A Step by Step Guide to Revenue Growth with Mark Roberge, Harvard Business School

please welcome senior lecturer Harvard Business School and former CRO HubSpot mark robear's faster good morning what are you doing up so early alright we got a fun journey today get right into it what's the failure rate for a series a startup if you measure failure as don't even give the money back to the investors 75% what's the failure rate of a Series C startup got Series C fun and you're further along 75% we are screwing up the scale and I want to work with you all today I've been working on a little framework to think about it and hopefully it worked with a bunch of companies on it love for you to take it play with it and improve it okay so start off quiz in a chart quizzing the chart take a sip of coffee not am awesome revenue growth on the x-axis awesome revenue attention on the why the question is not where do you want to be that's easy the holy grail upper right 100% revenue retention 200% revenue growth the question is how do you want to get there what's the best way option a is we can go have awesome revenue retention 100% run retention but mediocre growth 30 50 percent revenue growth option B is awesome revenue growth 200% but mediocre revenue retention 70% how many people want to go option a how many people want to do option B all right option a has it you're smart we're talking a lot about this I don't think we think that way though get him back to the series C failure I don't think we think that way when someone says how's your company going what's the first thing you say how fast you're growing revenue if you're an investor what's the first question you ask him how fast you go on revenue we should be talking about revenue retention because I don't think that first that second path actually exists my expert it's much easier to put put up the throttle once you've got great revenue retention than it is to actually fix a retention problem while we're scaling you actually have to slow stuff down to speed it up so why not just start there so that's what I don't want to throw out there today is a framework on how to think about it deeper than just like hey let's get product market fit and then let's add 20 reps because in my experience you're firing 20 reps a year later you haven't checked the boxes and so I just want to throw in a framework around product market fit measured by customer value creation then go to market fit measure by you in economics then we scale fast growth and mode it's not that we slow down it's just we work on the right things so how do we so first off I'm saying we start with customer success and what is sales what is sales isn't sales really around customer value creation and revenue has an outcome sales is not about revenue generation it's around customer value creation revenue is that outcome okay so let's figure out why did that actually happen why are we so obsessed with sales being focused on revenue and I think it comes out of the 80s and 90s and how we used to sell was shelfware how did that game work we sold software it cost millions of dollars these people deployed servers in their in their office once they purchased it it was all about getting the contract once you had the contract all the servers were set up you flew in your professional services people it took six months to set it up it took six months to train people and the product sucked but it didn't matter no one used it but it didn't matter and that's where shelfware came about some executive put their career on the line to buy your stuff and walk around say it's awesome but things have changed thanks to you we have the subscription revenue the subscription economy it's so easy to use products now but it's just as easy to leave totally changes the game it's all about churn and retention and we got this megaphone called social media that every single customer can talk about a great product experience and they can also talk about a bad one the first thing people do when they see a product is they google you and see if you have a one-star fi star rating the game has changed but we haven't caught up sales is first and foremost around customer value creation revenue is an outcome so how do we measure customer success a lot of people are talking or their customers start start with the end a lot of you were talking about that how do we measure it yes revenue retention logo retention north and ninety percent annual logo retention north of 100 percent of revenue attention that's awesome however that is a trap because churn is a silent killer you could be marching around and figured you've got it all worked out you signed up 50 customers you got them on annual contracts we're if we've saved they're all still paying you but a year later half of them cancel churn is a lagging indicator and as startups as GM's of new products and new markets we can't use churn as an indicator to learn it's too much of a lag in eager so we have to identify a leading indicator to learn fast and I think a lot of you call it the aha moment what is your aha moment first slack it was when a team sends 2,000 messages for Dropbox it was when a user added a file in a folder on a device for HubSpot is when people used five of the 25 features in the product at that point their correlation to long-term value was huge if they didn't do it they're a flaky customer so what do you know in the first 30 or 60 days of your product usage that becomes your aha moment can you measure is it correlated to your life to your unique value proposition then you've got it and then measure it if you've ever asked me to come to our board meetings I want this to be the first slide I want this to be the first slide this is how I think we quantify product market fit and so what this means is okay in January we sign up twenty-four customers after one month 3% of them hit the aha moment 3% of them say set the product up and use it every day but after two months 27 percent after six months thirty-nine percent we're doing it and look what happens as we go down the chart we've been running a bunch of experiments we've been working on product market fit and and in August we sign up 39 customers two months later fifty-six % use the product every single day compare that to where we were in January only 27% we're doing awesome stuff we have product market fit we are creating customer value let's move to the next step so this in my opinion should be that first slot in the in the board deck and then once you once you go monitor once you set it up align the whole go to market around it the salesperson that you hire is number 10 and growth stage is different than the salesperson you hire at this stage it's a little bit more like a product manager and a salesperson it's not the person that you're going to give the deck to and say go they're going to say it's not working it's the person that talks to customers and does great discovery and comes back and say hey listen I think we're a little off and this is what we need to do and we will pay him just on revenue we pay him on setup half of it happens on the revenue half of it happens when they set the product up right customer success is not measured by retention it's a lagging indicator that are measured on the setup marking is not just mqs to drive revenue marketing is about getting MQL x' around customers that love our product we got to check off this customer success bog and product just obsesses over the chart they just go back to the chart and they obsess why are only 27 percent of the customers using our product every single day in the first two months and what can we change to go to to adjust that we revolve the whole company the whole garden market machine around solving customer success and we put them in a room together every night at 5:00 p.m. let's do film review hey mrs. salesperson record your sales your discovery call let's get a room product marketing customer success let's listen to what the customers saying and let's figure out if you've got it right how often we run that meeting is how fast we learn run of run a daily film review 5 to 6 p.m. every night to move through this process accordingly and now you've got hopefully check this off and it's all green ok so now I have an opportunity not just do I have the framework but I have gods to who I'm going after how I'm running my Playa who I'm hiring how I'm copying my rap pricing doesn't really matter at this stage just make it high enough if they're committed to setting it up free is not good because they're not committed pricing is around commitment but this changes as we check that off if you check that off now we can move to you in economics and you folks know this stuff LTV - CAC greater than 3 payback period greater than 12 this is go to market fit if you scale prematurely we're going to scale a cash bleeder right so now we can set ourselves up around this and our plan changes we have to expand the market a little bit now we've got someone who's going to follow the process not just build it we have to codify our sales process pricing and demand gen matter a ton to get LTV to CAC work and our comp plan does as well it's going to drive our pack so this gives us a little bit of a flavor as to where are we in this journey and how does that stage influence the decisions we make okay let's get on the fun part growth so when are we ready to grow and how fast so now that we have this in place this is our speedometer this is our speedometer if you're telling me that two months into a customer lifecycle 70 or 80 percent of those people are set the product up and use it every day awesome you have product market fit and if you're telling me that as you watch that the LTV the CAC is better than three and the payback is less than 12 when you run through your pricing and your comp plan and your conversion rates awesome you have go to market fit let's scale and scale is not like tired 20 reps tomorrow scale is a pace it's a pace so let's say hey let's add one rep every other month and then let's watch our speedometer and let's do that for six months and if we do that if we go from two reps to seven over that time period if this still looks good let's go faster let's add one rep a month or let's add two reps a month and keep watching and when it breaks let's slow down and fix it but at least we have a better framework around when to scale so we can solve that seventy-five percent failure rate at seriousiy companies and bring this stuff up in a little bit more of a systematic way okay so some companies fall all that they call me up like mark we nailed it we've got it ten million revenue two hundred percent revenue year-over-year growth triple triple double double four point three LTV two CAG we're killing it we raised thirty million bucks we're gonna expand the team we're going for we're going to go from ten to thirty usually what happens is they go from 10 to 15 insurance increases what happened they never looked under the hood to see what was going on usually you only have product market and go to market fit in a smaller slice than you think and what the company essentially did when they looked under the hood was holy cow if we split up our company by like the tight size of customer and how we went after them we only had product market and go to market fit in the top center we really only know how to sell the mid-market companies through inbound demand Jen great five million eight month payback here at 6% logo turn you nail that product market and go to market fit but you haven't figured out the rest outbound your payback is way too big you're adding BTR's but they're not efficient up enterprise no one's using the product you haven't figured out your onboarding and the small business the turns too high but guess what when we raised the 30 million bucks we didn't know this when we raised the 30 million bucks we realize mid market wasn't enough to scale inbound wasn't enough to scale so we added a bunch of BTR's and we hired this really expensive enterprise sales team and we did it prematurely because we looked at we'd never looked under the hood and realized where we truly had product mark and go to market fit had we done it again we could have said okay I know exactly where I'm ready for scale and I know exactly where I need to expand I got to figure out the other boxes otherwise I'll never get to 30 50 100 million dollars so we got to crack the nut on those boxes and the answer to that is not add 20 reps and go like when we start our company we didn't say hey I have an idea let's add 20 reps and go no we're great at product you know let's add a couple engineers and a cross-functional team and experiment experiment sprayer and figure it out so that's how we have to set this up is yeah let's go from 10 to 30 but let's go in the right spot let's really triple down and mid market inbound that's what we know how to do and that's how to set up three cross-functional experiment teams and keep them small and help them to figure out how to sell the enterprise help them to figure out how to do outbound help them to figure out how to do the SMB and check off product market fit and check off go to market fit and cross our fingers that's six to 12 months we got or needs to go and then we can move into scale so we have just say you know too broad of an optimism around where we've actually figured out our business the other thing that happens is sales and market alignment we got to add some new mediums and we really got an instrument sales and marketing together I worked with hundreds of teams on this sales and marketers hate each other so this is like a problem like all marketers think salespeople are overpaid spoiled brats and all of the salespeople think that marketing does arts and crafts all day and they just end up going back to their relative klore of the office and set up their tradeshow boats and do their cold calls and that's the kiss of death in today's environment where ninety percent of customers start their buying journey in a domain owned by marketing ie the website social media email etc and they progress into a domain that's owned by sales and if these two people are not getting along it's the kiss of death for your company but if you can align them it's a huge competitive advantage so how do we do it so I'm not a huge fan of the lead scorer you know I'll go back you guys know Volpe he was my kind of partner in crime at HubSpot and setting this up and we were really kind of pointed about it we said okay we know like we have ten mid-market reps and each mid-market rep needs 50 leads a month to hit their number and we know they're going to connect with half of them and convert half of those to a demo and close 30% of those demos for an average of seven hundred mor like clockwork so Mike I have 10 reps they each need 50 leaves I need 500 of those mid market leads that's really good but some of those leads were VP of Marketing that downloaded an e-book and some of those leads were VP of Marketing that requested a demo they both counted but which one closed at a higher rate the e-book or the doubt or the demo request it was the demo the demo closed by three times but which one was easier for marketing to generate when they came to the website much easier to get someone to download an e-book so when Mike's team fell behind on the SLA all the calls actions turned to ebooks and we were where's the demo requests so we got a little more pointed around it we separated our lead flow into quality of customer on the left side the quality of the company not the role the company and the engagement ABC very simple right so hey let's just make it up over 10,000 is an A in the middle of the B and under under a hundred is our under a thousand as a see they're all qualified just different amounts and then engagement let's make it up a blog sign-up to see ebook downloads of B demo request is an egg now I can put some prices on this right so over time I can actually multiply the close rate times the the number and actually and and how much they spend and actually get these numbers but in beginning let's just make it up right so I'll give you a hundred bucks if you generate an a a I'll give you ten bucks credit for the CC now I'm in a position to put marketing on a revenue quota whoo marketing on a revenue quota yeah so it goes from 500 leads a month to five hundred thousand dollars of lead value and if you want to get there through whatever the math is like five hundred days or five thousand cc's I'm gonna make my number and so all of a sudden all the calls to actions on the site changed to higher quality stuff like demo requests and trials because we're given marketing and proper credit for it now sales does not get off the hook this is a two-way relationship if marketing is going to be that specific sales needs to be - so I used to do a lot of studies around like I knew I need a call lead right away we've seen those studies I know that like you know I got a you know call him a lot but like how often ya do I call like when I get when I called II do I call and I get voicemail do I call him that afternoon do I try them again tomorrow do I try next week do I try them five times or ten times like these questions started to stress me out and I was like like for each rep should I give each rep one liter month and tell him to call the lead a thousand times or do I give him a thousand leads a month to tell him to call each lead once I don't know like either one of those answers is not good but where's the right time so I I did some analysis and this was a in the HubSpot funnel when we were like three million and I think we had like a hundred wraps and some of the leads they were only called twice that's we show on the x-axis and why shows the profitability some of the leaves were called fifteen times so you call lead 15 times you're going to get them on the phone more often you're going to close more deals but is it worth it that's a lot of work calling them once yeah you we got to do a better job than that so where's the optimal amount well for small businesses shown in the orange the optimal amount was five four mid-market was eight and for enterprise it's twelve and that correlates with a lot of research that's been done in the space and so now I had this blueprint that I could go to the reps to say folks we have calculated the path to making the most money at HubSpot they're like whoo I love that and folks we have we have built it into the CRM so you have to think about it you you hit voicemail that you left the voicemail and it just goes away and comes back and they love that and then we've codified it into our systems right so we built a chart that says the do not be on it chart very easy to do any any serum you want it's just what are the rules okay you you call it within two hours you call leave three times in seven days you you you know you call leads six times in 21 days and just build it in and it's basically if your name shows up on this chart your violin the violin and the rules so just don't be on it and now I've got a situation where I can manage and monitor the heartbeat of my go to market the heartbeat of my company on a daily basis every night this dashboard went out to the whole company on the left-hand side where is market and against that five hundred thousand dollar goal right it's halfway through the month the red lines perfect and the blue line crawls along along there now I can't have marketing crush it in the beginning and then take the rest of the month off because I don't have the reps to call that many leads at once and they also can't have them go to sleep for three weeks and make it up at the end of the month because I've reps sitting around for three weeks two of their thumbs so there's a lot of sides in here they have to crawl that orange line pretty closely and then for the for the reps they don't get off the hook they don't bianna I measure my heartbeat every single day and I know very quickly if it's broken I'm not waiting to the end of quarter revenue number to know how we're doing huh all right then we got to talk about Poe hiring in the role what do you look for in a sales hire what do you look for in a sales hire ether I made I had we were just like 15 people on a garage across from MIT and I asked I I've convinced this person that was the number one salesperson at a big public company in Boston they had 800 reps and this person said I'm quitting I'm gonna join this small company call the hub spa and I was like wow this is amazing rolled out the red carpet welcome teach us to sell and I was amazed they didn't crush it they weren't terrible but they were kind of mediocre I was like how is that possible how is it possible eight hundred reps they're number one we're this rinky-dink shop with like you know seven reps and they they're not our number one rep and I thought about him like holy cow the context is so different this person is literally working for a company is doing Super Bowl ads like you call them up and they know exactly who you are and what you're selling and the sale takes five minutes no one knew who we were at the time no one knew what inbound marketing was it was a very complicated sale and you could imagine the type of rep that works in those two different continents extremely different so I realized at that point like it's very dangerous to be at a show like this and go to your neighbor hey what do you look for in a sales rep because your contacts are different copying it could be disastrous however there is a blueprint that you can build that's really important in your scale to be able to engineer your sales hiring formula all right so I just sat back at that moment I said okay what is it about our context that is what are the characteristics that are correlated for us and like how weighted should each one of those be and I was really specific around what did I mean by curiosity and what I mean by prior success and what would a low medium and a high score sound like and I worked on this over and over again as we watch people do well and not do well and so over time once we hired like thirty of these you can actually run a regression analysis so I got a PhD at MIT who was like salivating over this data loved it and he ran this analysis and and it showed that like the the characteristics at the top had a really strong correlation with success and the ones at the bottom were actually negatively correlated I was blown away by this because at the time we were talking about how the customers desiring a different type of seller but this statistically showed it it's like the stuff that we typically associate with like a car salesperson closing ability convincing objection handling negatively correlated and the stuff at the top preparation domain experience intelligence that's how we describe like a great consultant or advisor and it totally set the tone or the type of team that I wanted to build right so anyway this is a key thing that we've got to do especially in the scale mode is we want to set that sort of quantity framework and test test test six months into a reps life cycle are they doing great yes or no if they're doing great why and did we look for in the interview process and if they're doing poorly why don't we catch it and we can iterate on it so quick little quiz whoops I won't go over so these these five components here these three components are all in the top five over time in the Hunter as we approached IPO for HubSpot but which one do you think was number one like do you think how many people think intelligence was the number one correlator to sales success how many people think it was coach ability how many think it's curiosity I gotcha it was coach ability everyone always think it's curiosity but coach ability was the one I don't know why it was maybe because we were doing things so differently but it was those reps who checked all the other boxes huge success but they showed up on the first day and they said mark thank you for the training but I've been selling for five or ten years I'll just be in my cubicle selling and there was an issue and so the coach ability was really the thing and that's my favorite part I'm not going to go through these but I'll these slides are posted on my um my LinkedIn and my Twitter if you want to download them up they'll hit in like a minute but if you want to go through and copy or get ideas around our entry process my favorite part was the role play just have him do the role play see how they did coach him on it and have him do it again that process was so correlated to my ability to pick sales people God all right now the other things the coaching at this point that's where the salesmen are does higher coach higher coach not run pipeline higher coach hire a coach not do the job for the reps if they do this two of two things well they're gonna scale what's the good coach so I've been trying to learn golf like 15 years I've taken like ten lessons one golf pro he says to me mark take a swing and I did he says okay here's what you need to do turn your grip over a little bit lean back in your stance put more weight on your right foot not your left think one o'clock that two o'clock in the backswing and give me more wrist on contact I was like you kidding me another coach said okay mark take a swing so here's what I want you to turn your wrist over a little bit now take a hundred swings 20 minutes later he's like how's that feel I'm like I think I'm getting this this is pretty good now lean back in your stance a little bit take another hundred swings it's like it's such an obvious example but I've personally promoted like 50 reps to manager and they all use the first golf pros approach they get a new rep out of training they see them messing up on 50 things and they throw up on them for 90 minutes with feedback and you can just see the reps head spin it and nothing changes the best coaches will I actually identify though they'll see the 90 things but they know the one that's the most broken and they focus there and they use the metrics to diagnose it so if we look at this particular this is a funnel each colors different wraps at each stage the person that purple is really doing bad they're the worst and the team they've sold the lowest number of units but why why is that well they're making tons of calls they're just not getting them to the demo and I can actually click in further and realize you know what the reason why they're not going to the demo is it because they're working tons of leads and no one's calling them back or is it because they get them on the phone and someone hangs up after 30 seconds my coaching is way different but I can use the numbers to diagnose it and so I call that metrics Jeff in sales coaching once you get to a big org what I do is on the second day of the month I'd meet with all my directors and ask them what are you coaching everyone on for John what are you coaching him on how did you choose that and what are you going to how are you going to coach him and because I did that all my directors would have the same meeting with his their managers and their managers would meet their reps on the first day of the month and they build out this whole we'd walk out of the first day of the month knowing exactly what we're working on with each rap they are totally bought in and how we're measuring success and now I can hold my raps accountable a lot month-over-month I've got a paper trail and I can see you know Bob you you love John you hired John six months ago and John is not doing well and you said you've been coaching on sense of urgency development for three months now and it's not moving you hired him you're coaching him you're accountable my mentor was a little more aggressive now he'd say go to the me go to the bathroom look yourself in your mirror and ask yourself are you a bad recruiter or a bad coach because you messed up somewhere and this process gives us in a way to hold our large organization accountable to really good coach and it applies to big big big sales - this is just a different this is an example from inside squared but this just shows four million dollar deals you're just showing how things move through the funnel over six months it doesn't have to be calls and all that kind of stuff but you're just measuring progress of the funnel okay so there you go there's there's hopefully a tighter rhythm around how we actually went we ready to scale and house go the last part I want to do is on compensation this one's not talked enough about we're losing reps too quickly and it really it amazes me like why for a role where success and failures so quantifiable like I can't walk into an engineering team and be like hey this is Julie she's my best engineer by seven percent like how did I do that but sales I can hey sales team this is Julie she's my best seller by seven percent I can do that so why do we comp our reps on like an annual raise of three percent like silly and why do we make it based on a year when it's so quantifiable so what I've used in a lot of companies is put in hey your sales associate you join you make forty thousand base forty thousand variable I'll give you five thousand options when you get promoted you get promoted when you hit the stuff on the right when you have sold over sixty thousand dollars of business Mor when your last three months you averaged over five thousand a month when your your contract values are over six months you get promoted it could take you six months some people it took twenty months but when you do will raise your variable will give you 10,000 more options than there's your next target I've seen companies keep their reps by over seven years when the average in the industry is 2.2 using this method so hopefully that gives you a little bit of flavor a little bit of framework I'd love your feedback on it as you try I've used it for probably like 25 companies it's worked quite well in terms of knowing where you are in your journey when to scale and how fast and how you allow you to go to market around it I want to just talk about one thing there's a great investor Jay poet best or KNE last winter he's like we need to put this into venture we need a venture firm that's back that's back to buy go to market professionals and run by go to market professionals I was like dude that's a that's a big idea don't quit your job yet let me introduce you to my buddies and let me see if they're into it and he crushed it and got a lot of their their money so he added Jill Raleigh the former chief growth officer of Marketo and formed this company called stage 2 capital we've made five investments and had great backing from from the the community on the go-to-market front sixty sales marketing customer success CEO oriented executives UJ Simon the president of Atlassian Emanuel Scala toast Oh Jay whose run sales at Dropbox and now asana Halligan at HubSpot Sydney Sloane it at sales loft Hillary over at zoom these people are backing this movement around bringing this go to market mentality to the investor side so if you're ever interested in something like this you know check us out and we're going to try to add to the startup ecosystem from this perspective the other thing I want to thank you about is the continued support on the book it's a it's a I get my most sales here in Silicon Valley so thank you I think a lot of you know that a hundred percent of the proceeds are donated to build org my friend I yell a just got promoted to CEO last year and she's doing an awesome job anyone involved in build build is awesome they build they bring entrepreneurship to the the high schools that are struggling most in the top 20 cities in the country and they teach these kids how to be an entrepreneur freshman year and with a goal of getting into college 99% of these kids graduate high school and eighty-five percent going to college and that is way higher than the Ray and thanks to your support the book has given them over fifty thousand dollars in donations so I thank you and I'll just leave it with one more thing which is hey I'm the appetizer this morning for the main course which is diversity yes scaling scaling is exciting revenue growth is exciting we hope to influence the ecosystem but this is the most important movement that we have going on 2019 we've been working on it in Tech Inventure in entrepreneurship in business for 20 years it feels different this time it feels real and I think Jason's going to come up and tell us more about this but these two ladies at Salesforce have done an awesome job and I can't wait to hear more about that story AJ thank you on this

Channel: SaaStr

Views: 50,700

Keywords: saas, tech, saastr annual, revenue growth, growth hacking, hubspot

Id: aIAbNeqn9K8

Length: 31min 49sec (1909 seconds)

Published: Mon Feb 25 2019