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There's a few patterns to avoid when scaling sales. We walk through them together with Mark Roberge.
Also, check out the science of scaling here.
Mark also did a presentation at SaaStr on common sales potholes, make sure to check it out.
***
- (00:00) - Indtroduction
- (03:48) - Meet Mark
- (08:44) - The number 1 pattern of unnecessary failure
- (11:16) - Getting the right pacing
- (16:35) - Pushing back on the plan
- (25:39) - Why do we misunderstand capacity?
- (33:54) - The problem with commissions
- (36:31) - The comp plan works against this goal
- (40:12) - How do you comp on retention?
- (42:38) - Find your leading indicators of retention
- (44:10) - Pushback on retention compensation
Also, check out the science of scaling here.
Mark also did a presentation at SaaStr on common sales potholes, make sure to check it out.
***
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.
***
Connect with us
✉️ Newsletter: revenueletter.substack.com
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: Hi everyone. This is Toni Hohlbein from Growblocks. You are listening to the Revenue Formula with Mikkel and Toni. In today's episode, we discuss the mistakes to avoid when scaling sales with Mark Roberge, co founder at Stage 2 Capital and previously CRO at HubSpot. Enjoy
[00:00:24] Mikkel: You just gotta watch out with football term, I'm telling you. If you call it soccer, that's dangerous. That's dangerous. I started calling
[00:00:31] Toni: it soccer as well, actually,
[00:00:33] Mikkel: you know, and you don't have any more friends.
[00:00:36] So that's . That's how it goes. That's how it goes on this. That's how it goes. People are very religious about that stuff.
[00:00:41] Toni: talking about religion, actually, what a great intro.
[00:00:45] Mark Roberge: that's let's talk about that politics and
[00:00:47] Toni: No, no, no, in, in, in less so seriousness though 10 years ago, when, when, when was it that you, uh, published the sales acceleration formula?
[00:00:58] Mark Roberge: I don't know. I think it was
[00:01:00] 10 years ago. I think it was
[00:01:03] Toni: Yeah. Right. And it must be something like this. So basically, Back then, you know, we were working, we actually working in the same company back then, kind of scaling the organization. and we used to call Aaron Ross's predictable revenue. We called it the Bible back then.
[00:01:17] And then, and then you published, you published your book. And then we, then we basically had to rebrand Aaron Ross's work and called it, the, uh, Old Testament and you were then the New Testament.
[00:01:27] Mark Roberge: so funny. Wow. I mean, I'm humbled
[00:01:30] to be what an
[00:01:32] Toni: those two books. were like, uh, really important for us
[00:01:35] Mark Roberge: Yeah, Aaron's a good buddy. Like we met pretty early on and like I was just like in year one of HubSpot and he was kind of like transitioning from his Salesforce run to his authorship and Consulting and, and you know, we had some really great chats during that time.
[00:01:52] Yeah.
[00:01:53] Mikkel: But it's so funny. We're also actually going to have him on the show. We're going to have him on the show soon. Yeah. And I mean, by the way, you're welcome to, if you're going to make an updated version, you can put this quote on the cover, like the
[00:02:03] Mark Roberge: Ha ha ha ha.
[00:02:04] Mikkel: I think that would play nice. That's gonna, that's gonna
[00:02:06] go super well.
[00:02:08] Mark Roberge: they want me to write an update, but I have to write this Science of Scaling thing first. But Aaron's out by you guys, isn't he? Or is he in the UK?
[00:02:16] Toni: in Scotland, Uh,
[00:02:18] yeah. So in the UK. Yeah,
[00:02:19] exactly.
[00:02:20] Mark Roberge: relative to where I am He's out by you, but
[00:02:22] not relative to your
[00:02:23] guy's world. Yeah,
[00:02:24] Toni: but you know, then again, Boston, Nordics, I mean, it's like, I don't know, if you hop on a
[00:02:28] Mikkel: plane, you sit there
[00:02:29] Toni: for eight
[00:02:29] Mikkel: hours and then on the train, it's like easy, you can do that.
[00:02:32] Toni: By the way, is the Eclipse gonna hit you?
[00:02:35] Mark Roberge: Yeah, but not great not great like Vermont and Texas I think I haven't followed it that closely, but that's what I hear is like the best places I think like Vermont in Texas. I think it literally goes dark for like 15 minutes
[00:02:49] But, uh, I don't think it's to that degree here. So how about you guys? Will you see any of it?
[00:02:56] Toni: don't think so. No, we're too far away. It's gonna be another cloudy rainy day anyway. Plus, we won't see any of it. I don't think so.
[00:03:04] Mikkel: I mean, we can just go into the studio and switch off the lights.
[00:03:08] Toni: Okay, okay.
[00:03:09] I think, I think we
[00:03:10] Mark Roberge: I had to send a text message to my sons to not look at it. Despite all the TikTok
[00:03:15] Toni: Ah, yeah, yeah.
[00:03:17] Mark Roberge: that says it's totally fine to look at it with your naked eye.
[00:03:21] Mikkel: But you have to use a bit of
[00:03:22] reverse psychology, don't you? Because if you?
[00:03:23] tell him not to, he definitely will
[00:03:25] Mark Roberge: I know exactly.
[00:03:26] Mikkel: at it, you'll go
[00:03:27] Mark Roberge: You should do it. Please make sure you go
[00:03:29] see the eclipse. I demand
[00:03:31] Mikkel: you.
[00:03:32] can send him
[00:03:33] Mark Roberge: Then they never would see it.
[00:03:34] Mikkel: I, I found a, what's it called? Like the doc that helps you if you're blind. Right. You could send him like small notes and hints like that, depending on age, because he might want the dog, you know, that it's going to be my kids.
[00:03:44] They're going to go, look, definitely going. That's our
[00:03:46] Toni: usual go to topics. We just talk about our kids. Yeah, that's
[00:03:48] Mikkel: a perfect segue, but anyway, not so long ago, true story. I cold emailed someone. Who I admired. And we just said it here in the beginning, the Old Testament, New Testament, Mark Roberge, Mark, welcome to the show.
[00:04:03] Thanks so much
[00:04:03] for
[00:04:04] joining us.
[00:04:05] Mark Roberge: thank you, guys. Yeah, I'm excited.
[00:04:08] Mikkel: So you, uh, let's just do a bit of, you know, back, I do the background check always. You're currently co founder at Stage 2 Capital. Uh, you're a lecturer at Harvard. You spent nine years, I believe, at HubSpot as, what did I write on? CRO, SVP sales, and a bunch of other things. You are also an author with the Sales Acceleration Formula and a speaker.
[00:04:28] So you've been doing a lot of stuff in this little, you know, Bubble space of ours, uh, B2B software. B2B SaaS.
[00:04:37] Yeah. So it's fair to say,
[00:04:39] you know, quite a bit
[00:04:40] about
[00:04:40] what we're going to get into today.
[00:04:42] Mark Roberge: I've been exposed to a lot of like, you know, pattern recognition, I suppose, and in a learn do teach framework of, You know, I definitely spent a lot of time as an operator, as you noted, and saw all the stages of HubSpot from, you know, being the fourth employee, first salesperson, all the way to the founding CRO and IPO, which, you know, and then have had the luxury and blessing of helping so many startups.
[00:05:08] So, so yeah, you know, it's been a, it's been a fun journey.
[00:05:13] Toni: but also if I'm not mistaken, you have an engineering background, right? Kind of, you don't actually have a business
[00:05:17] Mark Roberge: and that was kind of like what a lot of folks kind of pointed out as being unique and one of the reasons Haligan, the co founder of HubSpot, brought me in was he didn't want the He grew up in sales, you know, had a good 10, 15 year career before starting HubSpot, so he had far more wisdom around the function than I did.
[00:05:36] I never did sales before, but he had the wisdom that, uh, it was changing, that the internet was changing traditional sales. Like at that point, it's hard to go back there, but Sales was largely, I hate to say it, but like, tall, good looking people that could take people golfing or to a steak dinner, you know?
[00:05:57] And it was, the internet was causing it to be more, like, done more over the phone at the time, and eventually, like, online. And that allowed us to, like, get better CRM data. Because CRM adoption was such a hard thing in the 80s and 90s. But once it was Like inside the, the rep became dependent on the CRM to like, just know what to do all day.
[00:06:26] And that created tons of sales data and that allowed a like engineer to go to town.
[00:06:33] Toni: Yeah,
[00:06:34] Mark Roberge: And that's what Halligan saw. And he pushed me to do that. And that's what a lot of folks observed about me. And I had no idea. I, I hadn't, I had no idea what was coming or why I was appropriate for that, but that's what happened.
[00:06:46] Toni: well, it went, it went pretty fantastically. Um, and I think a couple of those, uh, learnings, insights, and I think kind of, you talked about this differently. Um, we want to go through today, right, Mikkel?
[00:06:57] Mikkel: Yeah, you kind of, um, you kind of promised us to outline some of the biggest challenges you see when companies, they scale specifically sales going from, you know, zero to a hundred million.
[00:07:06] And not so long ago, you did a presentation at SaaStr walking through Some of the common mistakes, I guess, you've seen potentially through you advising or just getting, you know, questions. Um, so I think this would be super helpful for the audience in particular these days when things are just a little bit tougher.
[00:07:23] if people can avoid the mistakes they make themselves, that would be great.
[00:07:26] Toni: No, I also think, right. And, um, so Jaco from Winning by Design has been pointing this out a lot, like, Hey, the, the go to market fit might have slipped away for many different teams. And while we have a lot of folks listening that are 10, million and up, uh, I think some of those, uh, first principles almost of building a sales motion, building a go to market team, They might be coming up again, right?
[00:07:48] And it might be, it might be commission plans. It might be hard to hire. It might be kind of a couple of other things. Um, so that's why I think this kind of fits extremely well into, you know, the folks listening, but also the challenges that they have, which, which aren't only about scaling, they're also a little bit about, you know, again, understanding what is the right thing to do and how should we, you know,
[00:08:09] piece things together.
[00:08:10] Mark Roberge: for sure. I'll give you a teaser and then you all tell me where to go I mean, after HubSpot, I had this five year journey of like being a full time faculty member at Harvard, which gave me a ton of time to like work with startups.
[00:08:25] And I basically picked one a quarter to work with. I worked with like 15 of them, you know, and some Asana went public, Drift sold for a billion, like a couple are worth over a billion and a couple went flat and a couple went under out of business. That's the game, right? And then. That led to the founding of Stage 2 Capital, where I've seen hundreds more, right, at this stage.
[00:08:44] So you see patterns, and the number one pattern that I have seen cause unnecessary failure is choosing the wrong time to scale revenue and the pacing. And I think that, like, happened really badly in, like, 2020 and 2021, where we had a bull market, grow at all costs. One of the biggest grow at all costs economies of the startup ecosystem that I've ever seen. And, you know, it's, so the, my work on the science of scaling helps companies use their own data to calculate when to scale and how fast, because a lot of folks just take a very subjective approach to that. They, they raise a financing round and the investor is just like, go fast, you know, triple, triple, double, double, because that's what other, you know, big companies have done.
[00:09:41] And there's not a lot of regard to what you're capable of. And the first piece is whether you have product market fit. And I think the big mistake out there is. People measure product market fit by customer acquisition and revenue acquisition. And I don't think that's really a good definition, especially in B2B software.
[00:10:05] Um, that just tells us that we can sell, but you all, we all three of us know that great sellers can sell ice to Eskimos, but I don't think ice has great product market fit with Eskimo. You know what I mean? So like, It's more, that's more market message fit and your definition of product market fit should be more rooted in the consistency of customer value you're creating, which in our world is measured by retention and the leading indicators of customer retention.
[00:10:35] And then once you have that, you progress to go to market fit. So go to market fit is, has to be done after product market fit because you run the risk of optimizing your go to market on the wrong product or wrong market. If you haven't proven product market fit. So you have to do these sequentially. And go to market fit, you know, the, the trick there, um, you know, is, is first off like rooting it in, in acquiring customers profitably, which we measure in unit economics, like LTV CAC or Payback Peer or stuff like that.
[00:11:13] And the leading indicators of those numbers.
[00:11:16] And once you have product market fit and go to market fit, and I think this is very relevant to your audience, which is a little more, you know, like post 10 million ARR, is getting the right pacing. And I still think like, gosh, I'd guess 80 to 90 percent of these businesses.
[00:11:34] are really messing this up where they're, they're kind of creating their annual plan. You know, maybe it's like November or December, which by the way is way too late to do this. And they're like, okay, we have to go from 10 million to 20 million this year. And our reps are averaging, our salespeople are averaging a million. And so we, we need to hire, we have five reps. We need to hire five more. That's what the Excel math tells us. And they hire five salespeople in January and cross their fingers. And there's no regard to like, do I have enough sales? Like, first off, do I have enough of a recruiting muscle to generate enough good candidates to hire five good salespeople in January?
[00:12:26] Probably not. You just can't turn that on and off. Do I have enough demand gen to feed them, whether I have SDRs that are cool calling or marketing that's generate MQLs, or my salespeople themselves have territories that they're nurturing and building up? You know, there's no way you can like double that in a month. Do I have enough managers to manage these people? Cause in inside it's like an average of seven reps per manager and outside it's maybe more like five or six. Like, do I have that? There's just, there's so many things that we have to look at. And so when we think about scaling, it's not just like put the annual plan together and then hire five people and then cross our fingers. It's about a continual pacing of how many, the pace by which we're hiring salespeople. Like, let's say maybe like two, two, a quarter, let's do two, a quarter. And then let's watch the lead indicators of product market fit and the leading indicators to go to market fit. And if we do that for like two or three quarters and it's still working, we can go faster.
[00:13:29] And if it's not, and it breaks, we know way ahead of everyone else and we can fix it and then get ourselves back on track. It's not this like annual plan or fundraise and then a lump sum hiring. And so I threw up some stuff there.
[00:13:43] Toni: do you think this, um, almost this annual cycle is, is part of the problem here? Kind of trying
[00:13:49] to plan this out for a
[00:13:50] year's time. There you
[00:13:52] go.
[00:13:52] Mark Roberge: It's so bad. I mean, we take too much. We take too much from like our public equity, like peers, you know, these businesses that are doing a billion in revenue. Like, you know, we can get back to your point, Toni, but just as an example, I can't tell you how many seed funded businesses I evaluate that are doing 500, 000 in revenue.
[00:14:20] And they have beautifully clean balance sheets, income states, and cash flow statements. They can tell me on a monthly basis how much they pay for everything. ink for the printers. And yet they have no idea how often their customers use their product. It's like, it's mind blowing how inappropriately we copy.
[00:14:49] And to your point, Toni, it's like, Yeah, when you're doing a billion in revenue, you need to, like, set your annual plan, and it's really hard to, to alter it, because there's so much locked into it. Like, you're driving an aircraft carrier, but it's like, when you're doing your annual plan, and you're, like, a 10 million business, and you're trying to go to 20 million. And Q1 goes by, and you miss Q1 by 30%. And what does the board member say? Oh, we have to catch up. Hire more salespeople. That's the
[00:15:26] end.
[00:15:28] Toni: Oh, man.
[00:15:29] Mark Roberge: Are you kidding me? Like, it's broken.
[00:15:33] It's broken and you're going to add more. All you're going to do is burn more capital faster and go out of business. Like every quarter, it's just like, okay, fine. We missed by 30%. The annual plan is meaningless. What does it mean? Like, it's like, I don't know, I guess the reason why people are obsessed with it, because they know that like, you have to be doubling revenue at that stage.
[00:15:53] But like, guess what? At the end of the day, it's. If it's a venture capital cap business or like even as an entrepreneur what matters is like your exit Your exit and you're like, you're you're probably not exiting it in that year if you're only at 10 million Okay, you're you're probably want to go a couple more years That's your goal.
[00:16:16] And if, if the next four or five years go by and now it's 2028 and you are trying to do an IPL or an MNA, no, one's going to care how fast you grew in 2024. It's irrelevant. So just like fix it, you know?
[00:16:35] Toni: what's your advice to people that are seeing some of that stuff unfolding, right? Because we just left Q1.
[00:16:42] Uh, I'm sure not everyone hit
[00:16:44] Mark Roberge: sure. Probably really relevant story.
[00:16:47] Toni: Yes. And, um, and you might not have the founder CEOs listening to this, to this show here, but you might have the CRO or VP of RevOps or something like that, that maybe do have the ear of the founder to a degree, but.
[00:17:01] How should they actually approach this, right? Because the, the CEO will, will go back to the board and be like, Hey, listen, you know, we want to fundraise by that timeframe because otherwise, you know, bad, bad news on the, on the cash, uh, balance side. Uh, so we need to hit those milestones in order to get that valuation in order to, you know, continue this game, albeit it has changed from the last two, three, four years ago.
[00:17:25] Right. But, uh, but from someone that is not actually necessarily sitting in the boardroom from someone that's not necessarily having, um, a big chunk of the cap table, how do they go and influence
[00:17:36] and kind of have that conversation with the, with
[00:17:38] the CEO founder?
[00:17:39] Mark Roberge: No, it's a great question, Toni. It's a great question. And so if you want the, so you can Google my name and like bottoms up model, and you'll get some literature on this. And so basically what we have to do is, as the CRO, we need to educate the executive team and the board on how the revenue model works from a bottoms up perspective, because most of them are just kind of like, okay, I want to hit this much revenue, and this is how much revenue our reps are supposed to produce.
[00:18:11] So if I divide those out, it tells me how many reps I need. Like that, that's too basic of a level. And so what we need to do is we need to like create a bottoms up, which is like, you know, on the, on the sales capacity side. Yeah, it's the number of salespeople, but let's not forget that like salespeople need to ramp, like you don't hire someone this month and then they're productive.
[00:18:34] Like, so we have to like educate them on how long our ramp typically is. What the average productivity has been. And then there's also going to be attrition. Like if you're planning for 0 percent attrition, you're not planning well. Like the industry averages 40 percent a year. I like my companies to have between 10 and 20%.
[00:18:52] So like plan for 15 percent as an example. Okay. So it's just like train the board on that side. The more important side is the demand gen side, which is like, okay, like. You know, last quarter we put up 3 million of revenue. And let's just keep it simple. Half came from marketing and half came from our cold call on SDRs.
[00:19:17] Okay. And this was the average, you know, we gave marketing 500, 000. Their average cost per MQL was 1, 000. So, you know, they produce 500 of them. The average sales, like the 20 percent of the MQLs became a qualified opportunity. And 25 percent of those closed in 45 days. So we have some bottoms up math, right?
[00:19:43] And then on the SDR side, it's like, we've got five of them and they are generating, you know, 40 qualified appointments a month, and those are converting the customer at. 15 percent and it takes us 60 days, right? So we have some math, right? And now, now the board member comes in and says, okay, we missed the quarter.
[00:20:05] Now we have to make up. So raise quotas to X or hire more salespeople. And you're like, all right, cool. Like. Let me just show you what it will take us to do that. For us to hit that number that you're talking about, marketing will need to double their MQL production overnight.
[00:20:29] And the
[00:20:30] SDRs will
[00:20:31] Toni: need to
[00:20:31] Mark Roberge: go. Yeah. Then you do it last week
[00:20:34] because of the sales cycle. Right? Like, but let's just talk real
[00:20:36] about like, let's just like going forward. Like they will need to like literally double their production this week. And the SDRs will have to go from. 10 appointments a week to 20 appointments a week, this week, despite the fact that the last four years, our SDRs have only produced 10 a week.
[00:20:59] So if you want me to sign up to that, I would just say, as CRO, I'm expressing grave, deep concern about the possibility of that plan. And this is what I recommend. And the board might just say like, screw it, I don't care. And then you're like, all right, fine. That's what I'm gonna try to do. And then after Q2, you'll be like, hey, listen, Uh, we missed the number.
[00:21:26] I know we increased the number for Q2 from, you know, we were supposed to do, you wanted to do 3 million and we only got to two and a half because when you, and let me unpack it for you, marketing was only able to increase their MQL production by 20 percent in the quarter. And the SDRs were only able to increase their production from 10 appointments a week to 13 appointments a week.
[00:21:55] And we were only able to improve our close rate, historically, from 20 percent to 27%. Like, if you're getting fired for that, you're working for the wrong board.
[00:22:07] Toni: But I wouldn't say it's too odd of a case. I think, I
[00:22:10] think there's some education going on. I think there's some education going. And I also think that, you know, in some boards they will probably have said like, okay, we need to catch up. So that means we need to at least hire one more AE because otherwise we don't have enough capacity to close.
[00:22:25] Right. so, and I think there will be some compounding factors actually kind of working against you as a, as a CEO, as a RevOps person, I think there, um, there's some, basically kind of some good math that can help you to navigate that conversation, but it's, um, I, I gotta say, well, I mean, by the way, um, philosophically we're like 1000 percent aligned.
[00:22:43] I think what Growblocks doing is very, very extremely crazy close to what you just talked about there. Kind of, this is, this was not planned audience either way. Um, but it was, was, was extremely, uh, really close actually, uh, Mark. So that was really interesting, but the, um, the issue I think still remains that, um, you know, getting that math in front of people, I'm sometimes wondering if that is the only ingredients, um, someone like that has in order to change.
[00:23:13] change minds, right? Do, do you think that's, that's going to be enough in order to kind of get the CEO on the board on the, on the right side of the track? So it's the, it's the,
[00:23:21] you know, I'm almost asking,
[00:23:22] is there
[00:23:23] another magic trick that you have
[00:23:24] Mark Roberge: don't know
[00:23:25] if
[00:23:25] there is. I mean, I agree with you, and it
[00:23:27] only works about two thirds of the time. But even when it doesn't work, at least you now have a narrative to explain why you came back and you missed. And like, it's a fair point, Toni, that like, We have to argue the other side, which is like, well, you know, the alternative is we bring the number down,
[00:23:45] Mikkel: Yeah.
[00:23:46] Mark Roberge: you know, and we sit here and be like, okay, well, we missed Q1.
[00:23:49] Let's just try to go back and like fix that. Like, why was it broken? Can we get back to our performance level? Let's not try to like make up for things in Q2, but just, let's just try to get back to plan in Q2, which I like, but that means we're only going to grow 80 percent instead of 100 percent this year.
[00:24:07] And then we have to raise a Series C in Q1 of next year and that makes our numbers not look good. So that's very real. And that's the other side of the argument.
[00:24:18] Um, I don't know. I just feel like if you try to catch up and juice the numbers for the Series C, I don't have data on this, but I'm guessing like you're gonna fail 95 percent of the time.
[00:24:32] Versus if you just like take a step back, try to fix the issue, get Q2 back on track, get Q3 back on track and Q4 back on track. There's an asterisk that you can actually just speak to them. Be like, yeah, we messed up in Q1. This is what we learned. This is what we fixed. We're back on track. And I think that for the, for good investors, they'll appreciate that even more because they all know that there's never been a startup that like, just like, just went.
[00:24:57] There's always issues you have to deal with.
[00:25:00] Mikkel: No, but it's so funny to listen to because I think, uh, I was watching David Skok at some point.
[00:25:05] I believe he also worked
[00:25:06] with, uh, with HubSpot if I'm not
[00:25:08] Mark Roberge: He was our Series B investor. Yeah,
[00:25:09] Mikkel: Yeah.
[00:25:11] Mark Roberge: I mean, I spend
[00:25:11] so much time with him. Amazing. Yeah.
[00:25:13] Mikkel: and he talked about, he had also had to educate, I think, was it finance or something about the dynamics of just the cash burn?
[00:25:19] Because the more customers this business would bring in, well, the more money they would lose. And he had to plot it out on a graph, right? So I think there is. This educational component to it. And sometimes, you know, just me being the marketing head, you think that those folks in the board and who have a seat at the table, that they understand everything in the business to the greatest detail.
[00:25:39] Toni: Actually. On that one, uh, and I mean, David Skok, for entrepreneurs, I mean, he educated everyone, especially at that point. , but where do you think this is coming from? This, this idea of. Hey, we want to grow 10 million.
[00:25:55] We have five reps doing a million. Well, you know, we need five more. Where do you think this completely wrong, but simple math is actually coming from? Right? Because it's, um, uh, it, it must have worked at some point, or it must have been good advice at some point. I'm just kind of continuously scratching my head.
[00:26:15] I was like, where did this come up? And why, you know, why is it so difficult to re educate a whole lot of folks that that's not the right approach anymore?
[00:26:23] Mark Roberge: Sure. Like, I don't, I have some conviction on this answer. Like, I don't, I'm trying to think it'd be good question. Like, did this happen that much in the nineties or whatever, but like historically, well, it all comes back to like venture capital as an asset class compared to all the other asset classes. So you have to go all the way up to like who invests in venture capital firms.
[00:26:43] Okay, so like a lot of that money is institutional money. It's at like pension funds, endowments from schools, some like very wealthy family offices. That's like the majority of venture capital. And so what they're doing is those people are spreading their money across all asset classes. They have fixed income, like bonds, where they expect, like, a pretty much guaranteed, whatever, 4 or 5 percent return.
[00:27:06] I don't know that area that much to speak to it. They have a bunch of money in stocks, where they expect, like, a certain return there against the S& P index. And they have managers they pick, whatever. Then they have alternative asset classes, which includes venture capital. It includes, um, hedge funds. It includes private equity firms.
[00:27:25] And typically they expect a much higher risk for a potentially higher reward. So like, if they're doing it well, they'll expect like the venture asset class to deliver, say, if you pick a good venture capital firm, you're designed up to like a 20 percent IRR, 20 percent annual return relative to like, I don't know what the average for the public equities are, maybe it's like 5%.
[00:27:47] That's what they expect in order to, and so now as we unpack that further at the fund level, the, the, The components of the venture capital portfolio, which are startups, is a movie hits business. It's not like every investment generates a 20 percent annual return. It's usually if you have 20 investments, one creates a 500x return and the other 19 fail.
[00:28:15] That's what has historically happened. And so it's all about getting into the big winner. And so as a VC, some VCs. What they look at is like, you need to look like the big winner. I have 20 bets. I need one to hit. And this is where the VC board member and the entrepreneur are misaligned because over a 10 year period, the VC has 20 bets and they need one.
[00:28:39] The entrepreneur has one bet. So I don't think VCs think with this way, but like, I think some do where they're just like, just get yourself on that track or fail, because I want to leave your board if you're going to fail,
[00:28:54] Toni: Yeah.
[00:28:54] Mark Roberge: I don't think that way. I can give you a lot of Evans on that, but that's, I think where it comes from, Toni is like, they're just looking, if you're the next snowflake, they have 20 bets, and if you stop looking like that, they kind of just want you to run out of money.
[00:29:09] Toni: Yeah. so I think that's probably one perspective on this. Right. another thing, at least this is what went through my head was like, is this maybe an outcome of. you know, the two step function of SDRs, AEs. So someone else is feeding the AEs. Uh, then the HubSpot, I mean, you guys created inbound basically, right?
[00:29:29] Kind of suddenly you have this whole MQL production feeding AEs. Is this, you think, an outcome of the whole go to market motion in general over the last, let's just say, 20 years? Uh, getting a little bit more complicated. whereas, you know, in the nineties and eighties, I don't know, I've, I've been around technically on this planet, but not in the industry.
[00:29:49] well, I don't know. I can't imagine it was all just salesmen that went door to door and kind of where they owned the margin engine and closers. You know, I don't think it was always full, full cycle for everyone, but do you think it's an outcome of that, that the go to market motions in general just Became more complex and, and this really wonderful, you know, rule of thumb ratio of just hire more sales reps equals more money.
[00:30:13] It just doesn't work out anymore because we're so specialized.
[00:30:16] Mark Roberge: yeah. We're speculating here, Toni, because both of us were not necessarily operators, I think, then, um, back in the eighties or nineties. I, I can say that, um, I, I do know that the venture capital ecosystem was exponentially smaller then, like, I don't remember the exact numbers, but I believe it was like, like 20 to 30 billion a year.
[00:30:40] And in the late nineties, it went up to like 200 to 300 billion. And then after the crash, it came down, but it came down to only like 70 or 80 billion. So it was still exponent and now it's gone back to even higher than I think the dot com craze. So the, you know, in these decades, post 2000, venture capital has become an exponentially bigger asset class almost overnight.
[00:31:06] And so I think you were asking, Toni, like what was happening back in like when it was only like a 20 or 30 billion dollar annual asset class, you know, I, I do still think it was like a hits business. I don't think it was like 50 percent of companies did a great exit and 50 percent didn't. think it was still a hits business.
[00:31:24] I think it was like, VCs were more ex-founders. That's what like older, like, um, more experienced institutions tell me is like, who is this, they're like, who are these like career finance VCs? Like. Back in the day, like a venture capitalist was a two times successful serial entrepreneur that's now investing.
[00:31:46] So like, you know, there's that, I still think it was a hits business and I don't know, there's a lot to unpack there because like also like there was, it's easier to build technology with every, all the cloud infrastructure that's happened. So like, I think that's a component to it. you know, I think like, you know, what Chris Yee and, um, Reid Hoffman argue in blitz scaling is like.
[00:32:09] It's harder to create defensible moats because of like the global economy and on the cloud infrastructure. And so that makes like the race to the winner even more important Which I partially agree with and partially don't I think that works really well in network effect businesses So there's a lot to unpack there Toni and for whatever reason I don't know if like my mind goes to like the SDR you might be right But I don't, I don't
[00:32:36] Toni: So it was Aaron's fault. It's Aaron's fault.
[00:32:39] Mikkel: We could always an episode number two, just diving into this subject. But actually there's one piece I wanted to hop a little bit back to, um, guess taking a left turn here, which is Anyone listening right now, they're most likely going to have sales folks on payroll.
[00:32:53] And I know we get lots of questions about commissions. What should it look like? How should we structure it? And it's, it's also, you know, there's a lot of anguish for a lot of companies there. what's your take there? What are some of the challenges you see for some of the operators, some of the, the go to market leaders out there when it comes to kind of scaling sales further?
[00:33:13] Um, how does commissions play in here?
[00:33:16] Toni: Hey there, sorry to interrupt. I just wanted to take a second and say that this show is hosted by Growblocks. This episode simply wouldn't exist otherwise.
[00:33:24] That's why I wanted to tell you in 15 seconds why a company like Superside use Growblocks to run their go to market at 50 million ARR. It's really three things.
[00:33:35] Full funnel visibility. See the entire bow tie and monitor performance, a common language, Shared metrics, definitions, and no more data objections, and better go to market meetings, being able to spend the time discussing problems, testing solutions, and assessing next steps. That's it. Back to the episode.
[00:33:54] Mark Roberge: yeah. Mikkel, it's such an important, I still think we're brutally messing that up. So just starting from the top, um, in B2B software, most of the time that I see an organization, especially in like the 10 million plus we're talking, the, the CEO founder delegates the sales commission plan design. And the head of sales uses the plan from their last company. Right off the bat, that's completely broken.
[00:34:29] Mikkel: You have a bit
[00:34:30] moral hazard at least.
[00:34:32] Mark Roberge: yeah, I mean, I understand intuitively, but it's just like, That gets back to, you know, there is no, in my opinion, no, universally acceptable design of your go to market system. And the go to market system is everything from the methodology you use, Bant, MEDDIC, Sandler, force management, whatever, to the type of salesperson you hire, to the type of demand gen channels you choose, whether it's inbound or outbound, or, you know, channel, you know, channel partners or whatever.
[00:35:08] ABM, ABS, right? To the coaching framework and the commission plan and the pricing model to the way you forecast. Like there's just, it all has to be optimized to your context. And that context, when I double click into context, it's like, what's the type of product you're selling? Are you selling jets or paper?
[00:35:29] Who are you selling to? CTOs or CMOs or CFOs? And what is unique about your company? Culture, whether it's your stage or you in Japan or Brazil or like, there's a lot of the different factors. So I look at those things to devise your context. And so that's where we have to think about with your sales commission plan.
[00:35:50] And I think a lot of founders fail to realize that. The sales commission plan is often the most valuable tool in your chest to align your strategic vision with the front line conversation with the customer. Alright, so we can unpack that. So like when you're designing a good comp plan, you're like, as CEO, you're like, okay, Um, what am I trying to do this year as a company? And can any of those strategies be reinforced into the commission plan of the, of the sales, sales team? And so like one of the really common ones that you watch, Mikkel, was, um, let's,
[00:36:31] a lot of SaaS companies are always focused on improving retention and expansion. And this is an area where the traditional sales comp plan Actually contradicts that goal,
[00:36:45] Mikkel: Yeah,
[00:36:46] Mark Roberge: right?
[00:36:46] Cause like the traditional sales comp plan, which was devised in the 1980s. is we, we reward salespeople more for the first revenue from a customer than for renewal or expansion revenue. And that was large. That was very logical in the eighties when, there were tremendous switching costs to any software product purchase.
[00:37:10] Like once you got the sale, that was product market fit. You know what I mean? Like they're not going anywhere. Someone did an 18 month evaluation of your competitive landscape. They chose you, they deployed your software on the 500 servers in the basement of their local area network, and they hired Accenture to train your entire staff on how to use the software.
[00:37:33] They were committed. The software sucked. Like the software was not good, then it was the best sales team won and they were stuck with you for like eight to 10. The concept of shelfware, we've all heard it,
[00:37:46] Toni: Yeah.
[00:37:47] Mark Roberge: right? So like great, beautiful comp plan design for then. But now, and you know, in these last 20 years of cloud and SaaS and subscription, easy to buy, easy to leave.
[00:37:59] Number one KPI is, is renewal and expansion. And so now what you have is like, you have like a company that is evaluating your software and they're like, okay, we love what you have here and we'd love to just pilot it with one team, you know, these 10 people. And if it goes well, We'll expand it after a quarter to the whole country, which would be another 500 seats.
[00:38:26] And then if that goes well after a quarter, we'll expand it globally to all 5, 000 seats. And the salesperson's like, no, why? I mean, that's perfect from a company perspective, because like I get this pilot, it's easy to close. It closes fast. And if the pilot doesn't work, I only churn like 10 seats. But if it works, I expand like crazy. But the salesperson says no, because that's how they get paid.
[00:39:00] get paid for the first seats. So they want to go for the whole 5, 000. So they oversell it. They try to roll out the whole 5, 000. It fails. And now your churn's a mess. Versus if you just paid the salesperson more for the expansion, then they will be aligned with the buyer and they will be aligned with your strategy.
[00:39:20] of expansion and better retention, but like so few comp plans. And listen, when I talk about that comp plan design, I'm not trying to turn your hunter into a customer success manager and an account manager. I'm just trying to align them with the opening contract around retention. And so that they don't lie, that they, they sell in the way the buyer wants to buy, which is to like run a smaller pilot and then expand it.
[00:39:47] And that's better for your Uniteconomics, and just leads to the strategy that you want as founder.
[00:39:53] Toni: I think all of that sounds great in theory. but I've, I've, you know, had to design a couple of comp plans myself as well. And, and this whole conversation about, Hey, why don't we incentivize the reps around retention? I think this is. Um, an old idea actually. but I feel no one has really, really figured this out.
[00:40:10] Have you seen teams that figured this out? Kind of, is
[00:40:12] Mark Roberge: Yeah, yeah, definitely. So like, first off, yeah, I used it at HubSpot with the CRM. Now it's, you're right in a sense, like, I gave you the shorter version, so we have to get into the nooks and crannies. Which is like, okay, what do you mean compensate them on retention? Like I can't like have this rep sign a deal and then they renew.
[00:40:34] First off, I'm not, it's not compensate them on retention. It's like, yeah, you sign it. It's more like give them more money for expansion. Okay. So like, so you're totally right, Toni. Like, let's not like comp them on renewals. No, that's not good. Right. But it's like, if the, if the company expands, then they should, if you, if you sit here, And you have one rep, two reps, they both sold a million dollars of software this year.
[00:41:03] And one year later, for one rep, 30 percent of their customers cancelled. And no one expanded. and the other rep, you know, 90 percent renewed and half of them expanded. If those two reps are paid the same, that is a huge flaw. Okay. So let's just, just back that, that backdrop. Now to your question, Toni, like we can't wait a year to pay these reps on expansion dollars per se.
[00:41:34] Now in an enterprise, like a big ticket environment, I think you can, because I think a mistake for million dollar deals to hand the deal off to an account manager. So usually like when people are like, Hey, should we, should we have a hunter farmer model or should we keep our hunters on the account?
[00:41:53] I asked two questions. Number one, what is the percent of the first contract compared to the overall lifetime value? If that's like a big difference, you've got to keep the person on. And the second question is how hard is it to expand it to that big LTV? If it's just adding contacts, then yeah, we might not have to, but you have to get to other departments and decision makers and move up.
[00:42:18] Then we have to keep that person there because the skills to do that are like hunting skills and we have to like re leverage the relationships and internal knowledge of the account to expand it. So that solves some of that expansion revenue problem, Toni, because I'm staying in that account. I want to get paid on it now in other situations where it's more hunter farmer, you're totally right, Toni.
[00:42:38] We can't wait for the annual renewal and expansion to compensate the rep. But what we can do is study the science of scaling from Stage 2 Capital to understand what is our leading indicator of retention. Okay, so like, what is it that happens in the first month of a customer's lifetime with us that if it happens, they will renew and expand?
[00:43:04] And if it doesn't, they're probably going to churn. Okay, so like let's just talk about Slack, right? Slack, uh, if, if, um, if the customer sends 2000 team messages in the month, they're good. If they don't, they're bad. All right, so now it's like, okay, here's the comp plan. We're going to pay you 50 percent of the commission when you sign the customer and 50 percent when they hit the lead indicator retention. That's a better plan. But push back on me, Toni. I've used it a bunch places, but like, push back on me, because I want to educate myself, and like, let's educate the environment, too,
[00:43:43] Toni: I think a lot of reps would probably argue the case and say like, well, it's kind of out of my hands. We have the CSM team. They might mess it up. they're trying, you know, I think to a degree, and so I'm totally aligned with you, by the way. I think if we had a great solution for that, that would be perfect.
[00:44:01] But I also, um, had to sometimes sell those comp plans to those sales reps. Uh, and they have always great people. Great ways to push back, right?
[00:44:10] And one of the things that they obviously hate the most is when someone else kind of is in charge of how much money they're going to get, right? Especially if you have a 50 50 kind of very aggressive comp plan and then, you know, the pushback that I would probably, you know, anticipate from them is like, Yeah, it's kind of cool.
[00:44:29] We get it. You know, the revenue is, is, you know, better for the people that hit those milestones. But, what if my CSM messes it up? What if the, the platform is down? What if, you know, something else happens, right? Kind of that, that pushing of responsibility to someone else. I think that would be like my, my first go to not thinking much about it.
[00:44:48] That would be my first pushback, I think, Marc.
[00:44:50] Mark Roberge: Sure. Definitely would be. And it depends, like, what stage you're at. You can't do this the product market fit stage, right? But in my experience Like when you're talking about a lead indicator of retention like that pretty simple It's just like get on there and send 2, 000 team messages It's very rare that the reason why they don't do that is anything but sales Like if yeah, if your platform goes down first off, you should be able to recover from that first second off That shouldn't be happening I don't know a lot of like 10, 000, 000 plus Businesses where their platform goes down for like days such that it would I mean I find goes down for a couple minutes like you know And if you're, yes, your CSM can messed up, but that's like an anomaly in my opinion.
[00:45:36] Like it's not like they can mess up over the longer term, but just to get 2000 team messages going. And then the final piece is like, when these things are in many cases, um, many of these SAS companies have provided access to the product in a free trial format or something like that. So there are cases where the salesperson can actually choose the lead indicator attention.
[00:46:01] Before the sale,
[00:46:04] Mikkel: I
[00:46:04] Mark Roberge: you know, and it depends on the complexity of the
[00:46:06] setup, but
[00:46:08] Mikkel: Jan, I was going to say, I think it also highly dependent on something you said earlier, the context, right? You could be selling two different types of businesses with different use cases. All of a sudden, then what do you have three different definitions of early, you know, leading indicators of retention.
[00:46:23] So I can see it becoming a bit difficult. Like it sounds awesome with Slack, but they also feel to me like they have
[00:46:29] like one
[00:46:30] clear
[00:46:30] cut use case.
[00:46:32] Mark Roberge: yeah, I think, give me an example of business because like, you know, first off, you're getting a little broader Mikkel and like complexity of define your lead and cater attention. And that's really critical outside of even commission plan design. Cause I do think it's your best measure of product market fit.
[00:46:49] I have never seen a business that achieved product market fit and then scaled to like IPO, but didn't lose product market at some point. You're going to lose it. As you expand to new markets and hire more reps and explore new demand gen sequences. So you have to define this lead indicator attention to know that you've lost product market fit before your competition.
[00:47:10] So give me an example, Mikkel, and we can bat it around.
[00:47:13] Mikkel: but, but I think, so the, the way I'm thinking about it is you're, if you take just an, uh, comparative example of selling, right, and you unblend performance across different markets, you will see that they perform differently, right? Because you might not have a German speaking rep. So it's English speaking person talking, it could be the same for onboarding and support, right?
[00:47:31] So I think. Some of the supporting elements might differ depending on the market. It could be the same by industry. So we worked at a social media management platform, uh, so where companies could manage their, all their profiles in one place. Now some would buy it just to handle all the comments and messages they not really publishing.
[00:47:50] Others would be publishing. So it would really differ, um, the, those use cases. And I think fundamentally, What I'm thinking is just this, I think it's going to be hard for a lot of folks to boil it down to the, Hey, we just need 2000 messages
[00:48:05] Mark Roberge: Yeah, yeah, exactly. So you can have like, you could have like, you could have more complex situations. First off, like it's extremely common as you scale to have a different definition for each segment. Like usually the LIR for a big billion dollar global company is different than like a small SMB. And that's okay.
[00:48:26] Like the reason when, when you start to make it complicated with all these and, or situations that complicates it for the CSM, because they're like, ah, like I have this customer and I know I need to do this thing, but there's all these variabilities. But like, if you, if you make it unique to each segment, usually your CSMs are specialized in the segment, so they only have to know the LAR for their segment.
[00:48:47] So that mitigates some of that complexity. You can use these, like with yours, it was like, you, you might have had the same segment has two different success factors, either they use it for publishing or they use it for monitoring. Fine, you can use an OR statement. You can do that. He was like, either this works or that works.
[00:49:05] It complicates things for the CSM, but that's the reality. And then the rep gets paid. If either one of those happens, go ahead, Tony.
[00:49:11] Toni: I, I think maybe there's, so let's, let's see about this. We're just jamming you on this, which is also fun. I would have never
[00:49:17] Mark Roberge: it's good, Yeah. Cause these are the same questions
[00:49:19] the audience has.
[00:49:21] Toni: I know a thousand percent. I think what I would probably try out is why don't you. pay a higher commission for upsell that happens on deals if you're closed.
[00:49:32] Uh, so number one, right, kind of that gives you as a sales rep, like, okay, newbiz revenue is only X worth of upsell revenue. So in your own internal mind, you're gaming thing out. You might be already there, like, Hey, maybe I want to leave some room. And you know, maybe I can close this thing faster.
[00:49:48] But then the other thing you might also over time, Um, have an incentive to stick around in the company because you have so, you know, not, not even that you own these accounts, right? Yes. You have the, the farmer there and so forth, but you know, there's, there's a little bit of cash coming out and, and that additional money, you know, you would need to kind of figure out, does it go against your quota or is it just cash?
[00:50:09] Right. and then the last thing there is like, especially the farming situation is simply a lot cheaper CAC Payback wise, because you don't have the demand inside, right? You don't need to pay for lots of. Lots of that acquisition. So if you can eke out a couple of more points in terms of commission there, you might be able to play around with this a little bit,
[00:50:28] Mark Roberge: It works. Well, Tony, and I have to remind you, you guys know, and everyone, like, I'm not some author that just like up in this ivory tower, like coming up this stuff, like I'm implementing it in like. Hundreds of companies, right? Successfully. So just like, and I love the pushback cause like these are complications.
[00:50:48] We have to get right down to like the implementation concerns. And so you're absolutely right, Toni. That works so well. Again, like we talked about in the enterprise, like larger ticket environment where you kind of want your hunter to stick around. And even if like in a more transactional environment, again, we don't need this hunter to like, Be running the CSM process.
[00:51:08] It's more that like when you do look and evaluate customer retention issues, most of the time it's because of poor salespersonship. And so that's all we're trying to get is set themselves up for that, for that expansion. So, you know, there's a couple of ways to boil it, but you're, I like what you're saying.
[00:51:25] Mikkel: But it's so funny. I was, I was literally thinking about that. One of the areas of contention is the sales CS handover. And guess what, you start fixing a little bit here, when you align the commission, you
[00:51:35] fix the handover. Boom, we're solving everything.
[00:51:38] Mark Roberge: And that, that comes down Mikkel to real quick, like, and that was something that came up as you guys were talking was like, You know, you, you have to kind of rethink the whole like throw it over the fence. Like if 50 reps on one floor and you have 25 CSMs on a different floor and the handoff is they hit submit in the CRM and then it's gone and the rep doesn't hear about it until they churn.
[00:52:01] Mikkel: Yeah, yeah,
[00:52:02] Mark Roberge: Yeah, I mean that's great for like just simple customer transactional utilization. But it's terrible for teamwork. And like, I've used in practice quite successfully, the kind of like the, the AE CSM pod model, where it's like, you literally, they're literally sitting together and it's like, You got these four AEs and these two CSMs.
[00:52:23] And most of the customers from these AEs always go to these two CSMs. Granted, has a huge month, have to fix that a little bit. And what happens is like now there's teamwork happening and it's like, Oh, they miss the, you know, you know, there's just a communication level that's happening.
[00:52:41] You know, that, that's kind of an important compliment to the strategy we're talking about.
[00:52:46] Mikkel: So Maybe just to wrap it up because we are kind of at the end. Sorry to say, because we could keep this on and like, I wish we started there. That would have been fun, but you wrote a pretty long ebook. Uh, you can find it on Stage 2 Capital. it's called the Science of Scaling, I believe.
[00:53:04] like this. Um, we'll link it in the show notes. You go into a lot of this stuff around scaling from zero to a hundred million with sales and how to make sure you don't, you know, break the unit economics. So we'd definitely recommend to check that out. And, uh, I guess what's left to say is Mark, thanks so much for joining us. It's been a pleasure. Thanks.
[00:53:24] Mark Roberge: It's fun.
[00:53:25] Mikkel: Thanks a bunch, Mark. Have a good one. Bye bye..