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We asked Jeremey: How does RevOps help businesses right now switching from growth at all costs to efficient growth?
We got into a bunch - how prospects are like fish. Will AI help?. A "moneyball" approach to hiring - and much much more.
***
We got into a bunch - how prospects are like fish. Will AI help?. A "moneyball" approach to hiring - and much much more.
- (00:00) - Introduction
- (02:49) - Fish are like prospects
- (04:49) - Meet Jeremey
- (06:13) - What does efficient growth even mean?
- (09:47) - Find your "on base percentage"
- (19:03) - How does AI play in?
- (25:09) - Reassessing outbound
- (33:23) - LTV to CAC
- (37:44) - System level thinking & infinite LTV
- (41:13) - Takers of OTE
- (43:40) - OTE inflation & right-sizing
***
This episode is brought to you by Growblocks. Finding and fixing problems in your GTM shouldn't take weeks. It should happen instantly.
That's why Growblocks built the first RevOps platform that shows you your entire funnel, split by motions, segments and more - so you can find problems, the root-cause and identify solutions fast, all in the same platform.
***
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Creators & Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Mikkel Plaehn, 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 Hohlbein from Growblocks. You are listening to the Revenue Formula with Mikkel and Toni. In today's episode, we are joined by Jeremey Donovan, EVP of RevOps, and Strategy at Insight Partners. Together, we discuss how RevOps can help businesses switch from growth at all costs to efficient growth.
[00:00:20] Enjoy.
[00:00:24] Mikkel: we have regular episodes where it's just Toni and me and, you know, we share stories and we always talk, we always talk about children. It's always children. And I know where this intro is going to end if we do that. I'm just wondering, Jeremey, do you have any kind of stories to share?
[00:00:37] Anything that's happened, you know, outside of work, at work, that would be fun?
[00:00:41] Jeremey: Well, our, our kids are grown, so unfortunately we don't get as many stories with them, but, but yeah, fun outside of work. I, I always fished. I grew up fishing. Uh, I grew up in Miami, Florida, and over the years that evolved from kind of what people would think of, I suppose, as regular fishing or spin casting and so forth.
[00:01:00] And, and, you know, Switched over to fly fishing and during, during COVID, like many people, my hobbies got amplified. So, uh, I've become quite an addicted fly fisherman, fly fisher person. So I just spent two and a half weeks in Chile, in Patagonia.
[00:01:15] Toni: What?
[00:01:16] Jeremey: yeah, and I think I did something most people like wouldn't do.
[00:01:19] I did literally 12 days of nonstop dawn to dusk fishing. I'd never been down there. It's quite a haul. I think the most interesting part of the story actually is how I had to get to the fishing spot.
[00:01:30] So it's a 12 hour flight from New York to Santiago, another three hour flight South to the Southern part of Chile, a three hour car ride. , out to, , where there were some horses, a two and a half hour horseback ride over mountains. And then another hour in a boat to get to the, to the fishing spot. So that's once when you travel that much to get somewhere, I think spending 12 days to fish is not such a, such a crazy thing to do.
[00:01:59] Mikkel: I think it also shows dedication to the hobby. I gotta say, that's, that's a long, uh, trip to make. And I was literally thinking while we were talking about fishing, the worst part when I've done it is when they tease you. So I've been at a spot in Sweden. Yeah. Yeah. When you've been, I've been to a spot in, in, uh, in Sweden where you've basically fish, uh, salmon and, uh, you can just see them jump like these massive creatures and you can stand there all day and still see them jump.
[00:02:28] but you don't hook anything. And in fact, no one, and there's like hundreds of people fishing at the same spot, no one caught anything that day. And it was just like, yeah, we got up at 4am to be here in the rain for like the entire day.
[00:02:40] Jeremey: Well, they get smart, you know, if you got hundreds of people trying to catch them, they know that they'll eventually learn what's, what's good food and human food. So they try to avoid the human
[00:02:49] Mikkel: They're kind of like prospects when you think about it. They're kind of
[00:02:52] Jeremey: that's the ultimate segue. But yes,
[00:02:54] Mikkel: Yeah.
[00:02:55] Jeremey: but I think it's actually, I think it's quite true is like, I mean, one of my, one of the things I used to do a lot of data analysis on how, uh, you know, prospects respond to emails, right?
[00:03:06] What's the positive response rate as a function of like subject line or whether you should end your first sentence with an exclamation mark, a question mark, a period, like all those things. And one of the conclusions, I don't think it's rocket science, that I slash we came to was humans are really, really good at detecting BS, right?
[00:03:26] In email. So, so even if AI gets really, really good, if, if the AI starts to all look the same, which is kind of the point of AI, right? I mean, it's, it's averaging, it's like a local average, uh, of everything that's out there. If that all looks the same, people know it's, it's not authentic. And, and I think the challenge in prospecting was, is, is and will be.
[00:03:49] To prove that you're human, uh, to really prove that you're human, and proving that you're human changes over time. Like, it used to be fine to just put a person's first name in the subject line, because automation couldn't yet do that. But once automation could do that, it blew up, right? And then, it was, you know, maybe referencing a job, your job title, and position at a company, which I'm still getting.
[00:04:14] Like, I got one this morning like that, and I just rolled my eyes. And that, once upon a time, was authentic and genuine, and now is not, so I think you just have to keep pushing the envelope further and further and further to prove, to prove you're a human, because the smarter AI gets, you kind of have to outsmart AI.
[00:04:29] I, I don't know what happens when we hit AGI and, uh, uh, Artificial General Intelligence, and at that
[00:04:37] point, like, we're screwed because the computers are smarter than us and we can't outsmart it.
[00:04:42] Toni: yeah, I think, I think at that point we have different problems
[00:04:44] then. Outbound and prospecting probably, right? I think we're going to have to watch Terminator again.
[00:04:49] If people haven't guessed it already, and I think it's a pretty easy guess by now, we have Jeremey Donovan here on the show. Um, Jeremey, really nice to kind of have you here.
[00:04:58] I mean, you are currently EVP of RevOps and Strategy at Inside Partners. which is a fantastic firm, fantastic venture capital firm. But previously you've been a professor at NYU, uh, you've been at Sales Loft and you've been at CB Insights, which is pretty crazy. and you know, you've wrote a couple of books, you've been in a couple of TED talks and so forth.
[00:05:18] I think just in terms of authority, I think we have a good guy here on the show today.
[00:05:23] Jeremey: I'm gonna try, but I appreciate that. Thank you. I think my authority is probably in steady decline in proportion to the number of fish I catch. So there we go.
[00:05:35] Mikkel: Well, I said, I guess you need to hop on some longer fishing trips, but, but in any case, I think the topic we really wanted to talk with you about is. What's happening at the moment is this shift from growth at all costs into being way more efficient, building a durable bus business. And that's just very different, for a business.
[00:05:55] And it is a very different way to operate. And given your position, you've obviously worked at a bunch of places, but you also work with a bunch of, uh, portfolio companies. So we thought it would be super interesting to hear what do you see actually happening right now? What, what are the steps you see companies take at the moment?
[00:06:13] Jeremey: Yeah, I think it's also worth a second to clarify what efficient growth is because everyone talks about it. Uh, and there's, they have different synonyms, but whatever. And, and how does that actually tie to some of the metrics, right, that, that venture capital firms look at, but then how do those metrics trickle down to actual actionable recommendations that, that individual operators and, you know, leaders, AEs and so on can, can take.
[00:06:41] So, you know, why, why that, what does efficient growth mean? Well, the growth part is the part we all were focused on for so long, not just VCs but companies and you know, that's all ARR growth and ARR growth comes from two sources. It comes from new business, it comes from retention or NRR, right? Net, net revenue, uh, Um, increases in the business, and then you can drill down on that stuff, right?
[00:07:04] Whether that's win rates by segment, so forth, ACBs, sales cycles, reducing churn, right? All that stuff, I think, has historically been a really strong domain of RebOps and where people focus. So, you know, inefficient growth, that's the growth side. The efficient side is one where I think sales finance did look at.
[00:07:22] Well, I shouldn't say I think, I know finance did look at. Reporting into the CFO, but less RevOps people, unless they were reporting into the CFO. On the efficiency side for I think most of this audience is probably a little less familiar with, which is around different types of margin. We usually talk about free cash flow margin, and that's Let me just decompose that for a second.
[00:07:43] So free cash flow margin has gross margin, right? So that's, taking out of revenue, your, your cost of goods sold. And your cost of goods sold is, is your cost. Think about customer success costs, right? Your cost to, to help there even, but hosting costs as well, which is a big expense item for, for SaaS businesses.
[00:08:01] But basically anything you spend in order to deliver your product or service, uh, to your customers, that's all within, within gross margin. And I don't, uh, RevOps people, you know, may not be looking at, at that so much, maybe a little bit of those CS costs, uh, probably not the hosting and infrastructure costs, maybe looking a little bit of professional services costs and so on.
[00:08:22] So there are some elements in there that, uh, You know, the RevOps people would look at. They're more going to look at the OPEX margin piece, which is another part of free cash flow margin. And then there are some other elements that are just like more esoteric in the financial weeds that I won't go into.
[00:08:35] But on OPEX margin, that's three pieces. Sales, marketing, R& D, and G& A. General and administrative costs. You know, you're sort of following that tree down. Sales and marketing costs are the ones where the robots people have started to focus much more on. And, you know, the pieces there, it's like people, and your expenses are people and kind of programs and tools.
[00:09:00] So, on the people side, where I think, I'm starting to see more RevOps people look is basically, you know, hiring, figuring out what the right profile is, that a lot of interviewing historically has just been, you know, high level stuff or stuff that's sort of flows through the zeitgeist, was this AE, did this AE play sports, you know, did this AE uh, have to struggle through some adversity.
[00:09:30] Did this AE have a job during college? Like whatever, where they have, you know, paper boy or paper girl, whatever the, you know, whatever it is. And I, I, the, the best RevOps people I think are really getting much more systematic about, about that. So I'll, I'll give an example and then I'll pause before I go into other sales and marketing stuff.
[00:09:47] So I'm not on a huge monologue here, but an example of this would be, um, looking at every person who's ever been an AE at your company, Past or present. Figure out whether those people were successful or not. And even people who were maybe left prematurely but were great AEs, like that's still a successful person.
[00:10:09] One can debate that, but you can put that in a successful category. And then figure out, maybe using even just LinkedIn data, right? How many years of work experience did they have? Did they work in the vertical market before they joined? Did they work in the horizontal market before they joined? Did they list President's Club on their, on their bio?
[00:10:27] Did they list their GPA? Were they in a fraternity or sorority? Whatever. Like, all the things that you could come up with that you could scrape off a LinkedIn profile. And then actually run the statistics, right? Like, run the correlations between those, Attributes and success in the role. It's not going to guarantee, but you're paying, you're playing money ball, right?
[00:10:45] Like you're playing talent money ball. So being way, way smarter about candidate selection is an example of right. If we were to go down that efficient growth tree, uh, all the way down to the people level and sales or marketing or other roles, CS, what have you,
[00:11:01] um, that's a, that's like, that's
[00:11:04] next level rev ops to get efficient.
[00:11:07] Toni: it's, it's almost like, um, you know, all of that exercise that they're doing in order to identify your ICP, your ideal customer profile, do that, but call it what your ideal talent profile, maybe, you know, do basically that.
[00:11:21] Jeremey: Absolutely. Your ideal talent profile. And then, yeah, what are the math? I mean, there's so much you could just explore there, right? As, okay, now we've got what the ideal talent profile is. How do we actually assess Candidates. And there was a very long time where it was so hard to just hire people to begin with that we, I think we, we, we relaxed a lot of the criteria that people had been doing historically or new companies got started and just couldn't even apply those best practices.
[00:11:52] So to make the abstract concrete, you know, once upon a time, plenty of companies would have salespeople take like a equivalent of an IQ test, right? The common ones are the, uh, The, um, Criteria Corp test, the cognitive test that they have, the CCAT, or the, uh, the Wonderlic is another example where, you know, you'd have, you'd have almost everybody that you brought into an organization, especially larger companies, but medium to large companies, um, put people through those tests.
[00:12:22] And there's a huge correlation in the literature, but also I've seen it inside of companies I've worked for between, you know, the results on those, on those called general mental ability That's it. which is the same thing as IQ and success in the role. Uh, the, the, the academic literature says that that explains about 25 percent of variation in job performance.
[00:12:45] So, uh, so like those are the kinds of things that one can re institute in a less tight labor environment and in an environment where you really want to make sure that again, like you're super efficient and bringing the best people. Cause we, right. I mean, common statistics are out there about how incredibly expensive it is, Both in actual and in opportunity cost to hire and train, you know, the wrong person who
[00:13:10] fails to, to, um, ever hit quota.
[00:13:15] Toni: I mean, another thing that comes to mind, another tactic that comes to mind with this one is actually. Uh, I think it's from Mark Roberge from like HubSpot in the Sales Acceleration Formula. I think he talks actually about the standardized questionnaire or interview process, I think, that he took those AEs through.
[00:13:33] Um, and it was actually not about are those answers right or wrong or something like that. It was just basically an early signal that he collected. And then six months later, he looked, okay, you know. Which of these AEs was successful? And then he went back to the early signals, right? And your early signals that he kind of mentioned, there's almost the LinkedIn profile, right?
[00:13:53] But he kind of created another early signal here, which was like, Hey, this is how a successful AE for our business answered those questions. And now when we run the interview process, we're looking for people that answer in a similar way basically, right? In order to, uh, make sure that part and the very bottom part of the funnel, so to speak, um, to make the right decisions and get the right people in, right?
[00:14:15] I think there's a, and, and so I really like the, the, the, the thoughts, uh, track that we're kind of going down on, right? Because it's like, sure, rule of 40, rule of 50, free cash flow, gross margin, all of that stuff. But Hey guys, at the end of the day. It's gonna be people, uh, and you need to have good people in order to run an efficient company, um, and have you actually considered deeply and fully, um, and through some intelligence, you know, which kind of folks should be entering your organization, right?
[00:14:47] And, and it's such a, it's so funny, uh, because I feel like in this current environment and culture, it's like, hey, no, no, no, it's not the people's fault. Uh, they're all great. Um, it's the company that's failing. It's the, you know, all those outbound deals. This is the problem. It's, you know, whatever it might be.
[00:15:03] Right. But there is a big argument to be made. I mean, and. In a, in a, in a standard sales and marketing walk, but it's like 80 percent or so is people related, right? The, your expenses, right. Kind of, if you can optimize that part, that's, that's a lot of money right there.
[00:15:17] Jeremey: it is. Yeah. I mean, uh, I think the expenses for right. I mean, SAS businesses by definition, right. Are basically people, businesses, right. It's, and, and in the short term. Yeah. I mean, you may have market issues. You may have product. Absolutely not may. I mean, you may absolutely have product issues. You may have competitive issues, but right at these days, there's no, I used to be frustrated when I would work for companies where we had like one arch rival competitor, but these days you have five or ten or fifteen, right?
[00:15:47] So, um, and what, and everybody has access to the exact same pool of people in theory. Everyone has access to the exact same, whatever, AWS, GCP, um, Azure, infrastructure, like everyone has access to the same tool, everything, right? Like it's, it's, it's a very level playing field. So the main thing that's differentiating is, is people.
[00:16:14] And I would, you know, you could also argue strategy, right? Like if you architect your product one way versus architecting in another, maybe that gives you the flexibility to evolve and change faster. So, you know, I'm not, not to discount that, but, but even that's people, right? Like who is architecting the product, right?
[00:16:30] Who is leading your company? and making decisions and, and ensuring operational excellence, right? People, people, people. So that's all, uh,
[00:16:39] that, you know, that's all tunable
[00:16:41] in, in the short, medium and long term.
[00:16:44] Toni: So the, the funny thing is actually, right. We're talking about people as if it's like, Oh, wow, this is the new frontier. This is, we need to get better at selecting the right people and building in the right way and maybe managing the ones out that, that aren't kind of the, the right fit. But Mikkel and I actually did an episode, I don't know, it feels like two months ago or something like this, where we talked about the convenient age of SaaS is kind of over, you know, what does it actually mean?
[00:17:05] And then it's like, Oh, wait a minute. We now quote unquote, just, uh, need to operate like all of these other businesses that are serious out there. Right. And what are they, what are they doing while they're focused a ton on their people, right? You know, who are we getting in, how are we kind of making them successful?
[00:17:21] They're focusing on torn and stray. They're focusing on a couple of these things that you're just mentioning right there. And it's, it feels like for us, like, Oh, wow. Yeah. And now we. Oh, now we have to think about people. No, this is how you run a business.
[00:17:31] Mikkel: Come on. Just think about the, the saying, what is a higher, slow, fire, fast.
[00:17:35] Yeah. It's kind of the opposite in, in SaaS in the previous age we come
[00:17:39] Jeremey: it was very much, yeah, the other, the other way around and, and, you know, beyond, beyond the, we could talk hiring, like, all, all day, um,
[00:17:47] but the next piece is coaching. I didn't even know we would go in this direction, right, but the next piece,
[00:17:52] Toni: yeah, yeah.
[00:17:52] Jeremey: and, and I, I think, I think we have not, figured out, we haven't cracked the code yet on, I think, coaching in general.
[00:18:02] Um, you know, learning and development enablement in the world of, of sales and customer success. And, uh, I think we're getting closer, right? I mean, you got the conversation intelligence tools evolving, but one of the big promises of the, of the CI tools was, was coaching. And when I go and talk to and observe.
[00:18:21] The, our portfolio companies, like most of those call recordings never get listened to. They're, they're just kind of there as a backup. I think they help, well, I shouldn't say I think, I absolutely know that they help with note taking. I absolutely know that they help with, you know, you want to go in and search for a particular person Comment that maybe you heard or misheard or whatever if you're an AE Or let's say you're I mean if you're a sales manager and you're about to meet with someone and the rep says hey I had a call with them and they send you the link to the recording like yeah, maybe you're gonna listen Um, but I you know some of the but even there this this the transcript summary is right that AI is doing now For those CI tools, I think does does help a lot.
[00:19:03] But what I think is one of the big missing pieces there is Is the, the actually having, it's one of two things like, and this is a good debate. I'd love to hear your guys take on this is what's better. Is it better to have, let's say you're my, you know, you're my manager. Is it better to have you listen to my call and put comments in and, and give me feedback or shouldn't it, shouldn't the AI coach me instead?
[00:19:29] I, I have an
[00:19:30] opinion about this. Um, but I'm curious what your guys take is.
[00:19:34] Toni: I actually recently debated this with someone, um, and maybe not in the exact same vein that you're thinking about, but here's my take on this. It's, um, If it's only the AI listening to your calls and everyone else's calls, um, you might just be really poor in your organization in general and kind of selling.
[00:19:53] So the AI will keep selling, you know, teaching you the average, basically, you know, it's, it will be hard for the AI to upsell, upgrade you basically. And there's probably some data tricks that can, I don't know AI well enough. Right. But kind of that's one thing I think where it actually, at least down to earth is sometimes pretty useful is when you give it some kind of structure.
[00:20:14] Like for example, if you're using MADIC, MADPIC, kind of those kinds of structures and then say, well, you know, tell me without me needing to listen to this or without the rep needing to kind of put the check marks in. Are my reps following that stuff? Um, and the ones that do, do I see a better conversion rate?
[00:20:31] Do I see higher ACVs? Do I see faster sales cycles? Um, and, and if I do that, then it's like, well, then that's a great structured coaching opportunity for me to go in and kind of, that rep isn't following the structure, let me kind of do something about it, right? I think this is where I can be like, Like useful down to earth useful, but I would love to hear you.
[00:20:51] Mikkel: Sorry. No, I was just gonna say I honestly don't think at the current stage I wouldn't expect it to replace coaching. I would be think it would be a poor substitute to be honest. There was a day Years ago where you and I were playing pool against one of the co founders and you were literally coaching It was like hey, let's go after that ball.
[00:21:08] You need to let's hit it at that angle And you know, we hit it and we, by the way, won the game. So that was wonderful. And think about this setting where you have an account exec who is going to head into a meeting with Jeremey and pitch him some software. I think it would be helpful as part of the coaching to say, Hey, I've listened to your Gong calls.
[00:21:24] You have this habit. I want you to focus on this going into the call with Jeremey. Here's what I've heard others do from, you know, I think that relation is just very different from reading text. on a previous, and I think that's, you know, a big part of coaching is the human element. Uh, and I think the, the AI just can't do that.
[00:21:42] Jeremey: yeah, I'll reinforce that because it definitely is gearing towards my point of view. So two things. One is, I agree. I think the current version of the current AI is going to struggle to coach effectively for a couple reasons. One is it can only digest so much information, right? There's a limit to the number of tokens that, The AI can can sort of handle so therefore most AI is a is being applied to the call and And you know to the point earlier of of it doesn't necessarily know what great looks like That can be you can tune that right like you can you can tune that by saying okay?
[00:22:18] I'm we're gonna say you know this rep has the highest win rates or this rep has the best quota attainment so overweight Or these reps, whatever, have the highest attainment, uh, let's overweight the, the words and phrases and whatever that they say. So I, I think we can, you know, we can kind of get there on, on that, even if we're not there today.
[00:22:35] But I think it's that second point that's, that's like the more compelling one, which is, I'm gonna relate this to something not Gen AI, but back in, not back, but whatever, on the predictive AI side. So in forecasting, right, there, there are now really, really good AI. Predictive AI, not generative AI, but predictive AI forecasting, like, algorithms.
[00:22:57] And I would argue that those, I know because I've, I've built them, those, those algorithms can call a number better than humans can. Absolutely better than humans can. I mean, my, my metric for good forecast accuracy is plus or minus 5 percent on day 15 of the quarter. So if you can call, you know, the quarter at plus or minus 5 percent two weeks in, then that's pretty wickedly awesome.
[00:23:20] And AI can absolutely do that. Yet. Most sales leaders like don't like it and they don't like it because they don't understand it and they don't trust it So and maybe that'll change right as like the younger guard ages and become CROs and so forth but I think there's this element of of trust and I think that If you think about whatever the like rational economics and behavioral economics Uh, or Rational Thinking and Behavioral Thinking.
[00:23:53] Rationally, the AI will reach a point where it can coach better than a human. Like, objectively, gonna give better guidance. Cause it's just able, right, there's no memory leakage, right? It just knows everything. But, you know, if you as my manager give me feedback, I'm so much more likely to take action based on that feedback, right?
[00:24:16] Because a person of authority who controls your job security and your destiny and, and, uh, shouldn't be your, you know, your self worth, but if your manager is upset with you, then, right, like, you may, you may not, may not sleep too well that, that night. But I think if you get that feedback from your manager, you're so much more likely to, To change and adjust.
[00:24:36] So maybe, I mean, you could argue this is a false dichotomy, it's an and, not an or, that these things supplement each other. But I really, I don't, I don't, I have a hard time seeing that, like, AI coaching would completely replace human managers. You know, maybe it's an efficiency thing that you can go from a span of control of six to a span of control of eight or ten because of the efficiency gain, but I don't think it eliminates, you know, I don't think you wake up one day and
[00:25:04] have no need for first line managers to coach their refs.
[00:25:09] Mikkel: So speaking of things you can control. You kind of mentioned one of the things you get asked, uh, frequently is, you know, companies are reassessing basically outbound or their motion, right? And I think at the moment, what we've seen is just the cost of growth has increased. And that by default means, you know, CAC Payback has probably crept upwards.
[00:25:28] And, you know, if you're all of a sudden on the other side of CAC Payback of 12, there's a big question mark, whether you have go to market fit, uh, as well, right? So I get why that question happens. What, you know, if, if there's something that's not right. Right now out there sitting in revenue operations or similar at a, you know, 20, 30 million AR company.
[00:25:46] What would be the steps? What is usually the process and the conversation you have with those, uh, those companies?
[00:25:52] Jeremey: I mean I'll give you a real concrete example. Uh, you've noticed I can't name any company names, whether they're portfolio companies or, or
[00:25:58] Mikkel: We can
[00:25:59] Jeremey: Uh, but, you know, some of them you can't even, this one you won't be able to infer, but one of our, one of our companies, um, we were working with recently, and they had this exact question, right?
[00:26:06] It's like, Outbound was not performing as effectively as it had, Historically, so what we did was we, we cut the business in the way that they operate, so they, they were sort of a 2x2 with SMB at mid market on one dimension and, um, and regions, so like North America and Europe in another dimension, so we had that 2x2.
[00:26:27] And, and they had SDRs staffed. Right, along those, along those segments. So we looked at each of those segments. We looked at things like, how many activities does it take to get an opportunity in those segments? And, uh, you know, so taking that, that's my favorite metric, by the way, is like activities per op, uh, from a, from like an activity based side.
[00:26:48] And then that trickles through right into, into ultimately what's the bookings contribution. By those SDRs, like directly attributable bookings contribution. But now we're not just talking growth, we're talking efficient growth. So we need to not just think about the bookings contribution. We need to think about the cost and the fully loaded cost of the SDRs, inclusive of the people, the management.
[00:27:08] and the tools, right, and, and services, data services and so on that they're subscribed to. So we kind of go through all this, this, you know, all this stuff and what we find is, you know, lo and behold, within some of those segments, um, there's just, it's, it's, outbound will never be profitable. Like if you're doing, uh, uh, let's take, If you have a very low transaction price, like, I would say, I would argue anything under maybe even 25k ACV.
[00:27:38] You, just because of how hard it is to, to, to source an opportunity from cold outbound prospecting, that may never, ever be efficient. Like, you may never have 12 month or lower CAC payback on that. So in that case, what a lot of companies are deciding is, is like, No, we're just not going to have outbound SDRs.
[00:27:59] Targeting that segment and, uh, that, that's absolutely a direction that some companies are going. So what do you do, right? Well, it's, you're going to figure out what's the next best alternative for that money. And generally the next best alternative, right, you have, you either have like, uh, SDR sourcing, AE self sourcing, inbound, or partner.
[00:28:24] Right? I mean, some people would argue that there's other, you know, X led growth. I would put, like, product led growth. We could talk about that in another category. I would, people sometimes talk about community led growth. I'm a little bit ambivalent about that term. But anyway, let's take those, those core four.
[00:28:39] For the most part, people are taking that outbound SDR money and redirecting it to inbound. I would say that that's the, that's the most common thing. And then the other one is that they're building partner channels. so, and I've seen, right, different forms of this, but the thing to bear in mind on partner channel, on channel partners is like two things.
[00:28:59] One is it, it takes easily 18 months to stand up indirect channel. It is not easy. And then two is, I think there's a lot of fallacy by people who've never done it before that you just sort of go out there, you try to court whatever Accenture or some other GSI, uh, Global Systems Integrator, or even a regional SI or VAR, And you know, you sign a contract, shake hands, smile, grab a dinner or whatever, and then they start sending business your way.
[00:29:28] That, that's total BS, right? It does not happen that way. All the preceding stuff happens, but then the first thing that has to happen is you need to send them business. And once you've sent them sufficient business and you know, you're paying your whatever, 10, 20%, uh, uh, kind of rake over to them for, for that.
[00:29:47] And, uh, Eventually when they see that there's enough business, they will then invest in, you know, all the support and infrastructure and eventually send leads your way. But that's a, you know, 18 to 24 month kind of process. And you're going to be like, you're going to be given up 10, 20%, right? For, for all that time.
[00:30:09] So you got to really be prepared if you're, if you're going to go that route.
[00:30:13] Toni: I want to go back to the two by two actually, right? Because I think this is, uh, we usually look at the two by two and then look at what's the CAC Payback for, you know, those four quadrants basically, right? And then divest, improve or shift or whatever you can do. I mean, you can look at this and basically say, well, in one part outbound doesn't make sense, but maybe it makes part in the other one, right?
[00:30:34] Kind of, it's like, um, because you know, in my experience, I think you're right. And I think if you have. outbound folks sitting in New York City, if you have them sitting in San Francisco, even at this point in Austin, I think doing something below 20, 25K in the U. S., difficult, right? I think if you have someone sitting in Berlin, in, uh, in, I don't know, in Barcelona, in, you know, somewhere else with a very different cost structure and, you know, cost of living structure, um, and it's also in Europe, which isn't, yet, As tough to kind of break through in terms of outbound.
[00:31:09] I think, uh, the number might not be 25 or 20, it might be 15. It might be 12 or whatever it might end up being. Right. And kind of, if you have this quadrant that actually helps you then to not say, okay, Do we need to do another thing here, which is partners? It could also be like, you know what? We're going to kill outbound in the U. S. in the mid market. We're going to take this money, siphon this to outbound U. S. enterprise and outbound EMEA mid market or whatever it
[00:31:35] Jeremey: Yeah. Or, yeah.
[00:31:36] Toni: kind of, that's a way you can
[00:31:38] Jeremey: Absolutely. It's a great point. And like, yeah, it's a really, really fantastic point that, um, it's, it's a strategy. I know some other, uh, PE firms are more keen on. I was actually just talking to somebody. It's a, uh, the company is owned by, uh, uh, a large, we're, there's a distinction between venture capital and private equity.
[00:31:57] We're, we're primarily venture capital, which means we're minority investors. PE firms. are typically majority owners. So, so they're more directive in what they do. And this friend of mine works for a PE backed company, PE owned company. And that PE is very, very, um, like that is one of their core strategies is basically a labor arbitrage thing.
[00:32:18] So, you know, they are shifting inside SDR and inside sales in the case of that company into Eastern Europe. Um, because right. I think that's Uh, the time zone is relatively compatible, the English language skills are, are, you know, are good. People, you know, there's a conscious and unconscious bias of people when they hear accents.
[00:32:41] And, you know, certain accents, you're more likely to, you know, hang up, hang up the phone on a cold call and, and, you know, that's, that's not cool, but it is. Right. If you're, if you're running a business, like you need to, to be aware of that. Um, and anyway, so shifting like this labor arbitrage thing, and that's true for SDRs inside sales.
[00:33:00] And then obviously other business functions like customer success, support, engineering, like all those things. Um, so yeah. And I think the other region is into Africa that we're seeing a lot of, um, moving, you know, doing that labor arbitrage thing because there's a lot of talent. Uh, a lot of engineering talent
[00:33:20] in, in a bunch of different places.
[00:33:23] Mikkel: So I'm also kind of wondering, based on what you said, you know, when you look at go to market fit, we have this arbitrary, I don't want to call it an arbitrary number because that's not the full truth to it. But the thing is you can carry a higher CAC Payback if you have a higher LTV. Has that been part of the considerations as well, when you look at this and work with the companies?
[00:33:44] Jeremey: Yeah. Yeah, for sure. It is. And, and that's, that's, that would have been so many conversations, uh, about LTV, the CAC. So yeah, if, if, you know, if, if you're selling an enterprise, right. And, and, and you have an explosive kind of expansion over time, then you can absolutely do that. Here's a great, I'll give you a really, uh, specific example of this.
[00:34:05] So, um, One of our portfolio companies sells to enterprise and they, there's a very long, as it is in the enterprise sales, like a super long complex sales cycle. And they typically land, um, by getting like four, Sites of a large enterprise and each site, maybe they, they do like 25k per site. So, um, a rep in a year like might only sign Whatever for sites.
[00:34:40] So that's only generating 100k versus you know of ARR. How do you, how do you like Circle the square or whatever the expression is on hiring a really sophisticated and savvy enterprise rep who's only gonna land 100k and like by the way That's so hard that that person really can't do much more than that in a year Like they they're not gonna be able to own the expansion So the answer we came up with there was like you can actually pay these reps a multiple It's weird, like usually you want to pay reps about 20 percent of what they bring in, right?
[00:35:14] That's the whole 5x quoted OTE multiple thing. In this case, we reversed it and we said, okay, we're going to pay these reps, you know, uh, a multiple of the ARR they're bringing in, which is, seems crazy. But the reason it works is, is exactly this LTV to CAC thing, which is they land, you know, a hundred K worth of business and they've, They know statistically based on the evolution of how that expansion works that they're going to be at two to three million within three years.
[00:35:42] So because and then so the flip side of it is that they can pay their expansion account managers, right? Like a much smaller percentage. So we're not just thinking about like The individual rep, we're thinking when, when, when like rev ops people are thinking about efficiency, they should be thinking about like, yeah, lifetime value and not at the individual level, but at
[00:36:04] the sort of entire, I'll call it system level across all the
[00:36:08] Toni: so I really, I really love
[00:36:10] that example. Um, and, and, and the
[00:36:13] reason is, is when you talk to. I mean, you obviously extremely experienced. You kind of see a lot of business. You've been like an SVP of revenue operations in like big companies. Um, if you talk to folks that are a little bit less experienced than yourself, um, they always cling to those benchmarks, right?
[00:36:33] It's like, um, it's this one thing that they can hold on to and, you know, try and keep their head over water in order to figure out, am I doing the right thing? Is it, is it wrong what I'm doing? You know, um, and, um, all of those benchmarks are only as good as, um, as kind of the logic that went into it originally, right?
[00:36:51] And then probably makes sense for 80 percent of the business that are maybe even 95 percent of the businesses. but only with, you actually fully understanding why there is this benchmark and why this benchmark usually turns out to be right, but might be wrong for you. Only if you actually understand that, you can go to this kind of length of thinking about it, right?
[00:37:08] Because if you, if you honestly, and I don't mean this in any bad ways, but if you ask the run of the mill CFO, even, you know, even the good ones, and you kind of say like, Hey, we're doing the, OTE to quota one to five, but actually it's the other way around. They would be telling you, you can shut down your business tomorrow.
[00:37:25] You know, your business is dead. You know, this is not going to work out. Right. And, and in your cases, you know, obviously you guys on the cap table, so I'm assuming it's a fantastic business. but kind of that, that, non obvious way of thinking about those benchmarks and really kind of decomposing them and then putting them together for you specifically.
[00:37:41] I think this is, there's a big takeaway for folks listening here.
[00:37:44] Jeremey: Yeah, I, I like to, I don't know who taught me this years ago, but it's like, it's system level thinking, right? It's, it's, it's not a local optimization. It's system level thinking, and to your point about benchmarks, right? Like, people kind of run around with, hey, the LTV to CAC benchmark should be three to one, and maybe, probably, possibly, like, uh, I think I recently looked at Um, across our portfolio, and I think the median is around four, so, you know, you, you, these things just need to be, you have to think about it for your business and ask yourself why.
[00:38:17] I would also add that there's, we even have this debate internally is like how should LTV be measured? And there's, there's, uh, uh, kind of an annuity version of that formula where you're basically assuming that this is going to be a customer for life, which is unlikely to be true. I think a better way to do it is to think about like either the three year or five year LTV and, and to get even more granular is to actually do cohort based.
[00:38:46] LTV, um, rather than, so the difference here is like, if you knew NRR, You could sort of just apply that in general, but what you really need to know is Line every customer up as if they all started on whatever day zero and then after you know, one year What's the retention after two years after three years?
[00:39:05] So you're you're basically doing the cohort base So that's the super subtle thing here is like you should be doing either three or five year LTV calcs based on cohort And that's like again, that's I think a smaller company can do that But it takes a little bit of time It takes a higher degree of sophistication, you know, analytically to, to do that.
[00:39:22] And then I think you have to ask yourself, right, to your point is, why, like, why is that metric important? And I think you can, I mean, not think, I know you can trace that metric to, you know, to, to rule it back to, everything traces back to rule of 40. I've tried to find other metrics. It all traces back to rule of 40.
[00:39:38] And, and, and I have done the analytics on correlations. I have a stats background. So the correlations, uh, between, between rule of 40 and valuation, and like, That is the metric that has the strongest
[00:39:53] correlation, so it does make sense to fixate on that.
[00:39:56] Toni: So maybe quick background for everyone who didn't fully catch that. So why should you be limiting your LTV to three or five years? Well, The way it's calculated is you kind of take your, your customer cord and divide it by your churn. But what if you don't have churn? What if you're a hundred percent or more, what actually happens with this lifetime value, it's turns infinite.
[00:40:16] Jeremey: That can also
[00:40:17] happen, yes. Which is actually, you know, in theory a good thing, but not true, but
[00:40:21] Toni: Yeah. yes,
[00:40:22] Uh, so basically kind of, then you're saying like, well, if you're looking at companies that are, you know, net negative churn that are, you know, above the a hundred percent net red revenue retention, you basically have to cap it at three or five years or something like that, because otherwise it's just because it's a silly, it's a silly
[00:40:35] Jeremey: three, five, or ten years, but it also to be realistic about how long a customer's gonna stick around. The other, like, if you want to get even fancier, um, you really should be discounting cash flows as well, because, you know, a dollar today is worth more than a dollar, especially with the inflation we're experiencing now, like, than a dollar five or ten years from now.
[00:40:53] So, you can get fancier and fancier. So, like, the three to one needs context, right, of
[00:40:58] what the formula is and, and, and how you approach it.
[00:41:03] Mikkel: So I was thinking, um, one of the other things, uh, you kind of mentioned was this whole compensation structure as well, because we've, we've talked quite a bit about sales by now.
[00:41:13] And one of the things that's happened in the last 12 months is fewer are reaching their quota. They're completing their quota, right?
[00:41:21] And then at the same time you're saying, well, we're probably also have a question mark on whether some of the motions we have actually work out. So what, you know, what is the job to be done there? What is the assessment to be made on, on basically the, you know, pay and OTEs and all that stuff you have going?
[00:41:37] Jeremey: Yeah, I mean, fortunately, unfortunately, I, I think the, companies are generally takers, if you will, of, of, uh, of OTE. So right, if you go and look out there, there's a benchmark, you know, you can find salary benchmarks. I love to use Glassdoor for salary benchmarks, by the way, because it's free and pretty awesome.
[00:41:57] And it shows the 25th, 50th, 75th percentile. so you know, you can go out there and figure out what's the OTE of, uh, you know, an enterprise rep in North America. And it used to be what's the OTE of an enterprise rep in San Francisco. versus like Austin versus New York versus whatever because of COVID and and you know distributed workforces That's it's smooth.
[00:42:17] I think there's not I think I know there's still a premium in certain locales, but it's definitely smooth Across the board. So first of all, I think you're you're a taker I think you're also largely a taker of what the compensation structure is that the default is a 50 50 comp plan for, for account executives.
[00:42:36] And I, I also remember once reading like innovate on things that matter to the business and, and don't bother innovating on things that aren't going to matter. And I can like, I've definitely, I've seen people try to innovate on comp plans, like commissionless comp plans and some exotic things and so on.
[00:42:53] I think they're very. Intellectually interesting, but I don't think they're strategically worth spending time on so I think the 50 50 comp plan is the right thing So getting to your your core question about like, what can you do for the most part? What I'm seeing is matching demand to capacity and I What does that mean?
[00:43:12] It means that a lot of companies like, unfortunately, did overhire. So, unless they're able to, to, to spend more on inbound, to spend more, like, if the ACV is high enough on, on SDRs, if, or partners, or whatever, right? Like, uh, or they have a price increase. Or they introduce a new product, right? Something that's going to generate the better ability for reps to hit quota.
[00:43:36] Like in the absence of those things, which are things leverage, you want to pull first, right?
[00:43:40] Then then the answer is like right sizing your, your capacity, uh, so that reps are better able to, to hit quota. And yeah, you're absolutely right. The attainment levels have gone down. I mean, the target attainment is, is like, uh, you know, if you want to have a happy, healthy sales org, two thirds, you know, maybe 70 percent or more reps should be meeting or exceeding quota.
[00:44:03] And sadly in SaaS, right? It's, you're really hard pressed to find companies like that. And the weird thing is that Looking at the data, companies are generally hitting their board revenue targets. you know, within whatever, I would say 5 10%. They're hitting the board target, but you might only have 40 percent or fewer of reps.
[00:44:30] Meeting or exceeding quota, and I think that's a pretty terrible thing You know It's it's like the whole system got the whole system got messed up and I think part of the messed up system And this is harder to correct part of the messed up system was like OTE Inflation, but it was phantom because no one was actually making the OTE like The reps would come in and say, I want, you know, X number of hundreds of thousands of dollars and the companies would say, okay, here you go.
[00:44:56] And you know, then what they got was their base plus maybe half of their variable just because it was the quota had to be set at four to five X of what that number was in order for the business to make sense. And you know, there we go. So that's still correcting. That's still correcting.
[00:45:14] Toni: So we fundamentally completely agree on the matching demand and capacity, um, especially for the AEs. And we really think about this like, well, you need to have, you know, how much, how much revenue, you know, roughly is the engine producing and how many reps do you need in order to convert this to actual closed business, right?
[00:45:32] Um, you can do this in pipeline and opportunities and however you want to do that, but, um, From your perspective, I mean, there's kind of the math way to do it, but really, ultimately, you know, you setting quota and you figuring out what is the right thing for an AE to actually achieve, um, you know, that then matches with this. Because I think many people struggle with that part, actually. Do you have like a, it's either a math thing or like a super simple thing, but do you have like an idea when, let's just say, hey, you have too many reps or have too few reps? What, what are like signs or symptoms for like, well, you're probably leaning this direction if A, B, and C is true.
[00:46:06] Jeremey: this is, yeah, a pretty, uh, this is one I haven't thought as deeply about. So it's a little bit of an on the fly answer, but I think maybe two things, two, uh, like if two, if two things are true, you probably have too much capacity. The first is the obvious one, which is, you know, only something less than two thirds of your reps are hitting quota, right?
[00:46:22] Especially if only 30 or 40 percent of your reps are meeting or exceeding quota. I think that's part one, but I think part two is also, And this is, this is a little hard to measure and nobody ever wants to admit it, but like, are your reps operating anywhere near full capacity? And, and yeah, like if people, people are listening, can't see us all chuckling a little bit.
[00:46:43] Um, but, but like I generally, I don't like, I don't, people come around saying like reps are lazy. No, they're not lazy. There's just not, sometimes there's just not enough, um, capacity. uh, top of the funnel for them to engage. Like they don't, their, their, their account list got spread way too thin. And certainly the number of ICP accounts that they're able to go after got spread way too thin or the inbound got spread peanut butter style, you know, across a gigantic loaf of bread.
[00:47:13] Uh, so it's just not, not meaningful or partner leads, whatever. Right. And so I think it's that combination of low rep attainment and reps, Not, not like operating at reasonable utilization is hard to determine, but, but I, I, I think that's, I actually think that's generally true because we just sort of
[00:47:35] hired and spread things super thin,
[00:47:38] Toni: So quick anecdote from my side. So, um, recently I like got a good conversation with the RevOps leader, like a hundred million dollar business. Um, and he was actually asking me this question. So I was kind of wondering, Hey, Jeremey, probably has a great answer for this. and I just said, you know what, you know, there's probably some math way to do it, but why don't you just check their calendars right now?
[00:47:58] Jeremey: How many, how, to, yeah, to your point, like how many meetings do they have with external, like prospects as opposed to,
[00:48:07] that's another thing that happens. Like we jammed reps calendars with internal BS because they didn't have enough to do to keep them busy. But that, that reps don't want to be kept busy.
[00:48:16] And I think the smartest reps, by the way, like decline, all that stuff. And the top reps have the luxury. I've seen it in many companies where like the top reps just like decline, decline, decline, decline. They skip all that stuff because they would much
[00:48:29] rather spend their, their time on quote unquote engage selling time, which they should be.
[00:48:34] Mikkel: The funny thing is, in marketing, it's kind of the
[00:48:36] inverse relationship. You want to see empty calendars. So there's time to actually build something.
[00:48:42] Jeremey: Yeah.
[00:48:43] Toni: I don't see you declining internal meetings, Mikkel.
[00:48:45] Mikkel: No, no, I just don't show up. I just don't show up,
[00:48:50] but I think that was great. So we ran through quite a bunch of things today.
[00:48:54] We walk through a two by two. basically, uh, unblending the outbound motion as a way to figure out, Hey, does this thing actually work out?
[00:49:03] Toni: We talked about hiring. Who would have thought that with Jeremey Donovan, we're going to be talking about hiring actually.
[00:49:10] and, uh, we talked about, the microphone not
[00:49:13] Mikkel: working out. No, you're talking into the microphone.
[00:49:16] Toni: Oh that's right, no, I mean, it was, uh, quite a couple of really fantastic kind of topics we went through here. Right. Um, So Jeremey, thank you. Thank you so much.
[00:49:26] Jeremey: super fun conversation. Thank you.