Is your Rockstar VP of Sales ready to be a Revenue Leader?

We’ve seen this before.

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.

The 6 Paths to Revenue Growth

This is a 7-minute read, but it’s worth it!

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.

Direct Sales

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.

Pros:

  1. Fastest way to achieve market feedback
  2. Capture all economic rents from transactions (ie. No middlemen)
  3. Direct feedback provides ability of product team to iterate product, leading to (theoretically) faster product-market fit
  4. Ability to test business and go to market models and markets

Cons:

  1. This method is a big flywheel that requires a lot of heavy lifting, continuous review and complete alignment of the entire organization
  2. Ramp up time to fully scaled Revenue run rate is dependent on:
    1. Product-market fit
    2. Right approach to market
    3. Sales personnel & management skills, aptitudes and compensation model
  3. 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.

Pros:

  1. Quicker access to Enterprise or Complex buyers
  2. Existing technical expertise shortens technical ramp up
  3. Low capital costs or expenditures
  4. Leverage affect possible

Cons:

  1. No direct access to prospects and customers hampers ability to confirm product-market fit
  2. To create real leverage, you need to occupy the mindshare of the partner
  3. Requires same enablement and training programs and “in-house” sales personnel
  4. 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.

Pros:

  1. Access to potentially larger market without implications to existing brand
  2. Large volume commitments from the private label partner
  3. As a secondary revenue channel, these agreements create incremental revenue and gross margin
  4. With this offering you can attract complimentary market leaders and operators
  5. One of the lowest sales and marketing costs of revenue channel options

Cons:

  1. Requires its own channel management strategy and tactics within your organization
  2. With no direct access to end user market, you gain less information about product-market fit
  3. In most cases, there is little intertemporal accountability on sales volumes beyond contractual commitments
  4. Market confusion can be created if the private label product looks similar to your branded product
  5. 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.

Pros:

  1. Your components are embedded with a market leader driving increased component unit sales
  2. 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)
  3. Allows you to focus on technology more than the go to market strategy and other revenue channels

Cons:

  1. OEM agreements can take a long time to execute (think years, not months)
  2. Depending on market, ramp up time to revenues can also be longer than expected (and you’re not in control of this)
  3. Zero control over the go to market strategy or end user visibility
  4. Your component or offering may be considered a commodity by the OEM and thus marginalized as the OEM’s strategy changes
  5. Price becomes a major factor in negotiations as the OEM attempts to keep their whole product BOM within a target range

Licensing Agreements

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.

Pros:

  1. Highest gross margin revenue
  2. Can create high lifetime value per end-user
  3. Based on historical R&D performance

Cons:

  1. Trust but verify – you’ll need to have appropriate audit rights to ensure that you know your IP is being used and sold
  2. Agreements need to have strong workaround language or need to be able to evolve as technology changes
  3. Agreements can take a long time to execute
  4. The number of licensees is limited to those for whom your technology has strategic importance
  5. 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.

Pros:

  1. Startup funds shared between partners reduces financial risk
  2. Local presence in market assists end-users and legal requirements (local “tenders”)
  3. Creates a legal buffer between parent company and the operating entity, thereby reducing legal liability

Cons:

  1. Requires significant investment in personnel, training and support at the outset of the relationship
  2. 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
  3. 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
  4. 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:

  1. Product & business model maturity
  2. Capabilities of your team
  3. Desire to approach new markets (industries or geographies)
  4. Current financial situation
  5. 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.

You can find him on his LinkedIn profile here.