Subscribe
Share
Share
Embed
Great companies execute their GTM differently than good companies. In this episode, we share the exact differences from a private equity person we recently talked with.
Creators and Guests
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.
[00:00:22] Mikkel: This is a late recording for us. We're usually early birds. On the mic,
[00:00:28] Toni: Who would
[00:00:29] Mikkel: tell? Yeah.
[00:00:30] Toni: I mean,
[00:00:31] Mikkel: well, they can probably see how caffeinated we are if they're watching on YouTube.
[00:00:35] Toni: Yeah. Especially my Jittering here.
[00:00:40] Mikkel: Exactly. No, I mean we've uh, we've been busy today. Lot of good stuff happening, lot of meetings.
[00:00:46] I know you were in a pretty interesting meeting that we're gonna get into. Yeah, so I think we should just jump into it. Who, who, who are you talking with? Toni.
[00:00:54] Toni: Yeah.
[00:00:56] Mikkel: Maybe Don't say that.
[00:00:57] Toni: no, no, no. So, so I think, um, so I just had a, a fun conversation earlier today, um, with, um, kind of a private equity, you know, fund operator if you will.
[00:01:11] Um, so for people that don't know this, so private equity is basically the grownup version of venture capital.
[00:01:17] Mikkel: You just dinged a lot of VCs there.
[00:01:19] Toni: Yeah, yeah. But it is what it is, right? So, um, tickets are much larger, obviously. , uh, usually private equity goes after companies that, uh, are profitable.
[00:01:30] Sometimes. Mostly they're growing a lot less, less of a risk profile, let's just say it like that. In a private equity case, you usually have complete failure. Uh, but limit and upside. Yeah. Um, in venture capital cases, you are out of 10 companies. They invest and you have nine that are basically returning zero.
[00:01:48] Eight returns, zero, one returns the money that they're brought in. And one is kind of the, the company that returns the whole fund. Private equity doesn't play in that high risk game. They kind of, you know, scale it down quite a bit. Right. So I had a conversation with that, uh, guy in that case. and he is not necessarily on the investor side there, but he is on.
[00:02:07] Mikkel: the,
[00:02:08] Toni: Uh, consulting and, uh, you know, being, being very close to the company side. And I think that's also one thing that's different with private equity. Uh, since those funds basically own a majority stake, which can basically be 30, 40, 50, 60% of the company, um, they pretty much own the company. Like legally, you know, with the governance and all of that stuff, they pretty much own the company.
[00:02:32] and uh, therefore they're usually are much more hands-on than venture capital firms. So when someone is an operator from the private equity side, they will, um, you know, there's some governance pieces that obviously need to be kind of, uh, you know, kept in place, but they can basically, uh, you know, be part of your management team and, you know, get very, very hands on, you know, stuff.
[00:02:56] We from the VC side, if you have a VC person starting to operate, you know, like, okay, this thing is fucked. You know, in a private equity sense, it's, it's less so. So anyway, kind of, I chatted with him, um, and obviously we were talking about some of the Roblox topics, but, uh, basically kind of, we were joking around and uh, uh, I said, well, you know, Q1 is about to be over.
[00:03:18] and obviously everyone hits q1. Yeah. And he is like,
[00:03:21] Mikkel: yep,
[00:03:22] Toni: Everyone hits q1, you know, congratulations. and, uh, both of us were basically kind of going, going on and basically said like, well, um, and in, in many cases, they're high fiving on the Q1 result, having screwed up their funnel already so much.
[00:03:38] Mikkel: that
[00:03:38] Toni: They're basically high fiving on missing Q2 and beyond
[00:03:44] Mikkel: Uh, yeah. Yeah, yeah, yeah.
[00:03:46] Toni: Um, so that, that was kind of the conversation. We went a bit back and forth and so forth, and, uh, uh, it is, it is something that we also see a lot, right? Q q1, usually, you know, if you finalize your plan in December, by the way, some people, and this is not uncommon, finalize their plan in January, maybe February guess.
[00:04:05] Mikkel: what?
[00:04:06] Toni: They're going to hit q1, you know, , if you, if you lock in your plan end of end of February, guess what, you know, March, you, you will probably be able to guess March correctly. Um, and, uh, uh, but still kind of, as you then move further out and the timeline, some of these things get, get less clear. Right. And in this particular case, um, uh, we were chatting a little bit about how, um, his portfolio operates differently with this.
[00:04:32] Mikkel: Yeah.
[00:04:33] Toni: As a team or a portfolio of, I think so it's a large fund,
[00:04:36] Mikkel: Mm-hmm. Uh, portfolio
[00:04:37] Toni: of like 50 different companies. Yeah. All kinds of different sizes. You know, 10 million, a hundred million. Again, all of them profitable, all of them probably growing, but, but low 20%. Yeah. You know,
[00:04:47] Mikkel: but usually they're also bigger. Right? So 20 is a lot of
[00:04:51] Toni: Yeah. Yeah, exactly. And, and again, right, because they're profitable, they can't just invest all the money that they have into growth. Uh, they need to balance it out quite a little bit. Right. Um, and again, it's like 50 50 different companies, um, and we are giving this name now. He wasn't referring to those companies in, in such a way, but basically kinda splitting them into the good and the great companies.
[00:05:14] Yeah. It's also a book by Jim Collins. You probably read it. Uh, but basically out of the 50 companies,
[00:05:18] Mikkel: he had
[00:05:20] Toni: eight ish or so. Yeah. That he would classify as great.
[00:05:24] Mikkel: Yeah.
[00:05:25] Toni: He's, he's been really talking about business from like, oh wow, this product is great and all of this stuff is great and the people are great. No, the way they're operating is great.
[00:05:34] Right? And, and the way then, obviously, you know, what that really means for him is that they're making their number pretty much
[00:05:40] Mikkel: That's all you're gonna care about. At the end of the day. It's very,
[00:05:43] Toni: It's very high contrast. It's very black and white. It's like yes or no. Um, and then he has the other 42 companies, which are, uh, not hitting that number.
[00:05:51] They're only the, you know, good companies in that sense. And so obviously I asked them, well, how do they differentiate? Um, and, um, uh, and yeah. And today we wanna, you know, talk a little bit about, um, how they, how they operate differently and how then the, the great ones are able. Flip this into a better relationship in this case with their private equity firm.
[00:06:15] Yeah. But in, you know, other people's cases that are listening here, better relationship with, you know, their shareholders, you know, their employees in that sense and so forth. And that's why we're gonna spend a little bit of time on today. Yeah.
[00:06:25] Mikkel: So I feel like we should give him a name. The guy. Can we call him Bob? Let's call him Bob.
[00:06:29] Toni: You know what he's called Bob, so maybe you don't No, no, no, no. Okay. Let's call him Bob.
[00:06:34] Mikkel: Okay, so there's good and great companies. Let's get into what, what makes the good company then? What are they doing?
[00:06:39] Toni: Yeah. and again, right, so this is private equity, uh, perspective from the outside into those organizations, but fairly granular. Um, and he was basically describing it as. Uh, where both of these companies are very, very similar is in the leading up to, let's just say, creating the budget or the financial plan.
[00:06:57] Yeah. Right. Um, so the typical thing is there's a conversation on the board. Where should they be growing? Some of that is already pre-prepared from finance, so they have. A couple of solutions to kind of go after. Um, they then lock in or roughly lock in on, hey, we wanna grow by that percentage or to that number and so forth.
[00:07:13] Then there's, um, usually, you know, kind of an executive strategy offsite where they, where, where they go and try and figure out, well, how are we actually going to do that? Right. They, to a degree, come up a little bit with the, the go to market strategy. The strategy for next year and yeah. And that includes a little bit, ah, I feel we can grow more on this region, we can do more there, we can do more here, and so forth.
[00:07:35] Right. Um, and, and this strategy then is being, uh, let's just say it's, um, it's codified, into, um, into a financial plan. Into a budget. Yeah. Because that's really important, especially in a private equity case. they own your company. Well, it's not your company actually anymore. They own the company around you.
[00:07:56] Um, and they wanna make sure that you're a good steward and, uh, and in order to ensure that they wanna have the budget in place and and so forth, right? Uh, so you're gonna create this budget, uh, based on where the board wants to take this and where the executive team they want to kind of drive the strategy towards, right?
[00:08:13] So you basically will. Uh, cost allocated in a specific region for, you know, or maybe in a, in a function and so forth, right? That's usually kind of how this whole stuff breaks down. And, um, and then, you know, January one comes and that's the budget and that's what they're kind of executing. They're hiring the people, they're spending the money and so forth.
[00:08:31] Um, and, and those are also the companies, just like the great ones that are hitting q1, right? But at the end of q1, because it's a financial plan, they basically will be able to say that, you know, in, in.
[00:08:43] Mikkel: January,
[00:08:45] Toni: February and March, we were supposed to get in so much revenue and maybe they can break it a little bit apart.
[00:08:50] And how much of that was renewals, how much of that is new base and so forth. Um, but basically what they know at the end of, uh, March is that High five. Fantastic. We have fantastic team. We hit the Q1 number. Uh, and that really means revenue in that sense. Um, and obviously this is where, you know, Bob and I
[00:09:12] Mikkel: as we called him,
[00:09:14] Toni: we were like, um, so, but, but obviously, um, you know, they don't really actually know whether or not they're on track for q2.
[00:09:23] No. Um, because maybe they have sales cycles of three to six months. . Yeah. Um, and in order to hit whatever goal they have coming after they actually to create the pipeline and the meetings and the leads and the traffic and, you know, all of those different regions. Um, and, and, and they don't know about it actually.
[00:09:42] Right. Um, and again, this is, we are talking 80% of companies here. We're not talking and. Not every company is private equity back here, right? So this is, this is really what the traditional folks are doing. You might have some pockets where the marketing, uh, you know, folks have a little bit of an idea what they wanna run in, in SQLs.
[00:09:58] They obviously not differentiating that much further and so forth, right? Um, so what is now different, uh, to the great companies though, right?
[00:10:07] Mikkel: Uh,
[00:10:07] Toni: again, the great companies, uh, do the same thing. There's the sport thing, there's the executive offsite, there's the financial plan. Um, but then, you know, see there, um, they are basically taking this financial plan into one further step.
[00:10:22] Yeah. Um, basically creating a go to market plan.
[00:10:25] Mikkel: Yeah, yeah. Which we kind of talked about also in a previous episode. The plan no one
[00:10:29] Toni: We're talking, talking about this a lot.
[00:10:32] Mikkel: because we care
[00:10:32] Toni: care. Yeah. We
[00:10:33] Mikkel: it's important
[00:10:34] Toni: And uh, and it's just so funny talking to, uh, to the PE guy here on, uh, how he kind of sees that actually being applied Yeah.
[00:10:40] In, in reality. Right. And obviously then the go-to market plan, um, Works backwards from the um, uh, uh, from the, from the revenue targets basically, that they have, right? And, um, I don't wanna talk too much about the planning piece as such, right? I think we covered this, but at the end of the day, um, if you have, based on your go-to-market strategy, if you wanna go more into the US and you want to see more revenue coming out of that, you need to have an idea how long before that you obviously need to have your, you know, opportunities in place.
[00:11:15] How many sks you need and, and all of that stuff, right? Um, basically planning out the funnel.
[00:11:21] Mikkel: Yeah. How are you gonna create the pipeline
[00:11:23] Toni: How, I mean, how are you gonna, how are you gonna kind of get to this revenue thing in the end? And, um, and since they now have some metrics for the funnel split into the different regions, split into maybe the different revenue streams, right?
[00:11:35] Inbound, outbound referral partners, whatever. Um, you then basically are also at the end of q. Uh, you are also high fiving because you also hit, obviously, you know, Q1 target. Um, but now you're in a position where you know whether or not you hit the funnel metrics that you wanted to hit in order then to prepare q2, q3, q4, yeah.
[00:11:58] Right. And, you know, the, the scenario then we kind of talked into the. The easy, the easy stuff. Uh, the, the simple stuff is, okay, now we know we like off by two opportunities there. We need to do something about it. It's kind of the trying and fixing approach. Yeah. It's super important. Uh, talked a little bit, I think also in last episode, a little bit about, um, how some of the a hundred million plus companies are doing this really successfully, yada, yada.
[00:12:23] Um, what was really interesting with him from his perspective to talk about, um, let's just say a, a replanning. Yeah. Yeah. And I think in a grow blocks world, we would actually call it kind of continuous. GTM replanning. Yeah. Right. Um, because there's fresh data coming in, things working out, things aren't working out.
[00:12:43] Um, and that at some point goes beyond the, uh, seeing an issue and trying to fix it, uh, perspective.
[00:12:52] Mikkel: Yeah. I think it's also super important if you have mapped out the funnel metrics, you have some that are.
[00:12:58] Toni: To,
[00:12:58] Mikkel: to, to someone becoming a customer. You can see once things start sliding and acted. So,
[00:13:03] Toni: No, exactly.
[00:13:04] And um, and I think kind of, um, when we kind of talked about the CP earlier today was also.
[00:13:10] Mikkel: funnily enough,
[00:13:11] Toni: almost all assumptions,
[00:13:13] Mikkel: Yeah,
[00:13:14] Toni: all, everything you wanna improve in your go to
[00:13:17] Mikkel: it's Q2
[00:13:18] Toni: it usually always hits in q2,
[00:13:20] Mikkel: so, so it's gonna be for us, you know, higher a C v, lower churn, higher conversion rates, but
[00:13:26] Toni: let's push it out one quarter so all of us can have one good commission check and then get slammed. You know,
[00:13:32] Mikkel: no, it's also easier. We hit q1, we know we're gonna hit and then let down, you know, Q2
[00:13:37] Toni: So, um, and also, you know, let's just say, and you know, we're making fun of this, but we've all been guilty of
[00:13:42] Mikkel: this. Yeah, yeah, totally.
[00:13:43] Toni: But, um, uh, basically, you know, even, even if you have something, an assumption plan for q1, um, and you.
[00:13:49] Mikkel: miss it,
[00:13:50] Toni: It's like, ah, are we just a month late?
[00:13:52] Mikkel: Yeah, yeah. , it's
[00:13:53] Toni: happen in April. Sure. So, but you know, that was kind of, uh, uh, that was kind of one of these things here, but we were basically talking about how, um, he, um, and he's very much into all of that stuff as well, and he basically wants to make sure that all the good companies start to.
[00:14:10] Apply the, the great kind of approach to it. Um, and we were kind of talking through how, uh, how him and I are kind of seeing, um, you know, people should be actually doing it. It was really interesting. So number one, um, once you know that you're behind somewhere Yeah. on a metric, and you're behind, beyond a fix, let's just say it like that, kind of an easy fix, Hey, oh, we need to just, you know, work a little bit harder and so forth.
[00:14:35] Once it comes a little bit to a breaking point where you feel like, uh, oh, um, you know, we, we won't just be, uh, you know, tweaking a couple of things. We need to rethink this again. Right. And let's just say that's a little bit of a replanning motion. I kind of can see how those two things slide into one another.
[00:14:52] This is kind of a fuzzy area, right? But basically the, the first step is, uh, to know that you have a significant enough difference, right? That's the first step. You basically see opportunities trailing off. You talk to the sales manager or the whoever, um, and they basically have, Hey, you know what, um, we, we might be able to catch up on what we need to do in September and October and so forth.
[00:15:16] But, uh, basically the staff that we've already missed, um, and the stuff we likely going to miss in the next few months. Uh, we won't be able to kind of win that back. Yeah. We just won't be. Right. So that's almost the, okay. Uh, oh, now we have a bigger issue. Because if some of those opportunities are, um, Permanently missing.
[00:15:36] Mikkel: Yeah.
[00:15:38] Toni: You now need to figure something else out. Right. So step number one is assessing the damage really. And, um, you can really assess it in two ways. One is on the metric level. Yeah. Um, how many opportunities versus what should have been how many leads versus what should have been how many whatever.
[00:15:54] Yeah. Um, or, and it's a little bit more complicated. You can assess it on a revenue impact by the end of the year level. Yeah. It's a bit more complicated to calculate that.
[00:16:04] Mikkel: out,
[00:16:05] Toni: so this is, you know, step one, number one, assessing the damage, really, right? Step number two is, trying to solve the problem inside of the team where the problem is originating from.
[00:16:19] Yeah.
[00:16:19] Mikkel: Yeah.
[00:16:20] Toni: So the simple one is, um, you are in sales, you're.
[00:16:27] Mikkel: uh,
[00:16:27] Toni: Producing as many opportunities because that's now the example. Um, and uh, basically now, you know, the sales manager now needs to figure out how are we actually gonna solve that, right? Because some of these opportunities are lost. Um, and one fixer now could be, and this might, you know, require, uh, the CFO to approve of what, um, would be to over-hire. Yeah. So basically your original plan was to, um, grow to 20 or 30 outbound reps. Yeah. Whatever. you started going in that direction. Um, maybe hiring is on track, but performance is not on track. but the way to catch up, you actually need to over-hire. Yeah. You now need to, instead of 20, you need to grow to 25 in the same time period in order to catch up the, the gap that you have created.
[00:17:13] Right. Um, and then, you know, as long as you're staying within the team, You can actually stay on the, on the metric level, you can basically say like, okay, so wait a minute. We