Revised version (fixes to quotes and typos) of the slides I gave at the recent Foundry CFO Summit on leading, lagging, and predictive indicators.

1. Thoughts on Lagging, Leading, and
Predictive Indicators
Dave Kellogg
Foundry CFO Summit
10/27/22
Revision 1.6
www.Kellblog.com
https://twitter.com/Kellblog

2. Who is This Guy?
• Independent consultant, EIR at Balderton Capital, and
blogger.
• Former operator
• CEO: MarkLogic, Host Analytics (Planful)
• CMO: Versant, BusinessObjects, Alation (gig)
• GM: Salesforce.com
• Independent board director*
• Alation, Aster Data, CyberGuru, Granular, Nuxeo, Profisee,
Scoro, SMA
• Advisor*
• Examples: Bluecore, GainSight, Tableau, MongoDB,
Pigment, Recorded Future
• Angel / investor
• Examples: Alation, Cube, Cuein, DataGrail, FloQast,
Growblocks, Hex, Saurus, Skyflow
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* List includes both current and former roles

3. While the CEO is on the bridge looking forward,
many finance teams are on the stern, offering in-depth analyses of the ship’s wake
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4. I ❤ SaaS Metrics
• ARR growth
• Net dollar retention (NDR, aka NRR)
• CAC ratio
• Magic number
• CAC payback period
• Churn rate
• LTV/CAC
• Rule of 40 score
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5. I ❤ SaaS Metrics, But Which Are They?
• ARR growth
• Net dollar retention (NDR, aka NRR)
• CAC ratio
• Magic number
• CAC payback period
• Churn rate
• LTV/CAC
• Rule of 40 score
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Forward-looking o
backward-looking?

6. Forward-Looking Metrics Have Never Been More Important
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7. Forward-Looking Metrics Have Never Been More Important
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2001 Dotcom Bubble Burst 2008 Financial Crisis
(Lehman was one of my investors, AMA.)
2022 To-Be-Named Crisis
(Except for the other two times)
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8. Why Are Leading Metrics So Important Right Now?
Potential Inflection Point
• Cannot extrapolate recent past
• Need to look up and out
• Up the funnel and outside the company
Fear-Greed Meter Recalibration
• Some VCs flip too fast to red
• Some founders perma-stuck on green
• This is good! We’re counter-cyclical!!
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Only the Paranoid Survive, Grove
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9. The real question isn’t, “what’s happening?”
it’s, “what’s happening to us?”
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10. What’s a Leading Indicator?
• Let’s take an example
• Annual recurring revenue (ARR)
• Leading?
• Lagging?
• IMHO, it’s both
• ARR leads subscription revenue
• ARR lags new ARR bookings (and churn ARR)
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11. Let’s Try Again
• Stage 1 oppties
• Leading?
• Lagging?
• Again, IMHO it’s both
• S1 oppties lead S2 oppties and … closed deals
• Insert s2-to-close rate and sales cycle length
• S1 oppties lag MQLs and leads
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12. The Marketing Funnel View
• Each layer leads the one below
• And lags the one above
• Please note the potentially
considerable irony in telling
marketing to focus up-funnel
• For 30 years we’ve been moving
them down: stop celebrating
leads, celebrate MQLs; no, s1
oppties; no, s2 oppties; no, closed
deals; no, closed deals that don’t
churn, …
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Visitors
Names
Responses
Leads
MQL
SAL
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13. And The Two Funnels Tie Together
SAL (S1)
SQL (S2)
Solution Fit
Demo
Vendor of Choice
Legal
Won
Visitors
Names
Responses
Leads
MQL
SAL
Marketing Sales
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14. The Worst Day of My Marketing Life
• In the early CRM days, we watched
pipeline coverage
• Current-quarter pipeline / current-
quarter target
• We knew about the 3x rule
• Pipeline coverage was a pretty good
predictor of bookings
• Maybe better than the CRO forecast
• We could use pipeline coverage to
manage the business
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15. And Then This Guy Came Along
● We have determined that reps with 3x pipeline
coverage generally hit their number
● Ergo, I will pummel anyone unless they have 3x
pipeline coverage
● At all levels in the organization
● And then what happened?
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16. Everyone Had 3x Coverage! • And it was mostly ruined
as a predictive metric
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17. “What gets measured, gets managed.” -- Peter Drucker
(Well, it’s fairly clear he didn’t says this. See note.)
Who else, did precise or roughly?
See The Dysfunctional Consequences of Performance Measurements – VF Ridgway (1956)
“When a measure becomes a target, it ceases to be a good measure.” -- Charles Goodhart (1975)
“When you cannot measure it, when you cannot express it in numbers, your knowledge is of a
meagre and unsatisfactory kind.” Lord Kelvin (1883)
So I’ll say my take on it
“Managing a metric -- e.g., setting OKRs on it, putting into it standard reports -- ruins it as predictor,
as a free indicator of business performance.” – Kellogg (2022)
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Nota bene: thanks to Ronny Kohavi for calling out some mistakes in the prior version.

18. So When We Say We Want Leading Indicators
● Is that to predict business performance or to manage it?
● Because you don’t really get to choose both
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19. Demos, Ice Cream, and Drownings
● Deals that get to demo have a 31% chance
of closing
○ Therefore, we need more demos
● Wait, do they close at 31% because we did
the demo or because we filtered out so
many tire kickers along the way?
○ If we reduce the filtering to do more demos
won’t that reduce the close rate?
● Drowning deaths and ice cream
production are strongly correlated
○ Does that mean that ice cream production
causes drownings?
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20. So What Do We Actually Want?
Operational Metrics To Manage and Predict
• Manage -- metrics on which we can assign
OKRs to managers
• Predict – what can best tell us where
we’re going to land?
• Example: it’s a bad idea to tell marketing
to go worry about names because they’re
leading indicator
Analytics To Determine Where To Go
• Focus – on what should we focus time
and money?
• Example: it’s a good idea to ask the data
science team which customers close
bigger/faster/higher
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21. Operational Metrics, The Classics
• Funnel volume, conversion rates
• Traffic
• MQLs
• MQL > S1
• S1 > S2
• S2 > S4
• S4 > close
• Pipeline progression
• Opportunity histogram
• Triangulation forecasting
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Now is the time when you benefit from having done it right all the way along
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22. Note That It’s Actually A Rotten Time To
Change How We Do Everything
• Compounds extrapolation risk with
• Invalidation of historical comparison data
• That is, let’s not go change pipeline stage definitions, MQL definition,
pipeline scrubbing process, …
• (Let’s do that in fair weather, not foul.)
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23. Operational Metrics, A Little More Creative
• Activity as predictor of closing
• The non-obvious Gong use-case
• Renewal intent as predictor of churn
• Better than NPS (loosely coupled)
• Post-deployment CSAT
• Product usage
• Win/close rates segmented by industry
and use case
• Who buys your product and why is
quite possibly changing
• Example: selling CI based on
onboarding vs. productivity
• Relationship score as predictor of close
• Build some score that indicates if you’re
selling higher and to the business
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24. Analytics to Guide Us
• Ceteris paribus, we want deals that close
• Bigger – more ARR per unit work
• Faster – more velocity is “like adding a month to your year”
• Higher – win rate, i.e., probability of close
• Ceteris paribus, we want customers who
• Renew – need to at least pass CAC payback period
• Expand – everybody loves NRR
• How do we find them?
• This is an analytics / data science problem
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25. Build Data Models (ICP Re-evaluation)
• Use an internal team if you have one, find an MSDS intern if you don’t
• Techniques: logistic regression, random forests, …
• Goal: model that predicts outputs given inputs
• Inputs are attributes of a customer (as many as you can get)
• Outputs are what “success” means to you – surprisingly elusive
• What is success?
• Renewed? Expanded? Deployed? Landed big? Landed fast? Is a reference?
• Beware two things
• Interpretability problem: these can score customers, but typically can’t say “go look for blue eyes”
• Extrapolation problem: we are at inflection point -- this might produce Web3 as a great target
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26. Conclusions
• This is your company
• The CFO is on the right
• Now is the time you get rewarded for having done metrics right
• (If you haven’t, the best time to start is today.)
• We want leading indicators to help us with our instrument landing
• A funnel view is inherently leading when you “look up”
• Beware using managed metrics for prediction
• But we also want to figure out which airport to fly to
• That’s where model-building (ICP re-evaluation) can help
https://www.getsurrey.co.uk/news/surrey-news/cockpit-view-shows-pilot-land-10373724