Why you need a plan you can beat (with Dave Kellogg, EIR at Balderton Capital)

We grilled Dave Kellogg on planning in this episode.

We get into why you shouldn't get any surprises, why you need a plan you can beat - and how to approach building a solid plan for next year.

• (00:00) - Introduction
• (04:15) - What sets great team apart right now
• (06:03) - Are you up to par?
• (10:02) - What can we learn from the dot com bust?
• (15:32) - What's a good number?
• (18:38) - Why you need to raise on an aggresive plan
• (22:10) - Planning requires discipline
• (27:04) - Assumptions
• (32:41) - Getting ahead of plan
• (34:12) - RevOps as the partner
• (39:09) - Allocating resources
• (44:07) - From plan to execution

You can find Dave's blog here.

Creators and Guests

Host

Mikkel Plaehn

Marketing leader & b2b saas nerd

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

Guest

Dave Kellogg

Executive In Residence at Balderton Capital, Principal at Dave Kellogg Consulting, Author of Kellblog

What is The Revenue Formula?

This podcast is about scaling tech startups.

Hosted by Toni Hohlbein & Raul Porojan, together they look at the full funnel.

With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.

If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.

[00:00:00] Toni: Hey everyone, this is Toni Holbein. You are listening to The Revenue Formula. In today's episode, we're going to have a chat with Dave Kellogg about why you need to create a plan you can beat and how you can best do that. Enjoy. That's, same
[00:00:18] Dave Kellogg: to a few episodes. It actually freaked me out one time. I should tell you the story. I was on a walk and I was just listening to my podcast and I was listening. I didn't know it was you guys and you mentioned my name and I'm like, holy shit, what podcast is this?
[00:00:30] mikkel-t9cpo22kq__raw-synced-video-cfr_mikkel-dave-kellogg_2023-aug-28-0408pm_dave_kellogg __ trf: Ha ha ha ha
[00:00:31] Dave Kellogg: It was pretty funny.
[00:00:34] Mikkel: Yeah, yeah, there you go. That's good. We're happy you listened to some of it. Accidentally,
[00:00:38] Toni: of course. But, uh, but
[00:00:39] otherwise,
[00:00:40] Dave Kellogg: No, no, it's on my, it's on my subscription list, right? I was just, I was hitting the, you know, go through the episodes.
[00:00:45] Mikkel: There you Wonderful. Wonderful. Well, always great to have a fellow listener on the show. That's, um, that's right. That's always what it is. I mean, the thing is, we also listen to, uh, to your show and Ray's. So that's, uh, know, the scales are kind of even. I
[00:00:57] Toni: only read your blog. I haven't, I haven't gotten a, I'm, you know, I, I figured out I'm not the podcast guy listening to it.
[00:01:03] I'm more the, you know, I think, you know, in front of the microphone, I guess. Uh, but otherwise I read your blog. I love it.
[00:01:08] Dave Kellogg: Well, thanks. Yeah. I mean, look, listening to podcasts is hard. I think I do it either on walks or on the treadmill. So if I'm not walking or treadmilling, but I'll never like sit in my office and listen to a podcast. It's so
[00:01:18] Mikkel: Yeah.
[00:01:18] Dave Kellogg: to stay focused.
[00:01:20] Mikkel: No, I think it's the same with audio books. I have this, I really like to read business books, but somehow with audio books that it just doesn't stick somehow with me. But when you read it, then very different
[00:01:30] Dave Kellogg: driving works too, by the way. Driving is awesome for podcasts.
[00:01:33] Mikkel: Yeah. Yeah, yeah. I agree.
[00:01:36] So fourth intro today.
[00:01:38] Toni: Yeah. So funny story. The water was out. That's my, at my house for the whole weekend, basically. And apparently we had an issue that was going on for six months and we didn't know about this.
[00:01:49] Uh, so what I was basically kind of just, you know, into the, but I don't know, into the gutter or something like this. I don't know. Yeah,
[00:01:56] Dave Kellogg: you want to sit that close to Mikkel after no water for the whole weekend.
[00:02:01] Toni: could put it on here and there. So it was like in between. Right. But it's, I mean, it's, it's literally the perfect example of revenue leakage right there. Right. We would have loved to know it six months earlier than we did in the end. Um, but you know, I survived. I have, I have showered Mikkel today.
[00:02:16] Mikkel: Well, I've submitted several complaints internally.
[00:02:18] So, but now it makes a
[00:02:19] Toni: whole lot more sense. Yeah. We also only spent four hours in the studio today. So, you know, good that I'm starting with that story now, I guess. Yeah, exactly. But
[00:02:28] we have a guest here today. Yes. We have, uh, Dave Kellogg with us today. Dave, welcome to the show. Welcome
[00:02:33] Dave Kellogg: Yeah. Hi. Welcome guys. Thanks for having me.
[00:02:37] Mikkel: Pleasure is all ours. So, uh, we were just talking a bit before we hit record that both of us, we're avid readers of, Kellblog, uh, where you write quite a lot, uh, when you get the time, at least that's my sense, but they are very, thorough, I should say with even a lot of resources, which I don't think you see a lot in at least some of the stuff that I tend to read.
[00:02:58] you also are very passionate about metrics. You are. a Metrix brother with Ray Rike at the show SaaS Talk, also another, uh, gentleman we, uh, really, uh, enjoy and follow who also live loves Metrix. And then you're executive in residence at Balderton Capital. And amongst other things, scaled up, 30 million to
[00:03:22] Toni: 1 billion.
[00:03:23] And this is on revenue for everyone that's listening, not in
[00:03:26] Dave Kellogg: It's not market cap. The good old days where we measured company size on revenue, not market cap. Yeah.
[00:03:33] Toni: So, I mean, and obviously you have, you know, worn and, you know, I had a, had a lot of different hats as CMO, CEO, investor, and, and so forth, advisor. so I think it's suffice to say that, Dave knows a thing or two about. Scaling Commercial Engines, Scaling SaaS Engines actually, and uh, that's what we want to talk about today.
[00:03:51] Dave Kellogg: Awesome. Well guys, thanks. Thanks for being readers of the blog. And you're right. That last post I did was seven pages single spaced. So I don't want to scare readers away, but once in a while I do get, uh, Enthusiastic, and I think it had 10 pretty rich footnotes. So, uh, thanks for reading those who do, and I try to keep my little shorter than that in general.
[00:04:11] Toni: Other people call this a Bachelor Thesis, but I think that's okay.
[00:04:15] Mikkel: do you want to open or should I? Please go ahead, Mikkel, go! So, what we've talked with quite a few people about up until this point is really All the challenges that's happened over the last, let's say, 12, 24 months in our industry B2B SaaS, right? So valuations compressed because of extending sales cycles, ACVs are dropping.
[00:04:36] And given your view, it would be really interesting to hear what do you see that the great, the great teams out there are doing better than the rest right now.
[00:04:48] Dave Kellogg: Okay. Well, that's a big question. Why don't we start at the beginning? I think most people are through this now already, but whenever you come off a very frothy funding environment, where capital is kind of free, you get very free spending and you get very growth oriented, and that's all great. The trick is recognizing the world has changed, which I think people have done.
[00:05:09] Um, and then the second trick is extending your runway, right? Because the thing we want to try to avoid, well, we have to desperately avoid running out of money at first. Um, and then second, we want to avoid, having to raise money under unfavorable conditions. So I think the smart CEOs, and this is more like six, nine months ago, the first thing they did was, how do we extend our runway?
[00:05:29] Combination you could do a extension round. You could do a venture debt. You could cut the burn, right? There's a number of ways to extend your runway, but kind of job one was runway extension that invariably involved cutting back, reducing growth targets, and now we're, I think we're squarely in phase two or round two, where it's like, okay, how with reduced money do we get kind of more oomph per, uh, sales and marketing dollar to drive growth?
[00:05:53] So that's where I think we are right now, and that's a huge topic itself, so you can guide me where you want to start, but, but that's what I think has happened as a result of all the kind of macro changes.
[00:06:03] Toni: And so if we dive into this, right. So in other words, I think, in code, you also said, Hey, this is about driving efficiencies and finding efficiencies, kind of utilizing them. Um, from, from your perspective, if you, if you look at, you know, uh, you know, into an engine and kind of try and figure out what's wrong.
[00:06:20] How would you actually go about it? How would you, someone listening to the CRO, maybe as a RevOps leader, how would you tell them, hey, this is actually not up to par with what the best guys are doing out there, and maybe this is one of the opportunities you should be jumping on first?
[00:06:33] Dave Kellogg: Yeah, that's a great question. As usual, very hard. Um... I actually take the opposite approach in my own work, just so you know, I always say, what works? Because we're never sure, right? We look at this whole array of things we're doing to drive growth. And I think of all sales and marketing as concentric onion.
[00:06:51] So I literally try to say, what's the core of our onion? What's the thing that works best? The thing that has always worked for us, and presumably is still working for us. And are we putting enough energy into that? So to me, my generic approach to the problem... Is to, not to identify what's not working, but it's to identify what's working and say how can we do more of that.
[00:07:11] So I guess you're kind of proven, I'm trying to say what the, the, you've proven guilty or proven innocent, presumed innocent or presumed guilty. I, I, I guess, um, I guess everybody's presumed guilty at some level, right? Like, I assume everything's not working, now prove me wrong. What is working? Okay, the weekly demo is working really, really well.
[00:07:28] You know, this old standing white paper is working really well. This piece of content is driving a lot of conversions. These AdWords are working well, right? So we can go find out what works well, because remember our context is we're cutting back, right? So we're looking for things not to do. And I guess rather than make a list...
[00:07:45] Of all the crappy things, you know, like imagine we go to a room and like go to whiteboard and say, okay, let's write everything that's not working. Right? I'd rather say, okay, let's draw an onion and say, what is working? Let's try and place our various campaigns and initiatives into layers on the onion. Um, that's the way I think about it conceptually.
[00:08:05] Toni: And, I mean, the, the inverse of that is, to a degree... Then not doing the outer layers of the onion, right? I mean, isn't, isn't that then what this, uh, what it's going to lead you to? So inevitably, you will end up with taking the stuff that you put, you know, not to the core and basically cut this away in order to focus on the things that are working out.
[00:08:24] Dave Kellogg: Yeah, I mean, by analogy, there's a fairly cold blooded and undoubtedly will be seen as an American approach to layoffs, which is you imagine the entire company in the parking lot, and then you invite them back in, right? And who do we invite back into the building? And this is to a certain extent what I'm doing with all our marketing initiatives.
[00:08:42] That's why I was doing the presumed guilty, presumed innocent. Okay, let's put everything in the parking lot. Like, so it's all gone. We're not doing any of it. Now what do we bring in? And yes, to your point, we kind of stop bringing stuff in when we're outta money, right? If we say, okay, we can afford to do this level zero stuff and this level one stuff, guess we can't afford to do the other stuff.
[00:09:00] Obviously you need to sanity check that. Particularly in my world and marketing, a lot of things have indirect benefits, and this is where I think non marketers can get into trouble. 'cause they may just. Do the first order analysis and leave, I don't know, I'll pick a tough example, social media. You'll leave social media in the parking lot, say let's fire the social media person, and that may have second order effects, right?
[00:09:21] In our attribution system, it may not show up as doing much at the first order, so, so I, I support this approach, but, but I'd say Two things. It has to be done by somebody who really understands marketing and these interrelationships. And two, I like doing it after we've done a reverse touch analysis, where we say, wait a minute, we've got our attribution models, which are all kind of forward looking models.
[00:09:45] I like to do a reverse model as well and say, let's look at the five favorite deals from last quarter and what were all their touches. And now that we have all that attribution data in our head, all our reverse touch data in our head, we put everything in the parking lot and invite it back in. But yes, long way of saying, some stuff gets left in the parking lot.
[00:10:02] Toni: So, and, you know, we were, we were obviously kind of scanning again and again, your, your LinkedIn profile and, you know, you were, you were running as a CMO of business objects, uh, also when the com bubble burst, right? Are there any. Any, and I've, you know, obviously was an insanely, you know, successful company, especially for, you know, back then.
[00:10:22] are there any learnings where you would say like, Hey, this stuff that we went through in the.com, you know, was applicable in 2000, what is it, eight, nine, kind of the, the, the other crisis in between and it's also applicable now. Are there things where you're like, Hey, this is, this is the, the, the, the back to basic stuff that we did in 2001 that people have completely forgotten by now.
[00:10:41] Mm-hmm.
[00:10:42] Dave Kellogg: Look, as I've managed through two crises, uh, one business objects bubble burst as CMO, and then 2008, Mark Logic as CEO. and we can talk about each of those. I think, I'll tell you a funny story from 2002, like we missed EPS. We were a public company when the bubble burst.
[00:11:01] Um, and we miss earnings per share by like a penny. And this is just a funny story because like, Oh, we're off by a penny. How big a deal can that be? And like the stock, you know, falls some enormous percentage. But the thing that was less obvious to me was the analyst all turned on me. particularly the financial analyst.
[00:11:15] They're like, you're in the penalty box. It's like hockey, right? You're in the penalty box for eight quarters. It was like, you know, missing earnings, slashing, eight quarters, penalty box. And literally they didn't want to hear what you had to say. So I think it... The thing I most remember for that time period was all the analysts saying if revenue growth is off, if profit is off, therefore your strategy is wrong, right?
[00:11:36] It's almost an inverse relationship, right? When you're making numbers and growing fast, you're a genius. This is what I would say. Hey, I'm the same guy. I was a genius two quarters ago when we were making numbers and now we missed by a penny a share and I'm no longer a genius apparently. So, so I think Corporate credibility is overly tied to financial performance.
[00:11:54] And by the way, this is why startups try to hype their performance so much, not only for valuation, but also to get the world believing they have a great strategy, right? Because the results are proof of the strategy, if you will. So that was the first thing I remembered is that nobody believed what we said anymore.
[00:12:08] Um, and it was hard, uh, because at least in enterprise software, analysts matter a lot and corporate credibility matters a lot. From a marketing programs perspective, I don't remember anything, you know, we had always built the onion. I'd always had the onion view, um, so you just naturally scale it back.
[00:12:23] Sorry, tapping the mic. Um, you naturally just scale back. for example, I was just going to go back to the onion because it's my favorite onion story. We started a weekly demo. We never stopped, right? And that's literally when I start these, when I started that marketing program, it was like, we're going to do this demo every week for the rest of our lives, right?
[00:12:42] Right. And that's the, that's what it means to run an onion strategy, right? And most startups I work with today, I still say the same thing. Do we have a weekly demo? So we have a bunch of prospects who are interested in seeing our stuff. Are we going to ask 37 sales reps to do 37 calls next week, each kind of spinning plates while they try to do discovery while demoing the software, right?
[00:13:01] Are we going to do that? Are we just going to round everybody up and do one really good live demo with our best demoer? and we started that in BusinessObjects UK, and we never stopped. So that's the way I think about the onion. Like you, like when you start a program at level zero of the onion, it's forever.
[00:13:16] Um, unless something major changes. So because we kind of had that onion philosophy, I don't remember anything. That much that we scaled back, you know, our planning philosophy was always three major themes for the quarter plus three major ongoing themes Plus a whole stack of programs and we dialed the programs back and forth Actually, I do remember one thing took me a while to get warmed up The biggest thing we changed at that time is we went more to a program in a box model Which is we had run a pretty decentralized marketing team, but the cost pressure said, wait a minute, we have to go build programs, typically in the US, but not always, and then export them.
[00:13:51] So, so we, we, I would say it was also a time where we centralized more of our marketing campaigns because we had been an unusually decentralized company.
[00:13:59] In 2008, what I learned was you, while you need to look out the window and pay attention to the weather, you need to also look at what's happening to you.
[00:14:07] And this is why having lead indi leading indicators and good metrics is so important. 'cause as it turned out from my customers in 2008, I sold largely to the US government and to media companies. The government was largely unaffected, and the media companies were in so much trouble anyway that it didn't matter , uh, that, that they were buying my product as the last resort to save them from Google and, and the internet.
[00:14:30] Um, so we actually raised money in 2008. The board came to me and said, Dave, I think you're being too conservative. And I'm like, well, I'm conservative because I'm looking out the window, and it's really scary out there. And it was a Sequoia backed company. It's like, I'm conservative because I went to the stock pick meeting and sat in the first row, and you told me, quote, to cut deeper than I can, cut as deep as I could possibly imagine, and then cut more.
[00:14:52] That's an actual quote from the meeting. So, so you guys tell me that. I look out the window, and it's terrifying. But when I look at my KPIs, it's not terrifying. So, so maybe I should, I'm pulling back because of what I'm seeing out the window, not because of what I'm seeing in my dashboard. And we actually agreed that the dashboard mattered more, they gave me more money so I could feel comfortable, we did an extension round, so I could feel comfortable keeping the gas on.
[00:15:15] So I think that's the other thing I'd say about these downturns, is you really... You need to look out the window and go, well, it's pretty scary out there. But then you need to, hopefully you have good metrics, so you can look at your dashboard and say, now what's happening to me? Um, which is kind of a segue to your question.
[00:15:29] But go ahead, I think you want to say something.
[00:15:32] Mikkel: uh, yeah, so the other step is kind of when you go into planning for next year, right? There's always a number you want to put forward. And the question is really what, what is a great number? You can, you know, put whatever, whatever forward, right? But if you're at 50, 50 million and you're growing at 35%, how do you know whether that's actually good or bad for the
[00:15:51] Dave Kellogg: yeah, yeah, that's a great question. Thank you for re asking it. Um, this was something that kind of made me unpopular at BusinessObjects, in fact, and I've stuck with my whole life, which is every quarter at BusinessObjects I presented a graph in the Ops Review that was our revenue divided by our competitors revenue.
[00:16:07] Um, so we were always a flat line. In some ways it was the most boring chart in the world, right? Because we were flat, always, definitionally, because it's us divided by us. Um, but the interesting part is look at the other people divided by us, right? And if somebody's climbing on that chart, it means they're gaining relative market share.
[00:16:22] And if somebody's declining on that chart, it means they're losing relative market share. We're gaining on them. So, uh, the chart is actually very simple, but super powerful. And the reason it may be unpopular... Because that's a marketing guy's view on the market, right? I care about market share. So to me, winning is winning in the market.
[00:16:42] To our CRO and to our country managers, winning was beating plan. Right, this cuts right to your question, right, which is for them. Hey, if I negotiate 40 percent growth and grow at 42%, I'm a hero and I make, you know, over my compensation and, and I'd be like, well, that's good for you. But if the market grew 60 percent in your territory, we lost share and we're rewarding you for losing share, which is insanity, right?
[00:17:09] Um, now look, now that companies are. Stay private so long, it's harder to get that data. Because back in the day, people go public at 30 to 50 million. So people weren't very big, and you could get like a geographic breakdown of their financials publicly that was accurate, right? It's much harder to do this analysis now.
[00:17:27] But the same principle applies, which is kind of what is winning. Um, and what is good? And is, is 30 million next year? Is that, is that a great number? Is it a crazy number? Um, so, so the tests I would apply, I think I'd apply two tests. One is, what does it do to my relative market share? If we're saying we want to be the leader in this greenfield market, and we're growing, you know, and we're growing slower than our competitor, you know, that's a problem.
[00:17:50] It's a big, or if we're smaller than our competitor and growing slower, well, that's a big problem because we're behind and getting behind her, right? So we need to be realistic. So one way I evaluate that number is on a kind of relative market share basis, the best we can to approximate it. The other way is just a do ability basis.
[00:18:09] You know, given our metrics, given our models, given our history, is it doable? Because, you know, a CEO, a former CEO, you get fired for missing plan, basically, right? Like Mike, Mike Moritz said, seven words that changed my life, make a plan that you can beat. Um, and I think that's important, because while these guys swing for the fences, they want you to be on plan while you're doing it, right?
[00:18:29] In some ways, Sequoia saying that is very telling, because you know they want a grand slam, but they also want you making plan, because they want you in control while you're doing that.
[00:18:38] Toni: How do you tackle this? Right. And maybe this is more of a CEO question actually, but, uh, I mean, if you, if you go out and fundraise from, you know, let's just say a Sequoia, um, uh, in, in order to secure this, you obviously need to show fantastic growth. You're kind of locking yourself also then in, into this path, stuff changes.
[00:18:57] Maybe some of the assumptions, some of the KPIs that you thought would be rosy didn't turn out to be like that. How do you navigate that building a plan that you can hit or beat, you know, without, without trying to tweak it in a way that you can sell it to your investors?
[00:19:13] Dave Kellogg: So, it is a really hard question, um, I think the reality is when you're fundraising, you need to put out a fairly aggressive plan. Uh, and you want to raise a lot of money. But, like it or not, and I don't necessarily like it, today's Silicon Valley, in SaaS, you need to raise a lot of money. Because we're competing to buy customers, in effect.
[00:19:35] So, if you have to go buy a bunch of customers, you need a bunch of money. Um, so, the question is, what do we do in terms of aggressiveness? And the answer is, I would show a pretty aggressive forward plan. I don't know, 70 percent confident I can hit it? Right, I don't want to show 95 percent confident I can hit it because it's not aggressive enough.
[00:19:56] I don't want to show 50 50 because it's probably too unaggressive. So I have to pick a number out of the air. I'd say a fundraising plan is probably a 70 to 80 percent plan. know, I'd say a forecast to the board is a 90%, maybe 95 at the CEO level, right? So if I'm in a quarter forecasting that quarter, right?
[00:20:12] I'm not building a model the next three years, but I'm in a quarter, and I say we're going to do this much. That's my forecast. I need to hit that at least 9 out of 10 times, maybe 9. 5. So to me, I attach this notion of confidence interval to a plan, as you can tell. Um, so I think the... There's two questions in there.
[00:20:32] One, I would just say, do, can we quantify somehow our confidence in a plan? And the answer is yes. And that dial is not always set the same for fundraising. I'm gonna set it lower , and for like a quarterly forecast, I'm gonna set it higher. Um, and then the question, the other question is, well, I would say I raised a lot of money off a pretty aggressive plan, and now things change.
[00:20:52] What do I do? The short answer is when you raise money when you can, and then you spend it when the indicators say. So, I don't view that three year plan that, I even call it a model, just to remind people it's not a plan. Because a plan, to me, the semantics of the word plan are something that I pitch to a board that they agree to, it's for a year, and I'm accountable for executing.
[00:21:15] That's what I call a plan. And a plan is one year. Anything beyond one year is a model. So I'm going to say, hey, that's the model. That's the trajectory we want to go for. Yeah, I'm pretty sure 70, 80 percent we can do it. But an operating plan, I'm going to be 90 percent plus sure we can do it. so the question would be, if I raise money in year one, we hit year two and things have changed a lot, what do I do?
[00:21:34] I'm going to show an operating plan that I'm 90 percent convinced I can hit. And the reason I do that is I was, I've even said this to the board, you can fire me now or you can fire me later. You know, I'm not a founder CEO. I don't, I don't have what I call the invisibility cloak that the founders sometimes get where they can hide.
[00:21:50] As a hired CEO, you have no such cloak. If you misplan too many times, you get fired. So I'm like, you're going to fire me later. You may as well fire me now. Um, I can't do, if I said we're going to do 100 and I think we can do 80, I'm going to tell you we can do 80 and I'm going to be 90 percent sure we can do it, right?
[00:22:04] Because I want to get fired for not doing 80, not for not doing 100. So, so that's how I think about that.
[00:22:10] Mikkel: And what do you, I mean, so the, there's obviously also then a step where you need to take this to your teams at the end of the day and build the plan. And we were just joking a bit about it. Usually the planning step happens, you know, February and people get, uh, 48 hours to review a model somewhere in a spreadsheet and then everyone gets coerced into.
[00:22:27] into a target, basically. Right. So how, how do you see, also, because you've talked a lot about this theme as well, how do you see the best steps companies should take as they look for 2024 in order to start building this model and build these plans for next year?
[00:22:42] Dave Kellogg: so look, I have a different view on planning. I try never to do what you said. My first company, by the way, my first job, I'll describe the budgeting process. They said, Dave, how much money do you need next year to do what we need to do? And I came back, it's 200 units. And they said, just kidding, you only get 105. I'm like, Okay. Well, that was that was effing depressing, right? I mean, what a huge waste of energy. I get all excited We make all these plans and then they give me a top down target in the end So the first thing to do is never subject someone to that emotional rollercoaster, right? It's just it's it's cruel and stupid and wasteful And demotivating.
[00:23:20] So the other thing at that company is the plan would get approved literally in June And we were on a calendar fiscal year. So it would be six months late on approving our own plan. So total lack of discipline. So, so those two things stuck with me for 30 years. I said I'm never gonna do that. I never want to be that company.
[00:23:36] So I actually start the planning process typically in August or September. I start it with a strategic offsite. It's, we could talk about strategy, but strategy is the art of figuring out where you are, which is incredibly difficult. Like, figuring out where you are and what's happening around you, that, that's 90 percent of the work, and then the 10 percent is, okay, given that, what are we going to do about it?
[00:23:53] Um, so I would start with the strategy off site, and that strategy off site, I would talk about the financial model, and say, this is the model we raise money on. This is what we told people we're trying to do. Do we want to do more? Do we want to do less? Right? Because now we're at the... That's going to become a budget.
[00:24:10] By December 31st, that model, that thing that we're only loosely accountable for, is going to become a plan slash budget to which we are highly accountable. So how do we want to change it? So I tend to take a delta off the model. If you have a long run model, you can always start next year's budget by saying, hey, here's the model we showed people.
[00:24:27] What do we want to do more of? What do do less of? So, so my planning process personally is August, you know, three to five days strategy offsite. It's good for team building and stuff, get strategic goals, work on the org chart, get a first, first line financial model. Then in September, October, you come back and say, give me your first round budgets.
[00:24:44] Then we get together and talk about how they roll up. Then November, December, you're socializing it to the board. Very important step, right? You don't just show up at a board meeting. You, in my opinion, meet individually with each board member and say here's the plan we're looking at. Here's why. Do you have any questions?
[00:24:59] You do any final tweaks based on that. And then you show up at the board meeting, you know, end of the year and try and get it approved subject to, you know, the actual financials for December. Um, but, but that's the process I use.
[00:25:12] Toni: Would you, I mean, so listening to you, it almost sounded like you, you started from the bottom up model, and never really had a, You know, what other people would say a top down one. Did I catch this right or did I miss something there in translation?
[00:25:26] Dave Kellogg: People use those terms differently. I, I would actually call it a top down model. My, my three to five year financial model is what I would call a top down driver based model. And that is the thing I show people when I'm raising money. So I've got a top down model. I'm a huge believer in driver based planning for a bunch of reasons.
[00:25:44] Actually, primarily for scenario analysis, what if we could change the sales ramp? If we could go 10, 30, 60, 100 rather than 100. What if we could change the ramp? What if we could change productivity? What if we could change our REP to SE ratio, our REP to SDR ratio, right? It allows you to play with all those drivers and see the actual impact on growth in cash.
[00:26:06] So, so I definitely, definitely, definitely have a top down model. I've used some scenario of that model to raise money. And then, yeah, as we go into, you know, let's just say 2024, I'd be looking at how we're tracking on 2023. I'd whip out the financial model and say, Guys, when we got the budget approved last year in December of 2023, here's the model we showed them for 2024.
[00:26:27] Right? So I would revise that model at that time. Every time I show a plan for a year, I show a new three year model for the next three years. Because I'm trying not to drive looking at the hood ornament, right? Because that's the risk as a CEO, right? It's kind of like the risk of agile development. You drive looking at the hood, um, and I want to, you know, CEO, you want to be up looking out over the trajectory we're getting on.
[00:26:48] The other reason you do that, by the way, is it kills gamesmanship. Because the easiest hack is just not to invest in the second half of the year, so we look profitable, cash flow looks better, but then we've teed up no resources for growth in the following year. And if you're showing a model that dovetails to your proposed plan, you can't do that.
[00:27:04] Toni: Yeah. And the, um, so you, you take this driver based, uh, approach and you know, that probably also includes, you know, besides new resources for sales and, you know, marketing and so forth, it probably also includes some of those, uh, improvement projects almost that you've been mentioning there, right? Kind of, Hey, what, what happens if we can cut down ramp and so forth?
[00:27:24] How do you balance this out? How do you get to the right, um, to the right approach here by not being too aggressive on those assumptions? Kind of how, how do you, how do you build this out?
[00:27:34] Dave Kellogg: Yeah, it's a great question. Um, so look, typically to me, and I've literally done this because it is a host analytics now called Planful. When I joined, our customer acquisition cost ratio was well over four. You can't remember, it was four something. Um, and I got it down to one and a half, let's just say. Um, so I did a lot to reduce customer acquisition costs.
[00:27:55] and the way it, You do that in my mind is, uh, incrementally, like relentless focus. Like you say, okay, last year, the CAC was two next year. Let's get it to 1. 8 because two years from now, we're trying to get it to 1. 4. Okay. And it's not gonna go from 1.8 to 1.4 overnight. So what are we gonna do to get it from 1.8 to 1.4?
[00:28:12] That's all in the model. Hey, if we could get sales productivity up this much, or if we could short, you know, shorten the sales cycle by that much, or increase the deal size by this much, right? These are all things we could do, to improve sales productivity that would ultimately improve the cac. Uh, more expansion, right?
[00:28:27] But also improve the CAC ratio, the, the blended CAC at least. So, So then you, the risk in that process is what I call the Excel induced hallucination that you make like seven seemingly little changes and they all compound into going from, you know, 2. 2 to 1. 1 overnight. And somebody has to go, wait a minute.
[00:28:47] That's it. We have a sanity check this. That's insanity. It's not going to happen. Um, that's the wrong way to do it. The right way to do it. It's really, it's not to change every lever a little, because that, that's what, that's the slippery slope into the hallucination. It's to focus on changing like one or two levers a fair bit and making somebody own it and saying, okay, we're not going to play math games and change seven levers, 10%.
[00:29:11] We're going to change average deal size by 20%. And here's how we're going to do it. We're going to introduce a new add on product. We're going to introduce a new discounting program. We're going to target larger customers. And then you make somebody accountable for that lever. Right? Because the CAC is a result, right?
[00:29:28] If you, there was expression that you don't win the game by staring at the scoreboard, right? So, so I can stare at the CAC ratio and nothing's going to change. Whereas if I, if I use this model to say, okay, there's a whole bunch of different ways we could improve our CAC ratio. Next year, we know the trajectory.
[00:29:47] We're trying to get from 2 0 to 1 8 to 4. So we agree that we're doing that because we kind of have to do that. Next year, what are we going to do? And then that's one of the things to talk about the strategy off site. And we say, who's going to own that? Who's going to be accountable for making sure this goes up?
[00:30:02] Um, so that's the way I approach it.
[00:30:05] Mikkel: And what if in this scenario, one of the things we at least have discussed quite a bit internally is there's going to be the point in time where someone, a CRO, VP sales, CMO, they look at that model with the assumptions and the owners and still go, Hey, I just don't see that happening, right? How do you manage that conversation?
[00:30:24] Like, how do you, how do they start managing upwards to make sure you know, you take the right steps as, as a team?
[00:30:30] Dave Kellogg: Yeah, it's a really good question. Um, so look, that rule I applied, you can fire me now or fire me later. It works up and down the chain, right? And we all have to do it. The CRO needs to look at you and say, I don't believe. Maybe it's the Excel hallucination. Maybe it's I don't believe the new product is going to ship on time.
[00:30:51] But, but, whatever assumptions you're making, maybe it's productivity. We think we can take productivity up from 1 million per rep per year to 1. 1. At some point, as an executive, you need to make that same decision. Um, and I think too often, CEOs and boards, in some ways, don't give the execs a chance to make that decision.
[00:31:11] They just say, here's your target. Go do it. Step up. You know, be the dude, be the man, be the person, you know, go for it. And I think it's a very important step missing in the cycle, which is commitment, which is can you do this? Do you believe you can do this? If yes, say yes. If no, say no. And maybe I'll have to go back to the board and propose a different plan, right?
[00:31:33] Uh, but you're going to have to convince me. And by the way, the answer is always, and this is the same thing they do to a hired CEO. If you don't believe it, I'll go find somebody who does. Right, or sorry, I might go find somebody who does. I have to decide, right, either, you know what, Dave might be right about this, maybe we can't go this fast, or it might be, if you don't believe you can do it, I'll go find, let's go find somebody who thinks they can.
[00:31:57] And that applies up and down the chain. So, um, I do think it's a super important part of the plan, and I think most startups leave it out, to your point. They just gotta say, here are the numbers, this is what the board said, gotta go.
[00:32:08] Toni: Yeah. And it's almost, you know, sometimes, sometimes we see this as almost a, let's just nod to it, uh, today and, uh, in, in August and September, October, whenever you're creating the plan, uh, you know, it's future Toni's problem then, you know, in Q3 next year to then sit there and not be able to, to hit those numbers.
[00:32:25] Right. But this also goes back to your point of, well, you need to create a plan that you can beat. Right. So it's, it's very much a, you wanna, you wanna take the friction now. Instead of just writing it out now, keeping it easy in the planning and maybe Q1, Q2, and then getting hit with that.
[00:32:41] Dave Kellogg: Yeah, absolutely. Yeah, I love the future Toni. Uh, yeah, future Toni becomes present Toni pretty darn quick in my experience. Um, uh, I agree with you, by the way, the other part of this culturally you reminded me of is Usually to get to the plan you have to cut some stuff So I want to make an incremental investments list as we're making the plan I want to say, you know what that thing we wanted to do we can't afford to do it We're gonna put on the list and we're gonna have a list of Spending Things we want to spend money on, basically.
[00:33:14] And if we can get ahead of a plan, we'll go spend money on it. Right? Because part of making a plan you can beat, is you can actually get ahead of it. Right. When you have a plan that you have very little hope of attaining, you're never ahead of it. You're always chasing it, right? You're always behind.
[00:33:27] You're always forecasting upside down more than your pipeline conversion, right? You're always chasing plan and chasing plan is a horrible way to live. But when you actually make this transition to making a plan you can beat, all of a sudden you're like, hey, wait a minute. You know, we're forecasting more than plan and we've got too much pipeline coverage.
[00:33:44] Maybe we can do some of those things we want to do, right? So, because people act like that never happens, and the reason it never happens is because you're always chasing plan, um, right? But if you have a plan that you can beat, then you actually do, I can't, there's a name for that list at Salesforce, I can't remember what we called it, but there's a name for the list of stuff you want to spend money on, and you can actually take stuff off that list and do it when you're getting ahead of plan.
[00:34:07] Toni: It's called the wishlist at Amazon, by the way. But,
[00:34:10] Dave Kellogg: it's a good name, wishlist. I can't remember what we called it.
[00:34:12] Toni: um, the, um, you know, one of, one of the things that was going on in my head was also, we talked about the CEO, the board, the CRO, you know, he said it goes up and down the chain, you know, with the different VPs, I guess as well. Where do you see RevOps in this whole, in this whole conundrum here?
[00:34:30] What, what, what role do they play? And, you know, maybe it's not the Salesforce system admin RevOps necessarily that we're talking about here, but really when it comes to the planning and the planning execution, where do you see RevOps come in? Where do you see FP& A or commercial FP& A come in? What is your perspective on all of these topics?
[00:34:48] Dave Kellogg: Yeah. Yeah, it's fantastic. Um, so RevOps to me, I mean, to me, it's an awesome, you have the chance to be the Mr. Spock using the Star Trek metaphor, right? The trusted quantitative advisor that everybody trusts, right? That the CFO trusts, that the VP of sales trusts, that the CEO trusts. That, to me, is the perfect RevOps person. They are all about the data. They're kind of dispassionate and unemotional about the data, right? Hey, it's just the facts. I'm telling you about the weather. I didn't make the weather, but I'm telling you about it It's raining. You may not like that. I'm sorry But but it's raining. So they have the chance to be this kind of dispassionate analyst and trusted advisor to everybody they can be neutral In some ways, which is super powerful if, right, there's the case where they're just seen as, you know, the cage fighting partner of the CRO, right?
[00:35:41] And when this doesn't work, I call it a cage fight where you have the CFO versus the CRO, and they tap in and out with their ops person, right? I'm tired, so I tap in my ops person, they tap out and tap me back in. So it's a tag team cage fight when it doesn't work. When it does work, which is often in my experience, RevOps has this really privileged position that FP& A I don't know why.
[00:36:04] FP& A should also have it, but to the, here's the difference. FP& A is always trusted by the CFO. I don't know if they're trusted by everybody. And RevOps can actually, because they're, I don't know, they're more in the middle. And certainly they can just be seen as the CRO's right hand and not be trusted, but, but look, I've seen it work many times where they are trusted and they're seen as kind of everybody's right hand.
[00:36:26] And, and so I think they can play a crucial role in planning, answering questions like first, doability, like, can we do this? Second, the lever analysis, like right there, first person I would go to is can we get productivity up by 10%? How? Um, okay, sales enablement is going to own it, what are they going to do?
[00:36:43] Do we believe it'll move that much? Do we have any Historical data that says it can't. Hey, I noticed that if we hire people from Salesforce, they tend to ramp faster. Ooh, um, that might help us with our ramping, right? So, hey, there's this new tool we can use to help us be more productive in enablement, or onboarding, or, uh, whatever, prosecuting leads.
[00:37:03] So, I think RevOps, broadly defined, Could be instrumental in the planning process as kind of a neutral source to kind of keep everybody calm and tell the CFO, yes, we can do this. Trust me, right? I know the sales guy's excitable. The salesperson's excitable. You may not believe them, but this is backed up.
[00:37:24] We can do these numbers, right? And you can tell marketing, hey, this is what we need you to shoot for in terms of pipeline goals. Uh, second opinion for the CEO. I mean, I, personally, I would always look at FP& A that way, and RevOps. When I was a CEO, I had, I had close relationships with both, and I trusted both.
[00:37:42] Um, I would tend to go to the FP& A person for like the more financial questions, right? Like if we hit the bookings targets and if we hit our expense targets, what's it going to mean for cash? How much runway do we have? What kind of valuation do you think we can raise money at two years from now? I would tend to have that conversation with the FP& A person.
[00:38:00] And I would, with the RevOps person, it was much more about can we, can we do this? Um, and, and what can we change to do it? And where can we squeeze? Do, do we really need this, you know, pet project or pet person. Um, so, so in long story short, trusted advisor and uh, I think it's a great job. And this is, as you know from my 2023 predictions, I'm predicting unified RevOps because unified rev ops can do this.
[00:38:26] The tag team, cage fight happens when there's marketing ops and success ops and PS ops and, and sales ops and that then we tend to degenerate to the cage fight. But when there's one unified rev ops team, you tend not to.
[00:38:39] Toni: No, absolutely
[00:38:39] right. And I also, I mean, you and I talked about this before, but, you know, people are now starting to refer to this unified revenue operations and you know, it's, it's the new way to say revenue operations, I feel, but it's, I think it's, I think it's important to clarify that actually, uh, currently at least.
[00:38:55] Dave Kellogg: Yeah, to ascend up the stairs. Yeah, uh, unified RevOps. Yeah, it's arguably redundant, but I say it anyway, uh, because I mean, it's distinct from sales ops just called rev ops. I
[00:39:07] Toni: Yeah.
[00:39:09] Mikkel: Should we do, I have one more question because in this whole planning, uh, conversation, there's one element we didn't. We about yet. And I do know it's a question we get, especially actually, funnily enough, from revenue operations. It's really around, well, how do you then go about allocating all those resources?
[00:39:25] All kinds of questions appear all of a sudden. What should the split be between sales and marketing? How do we go about distributing on all these channels? What, can you maybe provide some direction for those wonderful folks listening out there ahead of planning? How should they consider, you know, going about allocating resources?
[00:39:42] Dave Kellogg: mean, so here's the way I like to do it. If you're fortunate enough to have some history, the history can be super helpful first. Um, so, so how much do we spend on sales and marketing or sales versus marketing? Well, let's look at my sales percent of sales and marketing expense and let's watch how that changes over time.
[00:39:57] And on that particular metric... I will tell you by default, it goes up because sales is a better negotiator than marketing and they have more leverage. So, in everything else being equal, that ratio will go up over time. And at some point, that will create a problem because there won't be enough marketing to support sales.
[00:40:13] Sales kind of wished its way into, you know, shooting its foot off. So, uh, that's just an example of a metric. You could use history and use metrics. Like, you know, how much are we spending cost per opportunity, cost per lead? Why is it changing? You know, why next year? Do we think we can get this fantastic improvement in cost per opportunity while at the same time sales as a percent of sales of marketing is increasing, right?
[00:40:37] So we're kind of fattening up sales and we're skinning down marketing and obviously I have 10 plus years as a CMO to bias me in this. But I've also been a CEO for 10 years. Um, you, you watch this trend happen. It took, it took me that long to figure out why it changes, by the way. But just marketing people are just not, I mean, if your marketing person was a better negotiator than your sales VP, you have a different problem, right?
[00:40:56] So, so, so this is gonna happen. Um, so the first thing I do is I look at the history. Very important. All those metrics. The next thing I do personally is look at benchmarks. So what are other people doing? Um, then I look at our aspirations, kind of given our history and given our benchmarks, what do we want to do?
[00:41:14] The other thing I encourage doing, which I don't know if people are as disciplined about this as I am, but I always try and separate the sales force into different models. Let's just say we had 10 sales people and 2 were mostly enterprise and 1 was kind of hybrid and 6 or 7 were inside, right? Rather than model an average of that, I would actually strip it.
[00:41:36] And say, wait a minute, we actually have, I want to impose clarity and say, we need to separate this into different sales models. Because the sales, to me is, I always think of a sales model as roles, ratios, and goals. Roles, goals, and ratios. Um, so, so what's the role? Okay, so, so we have sales people, we have SDRs, we have, you know, BDRs maybe.
[00:41:55] We have solution consultants, we have managers. We have alliances people, right? What are the ratios? Because in my mind, every model might get differently. Like an enterprise, you're going to run with a high support ratio, like relatively a lot of SDRs and a lot of SEs. Whereas in inside sales, you might run with no SEs, right?
[00:42:15] If it's a pure inside corporate model. So, And the main thing I'm trying to do here is the advice to the RevOps Planner is even if your world is hazy and murky and homogeneous, can you separate it? Can you say, wait a minute, if I put a filter on this? It's not perfect without the filter, but if I filter it, there's actually an inside model where we have these people that tend to have, because see, it's all super ad hoc, everybody's got a different quota, everyone's got a different territory, right?
[00:42:39] Reality is just gray as heck. I could, if I could look at it and go, these people are mostly inside, these people are mostly outside, these people have high quotas, they use a lot of resources. Because what I want to do is a modeler is separated into two or three sales models and say, we don't have one size model, we have three sales model, we have an inside direct model, we have an enterprise model, and we're running a hybrid model, and maybe we have a channels model, even though maybe we only have 20, 25 reps, we're actually running four models.
[00:43:06] Which maybe we shouldn't have quite so many models if we only have 25 reps. Different question. But we're running models in parallel and we need to model them differently. I think that helps you enormously in the planning process. I think it also helps you enormously in analytics. So, if I, Imposing clarity or imposing simplicity.
[00:43:25] It's something I see marketing people have to do. I think RevOps and planners need to do that. And just say, yeah, I know everyone's different, every patch is different, every, I know all that. We're actually running three models here. And here's how I modeled them.
[00:43:38] Toni: Dave,
[00:43:39] you said models are more often and faster than I do. So I think that's a
[00:43:44] Mikkel: keyword
[00:43:45] Dave Kellogg: modeling.
[00:43:47] Toni: We will have to, you know, transcribe it and put it on SEM, you know, so we
[00:43:52] Mikkel: need to know. So met, uh, We met CEO Dave, the CMO Dave, the RevOps Dave, it's like the model Dave, it's uh, pretty amazing how much you can get through in an episode.
[00:44:02] But I, I mean, I think there was a bunch of great elements. Do you want to squeeze the last one in? Was that it?
[00:44:07] Toni: So I was, yes, you know, we, we have like four minutes time. We said we are not maybe, you know, in a squeeze. we might run out of battery, by the way. I was getting nervous about this, but, uh, so all the modeling is done, cool, done, model done, plan done, budget locked in.
[00:44:23] Now, first of January comes around, what are your like best practice at actually getting that, getting that, you know, plan executed, right? When you think about this as a. Strategic project, right? The project is to hit that revenue number. How do you best manage that through the year? So you actually end where you thought you're going to end.
[00:44:43] Dave Kellogg: Yeah, and I think the answer is, I mean, in two words, avoid surprises. Most surprises aren't. Right? Like, Oh God, we missed the number because we didn't have sales capacity. Well, why'd that happen? Because two people we thought were going to quit, quit and we didn't hire anybody else. Okay, so like how much of a surprise is that?
[00:45:02] So I think if you kind of go through your business life and look at all the surprises and figure out which ones weren't. Like, hey, we knew those two people were unhappy, we could have easily counted on one of them quitting for sure. Why didn't we spin up a recruiting cycle to replace them so that if one of the two, even though we didn't know which one was going to quit, we thought one was, that we had somebody in backfill.
[00:45:23] And by the way, corporate processes often get in the way of that, right? So, I guess the other thing I'd say is eliminate excuses, which is, if the VP of Sales goes to HR and says, I want to spin up a recruiting cycle, and HR says, no, there's no headcount rec approved, I want the CRO to win and say, Hey, this is my budget.
[00:45:40] When we actually want to hire the person, we'll talk about the REC and I'll get Dave's approval. And by the way, Dave will let me go one over just in case no one quits. But I want you to spin this up right now. And I don't want to have HR. Basically say if there's no plan approved headcount, we can't start a recruiting cycle because I run the department And I think these two people are gonna quit and by the way, if they don't quit and I get ahead of plan We're gonna go invest.
[00:46:03] Anyway, see the the prior discussion about on list So I think a shocking number of things in business are not surprises Which goes back to the don't drive looking at the hood ornament if you're looking up, right? If you're looking at your pipeline, look at your two quarter out pipeline Look at your sales hiring and attrition, right?
[00:46:19] If you're looking at all those metrics You know, the way you make plan is don't get surprised and a lot of surprises aren't so I don't have any magic other than that It's just kind of driving with your head up.
[00:46:32] Toni: I think that's it. Thanks Dave. That was
[00:46:34] Mikkel: fantastic. Thank you so much Dave for joining.
[00:46:38] Dave Kellogg: Thanks for having me guys
[00:46:39] Toni: Thanks everyone for listening and uh, goodbye. Ah, ah, ah,
[00:46:43] Mikkel: ah, ah, ah, ah, ah, ah, ah, bye.