Most sales teams don’t need more TAM to sell into, they need to get better at executing against the TAM they already have.
Most product teams don’t need more ideas, they need to get better at executing against the ideas they already have.
One of the main topics I talk to founders about is how to measure the ROI of their product and how to communicate that ROI to a prospect. This topic almost always comes up in sales conversations, and it’s important to be able to lead this conversation with clarity and authority.
I like to use a simple framework for how to think about a product's ROI, using three broad categories of measurement:
1/ Product usage and engagement. Registered users, monthly active users, transactions, data delivered, etc. Depending on the product, this can be more or less impactful. This is a useful way to think about ROI for a product that doesn't need to be used by a user (like an employee discount program or coaching software). This is not a very effective way to measure ROI for things like expense reporting or benefits management where users are required to use the product to accomplish something.
2/ User satisfaction. This is a bit of a step up over usage metrics in that it measures not just whether or not users use a product, but whether or not they like it. This can be an effective way to measure the ROI of an enablement tool where usage is not optional and financial gain is difficult to measure. NPS is a good measurement for this but I love the way Superhuman tracks this using this question: 1. How would you feel if you could no longer use Superhuman? A) Very disappointed B) Somewhat disappointed C) Not disappointed. There’s a great First Round article on this topic that’s worth reading.
3/ Revenue/Cost savings. This is of course the most impactful way to talk about ROI. It’s especially effective when a company is trying to create a category. In the early days of selling Zocdoc (an online appointment booking software for healthcare clinicians) revenue generated from the service was a crucial part of the ROI conversation. Most doctors didn't feel like they had to put their schedules online, so the only way they'd buy is if they were comfortable that they'd make money. While this was always important, it became less so over time. Online appointment booking became a standard. They had to do it. So other metrics and measurements became more important (e.g. does the staff like using it?).
Depending on the stage of category creation for your product as well as its competitive dominance, it’s important to understand where your product sits in the framework above. Some products need a hard financial ROI, others don’t.
The canonical example of the latter is Salesforce.com. A few years ago, I asked a Salesforce sales rep how they talk about ROI with their customers and he looked at me like I was crazy. The CRM category has been created and it’s now quite mature. Almost all companies of a certain size need a CRM. It’s sort of like calling Verizon and asking them about the ROI on your cell phone. At some point, you just need it. So Salesforce doesn't need to convince you that your sales teams will make more sales because you're using Salesforce, they just need to convince you that everyone uses it or uses something like it and that you need it too. They can validate their ROI by showing usage stats (the bottom of the stack). And if your team isn't using it, that's likely your own fault because you haven't done enough training or promotion to get employees to use it. And of course, they'll be happy to sell you a service that will do that for you.
When taking a product to market, it's important to recognize where your product sits on this stack. Are you selling something that will only be purchased if there’s a crystal clear ROI, or are you selling something that is required to keep the lights on?
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Footnote: If you’re interested in learning more about category creation, I highly recommend the book Play Bigger by Al Ramadan.
Footnote 2: Generally, when talking about ROI you have the buyer and not the user in mind. However, it’s important to understand how both are thinking about assessing the ROI of your product.
Footnote 3: Eventually, all ROIs come down to dollars and cents. As an example, user satisfaction might lead to better employee retention which saves your customer money. But don’t go there if you don’t have to. ROIs generally have lots of assumptions that are easy to disagree on and challenge. Striving to show a financial ROI when it’s not needed can complicate/undermine the story you’re trying to tell.
Perhaps the most valuable skill one can have today is the ability to learn new things. The world is changing so fast. Static, top-down learning and development programs are quickly becoming outdated and irrelevant.
The good news is that there is so much information available for free. Any self-motivated individual can learn almost anything on their own — assuming they know how to learn in a self-directed way.
In my mind, there are three steps to being proficient at self-directed learning:
1/ Identify what you don't know that's important to learn.
2/ Find resources to learn about the things you don't know.
3/ Do the work to learn about the things you don't know.
Identify what you don't know. This is the hardest part. Because often you don’t know what you don’t know. This is where it's helpful to have mentors that can help identify your blind spots. It's also helpful to have a network of other people who are doing your job or the job you want to do.
For an aspiring sales leader, here’s a list of things they should be learning as they climb the ladder from individual contributor to a sales manager to an executive.
Individual Contributor:
Sales tactics (discovery, outreach, access, presenting, proposals, objection handling, creating urgency, closing, etc.).
Understanding your buyer and your buyer's industry (business model, competitors, motivations, priorities, org chart, decision framework, regulatory, etc.).
Sales Manager:
Management (hiring, firing, employee engagement, giving feedback, setting priorities, territory management, performance management, etc.).
Sales strategy (forecasting, OKR management, customer segmentation, prioritization, leadership reporting, etc.).
Executive:
Management against industry metrics (e.g. in SaaS - CAC/LTV, Rule of 40, Payback period, growth rates, gross margins, etc.).
Company strategy. Setting mission and vision. High-level qualitative goals and financial goals.
Thinking like an investor. Understanding how financial metrics, storytelling, and a long-term plan connects to a company’s valuation. Understanding the mindset and motivation of investors that would invest in your company.
Find resources. This is relatively easy these days. Use Twitter to follow experts in your areas of interest. Setup a Feedly account to get a feed of blog posts related to the interest area. Setup your podcast feed to receive daily podcasts on the topic. Read the best books on the topic. Join communities (such as Pavillion or SaaStr) to interact with peers. Leverage your investor networks (First Round Capital has a great one). Find a coach. Find a mentor.
Do the work. Once you've identified the learning area, start to obsess about it and immerses yourself in content. You'll quickly identify areas that you didn't know you didn't know. Learn about those things. Create habits that force you to keep learning. Listen to one podcast per day. Read 50 pages per day. Set a goal of having coffee with at least one mentor or person that does the job you want to do each month. Repeat.
I love this Tweet from Dan Hockenmaier.
It's very common for early-stage startups to over-title people to get them in the door. Often they don't have the clout or the cash to get great people, so they use a senior title as a way of convincing someone they like to join the team. This is a mistake and causes all kinds of issues down the road. When the company is finally able to recruit people that are legitimately at the Director or VP level, those people are going to look at their peers and demand a higher title.
The company will then have a similar problem at the VP or C level. It will result in a disjointed and confusing org chart that will need to be blown up. And if the company wants to hire above the person they over-titled, they may have to let that person go or give them a demotion (which will likely cause them to leave). The hard work will have to happen at some point. Over-titling people in the early days just kicks the can down the road. In his book, the High Growth Handbook, Elad Gil points out that, in the early days, Facebook and Google gave employees the lowest titles possible (VPs that came over from Yahoo! or eBay came in at the Manager or Director level).
With all of that said, the much more significant implication of Dan's Tweet is less about a decision around what title to give someone, and more broadly around the topic of discipline in building a startup. Startups are so hard to build and there will be all kinds of temptations to cut corners, delay hard decisions, and take the easy way out. Some examples:
Give away free pilots.
Build one-off features to close a deal.
Agree to overly flexible payment terms.
Hire an experienced person even if they're not the right fit with the team.
Delay terminating an employee that is damaging culture.
Partner with a well-known brand even though it doesn't align with the company strategy.
Raise more capital than is needed.
Pivot product roadmap based on a few customer requests.
I could add 100 more things to this list. The startups that consistently resist these temptations are the companies that win. Eventually, a lack of discipline will catch up to the startup and will make success even harder than it should be.
When joining a startup, look for signals of good discipline. You might not get the title you want, but that’s a small price to pay to get a seat on a rocket ship.
Here's the story of a company and a founder that has been told many times.
A company has become huge. They've had overwhelming success. But they've become slow and bureaucratic, and innovation has slowed. It's become a boring place to work.
A star employee, let's call her Jane, sees a clear opportunity to improve the company's situation. She has some great ideas on how to breathe fresh growth into the company. Jane's ideas are ignored. Nobody listens to her.
But Jane can't get her ideas out of her head. She needs to pursue her idea. So she leaves the company, raises some money, and builds a product and a company around her idea.
In order to succeed, Jane needs to build a great team. Because there are so many challenges in launching a new company that will beat the incumbents, she needs a team of superstars. She needs to hire people that are amazing. People that are able to run through walls. People that are irreplaceable.
So Jane builds a team full of stars.
And it works. The team of stars is able to take market share and grow rapidly. They have lots of success. They scale and have hundreds of employees. Soon they have thousands of employees.
Now, Jane's burden isn't to disrupt a business or industry; her burden is to protect what she's built. At this point, Jane needs to hire people that are replaceable. If someone is irreplaceable, that's a problem. She needs to build systems and processes and support around her employees so that no single employee is critical to the company's success.
Jane's company has gone from requiring people that are irreplaceable to requiring people that are replaceable. And the cycle continues…
As startups grow, they shift from breaking new ground to protecting their ground. This shift happens gradually and impacts some functions and roles before others. It's very difficult for companies to make this shift. It requires adaptable people, different people, and lots of process building. And you obviously will always need lynchpin employees in some roles.
The irreplaceable vs. replaceable concept is a simple framework for how to think about company building in the later stages of growth.
Whenever I consider investing in a B2C startup, I immediately ask about the company's LTV/CAC ratio. From the Corporate Finance Institute:
”LTV stands for "lifetime value" per customer and CAC stands for "customer acquisition cost." The LTV/CAC ratio compares the value of a customer over their lifetime, compared to the cost of acquiring them. This metric compares the value of a new customer over its lifetime relative to the cost of acquiring that customer. If the LTV/CAC ratio is less than 1.0 the company is destroying value, and if the ratio is greater than 1.0, it may be creating value, but more analysis is required. Generally speaking, a ratio greater than 3.0 is considered "good."
I’m less interested in the actual numbers than I’m interested in how the company is thinking about improving the numbers over time.
You could argue that a startup shouldn't be overly concerned with this metric in the early stages because they're still building the initial product or trying to find product/market fit and get the company off the ground. I disagree. B2B startups can get away with deprioritizing this metric in the early days because a good sales team can reliably acquire large amounts of users and revenue in large batches. And because of the way decisions are made within an enterprise, churn is typically significantly lower.
For B2C companies, LTV/CAC should be a part of the story from the beginning. Acquiring individual users is difficult and expensive. And since Facebook and Google, there haven't been that many widespread and effective ways of acquiring new users. Most of the high-quality channels are saturated.
Ideally, B2C startups can bake user acquisition into their fundamental product offering; e.g. a supplier in a marketplace might bring their customers to the platform at no cost to the platform. AirBnB is a good example where landlords will often ask renters to book rentals through AirBnB.
Obviously, this won't be possible for every company. But the point remains: user acquisition and churn mitigation are critical considerations for any B2C startup right from the start.
A friend of mine sent a link to a press release about a company that just closed a huge funding round at a huge valuation that expects to go public over the next few years. He wanted my thoughts on other companies that he could join that have had similarly successful funding rounds. His thinking was that he could make a lot of money on the next few financing events, even an IPO.
I think job searchers need to be careful with this kind of thinking. A successful funding round with great investors is a very positive signal. And it's always tempting to jump on the latest rocket ship. But there are a few things potential employees should consider before joining a company following a large funding announcement:
You're not going to get credit for the company's past success. If a company raises a Series B round at a $100M valuation, following a $10M Series A round, the company's valuation has grown by 10x. That's a lot of value creation. But if you join the company after the Series B has closed, you've missed out on all of it. The stock options you receive will be priced at the post Series B valuation. So you're starting from zero. You'll only get credit for the value you create going forward. You have to place a bet on the company's ability to continue to build value on top of what they've already created. A small caveat here: there's often a difference between the valuation investors paid and the company's fair market value, as determined by auditors. So employees that come in after the round might not pay as much as investors paid.
Valuations are super high right now. Because private company valuations are typically marked against the public market, and the public markets are on a 12-year bull run, valuations are arguably inflated at the moment. If the bull market continues, this isn't a problem. But if prices come back down to earth, valuations could come down, and you may find that your options are underwater (meaning they're worth less than the price you'll have to pay for them).
The later you join, the less equity you'll get. Startups reward early employees with lots of equity (potential upside) in return for taking the risk of joining before anything has been built. As time goes on, this risk decreases, and so does the amount of equity the company needs to grant to attract great people. Less risk typically means less equity.
The less senior you are, the less equity you'll get. Generally, the really material stock option grants (.5% to 2% of the value of the company) are reserved for the most senior executives. Employees at lower levels will receive a fraction of that.
Your options have to vest. In most cases, you won't just get an equity grant. You'll have a vesting schedule. Typically over four years with a 1-year cliff. Meaning you won't have the right to buy your options unless you've been at the company for more than a year.
Your vested options aren't liquid. Not only do you have to create value on top of the last funding round, but you also have to find a way to cash out at some point. Generally, this is only done through an acquisition, a secondary offering where an investor buys some amount of employee shares, or an IPO. While IPOs have made a resurgence, it's enormously rare that a startup makes it that far; of the tens of thousands of startups out there, less than 200 companies went public in 2019.
With all of this said, don't get me wrong, funding rounds are an exciting thing. And they're absolutely a signal that the company is onto something. And I’m a huge fan of investing in private companies as early as possible. My point is that potential employees should act like an investor and dig deep on how much value they believe can be created following the big announcement, and what share of that value they'll receive, and the likelihood that that value will be liquid within a reasonable time frame.
This is particularly important for salespeople as they negotiate job offers. There's a tradeoff associated with optimizing for your own success (cash from commission) versus the success of the larger organization (equity). Depending on the circumstances, one can be a lot bigger than the other. The above considerations are important inputs into how to think about the company you might want to join and the compensation plan you want to advocate for as you negotiate an offer.
I was thrilled to see Superhuman announce a $75 million Series C last week. Superhuman is a $30 per month email application that sits on top of Gmail that promises to get you to inbox zero in half the time. Paying for email sounds like a crazy idea these days, but this product is worth it. Superhuman is easily the best software product I've ever used. They've created keyboard shortcuts that effectively "gamify" getting to inbox zero. The product makes it easy to get into a flow state and plow through emails in a flash. I'd talk about the features I like here, but there are too many to list.
With the funding, Superhuman plans to build a version for Outlook and other email applications, build calendaring functionality, and build integrations into apps like Grammarly and Salesforce. I'd also expect that they begin to go deep into B2B, which will be great for the larger enterprise software industry.
I've written at length about the broken, top-down incentives that exist in enterprise software procurement that allow bad products to get widespread distribution. Superhuman has taken the opposite approach. It's a consumer app that costs $30 per month and competes with many other high-quality, free email applications. The only way that works is if the software is of extremely high quality. That's what Superhuman is. They overinvest in design and user experience and have a hard ROI around time savings.
Increasingly, employees are demanding that the software they use at work be of the same quality as the software they use in their personal lives. Superhuman's expansion into the enterprise will only help accelerate that trend.
When you start a new venture — a company, a team, a job, a product, a project — setting goals around its success can be stressful. You don't know how fast things will move and how successful you'll be.
Further, lots of people are afraid of being held accountable, much less being held accountable for something that isn't yet understood.
So there's a temptation to just get started without setting goals and see how things go.
For example, I've seen many startups not set sales goals in the early days because they feel like they don't have enough information.
This is a bad idea.
Setting a goal gets you and your team rallied around a target. If you meet or exceed the target, the team will feel great, and you can celebrate. If you miss, you can surface learnings and insights relative to the goal you set.
If you're hitting or exceeding your goals, surfacing learnings is less important. If you're missing, learning is crucial. A learning that isn't connected to a goal is much less powerful and much less interesting than one that is. This will also create the habit of being held accountable and reporting on failure as much as you report on success.
Put a stake in the ground. Set a goal. If you hit it, great. If you miss it, you'll feel a great deal of pressure to surface high-quality learnings that will get you closer next time.
The other day a friend of mine asked me what books an individual contributor that just took a sales management job should read. Here's what I told him:
For tactical management, I’d have to recommend the Effective Executive by Peter Drucker. I try to read it every few years.
For higher-level leadership concepts, I’d recommend Leadership and the Art of Self Deception: Getting Out of the Box by the Arbinger Institute.
For culture, read What You Do Is Who You Are: How to Create Your Business Culture by Ben Horowitz.
And for tactical sales process and leadership, definitely read The Sales Acceleration Formula: Using Data, Technology, and Inbound Selling to go from $0 to $100 Million by Mark Roberge.
There are several different ways to structure a commercial organization. Markets, products, segments, etc. The model I prefer is to structure the teams around metrics. This does a few things:
1/ It ensures that the organization has a metrics mindset. Sometimes people forget what metric their work moves. Building the org around metrics makes this nearly impossible.
2/ It ensures everyone knows they’re contributing. There’s nothing worse than coming to work each day and doing a bunch of work that doesn’t actually contribute to a business objective.
3/ It helps with prioritization. Teams should prioritize their work based on the impact it’ll have on the metrics. Focus on low effort/high return work, and avoid high effort/low return work. It’s amazing how few people have this mindset.
I separate a commercial org into three buckets. If you’re not directly contributing to one of these three buckets or supporting someone that does then you’re on the wrong team. Commercial orgs only do three things:
1/ They sell stuff.
2/ They implement stuff.
3/ They retain stuff.
Everyone should be impacting at least one of those things. Then assign a set of metrics with targets against each. Here are some examples:
1/ Selling stuff (bookings, upsells, expansions, new logos).
2/ Implementing stuff (speed to go-live, quality of implementation, cost of implementation).
3/ Retaining stuff (retention, renewals, net promoter score, user activity).
I’ve found that structuring the team around these three activities and some set of metrics ensures that everyone has clarity on their role, their value, and how they’re impacting the business in a positive way.
A sales leader’s job isn’t to hit the number.
A sales leader’s job is to hit the number while simultaneously ensuring that those prospects that choose not to buy have a positive experience and that the sales team doesn’t overcommit or redirect product and engineering resources.
The best way to do this at scale is to hire a sales leader that shares this perspective and knows how to build the right kind of sales culture from the start. It’s extremely difficult to change a sales culture once counterproductive norms have been established.
*adapted from this podcast with David Sacks.