader
So if your small organization is not ready to rent or hire a sales leader, are you doomed? No, sales leaders are not born, they’re made.
Fortunately, there are plenty of ways that you, your CEO, Founder or another leader can take over this role, but to truly drive revenues to new heights, they’ll need to dedicate sales leadership as their primary responsibility, and they’ll have to read and study a lot.
To this end, I’ve got a number of great resources in the books section of my site that I’m constantly updating here.
The terms Demand
Generation and Lead Generation are often used interchangeably by B2B marketers.
The difference between these two can seem murky, but generally, it is actually
as simple as the terms themselves.
As the name
implies, Lead Generation is used to accumulate information regarding potential
clients that can be converted to sales leads. Demand Generation, on the other
hand, refers to a marketing operation that aims to create an interest in or
demand for your products and organization using the law of attraction.
It’s likely that
the confusion between the two terms resides in the fact that both use content
assets as the core offering to achieve their objectives. This purpose of this
post is to describe more of my thoughts on the nature of Demand Generation, a
subsequent article on Lead Generation will follow.
Purpose: Start with Why
With respect to
Simon Sinek’s famous TED talk, , Demand Generation concentrates on
communicating your organization’s message to the market with the intention of then
attracting those individuals that are beneficial to achieving your desired message. Demand Generation is about building an
audience that will follow you and your organization. If you’ve got a successful Demand Generation
program you’ll be able to achieve the following:
• Create a market awareness of your presence
and vision and values. You communicate to your target audience who you are and
what you can do for them.
• Create a position as a thought leader. By
providing quality and valuable content to the audience, you will be seen as an
expert in your prospect’s challenges and unique circumstances.
• Attract investors, staff, and clients to
you because you’ve shown the industry why they can trust and rely on you.
• Educating and defining your value
proposition. In new “blue oceans”, you may need to define and educate your
market on the severity of the challenges or potentiality of the solutions.
• Position yourself as the leading brand in
your market. Using the techniques from Demand
Generation you easily acquire the trust of your target audience ensuring that
your brand and company are top of mind.
Use the Law of Attraction
Generation activities and techniques build your audience of prospective
customers, investors and team members.
A more prominent
market presence will lead to greater possibilities for you and your
organization through the law of attraction.
Not only will your prospects and clients get to know and understand your
values, they’ll also appreciate how you differentiate yourself from your
Expected Outcomes From Demand Generation
Generation is all about building organic growth that creates medium and long-term
results. Organic growth is the source
for sustainable or recurring revenue and a loyal client base that not only
provides for scalable product-market fit it creates product fans and opportunities
for additional revenue channels with the same audience.
can build great organic growth which can build brand awareness. Demand
Generation is about building brand awareness through story-telling. Thus Demand Generation and Product Design are
two partners to achieve organic growth.
So in order to accelerate the organic growth, a great product needs a
great story. Content created for this
purpose (ie. To support the product and organization) creates lasting
impression and allows prospects to discover your product.
Demand Generation creates Organic Growth
By using Demand
Generation activities, Investors and key hires will get to know your
organization and as a result, when you’re ready for the next “acquisition”, the
ease through which you’ll be able to grab their attention will be significantly
easier. Because of your Demand
Generation efforts, building a team of “A” players or investors will take less
time and efforts.
Typical Demand Generation Activities
and publication of content is one of the key activities related to Demand
Generation. The type of content that can
be used for Demand Generation includes any and all of the following:
• Podcasts – We’re all busy people,
but with a microcomputer in our pocket, we can all take 15 or 20 minutes to
listening to an inspiring idea or intriguing interview. Building a Podcast on
your topic allow you to network and grow beyond your current network and adds
value to you, your peers, customers and prospects.
• Whitepapers – Lengthy papers that
provide insight, data and practical instruction, knowledge, guidelines can
position or reinforce you position as to go-to leader in your industry. The key is to ensure that these documents are
about the content and not yourself or your organization.
• Blog posts – on and off-site – The
blog post is one of the common ways to share knowledge with your target
audience and in turn, establish a reputation as an expert in your industry.
Aside from including blog posts on your website, you can increase your reach by
submitting articles to other sites.
• Press releases and media – Media Relations
is all about getting your audience to know about you and your organization’s
offerings in a broader context. Issue
formal press releases when you’ve got something big to talk about and make sure
your media contacts know about this “news” in advance.
• Advertorials – Find and publish
content on publications where your target market visits. Don’t know where to
start? Ask your current clients and
prospects using a simple survey or interview.
• Video blogs – According to Wordstream,
YouTube has billion of users. 82 percent of those that use twitter watches
videos, 1/3 of online activity is generally spent on watching videos, you will
not only widen your reach and boost business awareness. It can also help in
yielding higher ROI and profit.
• Tradeshow talks – Make presentations
on leading topics at tradeshows where your prospects attend. As a result, you’ll increase your visibility
and awareness of your brand offline and position yourself as an industry
• Academic papers – Offer to assist
academics use your technology in their research and ensure that you publish the
results in your media channels.
• Case studies – People most likely
want proof. Through case studies, you are providing them with proven content.
Note that the
key to success somehow relies on the quality of the content. No matter how many
Demand Generation activities you execute, if you do it half-heartedly, there’s
a lesser chance of success.
Get Started on Your Demand Generation Program
Starting a Demand
Generation program can be a bit daunting, so here’s some ideas on where to
your organization’s core values and how they’re transformed into market offerings
story as to how you want your audience to understand both these values and
telling your story using the various activities (For now, I personally choose
written and video blogs posted to several sites).
the volume of activities and communication channels as you have time and resources.
Lastly, as Brian Tracy has famously said, Eat the Frog First. If you start doing the hard things at the beginning of your day, then the rest of the day gets much easier. A Demand Generation program and strategy will help focus your organization on its core values and the translation of these values into offerings that will pay medium and long-term dividends to your Revenue outcomes.
While content management planning is a key element of the successful outcome from a Demand Generation strategy, execution is as equally important… it’s best to just start with one or two activities (described above) and then grow your outreach over time. You can do it so just get to it!
As an Angel, VC and Private Equity investor, I’ve conducted due diligence (DD) on over 100 + companies and given my skills I always examined the Sales Operations group as closely as the Financial Controls group. So why is it that almost every VC or Private Equity investor examines all facets of their target businesses with a microscope except for the sales function?
This is the full version of my thoughts. A much shorter version of this article can be found on our LinkedIn page here
Due Diligence and Sales Operations
As part of Revenue Operations, the sales operation team is a key component in the future success of an organization. When the sales engine is tuned up and performing well, profitable revenue is almost guaranteed. However, during the initial due diligence process, the proficiency of the sales organization to drive future sales and the accuracy of sales projections are rarely, if at all, challenged or analyzed thoroughly.
In my due diligence work, the absence of a sales process is evident in almost every small to medium sized founder-based enterprise. These founders didn’t intentionally set out to ignore sales, they’re just so busy working IN the business, theyv’e forgotten or never really worked ON the business. So with no metrics to guide them, there is limited accountability and a narrow or partial vision of future sales.
Dig Deep into the Data
Utilizing a metric-driven
approach to a company’s entire sales operations is essential for Revenue
Leaders and Investors. This part of the Revenue Operations strategy will
provide the owners and investors with a complete and more accurate view of the
business’ revenue-generating capabilities.
According to the book The 4 Disciplines of Execution by Chris McChesney, Sean Covey, and Jim Huling, the authors discuss the difference between lag measures and lead measures, both of which are important metrics that are used in sales. The authors define a lag measure “is the measurement of a result you are trying to achieve”; while a lead measure “foretells the result.” I find that many of today’s lag metrics are really just vanity metrics that have been used by teams forever.
Don’t be Fooled by Vanity Metrics: Due Diligence is about finding drivers and leaders of revenue
An effective due diligence process needs to find the leading measures that drive performance. When executing due diligence on sales operations both lag and lead measures should be considered in the analysis. The data that comes mostly from lag measures, like the past financial performance of the company should be complemented by an analysis of the sales process that may reveal critical lead measures that are more indicative of future revenue performance.
For example, in markets with complex sales, the sales team can’t generally control sales revenue volumes as these results or outcomes require decisions made outside of their span of control control; instead, the sales team can control their level and volume of inbound and outbound contact activities with prospective customers. So while lag measures such as sales revenues are easily available during due diligence, leads measures such as sales activity levels are less so.
You may not know the leading indicators that drive revenues but you can find them in the data
DD Focused on 4 Areas
There are four elements
of sales operations that are collectively critical factors in a company’s
success. These four elements should undergo an in-depth analysis and
benchmarked against other top sales organizations. These are infrastructure,
organization, process, and support (collectively I call these the sales system).
All highly-productive sales organizations should have a solid infrastructure in place. With the right infrastructure in place, your sales team can focus on the activities that will drive revenues. In addition, with the tools and process from the infrastructure, your team will be able to execute faster with prospects. The sales team will only reach its maximum potential and achieve consistent results if they have the infrastructure to support them.
A good sales infrastructure should include documented policies, procedures and activities related to sales performance, compensation, pipeline review, marketing collateral, payment policies and market/competitive review. Not every sales team uses advanced technologies like local presence dialing or AI, but most, if not all, should have some core tools like CRM that are available to all team members.
When examining the organization you
should be searching for these key elements as part of the sales culture: sales team
structure, territory design, sales management, and sales personnel.
The sales team structure should be organized in such a way that will ensure maximum efficiency. The sales team structure should also be designed to look at each individual as a team member with a significant role to play, and it should be seen in the light of the rest of the organization – as an all-important cog in the machine. This includes the sales team’s Sales Story (New Sales Simplified, Mike Weinberg) used in its messaging and methods of approaching new and existing accounts.
Territory design is not as
straightforward as assigning geographical coverage to the sales team. Apportioning territories requires an understanding
of factors such as the approach to strategic accounts, competition, and
expertise areas. Whatever the territory design, the main goal is always to find
as much profitable business as possible.
Account-based Management has become a new “buzzword” in sales
literature, but it’s just another way to discuss how accounts with multiple
contact points should be managed within the organization.
Territory Design and Management is Crucial in Enterprise Sales. Account Based Management (ABM) can help Revenue Leaders align sales teams.
An effective strategy for sales
management involves setting goals for team members, providing sales support,
training and monitoring the team’s results.
It also involves creating or updating the sales team culture and strategy. Questions you should be considering include:
Do Account Executives (AEs) and Sales Managers have written and definable goals? How are they held accountable?
How do Sales Managers interact with AEs, Sales Development (SDRs) and product specialists in aligning to the company’s vision and objectives?
How much time by the management team is spent “in the field” talking to customers?
How much time is spent on coaching, evaluating and praising team performance?
How are successes publicized and failures analyzed?
Processes that need to be evaluated include those relating to sales process, lead management, budget, customer success, and forecast management.
Building a sales process
is absolutely necessary for the sales organization. Since the sales process is
a set of repeatable steps, the team can easily map out each of the stages by
identifying key activities at each stage. For example, at the qualifying stage,
sales teams with good processes will know what information is required to
determine if their prospect in is the buying window.
A Sales Process is series of repeatable steps that helps the sales team execute the go to market strategy.
An organized and effective
lead management process is designed to identify potential customers and engage
them in meaningful channels and messages that resonate. As a result, this lead management process,
can ultimately contribute to more sales by creating more engaged prospect leads.
A solid lead management process includes identifying and understanding needs,
generating and collecting intelligence about leads, and scoring and nurturing
The budget process
includes all matters related to the expected volume of sales and selling
expenses. A sales organization should have a certain procedure for the
preparation of the sales budget. The process should include a review of past
budget performance as well as the current and future factors of the marketing
Customer Success is not
created when a prospect gives you their credit card, signs an order form,
contract or issues a purchase order.
Customer Success is created when that same customer orders again, refers
you to a prospect or offers to be the subject of a case study. This success only happens when there are
documented processes that describe how the organization is going to act during
the term of the relationship with that customer. If the sales operation team doesn’t have a
new and existing customer account management process, then they’re missing out
on multiple revenue opportunities.
Customer Success happens when the same new prospect places another order, refers you to someone or acts as an advocate for you. It must be built methodically and inculcated in your organization.
Lastly, good forecast management is
also an essential part of sales operations.
The forecasting process allows the sales team to evaluate current market
trends so that informed decisions can be made about sales operations, customer
orders, delivery of goods, customer orders, budgets, and inventory.
Support encompasses the following areas: sales operations, sales support, systems, and sales enablement. A solid support team will allow the sales team to just focus on the business of selling as they service new and existing clients.
Some support functions include keeping track of sales targets, scheduling, monitoring customer accounts, monitoring new sales leads, and managing the correspondence between the sales force and clients.
DD RED FLAGS
While we’re always searching for the diamonds in the rough in our due diligence process, we’re likely to find some problem areas as well.
Not suprisingly then, here are some of the red flags that I’ve found in a sales operation that imply a broken or non-existent sales system.
When the sales team consistently does not achieve its desired outcomes.
When sales projections are only upon the current book of business and do not consider historical data or activity
When the sales pipeline is too optimistic (every deal is more than 70% of closing in the next 30 days)
Despite an influx of qualified leads and prospects from marketing operations, the sales team does not seem to be able to scale
When sales team members are operating with different platforms, messaging and processes.
Sales Operations is about Data AND People
It’s important for you to remember that Sales Operations is about People and Data working together towards a common objective. When conducting DD, it’s easy to lose sight of this and just focus on the leading or lagging data.
If you focus on both Data and People, you’ll likely open the door to opportunities for revenue growth or show that the current revenue projects are unlikely to materialize. More importantly though, you’ll know WHY the these outcomes could occur.
Some company has raised a decent size series A or B round ($5 to $15 million) and are now going to scale growth by driving sales revenues.
This time they’re serious. There is a press release about a new dedicated sales office in their key market (usually New York or London) and are hiring a new sales team starting with a Rockstar VP of Sales (who may or may not have been recommended by one of their investors).
Now this Rockstar, is a top producer at another company that’s operating at scale and achieving exponential or hypergrowth, and the thinking is that since he or she has been along for the rocket ride since the early beginnings, they probably know a thing or two about scaling for growth.
So your Rockstar is a sure hire, right? Maybe not.
Why your Rockstar will work out
Hopefully, in addition to being a top performer in a company that’s running at scale, they’ll have learned some hard won lessons. In this crucial role (Sales Leader) you need an individual that can conceive, develop and execute processes that fit your market, product and culture.
If they’ve been in a sales organization for a while, then it’s likely that they’ve held multiple Revenue Operations roles such as Business Analyst, Sales Development Rep, Demand Generator, or Account Executive. If they have held multiple positions then they appreciate and understand what it takes to fill each of these roles and how they fit into the ability to generate revenues.
If they’ve not held multiple roles, but have been in an organization where the primary processes relating to hand offs between groups, cadence matching and planning has occurred then they’re like to transfer some of this knowledge to their current role. If they’ve been part of these process discussions then they’re even more likely to transfer these ideas to your organization.
If they’ve worked in multiple channels such as SMB, Enterprise of Private Label, then they’ll have a good understanding of which of the 6 paths to revenue (see my previous post) will provide the company the quickest path to long term sustainable revenue growth.
Of course, if you’ve nailed the product-market fit and your industry is white hot, then none of this really matters. But you need a different kind of sales leader, one who can navigate the blue ocean as best as possible and extend your run until you’re competitors notice and start to capture your market share. In this case, you’ll need someone who can manage the pace as well as iterate the processes so as to defend your territory.
If your Rockstar has held multiple sales, marketing and revenue operations roles in a variety of geographic and target markets and you’ve got decent product-market fit, get ready to ride the rocket.
If your Rockstar has been in any of these situations or experiences, then you’re likely well positioned.
Why your Rockstar won’t work out
Most top producers are just that, top producers. They understand how to excel in the processes and systems provided by their managers and market. They follow best practices and processes that they’ve learned from previous workplaces and will implement those that worked for them in the past. This sounds great, but might not work for your personnel, market or culture.
Your new hire likely hasn’t learned to be a sales manager, let alone a Sales Leader, and as such has no idea how to manage other sales team members and their needs (and there are plenty). And despite them wanting to be team players and part of the executive decision making team, they’ll quickly become demotivated when the find themselves in a series of endless inter-company meetings without doing much to drive the revenue needle (which is why you hired them in the first place). They want to be a team player, but in their heart, they can’t be, so they’ll slowly start to rebel by focusing on those tasks they know and love (i.e. interacting with prospects, customers and team members) and act apathetically for all the others.
In addition, it’s likely that the founders (especially if this is their first time) and Board will have compressed expectations as to when material revenues from their new “sales efforts” will bear fruit. An unrealistic quota that hangs over the head of this Sales Leader makes it even harder to focus on the short and medium term tasks that need to be executed so as to realize long term sustainable revenue growth.
It’s also entirely likely that this new Rockstar doesn’t have the same level of support at your operation that they had in their old place. Maybe Rockstar qualified and closed deals from leads provided by demand generation, then sales operations handled the order paperwork and sales enablement executed the customer onboarding. Maybe you intend to build these teams or functions in the near future, but without them, it’s possible that your Rockstar has no idea how to build sustainable pipeline and revenues.
Expectations Matter: If you expect too much from your Rockstar and provide too little support, you’re setting them up for failure
This is akin to sending a sniper out to battle with no logistics and field support. If your Rockstar doesn’t know how to build these teams, processes and systems, you’ve only got a great sales person, not got an RO professional or Sales Leader. They’ll need time and coaching to learn these processes and systems and really inculcate them into your culture. If you’re not providing this support then you’ll find out quickly (within a year) that the Rockstar’s not a good fit for your culture or that you’re not really ready for an true Rockstar of Revenue.
How can you make this work?
In North American Football, most pundits agree that the Quarterback is the most important position on the team. He’s the leader and in most cases, the playmaker. You’ve just hired what you think is your new Quarterback, but you’re concerned about his or her ability to execute, so now what?
Like all good managers, build the team together with your new Quarterback. Let him or her have a material say in who gets hired for what role and when. Let them own, not just the RO processes, bu the recruitment, hiring and onboarding of the team.
Prepare the sequence of teams you need and know what plays need to be run at what time. So build demand generation before customer success, content before outbound or combine sales development and sales together. Do a deep dive on the business and market analysis and plan out your initial and subsequent tactics and figure it out together.
You’ll need training and enablement tools and processes to ensure that these learned behaviors stick with your team and are part of your culture. You’ll need constant reinforcement through compensation and incentive plans. You’ll need a “tone from the top” that’s aligned with your strategy.
You’ll also need to provide the tools and weapons necessary to build the game plan to win in the market. This doesn’t mean that you need to be a spendthrift as it’s important to mind the pennies when you’re a scrappy startup and thereafter (in most cases you’re playing with OPM), but when you’re really trying to scale, sometimes simplicity and speed win out over cost. I have plenty of examples of companies that could have improved their productivity dramatically for a modest increase in cash cost reaping multiples of revenues.
Give your Quarterback all that they need in order to be successful. If they’re the right hire, they’ll tell you the tools and processes they need and they’ll also tell you what’s bunk. Set them up for success don’t stand in their way.
Ok, So we’ve already done this and it’s going the wrong way.. now what?
What’s going badly? As Peter Drucker has famously stated, “What gets Measured gets Managed” so make sure that what you’re measuring is something that you can manage.
Revenues not on plan? Well you can’t manage revenues, but you can manage the number of outbound calls or contacts made to prospects or the volume and quality of your demand generation leads.
Customer Acquisition Cost too high? Well, you can’t manage this number, but you can manage the amount you spend on advertising, prospect incentives or affiliate commissions.
Start with a root cause analysis. One of my favourite root cause analysis methods is the “5 Whys”. Ask Why 5 times until you get to what you think is the real underlying cause of your problem. And if you’re still not happy, ask Why until you get to where you think you need to be.
Does your Revenue Operations team have the processes and systems in place to be successful? Has the market shifted in the last few months and so your message needs to be retooled? Do you need to change something amongst your leadership or team? Examine all of it.
If you’re not happy with the results of the activities you can manage then complete your root cause analysis, admit your mistakes, fix them and rebuild. This can be painful, but just like ripping the band-aid off, it’s only temporary and you can move on. The optimization process is plan, execute, review, rebuild and then plan again.
Blair Carey is passionate about using data to help companies meet their mission and purpose. He is the creator of insidecro.com where CROs can collaborate on anything they’re thinking about. You can follow him here or find him on his LinkedIn profile here.
Most of today’s companies execute multiple methods of bringing their product to market and creating revenues. In this post, I’ll describe the nature of those paths to revenue and the pros and cons of each.
Of course, you might be interested to know which path to revenue is best for your business and my answer will be it depends on multiple factors that are unique to your business. In reading thoughts you’ll get a sense of my opinion, but I’ll highlight most of the key considerations at the end of this post.
This approach to the market requires the creation and management of a team that interacts directly with end user customers. As such, all elements of Revenue Operations (“RO”) are required to be running in order to achieve optimal results. That being said, the sequence of RO levers to implement can vary depending on stage of company, availability of capital and product-market fit.
The direct sales approach can achieve faster results than other revenue channels but this is entirely dependent on your team and the ability of RO to identify the key pain points of each Ideal Client Profile and have an offering to fix these problems at a price that would be easily accepted. Most of the time though, all of these elements are unknown (ICP, ICP Pain, Offering, Pricing) and thus the speed to fully ramped revenue growth can take significant time.
This approach is best for young companies who have launched their first or second product, and are seeking market feedback on the goodness of fit to their Ideal Client Profiles.
Fastest way to achieve market feedback
Capture all economic rents from transactions (ie. No middlemen)
Direct feedback provides ability of product team to iterate product, leading to (theoretically) faster product-market fit
Ability to test business and go to market models and markets
This method is a big flywheel that requires a lot of heavy lifting, continuous review and complete alignment of the entire organization
Ramp up time to fully scaled Revenue run rate is dependent on:
Right approach to market
Sales personnel & management skills, aptitudes and compensation model
Requires the key elements of RO in order to have a chance to be effective.
Channel Partner or Affiliate Sales
There are many companies operating in local markets that already service your Ideal Clients and Prospects. They generally provide services and products similar or complimentary to your offering.
Generally these partners have both the relationship access to your target prospects and the technical skills to provide local service. And if they’ve got great internal sales processes they can provide you with significant market penetration, presence and leverage. If your offering requires local presence (due to language, culture or product complexity) then using channel or affiliate partners may be the easiest way for you to gain access to these markets.
Quicker access to Enterprise or Complex buyers
Existing technical expertise shortens technical ramp up
Low capital costs or expenditures
Leverage affect possible
No direct access to prospects and customers hampers ability to confirm product-market fit
To create real leverage, you need to occupy the mindshare of the partner
Requires same enablement and training programs and “in-house” sales personnel
Won’t know if the partner or affiliate is serious about marketing your offer until many months after execution of the relationship
Private or White Label Agreements
A private label agreement is one in which you agree to provide your product to an independent third-party with some minor modifications. These modifications are generally related to branding and/or packaging, but could also include something materially different from your existing product including code or physical modifications. In most cases, you’re still producing the modified product in your production facility or with your development team.
Most private label arrangements are governed by a legal agreement which covers a variety of matters including, but not limited to, joint marketing efforts (who pays for what), minimum sales commitments, progress payments for modifications (NREs), Intellectual Property protections, cancellation terms, and service & support programs.
One of the key differences between private label and other indirect revenue channels is that because product owners maintain control of the production, it’s easier for them to maintain control of the IP.
Access to potentially larger market without implications to existing brand
Large volume commitments from the private label partner
As a secondary revenue channel, these agreements create incremental revenue and gross margin
With this offering you can attract complimentary market leaders and operators
One of the lowest sales and marketing costs of revenue channel options
Requires its own channel management strategy and tactics within your organization
With no direct access to end user market, you gain less information about product-market fit
In most cases, there is little intertemporal accountability on sales volumes beyond contractual commitments
Market confusion can be created if the private label product looks similar to your branded product
If you have too many agreements outstanding your offering can become commoditized
Original Equipment Manufacturers (OEM)
Imagine that a large, multi-national Fortune 1,000 company with well-established revenue channels wants to purchase some component of your offering for its own products. No muss, no fuss, just sell them the code, API or components and they’ll just write cheques. Sounds easy, no? Not exactly.
While the OEM client is the holy grail of revenue for technology focused companies, OEM deals are filled with trapdoors and intricacies that need to be navigated in order for them to be effective.
In addition to the IP protections that are required (most OEMs have their own R&D groups so workaround language is important), you’ll need to ensure that your new client doesn’t use competitive products in their end user solution (which could replace yours), engage in predatory purchasing policies to drive away your margins or request abnormal co-marketing support dollars in relation to the total “whole product”.
You’ll also need to ensure that the term of the agreement is of sufficient length so that you can reap some economies from the initial work that you’re going to be doing to comply with your OEM client’s product specifications (each deal is unique). You’ll also need to watch out for “easy” termination clauses that would allow your OEM partner to cancel the agreement without implications.
Your components are embedded with a market leader driving increased component unit sales
Increased component sales volume can result in gross margin improvement as your Bill of Materials or cost of development per unit decreases (ie. You benefit from economies of scale)
Allows you to focus on technology more than the go to market strategy and other revenue channels
OEM agreements can take a long time to execute (think years, not months)
Depending on market, ramp up time to revenues can also be longer than expected (and you’re not in control of this)
Zero control over the go to market strategy or end user visibility
Your component or offering may be considered a commodity by the OEM and thus marginalized as the OEM’s strategy changes
Price becomes a major factor in negotiations as the OEM attempts to keep their whole product BOM within a target range
A licensing transaction is when a third-party agrees to purchase the rights to use your IP for their own purpose. In most cases, buyers who choose a licensing agreement (“licensees”), build and produce the end product or component as part of their “whole product” offering.
While OEM agreements are the “holy grail” for those manufacturing product, licensing agreements are the rocket fuel that can drive and monetize Research and Development efforts if you don’t have a go to market strategy as described above. These deals can be complex but lucrative, and share some of the components with their OEM counterparts.
Highest gross margin revenue
Can create high lifetime value per end-user
Based on historical R&D performance
Trust but verify – you’ll need to have appropriate audit rights to ensure that you know your IP is being used and sold
Agreements need to have strong workaround language or need to be able to evolve as technology changes
Agreements can take a long time to execute
The number of licensees is limited to those for whom your technology has strategic importance
As the number of licensees increase, this Revenue Channel will require its own manager
Joint Ventures or Revenue Sharing Agreements
These relationships require careful thought and planning as they are generally designed to be long term in nature.
Joint Ventures are generally separate legal entities incorporated in the location where the business is to take place with their own (local) corporate governance guidelines. In contrast, Revenue Sharing arrangements are not separate legal entities but a contractual agreement between two or more parties.
The nature of each agreement is customized for their respective market but you’ll need to agree on, at least, who covers what expenses, current and future product offerings, what type and how much technical support will be provided, product transfer pricing and legal liabilities.
Joint ventures are often created when the parties are bringing a new product or technology to a new market. Revenue Sharing agreements are usually created when there is a decent product market fit in the primary market, but the operator is seeking to expand beyond is current target market or geographic borders and doesn’t want to commit its current go to market resources to this new target market.
While both strategies have an element of reduced execution risk because there is at least an additional invested party in making the business work appropriately, don’t be fooled. If you want to make this arrangement successful then you’ll need to work as hard or more than any other revenue channel. This seems counterintuitive because, while your partner is “invested” in this relationship (monetarily or otherwise), they’re not going to be as emotionally invested as you.
Startup funds shared between partners reduces financial risk
Local presence in market assists end-users and legal requirements (local “tenders”)
Creates a legal buffer between parent company and the operating entity, thereby reducing legal liability
Requires significant investment in personnel, training and support at the outset of the relationship
Senior leadership must be part of the governance, decision making and audit process as part of its daily operations taking away focus on core operations
Vetting and review process – as you’re gearing up for a long term relationship, make sure you know your partners and any challenges they might have
Increased administrative costs – as JVs are separate legal entities they’ll have some of their own latent administrative costs
So Which Revenue Path is Right for You?
After reading this lengthy discussion you might be left with asking this question. My answer is that it depends on several factors including:
Product & business model maturity
Capabilities of your team
Desire to approach new markets (industries or geographies)
Current financial situation
Scope and size of addressable market
Bringing it all together
Because any dollar of revenue is a worthwhile pursuit, it’s easy to understand why you’d want to concurrently pursue all paths to Revenue as you’re launching (or relaunching) your business. As you’ve come to appreciate from the above analysis, this simply isn’t true.
The initial and ongoing effort required to achieve your first dollar on any of these Revenue channels varies and is dependent on a number of factors including your current product-market fit, your internal team’s capabilities to manage the Revenue Channel and your current financial situation.
I’ll address each of these in a separate post in the near future, stay tuned.
Blair Carey is passionate about using data to help companies meet their mission and purpose which is why he created Insidecro.com as a place where CROs can collaborate on anything they’re thinking about.