The document discusses common growth potholes that companies encounter and how to avoid them. It identifies six main potholes: 1) low license utilization rates causing revenue contraction, 2) increasing price without a sustainable moat, 3) confusing a temporary moat with a sustainable one, 4) promoting the best salesperson to manager, 5) prioritizing revenue acquisition over customer value creation, and 6) massive hiring of salespeople after a financing round. For each pothole, it provides examples and recommendations for how to address the issues and maintain steady growth.
4. Fix License Utilization and Customer Expansion with the Sales Comp Plan
RESULTS WITH A LEGACY SALES COMP PLAN
Salesperson compensated more for first revenue from a customer and less for expansion revenue
BUYER
“I’d like to start
with 10 licenses
and, if things go
well, expand to the
entire company”
SELLER
“You need to
buy licenses
for the entire
company
upfront”
REVENUE
CONTRACTION
LOW LICENSE UTILIZATION
RESULTS WITH A MODERN SALES COMP PLAN
Salesperson compensated less for first revenue from a customer and more for expansion revenue
BUYER
“I’d like to start
with 10 licenses
and, if things go
well, expand to the
entire company”
SELLER
“Perfect!”
REVENUE
EXPANSION
HIGH LICENSE UTILIZATION
8. 8 @markroberge
Sustainable Moat Test
Imagine 5 “rock star” engineers in Silicon Valley:
Raise a round from Sequoia
Copy your entire product
Sell it to your market for half your price
Why do new buyers still choose you?
9. Temporary vs. Sustainable Moats
Network Effect
Brand
Economies of Scale
Government Policy
(i.e. Patents/Trademarks/
Regulation)
Switching Costs
Distribution Channels
Capital Requirements
Sustainable “Moats”* Modern Examples
Social networks (LinkedIn)
Marketplaces (Amazon)
Product-Led-Growth (Slack)
Direct-to-Consumer (Apple, Warby Parker)
Cloud Infrastructure (AWS, Snowflake)
Artificial Intelligence (Gong.io)
Business Intelligence (Salesforce.com)
Hardware/Software Hybrid (Toast)
Commercialization of Space (SpaceX)
*https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis
Product Features
Funding
Integrations
Non-exclusive
partnerships
24/7 Support
Temporary “Moats”
Category creation (Inbound Marketing)
Autonomous Vehicles (Tesla)
10. Common Mistakes
Raising price prior to moat development
Developing a moat can sometimes
come at the expense of short term
revenue growth and profits
CEO/Founder responsibility
16. LEVEL Compensation/Reward Criteria for Promotion
Tier VI
$35K base
$25K Commission
Can interview for AE roles
Average appointment-to-customer % greater than 15% in past month
Average >$45K revenue from appointments per month for last 2 months
Tier V
$35K base
$20K Commission
Enter AE Training
Average appointment-to-customer % greater than 15% in past month
Average >$40K revenue from appointments per month for last 2 months
Tier IV
$35K base
$20K Commission
Average appointment-to-customer % greater than 10% in past month
Average >$40K revenue from appointments per month for last 2 months
Tier III
$35K base
$15K Commission
Access to A-Grade Inbound Leads
Average 4+ appointments set per week for 4 weeks in a row
Average >$30K revenue from appointments per month for last 2 months
Tier II
$35K base
$15K Commission
Average 4+ appointments set per week for 4 weeks in a row
Score of 80+ on the Advanced SDR Prospecting Certification
3+ customers from appointments set
Tier I $35K base
Average 50+ calls per day for 6 weeks in a row
Average 3+ appointments set per week for 4 weeks in a row
Score of 80+ on the SDR Prospecting Certification
Use Promotion Paths for SDRs as Well
19. The Science of Scaling
What is product-market-fit?
#1 Product-Market Fit
20. Goal of Phase
#1 Product-Market Fit
Customer Retention
Annual Revenue Retention > 100%
Annual Customer Retention > 90%
Annual Revenue Retention = [ARR (start of year) – Churn + Upgrades] / ARR (start of year)
Annual Customer Retention = [#Customers (start of year) – Customer Churn] / # Customers (start of year)
The Science of Scaling
Customer retention is the best quantifiable measure of product-market-fit
21. Pothole Alert!
But customer retention is a lagging
indicator. We need to identify a
leading indicator to customer
retention to identify when product-
market-fit is achieved.
22. A Scientific, Data-Driven Approach to Product-Market-Fit
Define a leading indicator to customer retention
[Customer Retention Leading Indicator] is “True” if P% of customers achieve E event(s) within T time
23. A Scientific, Data-Driven Approach to Product-Market-Fit
Industry examples of customer retention leading indicators
[Customer Retention Leading Indicator] is “True” if P% of customers achieve E event(s) within T time
70% of customers send 2,000+ team messages in the first 30
days
85% of customers upload 1 file in 1 folder on 1 device within 1
hour
80% of customers use 5 features out of the 25 features in
the platform within 60 days
24. A Scientific, Data-Driven Approach to Product-Market-Fit
Guidance on Definition
[Customer Retention Leading Indicator] is “True” if P% of customers achieve E event(s) within T time
(P)ercentage: Usually between >75%
(E)vent: (most important)
1. Objective
2. Instrument-able
3. Aligned with customer success and/or value creation
4. Correlated to the company’s unique value proposition
5. Event combinations are OK but keep it simple
(T)ime: Usually within 30 days. Faster for easy to setup products. Can be months for
Enterprise products with lengthy setup.
25. % of customers that achieve customer retention leading indicator by month of tenure
A Scientific, Data-Driven Approach to Product-Market-Fit
Instrument customer acquisition cohorts to identify when product-market-fit is achieved
26. Goal of Phase
#1 Product-Market Fit
Customer Retention
The Science of Scaling
A scientific, data-driven approach to product-market-fit
[Product-Market-Fit] = “Yes”
if ([Customer Retention Leading Indicator] correlates with [Long Term Customer Retention]) AND
([Customer Retention Leading Indicator] is “True”)
Where [Customer Retention Leading Indicator] is “True” if P% of customers achieve E event(s) within T time
27. Goal of Phase
Target Market
GTM Playbook
Compensation
Demand Gen.
Pricing
Sales Hire
Early Adopter
Personal Network + Referrals
#1 Product-Market Fit #2 Go-to-Market Fit #3 Growth and Moat
Learn Scale
Customer Retention
Win At All Cost
Solve for Customer Commitment
PM + AE
Based on Customer Retention
Scalable Unit Economics Revenue Growth Rate
The Science of Scaling
Aligning GTM with the pursuit of Product-Market-Fit
28. Goal of Phase
#1 Product-Market Fit
Customer Retention
The Science of Scaling
What is “Go-to-Market-Fit”?
#2 Go-to-Market Fit
29. Goal of Phase
#1 Product-Market Fit
Customer Retention
The Science of Scaling
“Go-to-Market-Fit” is acquiring and retaining customers consistently and scalably
#2 Go-to-Market Fit
Scalable Unit Economics
“Unit Economics” are also lagging indicators.
We need to understand the leading indicators to unit economics.
30. The Science of Scaling
Defining the leading indicators to Unit Economics
LTV
CAC
> 3
ACV GM%
Annual Churn %
X
Demand
Gen.
CAC
Sales
CAC
+
Cost per SQL
SQL-to-Customer %
Cost per AE
New
Customers
Acquired per
Month per AE
SQLs
per
AE
SQL-to-
Customer %
X
31. The Science of Scaling
Defining the leading indicators to Unit Economics
(ACV*GM%/ [Annual Churn %]) / ([Cost per SQL] / [SQL-to-Customer%] + [Salesperson
Monthly Cost] / [SQLs per Salesperson per Month] * [SQL-to-Customer%]) > 3
Therefore, through relatively simple algebra, we have “go-to-market-fit” if the below equation is “True”
ACV = $20,000
GM% = 70%
Annual Churn % = 15%
Cost per SQL = $1,000
SQL-to-Customer % = 5%
Salesperson Monthly Cost = $15,000
SQLs per Salesperson per Month = 40
LTV = $93,333
Sales CAC = $7,500
Marketing CAC = $20,000
LTV/CAC = 3.4
For example…
32. The Science of Scaling
Instrumenting the leading indicators to Unit Economics
33. Goal of Phase
Target Market
GTM Playbook
Compensation
Demand Gen.
Pricing
Sales Hire
Early Adopter
Personal Network + Referrals
Early Majority
1 Scalable, Measurable Medium
#1 Product-Market Fit #2 Go-to-Market Fit #3 Growth and Moat
Learn Scale
Customer Retention Scalable Unit Economics
Win At All Cost Codified, Scalable
Customer Retention + Unit
Economics
Solve for Customer Commitment Solve for Unit Economics
PM + AE Process Builder
Based on Customer Retention
The Science of Scaling
Aligning GTM with the pursuit of Go-To-Market-Fit
Revenue Growth Rate
34. Goal of Phase
#1 Product-Market Fit
Customer Retention
The Science of Scaling
When should we scale?
When we have “product-market” and “go-to-market” fit.
#2 Go-to-Market Fit
Scalable Unit Economics
37. Goal of Phase
The Science of Scaling
Establish a pace. Watch the speedometer.
Growth Speedometer
#1 Product-Market Fit #2 Go-to-Market Fit #3 Growth and Moat
Experiment Scale
Customer Retention Scalable Unit Economics Revenue Growth Rate
38. Goal of Phase
Target Market
GTM Playbook
Compensation
Demand Gen.
Pricing
Sales Hire
Early Adopter
Personal Network + Referrals
Early Majority
1 Scalable, Measurable Medium
#1 Product-Market Fit #2 Go-to-Market Fit #3 Growth and Moat
Learn Scale
Customer Retention Scalable Unit Economics Revenue Growth Rate
Win At All Cost Codified, Scalable
Solve for Customer Commitment Solve for Unit Economics
PM + AE Process Builder Process Executor
Add Promotion Path
Scale vs. Experiment vs. Ignore
Multiple Mediums.
Tightly Aligned with Sales.
Reinforced
Assess Disruption Risk
Customer Retention + Unit
Economics
Based on Customer Retention
The Science of Scaling
Aligning GTM with Growth and Moat
39. President at Atlassian
CRO at Snowflake
CRO at Zoom
CRO at Asana, DropBox
Fmr CRO @ Okta
President at CloudGuru, ZoomInfo
President at Salesforce
Fmr CRO at Tesla / COO at Lyft
CRO at Segment
CRO at SumoLogic
CRO at ServiceNow
Head of Sales Ops at Zoom
President at Blackline
COO and CRO at Yelp
Fmr COO at Gainsight
SVP of Customer Success at Toast
CMO at SurveyMonkey
CMO at Salesloft
CRO at Gong
CRO at SmartSheet
CRO at Glassdoor
CRO at Seismic
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