Updated: Jun 5, 2019
As a young child, I would find myself counting in multiples of "2" until I could not go any higher, you know....2,4,8,16,32,64,128,256, 512,1024, 2048, etc. Yes, a little weird, but also very insightful as to how my mind is wired. Everything I thought, could be associated with math, and when I read that cosmologist Max Tegmark said "Our external physical reality is a mathematical structure", I thought "maybe I'm not that weird after all".
I do not want to lose you on my first blog, so I will stop there. However, my belief that numbers, math and metrics, including Key Performance Indicators that are measurable and thus manageable are a requisite foundation for any metrics informed, data driven business was formed at a very young age...and RevOps Squared is the culmination of that innate orientation, coupled with 30+ years of executive leadership experience in the subscription based software industry.
Having been groomed in the GE Management Development Program in the late 80's and early 90's, I can not remember a concept taught that was not based upon metrics and analytics, even the softer leadership skill development sessions measured the output of increased human capital engagement, inspiration and management by the ultimate metric of profitable revenue growth, which was the goal to be #1 or #2 in your industry.
The GE business unit that I spent almost 10 years with was GE Information Services (GEIS and then GXS). GEIS/GXS was the world's leading "Time Sharing" business in the 1980's - 1990's. Simply stated, Time Sharing was the old school version of SaaS, that provided shared business applications on a hosted mainframe in the cloud (our private cloud was then called distributed worldwide data centers) accessible via our private worldwide Value Added Network. Yes, an early multi-tenant application architecture built on Honeywell Bull and IBM mainframes with an annual subscription based pricing and revenue model. What we call ARR today we called APR in 1985!
When I first entered the world of Silicon Valley and early stage, venture backed companies at Netscape, who created a B2B eCommerce Software joint venture start-up with GE, I did not know any better way to evaluate, analyze and manage a early stage software business other than with well established Objectives and associated measurable results (OKR's anyone) in the form of Key Performance Indicators (KPI's). At Netscape, and every early stage, venture backed software/SaaS company I have been a part of since, across many emerging categories including Marketing Automation (MarketFirst), Product Information Management (QRS), Real Estate Performance Management (Accruent), HireMojo (Hiring Automation) and MomentFeed (Local, Social, Mobile Digital Marketing), I have taken my natural orientation plus GE's data driven, metrics informed approach with me.
The metrics and terminology has changed, but even in today's ARR, ACV, CAC, LTV, ARPA, GM, acronym soup world, especially in the subscription based economy, the primary indicators of success and company value are still deeply rooted in math and metrics. Anyone who has grown, sold and/or managed a public market company understands the importance of multiples against core metrics like Revenue, Gross Margin, EBITDA and Net Income.
Another key lesson I learned early in my career, was the importance of not being too inwardly focused on the metrics and measurements that we ruthlessly focused on internally. Why? Because even with increasing performance results measured against internally established KPI's, what the market really cares about is how did we compare against our industry peers and the industry BENCHMARK's that "best in class" companies achieved. In fact, at GE we often looked not only inside our industry, but outside our industry to see what best in class companies were doing to decrease inventory carrying costs, increase inventory turns, reduce defects (Six Sigma anyone?), increase Return on Equity, etc.
My experience in subscription based software and service companies, as CEO and President, and also leading functional departments multiple times including sales, marketing, professional services, customer success and product management, highlighted the IMPORTANCE of metrics/KPI's and the DANGER of metrics/KPI's. Wait, why would the initial BLOG of a company launching a KPI centric, Industry benchmarking business highlight the danger(s) of a metrics informed, data driven orientation?
Because I found that the saying of lies, damn lies and statistics is a very important one that should not be overlooked just because your company or you are prodigious at producing data laced reports. A very important lesson I learned is two fold, first when you are brought in by the board or CEO of a venture backed company, a common belief is that "x" function is not performing up to expectations so we need a new SVP/VP of "x" function. That perspective is sometimes true, but almost always suggests there is a larger issue at play, and that is ALIGNMENT.
True revenue performance demands tighter alignment across marketing, sales and customer success. All too often, I see amazingly complex, comprehensive and pretty reports and dashboards that show how well marketing is performing as measured by a leads KPI, or sales has a great qualified opportunity closing rate KPI or Customer Success has a great Net Retention number KPI and the COMPANY is missing their budgeted plan. Typically, the first easily identifiable challenge is a lack of alignment, and one easy to see symptom is that if each function has unique KPI's they present at board meetings and executive staff meetings, but top line revenue, margin, EBITDA or Income goals are being missed.
One very helpful step is to ensure that over arching KPI's (Objectives and Key Results) are not department centric, rather are process centric such as: 1) Customer Acquisition; 2) Customer Expansion; 3) Customer Retention. Having KPI's and common goals/metrics that are cross functional helps to encourage each functional leader to step back and start with the outcome - key results that are almost always shared across marketing, sales and customer success in the area of Revenue Performance.
Secondly, I find that even when, internal alignment is established with the existence of shared goals across functions, instrumentation to measure is in place with a common view of progress towards the shared goals (OKR's), that in and of itself that reaching those goals may not result in a high priority objectives that investors, board members and the CEO/CFO really care about, and that is Enterprise Value. This is never more important than when the ultimate arbitrator of enterprise value, the share holders analyze your business value in dollars ($) via a round of funding, an acquisition or even that magical, mystical event - an Initial Public Offering (IPO). How often have you heard about how important how you perform against "Industry Benchmarks" is critical to the valuation of a company...Rule of 40 is a great example. In public markets it might be Earnings Per Share multiples with a premium provided to high growth rate, today's 20x EPS for the S&P 500 is high compared to historical averages, but is very telling for those activist investors who see a brand name company with an 11x EPS multiple which indicates potential untapped value.
For subscription based companies, such as SaaS companies, knowing the key industry benchmarks for KPI's such as CAC, LTV, LTV:CAC ratio, Magic Number - Sales Efficiency, Gross Margin, Growth rate by Company Size, etc. are all Key Performance Indicators that are critical to understanding how potential investors or acquirers determine the value of a company. If that is the way financial investment decisions are made to value companies, why wouldn't we want to look at the dependencies that materially and directly impact the higher level KPI's?
However, if this works at the company level, why wouldn't it work at the next level? Answer is it will, but there is no industry standard bench-marking solution that allows revenue performance practitioners to know the how they compare, measured against their "like industry peers". And what Chief Revenue Officer or Chief Client Officer or even Chief Financial Officer has the time to go speak to 5 or 10, let along 100 -1,000 "similar-like industry peers" to see how they compare in close rates, or qualified lead conversion rates or ACV or sales cycle time by target buyer or ???
How valuable would it be to benchmark customer acquisition efficacy, not only against the broader co-hort of all SaaS companies, but be able to compare directly against industry "like peer groups" based upon company size, growth rate, distribution model, solution buyer(s) and departments, industry, Annual Contract Value (ACV) and other key variables that make your company and your industry segment different? A company selling to a single department like marketing and a company selling a company wide platform or infrastructure most likely has very different Key Performance Indicators for Customer Acquisition, or a $10M company has different KPI's for Customer Expansion than a $600M company.
Well, that long background is the reason why RevOps Squared was created. Our mission is simple:
We are a mission-driven organization with a singular purpose to evangelize and assist companies in embracing and deploying a metrics informed, data-driven orientation to enhance marketing, sales and customer success alignment resulting in accelerated revenue performance
I look forward to sharing the results of our inaugural Customer Acquisition and Customer Expansion Research in September, and invite you to be a founding participant of the industry's first "Like Peer Group" Industry Benchmarking and Key Performance Indicator Solution. I still take pride in being one of the very first 2,000 members of the LinkedIn community, and look forward to the day that you and I can share in your anniversary of being a founding participant in RevOps Squared!!!