Friday, June 13, 2014

Basic Framework for a SaaS Sales, Marketing, and Customer Success Organization

              Here is a general framework for the various roles in a Marketing, Sales, and Customer Success organization at an Enterprise SaaS company.  What I am trying to do here is illustrate how they all need to work together to provide a continuous flow for each customer and maximize productivity.

Ideally, you have a savvy or experienced Executive who oversees all 3 departments and ensures collaboration and cohesion. All to often I have seen a big divide between Marketing/Sales/Customer Success. This can be mitigated to some extent if you have a Chief Customer Officer or Chief Revenue Officer overseeing all 3 departments.

Basic Role Types:

·      Marketing
o   Drives top of the funnel
o   Generates brand awareness and more importantly leads for sales
o   Should be “on the hook” for a deliverable for sales
§  A data driven lead gen manager in marketing is critical
·      SDR
o   Sales Development Representative
o   Responsible for qualifying inbound leads and passing on to sales
o   Separate role also responsible for outbound prospecting  which is critical to supplement marketing’s efforts and fill sales reps’s pipeline
·      AE
o   Account Executive, responsible for new business
§  Presenting
§  Finding a decision maker
§  Navigating politics
§  Negotiating
§  Delivering a signed agreement with a new customer
·      CSM
o   Customer Success Manager
§  Pre and Post Sale Consultant. Typically Responsible for educating customers as to how to maximize value of your product/service and driving usage
·      SE
o   Sales Engineer
§  Pre and Post Sale responsible for collaborating with technical representatives at customer (IT/Security) to
·      Pass security review, get their “blessing”
·      Educate as to how technology fits in to their infrastructure
·      Assist with integrations and configuration
·      Renewals
o   Typically a strong former sales rep who is good at negotiating, so upsell upon renewal can be maximized. Responsible for extending agreement with customer once 1st term expires. Maximizing size and duration of 2nd agreement.

Customer Cycle

1.     Marketing typically has 2 objectives: 1. Create brand awareness 2. Generate qualified leads
a.     Ideally, Marketing owns a title called Lead Gen Manager who owns a quota for number of “qualified leads generated per month.”
                                               i.     This role partners with sales to define what a qualified lead is, refine their model, and score leads coming in
                                              ii.     Lead Gen Manager will use a series of strategies including:
1.     Email campaigns
2.     Webinars
3.     Events
4.     Whitepapers
                                            iii.     Note: it is critical to have a Lead Gen Manager who is compensated on number of leads they generate that are accepted by sales. Also, everyone’s compensation in Marketing should have a component tied to leads handed off to sales.
                                            iv.     Leads from Lead Gen are handed off to the SDR Team

2.     SDRs  typically have 2 separate roles 1) Qualify Inbound Leads 2) Generate new leads via Outbound prospecting (phone/email)
a.     First, SDRs need to determine what a Qualified Lead is. Then, once they find Qualified Leads they will set meetings with these leads for the AEs to pitch and close.
                                               i.     Typical criteria for a qualified lead
1.     Job title
a.     Ability to influence sale or provide intro to influencer
2.     Do they have a problem to solve
3.     Industry
4.     Size
b.     Number of Inbound SDRs will be contingent on lead flow. Typically an SDR can handle 400 contacts, so assuming 3 contacts per company, an SDR can handle 133 leads/companies.
c.      Typical ratio for Outbound SDRs is 1 for every 2-3 AEs. Ideally the ratio is 1 for every 2 AEs to maximize pipeline and productivity of AEs.
                                               i.     Outbound reps will generally be paired directly with selected sales reps, this can increase productivity as the SDR refines the specific companies and tactics the AE prefers. This relationship will boost the learning curve for SDRs as they progress towards becoming an AE.
d.     Since SDRs are the “front lines” of any sales organization, it is important they are assertive, but avoid being too pushy and burning bridges as a poor reputation can spread quickly and block you from customers for sustained periods of time.

3.    AE and CSM
a.     AEs are responsible for pitching customers, securing trials or evaluations, RFPs, etc.., and ultimately bringing a customer on board via a signed agreement.
b.     AEs receive qualified lads from SDRs and also prospect themselves  into new opportunities
c.      AEs will build relationsihps with customers, demonstrating an understanding of their business, and teaching customers about how they can benefit from using your product or service
d.     CSMs will often become involved in the sales cycle
                                               i.     This offers value in two ways:
1.     Paint a post-sale picture of how CSM helps customer roll-out the product and maximize adoption/value. This puts customer at ease and ensures they are confident they will derive value when they buy.
2.     Project Manage a trial. Training users and executives, gathering feedback, helping aggregate final proposal with trial findings and results.
a.     CSMs typically gain deep access in an account since they are not a sales reps and are trusted more by default

4.     Once AE secures and agreement , they will pass the account on to Post-Sale CSMs and the Renewals team
                                               i.     Unless there is significant growth available, it is best to have the AE step aside and focus specifically on generating new business
1.     Sometimes it makes sense to allow AEs to keep a handful of “holdout” accounts where the sales is more “land and expand”
                                              ii.     Once AE obtains a signed agreement, he/she will typically arrange an intro call with customer and CSM/Renewals for a smooth transition. It is critical that knowledge is passed on post-sale and the customer experience is smooth. This transition can be the largest cause for churn (customers cancelling) if not handled with care. Generally the AE will hold an internal transition meeting with CSM before scheduling transition call with customer.  
                                            iii.     The Renewals team is typically responsible for re-signing a customer once the 1st agreement expires. They will operate similar to a sales rep but over a longer time frame. The earlier renewals rep gets involved the better.
                                            iv.     Often the same CSM who was involved pre-sale will stick around post sale, this generates a deep relationship and understanding of any customer and reduces churn significantly.
                                              v.     Sometimes it makes sense to sell Premium Services to a customer to ensure engagement and adoption. This can include a menu of different roll out, training, configuration, and certification packages.
1.     When a customer pays for services, they generally engage at a deeper level post-sale and this drives up their success and adoption. It also increases the probability they will assign an FTE to “own” your product’s success internally.
2.     Selling Premium Services will generally increase adoption and reduce churn.

3.     Larger customers will expect to pay for services anyway

Thursday, June 12, 2014

Some thoughts on Enterprise SaaS Sales Compensation


                    I've been a rep and a manager in several SaaS Sales organizations from 22 people to 90,000. During that time, I have seen just about every compensation model possible from flat percentage, to the tier percentage model, to MBOs. Getting compensation right can help you accelerate sales but getting it wrong can be devastating and lead to massive turnover and forecasting issues. 

Per my observations regarding what worked and what didn't, here are my personal rules on this topic: 

Keep it simple!
  • reps will assume you are trying to screw them if the plan is complex
  • do not include decelerators unless you want to risk an uptick in turnover
    • they will also cause sandbagging which will destroy your forecast
  • at Yammer for a period of time the comp was deadpan simple and reps loved it, we also saw acceleration in sales => flat % for 1st year ARR regardless of quota attainment
  • average percentage paid out for new business is 8%-12%, although 8% is pretty low
AE Base Salary      

  • 50/50 base and variable is a good ratio, 60/40 ok too
  • great salespeople are more concerned with the variable upside they can make since they intend to exceed quota
  • pay handsomely for multi-year deals
    • this will lock in customers/cash-flow and reduce churn
AE Quotas


  • typical Enterprise rep quota is $1mm ARR, quarterly
  • typical Corporate rep quota is $575k ARR, quarterly
  • monthly quotas
    • are only appropriate if your sales cycle is less than 2 months, ideally if the sales cycle is less than 1 month
    • also, only appropriate if you have strong inbound lead flow or a large Outbound SDR team
    • if you have a monthly quota with a sales cycle 2+ months or no leads, you are forcing your reps to 
      • exhibit bad behavior, pushing customer to sign before they are ready 
      • and offering pricing discounts in order to do so thus damaging your average selling price
Excellence Club

  • typically top 20% of reps or any rep who achieves 100% quota for the year
    • a trip to Hawaii most common
Key Points for Sales Development Compensation Plans

  • Ratio of base to variable will be smaller, more like 70/30
  • You must define what a qualified meeting is, and refine this over time. If sales doesn't feel they are receiving qualified leads they won't show up for the calls. Include "qualified meeting" as the metric SDRs are measured on
    • typical pay is $100 per qualified meeting if outbound
  • base $40k-$60k
  • quota = 15-20 held meetings per month (depending on lead flow and whether or not they are inbound or outbound)
  • typical OTE $60k-$75k
  • points system also works for incentivizing setting meetings with top Execs
    • ex: 4 points for CXO, 3 points for VP, 2 points for director, 1 point for manager
  • its helpful to add a spiff for deals that close so the SDRs can participate in the wins and maintain focus on same end goal as the sales reps they support
Key Points for Customer Success Compensation Plan
  • heavy on salary versus variable probably 70%-80% salary since they are not hunting
  • typically include a variable component based on MBOs 
    • MBOs include key metrics around end user engagement
  • be careful about tying CSM compensation to sales because it may taint their mindset and steer them away from being trusted consultant
    • these trusted consultants gain deep access inside accounts and this helps AEs significantly 
Renewals Team Compensation Plan      

  • quota is much larger since they are up-selling a large base of existing customers
  • you can pay them a smaller percentage because they only work with existing customers and aren't hunting, maybe 2%-5%
  • same 50/50 base/variable model as direct sales reps

Wednesday, June 11, 2014

My take on Freemium


My take on Freemium

I spent 3.5 years (23rd employee) at what became a billion dollar (Unicorn) Freemium enterprise software company. Here are four benefits I found with Freemium: 

1.Instant impact on sales pipeline
2.Close big companies early on versus traditional path of small > med > big
3.Quickly acquire early adopter thought leaders 
4.Large scale real-time user feedback data from day 1

Pipeline

This is an obvious one. In the absence of marketing and a lead-gen machine, you can still gain significant early traction if you have a viral product with network effects. Consistent PR buzz early on will make a huge difference as well. Yammer, for example, won the TechCrunch 50 award in 2008 and signed up thousands of users early on. Pitting yourself as the "little guy" who is taking on and "disrupting" a large incumbent will help with your PR story. Journalists love "David vs Goliath." 

All of these free users act as leads for your sales team to call on. Because these prospects are already familiar with your product, it is easy to schedule an introductory call and progress the sale. One of the drawbacks to the Freemium pipeline however is that many of the free users will not be your executive decision makers like CXOs or VPs. The Freemium users will most often be potential Champions who will push a decision through or Coaches who will provide you with a playbook on how to sell to their company. 

This inexpensive pipeline can help a start-up run very lean as they prove out their revenue model. Long-term you will need to bake in marketing and lead-gen to scale past early stages, as freemium will only take you so far. 

Go big early 

The typical customer acquisition path for enterprise start-ups is to gain traction bottom-up. Start with small companies and gradually work your way to the Fortune 500. Typically large companies are hesitant to invest in a start-up's software because of the risk, and you will need referencable logos to make them comfortable. This path means closing big seven figure deals that really move the needle will take significant time.

With freemium, you can "cheat" this traditional path to some extent and secure large customers early. If you have thousands of users at a Fortune 500 company, you can leverage the champions and use cases to circumvent the hurdles of being a start-up with no existing named client base. I've seen this happen with the largest companies in the world. These key logos can then be parlayed across the board. 

Early Adopters

The types of people who sign up for Freemium start-up software are typically the forward thinking influencers. These valuable users will spread the word about your product internally and externally. They will share the story with their personal network around the globe and drive virality of your service. Often these forward thinking people are influential inside their own company, which means they can help you convert them to paid. Because they are innovators, they will typically have the ear of their CXOs. If your early adopter happens to be a CIO (this is becoming more common due to the transformational change occurring in Enterprise IT described here by Aaron Levie CEO of Box ), you will have a strong advantage but still need line of business support. I have seen large deals fall through when CIO was fully on board but flying solo with no biz side sponsors. 

These early adopters will also host your prospect webinars and tell an amazing story about the value you provide. Take very, very good care of them. Fly them out to your HQ, send them iPads. They will also speak at your tour events and function as customer referrals. All of these benefits are accelerated by Freemium and will boost early sales. 

User Feedback

In light of the new revolution in the Enterprise where end users are driving IT Procurement decisions, usability is and will increasingly be a key component of success for enterprise software companies. Gone are the days of collusion between IT and old school enterprise software where the goal was to create the most complex product possible for IT job stability. There literally was no incentive whatsoever for software companies to focus on the end user because IT controlled everything, but that has changed. See Box, Salesforce, Yammer, Hubspot, Echosign, etc...

If you don't have Freemium users, in the early days you are developing in the dark with no end user data feedback on your service. Freemium clearly aids in this area and can provide some key insights into what components of your service are working and which aren't. This is especially critical in the early days when there is little room for a miss on product. This feedback can also assist in pace of innovation to keep you ahead of competition. 

How to Sell Freemium (no shortcuts)

While freemium provides quick pipeline generation for sales, it won't typically get you to the decision maker right away. What it does provide is a quick foot in the door and access to 1) champions and coaches to leverage 2) documented proven use cases. If you have a great product, you get the benefit of a free trial before you've even called on them! If leveraged correctly, these two advantages will arm you with everything you need to create a business case with your decision maker. 

But Freemium does not allow for a short cut. Once you are in front of the right people, it is still key to help them arrive at a vision of how your service will change their business for the better. The short cut approach would be "hey all these people are already using it so you should pay for admin tools to get control." This won't work,  but it's a tempting approach for some sales reps to close deals quickly. You will develop a reputation for holding companies hostage. Not good. 

Freemium will accelerate your sales rep's ability to gather champions and use cases to collaborate with Executives and develop a business case. Freemium will also grant reps entry into accounts who wouldn't have reciprocated otherwise. 

Downsides to Freemium

Freemium does contain significant risks if not executed effectively. The biggest risk being too much free and not enough in the paid version to attract customers towards converting. If your product requires changes management, your thought leadership in your space can help you convert paying customers who don't want to attempt to roll out your service on their own. 

A large unpaid user base also poses a risk of baiting executives into scaling your sales/marketing/service group too fast and outpacing revenue growth. If a company prefers to stay independent, it is critical to pay close attention to how scalable and efficient the sales process is before "throwing bodies at a number."

***Bonus: a large user base with a respectable paid conversion ratio can significantly drive up the multiple you can attract during an acquisition or fundraising