What Senior Executives of Growth-Stage Companies and Their Investors Need to Know.
A phenomenon many companies experience during their growth lifecycles is that of reaching revenue plateaus, past which point, incremental growth is markedly more difficult. This may occur because of addressable market, product or production, or geographic constraints, among other reasons. The ability to surmount these obstacles is what differentiates companies that continue on to long-term success and market domination from those that are left behind. And sometimes, breaking through to that next level requires an infusion of capital from a Growth Equity partner.
If you have made the decision to accept growth equity investment capital, it will be important to you and your investor(s) to derive the greatest value and results from your mutual partnership. Many factors, great and small, go into achieving this outcome.
Here are twelve tips for scaling revenue successfully when working with a growth equity investment partner.
Remember, You and Your Investors Share the Same Interests and Goals Your Growth Equity partner invested in your company because they believe in your product or service and the available market opportunity. And, they believe in YOU, as founders and executives of your company. Together, you share common interests and goals: knocking down barriers to success, expanding into new markets, products, or channels, and generating substantial additional, profitable revenue. When that happens, everyone wins. So keep an open mind, open door, and open line of communication with your investors. Most Growth Equity firms have the experience, advisors, and connections to help you be successful. Never allow your relationship with your investors to take on an "us vs. them" dynamic. Doing so is the first step down the slippery slope of failure.
Invest the Time, Effort, and Money to Do Things Right Nobody said growing would be easy. If it was, Growth Equity investors probably wouldn't exist in the first place. But growing is difficult, and, if you are reading this, you probably do need the investment. You worked hard over a significant period of time to cultivate interest and trust with your investor partner(s), and now you have received the investment. You need to make sure you are spending the money the right way, at the right time, while also being appropriately cautious and conservative. You have to strike that fine balance between spending money on the things that will a) remove impediments to success, and b) prepare your company to seize opportunity at scale when those impediments are removed. Real or imagined, you will feel pressure to perform from the moment you sign the investment agreement, and you must be careful to walk that fine line between moving quickly enough to hit your revenue goals in the short-run (as well as over the lifetime of the investment), while not going so fast that you miss the opportunity to establish the right essentials of strategy, culture, organization, process, and tools, from the very beginning. Especially when feeling pressure to perform in the early months and quarters of the investment period -- again, real or imagined -- many companies tend to err on the side of thinking, "We've been successful so far, so we'll just do more of what we already do, and do it faster." But oftentimes, the approaches, processes, structures, and systems that have enabled you to be successful to this point will not scale to support your growth goals, and they need to be reworked at the onset of this next evolution in your growth, to be repeatable, scalable, robust, and dependable. Imagine you live in a single-story home, and are about to add two more floors. The foundation that was great for your single-story home may well crumble under the load of a three-story home. It will need to be reworked before you can begin building. The same idea applies equally well to building revenue: getting the foundation right is the essential first step of growth.
Develop and Follow an Agreed Revenue Strategy Many early stage companies do not have a well-defined revenue strategy. Beyond what revenue-generation ideas may be written into the business plan, in the early days, much of a company's focus may be on defining and developing products, perhaps organizing the manufacture of its products, etc. The first sales are likely made by the founding executives, probably through their own influence networks. And as the company makes its first wave of sales and begins to find its footing, certain actions and decisions will be taken to continue that early growth: putting up a website, hiring a sales guy, perhaps partnering with another company, or getting a booth at a trade show. But in many cases, these are reactive, piecemeal responses to evolving needs and circumstances -- adaptations as the company learns and grows -- not, necessarily, actions and decisions guided by a well-considered revenue strategy. And, generally, that's okay, when a company is in its earliest stages. But as a company matures, and especially when a company is about to embark upon a very significant period of growth, such as after receiving growth-equity investment money, it is vital that the company have a sound Revenue Strategy that widely agreed, communicated, understood, and followed. Succinctly, your Revenue Strategy is the plan that defines how your company will go to market, and maximize highly-profitable revenue. A good revenue strategy aligns marketing, sales, and service to optimize customer experience and maximize profitable revenue, and it covers many areas, including definition and alignment around objectives and intended business outcomes, marketing & sales demand funnel and sales process, roles & responsibilities, revenue-team organizational structure, markets, channels, geographies, enablement, tools, operations, metrics, pricing, sales comp, and more. We'll get into the details of what goes into a sound revenue strategy in future blog posts, but for now, please understand that you DO need a Revenue Strategy to guide your growth-stage expansion, and that it is essential that all key executives and leaders of the company understand, agree with, and follow that revenue strategy. If you have any leaders who are not onboard with the revenue strategy, you need to work that through and resolve it up front. Nothing is more corrosive to success than fragmentation and disagreement among the leadership team.
Define your Sales Philosophy Once you understand your revenue strategy, it is important to act with intention relative to how you sell. By this, I do not mean the mechanics of how you sell, such as inbound vs. outbound, what channels or markets, etc. That should all be defined in the revenue strategy. Rather, I mean the softer side of how you sell to your customers. Do you sell on specs, or on value? Do you focus on what your product or service is and does, or do you focus on how it can help your customer achieve their intended business outcomes? Do you care more about customer relationships, or transactions? Do you take a consultative approach to selling? How do you engage with customers across their entire journey and lifetime with your company? These are the type of questions and decisions that define your Sales Philosophy, and they should not be taken lightly, as they play a key part in shaping your company's perception and brand reputation. Many of us have been fortunate to be on the buying-end of sales cycles where we were pleasantly surprised and impressed by the way a sales rep listened to us, understood our need, became our advocate, and helped us truly understand and benefit from the product or service we were buying. Likewise, probably all of us have been on the buying side when we found a sales rep to be too pushy, aggressive, or incapable of explaining the value of the product or service and successfully relating it to the outcomes we wanted to achieve. In fact, this is a regrettably common occurrence. How you want your sales force to act, and your company to be perceived, is up to you. But if you want strongly positive customer experiences that result from specific behaviors promulgated by your sales reps, you need to make decisions and put stakes in the ground around your Sales Philosophy, then communicate and educate until they are fully understood and embraced by your sales team. As a selling organization, you need to act with intention.
Establish a High-Performance Sales Culture Sales Culture and Values matter greatly to achieving the revenue and profitability targets you have set, and they need to be set from the top, championed at every level of the organization, and constantly nurtured. For too many companies, failure (well, underperformance, at least) seems truly to be an option, inasmuch as it is culturally tolerated. But that cannot be the case in growth-stage companies that need to achieve ever-expanding revenue and profit targets, and also build brand and reputation. As with sales philosophy, Sales Culture and Values don't happen by accident. They are the result of thoughtful decisions taken, communicated, and acted upon with intention. The life-blood of a highly-performant sales organization is the culture and set of values that drive the day-to-day behavior and attitudes of its sales reps and sales leaders, and it's not complicated. Honestly, it's somewhat like taking all the good bits of advice your mom gave you when you were growing up, and applying them to selling. Here's a quick foundational list of sales cultural & value concepts I believe are fundamental to success. They are not the only elements of culture and values, but some flavor of each of these should appear on almost every company's Culture & Values slide: - Receive before Broadcast: Emphasize Listening in every customer conversation; - Maintain brand integrity and consistency in every written or verbal communication; - Always do the right thing for customers; - Strive to earn "Customers for Life"; - Transparency + Truthfulness = Trust; - Ensure Responsibility and Accountability at every level; - Never take your foot off the gas, even after you've hit your quota or target; - Sales Reps and Managers "owe" the company a certain level of bookings every month. For companies about to undertake the next big evolution of growth, it is essential to have these elements of Sales Culture and Values defined, understood, and widely embraced throughout the selling organization before you hire the next wave of sales people. New hires quickly pick up on the prevailing culture, and either initially or eventually, and they conform to it, so it is critical to have the right culture in place ahead of your first upsurge in sales hiring.
Understand and Drive to the Targets that Matter This one should seem obvious, but it's important -- really important -- that company executives and sales leaders are on the same page as their growth-equity investment partner(s) regarding revenue, cost, and profitability targets by quarter and year over the anticipated lifetime of the investment. When growth equity investors put money into companies in which they see potential, they do so with specific expectations regarding the valuation of the company upon exit, within a certain time frame, derived as an industry-appropriate multiple of revenue, EBIT, or both. Their best barometer of progress toward the revenue and profitability levels that will drive their target valuation are the quarterly results attained during the course of their investment timeline, starting Day One. Having conducted reasonable due diligence, and generally being experienced, intelligent, industry-savvy investors, your growth equity partner(s) will undoubtedly have quarterly and annual performance, or at least, run-rate, targets in mind when they make their investment in your company. They have probably already discussed these with you, but if not, you should ask. While the best growth-equity partners try to strike a balance between enabling your growth and success, not ruining the "secret sauce" that has made you successful heretofore, and not micromanaging, they will be looking for your company to perform to their desired targets, and it is important that you understand these targets and make the necessary plans and investments, early enough, to support their attainment.
Organize Early for Scalability Very likely, a significant part of what your new growth equity investment is intended to fund is an expansion of your existing sales force, and other revenue-related roles, including marketing, business development, alliances, sales enablement, and sales operations. As your revenue team scales, it likely also becomes more complex, as you align resources to specific products, markets, geographies, and/or customer segments. And, more heads and more complexity increases the need for additional layers of sales management. Not that anyone ever wants to build an overly-complex or top-heavy sales organization, but the simple fact is that sales reps need direct involvement with sales management, and there are only so many direct reports one can effectively manage. Personally, I tend to favor a ratio of about 8:1, but this can flex a little, depending on how differentiated (by product or industry) or geographically-distributed your sales territories may be. In any case, it's a classic mistake to assume you can just keep adding sales reps and related roles and have them all roll up to the current sales leader, in a flat organizational structure. A manager with 20 or 30 direct reports becomes almost completely ineffective, despite dashing around at the speed of light. There simply aren't enough hours in the week to give every direct report the time and attention they need and deserve, and managers cannot get the information and confidence they need in return, when they are spread too thin. It's a recipe for disaster. So, design your revenue organization for scalability from the outset. Imagine what your revenue organization might look like at full maturity -- what roles, teams, and leaders might be required to sell to and support the markets, industries, geographies, and channels you expect to have, across the range of products and/or services you expect to sell? And what other roles will be required to to support those sellers? And how about to supply them with lead flow? During your first pass at this, don't focus on how many people to hire. Just focus on defining the roles, and think about how you would align them in a hierarchical structure that makes sense for your business. There will be a chance to figure out how many heads to hire in a subsequent pass at the model. But do take the time during this first pass to be imaginative, thoughtful, and diligent; define each role in specificity -- I use a model that describes each role according to eight key characteristics, including cost and quota -- so you build a "library" of roles you can mix and match as you create your organizational structure, and readily see the cost and revenue impact of each role you place in the structure. Importantly, you should also plan to overlay a time dimension on this model, so you can see what things will look like at, say, quarterly intervals along the way. Note that earlier I urged you to imagine what the organization might look like "at full maturity". Full maturity may well come at a point in time beyond the horizon of your growth equity investor's planned exit, but by envisioning now a future state that is a superset of what you will need during the lifetime of your current growth-equity investment, you will make better decisions today that will not only help you meet your current investors' goals, but also enable you to keep growing beyond their exit event.
Model Your Path to Revenue Attainment Hand-in-hand with defining what your revenue organization will look like long term, and at each intermediate quarter along the way, you absolutely must model out your revenue, cost, and P&L projections by quarter (or better yet, by month!), so you can figure out how many people to hire, when, where, and into which roles, in order to hit the intermediate revenue, cost, and profit targets that will put your company on track to achieve the valuation objectives your investors hold. Seems logical, right? However, as seems always to be the case, the devil is truly in the details, and it is not sufficient to just create a simple spreadsheet of "magic numbers" for monthly or quarterly revenue, cost, and profit/loss projections. By "magic numbers", I mean numbers that someone simply made up and typed into a spreadsheet. Doubtless, with the best of intentions, of course. Educated guesses, perhaps. Or worse, numbers reverse-engineered from the targets to look like they build neatly to the goal. But relying upon on magic numbers, then being surprised when the "plan" doesn't work out, is a road to a warm place paved with, well, you know the story. . . Instead, this is where the heavy lifting must be done. A proper revenue attainment and cost model must be assumptions (variables) based, and every number in it must be calculated from those variables, rather than simply typed in as a "magic number". And every assumption you make that drives the model must be a) conservative, b) informed by historical performance data, c) aligned with the appropriate components of your revenue strategy, and d) grounded in reality -- that is to say, consistent with the actual performance of other comparable companies. No wishful thinking here -- this model needs to be as true to what will actually happen as possible, inclusive of sales on-boarding and ramp-up time, sales cycle durations, average deal sizes, quota-attainment rates, addressable market constraints, real-world compensation levels, and more. And then it needs a haircut to account for the missteps that will inevitably occur as you attempt to hire and drive performance out of a revenue organization that may soon have more "new people" than "existing people". But once you have this model, and have looked at it from all angles, attempting to poke holes in all the assumptions and calculations, you can then use it to answer questions in two very important categories: "What would happen if we did 'X'?" and "What would it take to achieve target 'Y'?". By looking at your revenue model through these two lenses, and converging upon the same answers from these opposing points of view, you can develop much greater confidence in your decisions regarding who to hire when, where, and why, and you can predict results with much greater confidence. You will also be able to more readily identify problem areas where things may not be working according to the model, and take corrective action early so you can get back on course.
Build Revenue Processes that Work It is not uncommon for companies entering their first major growth evolution to have incomplete, immature, or even nonexistent sales processes. They have managed to get by to this point without robust, formal sales processes because the selling team was quite likely small -- founding executives, primarily, and maybe one or a handful of sales reps. But companies at the beginning of a significant growth stage, particularly when outside investment money is involved, must build repeatable, integrated sales processes that connect demand generation, opportunity qualification, deal pursuits, pipeline management, forecasting, and more, in a consistent and coordinated manner. Not only does this improve sales results -- shorter sales cycles, larger average deal size, higher win rates, etc. -- it also provides greater transparency and predictability of results, which is essential for both leaders and investors of growth stage companies. It also provides a structured framework within which newly hired sales reps can develop and perform. A few months ago, I began a five-part blog series entitled "How to Create a Basic Sales Process that Works", which provides a deeper look at this important topic. I encourage you to give it a quick read.
Provide the Right Tools Access to, and correct use of, appropriate tools for demand generation, business development, sales execution, and sales intelligence, is nearly as important as having a proper sales process, and certainly crucial for effective and efficient execution of your revenue processes as your organization scales. The type of tools you need will vary based on the nature of your demand generation and sales processes and cycles -- B2C vs. B2B, enterprise vs. mid-market vs. SMB, etc. -- and the order in which you acquire them should be determined via a prioritized roadmap. That said, the right tools, properly implemented, help ensure that your well-designed revenue processes are executed with consistency and efficiency, the data related to those processes is clean and accurate (which supports better forecasting), and you develop a store of information from which you can derive actionable insights to help you market, sell, and serve your customers more effectively, while creating a better experience for both your customers and your employees.
Don't Skimp on Education, Training, and Change Management A common area where many business -- large and small -- fall down is in providing adequate attention to the education, training, and change management required to help existing employees and new hires adopt and effectively use the revenue processes and systems that support the ability to scale. Without people to execute the processes and use the systems, those processes and systems are worthless. And yet people cannot execute the processes or use the systems to greatest benefit unless they understand and believe in what the processes and systems are for, why they matter, and how they should be used. For existing employees, you will also need to bring them out of their comfort zone by helping them understand their personal WIIFM's -- their "What's in it for me?" All of this, by the way, must be done at every level of the organization, from the C-Suite down to individual contributors, to ensure everyone is onboard and rowing in the same direction, lest all the time, effort, and care you have put into designing and implementing your revenue strategy, processes, and tools be wasted. Countless organizations have failed to achieve their intended business outcomes because they have skimped on education, training, and change management, usually to reduce costs, or sometimes because someone senior in the organization does not see value in those things. Don't make this mistake. Don't be the organization that runs 25 miles of the marathon and then gives up before crossing the finish line. Make the commitment early that you will invest in supporting the execution of your revenue strategy with good education, training, and change management. It can make the difference between failure and success. (If you have read Part 5 of my blog series on creating basic sales processes, you know that this topic is near and dear to me, and this probably won't be the last time you see me write about it!)
Communicate -- Early and Often Finally, I cannot overstate the importance of frequent, clear, and consistent communication. It needs to happen, bi-directionally, between sales reps and their managers. It needs to happen between sales managers and sales leaders. It needs to happen between sales leaders and executive management. It also needs to happen between executive management, the board, and investors. And when it does, communications need to be transparent, truthful, and consistent in both directions. They should also occur on a regular and frequent cadence. As you grow your business, everyone needs to work toward common objectives, but it's pretty tough to do that if people don't know or understand the objectives. Likewise, it's pretty difficult to run a team, organization, or company if you don't get honest feedback and accurate information from the people who work for you. Believe me, there is nothing more frustrating as a leader than having people tell you what they think you want to hear, rather than the truth of what is really going on. This sounds obvious, of course, but it bears discussion, because in too many companies, it doesn't happen very well. When that is the case, two things occur: 1) leaders inevitably, if unwittingly, make decisions based on incomplete or inaccurate information, and 2) employees below the leadership level feel disconnected, uninformed, or even misinformed, leading them to question executive management's decision-making and leadership, which undermines morale and performance. Ultimately, this can devolve into an "us vs. them" dynamic, which can paralyze a company, and derail growth. Your culture needs to embrace and encourage open, honest, and frequent communication. Your company will be better for it, and you will achieve your revenue and profit goals more quickly and easily, as a result. This may be uncomfortable for a while -- for everyone involved -- but it is essential for executives to lead by example, and make the communication happen.
I hope you have found this article helpful. As always, thanks for reading!
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About the author
Eric Heine, Founder of Growth Point Solutions LLC, draws upon over 25 years experience in marketing, sales, service, and IT leadership to advise C-level executives and boards of directors of growth-stage companies, as well as growth-equity investors, to help organizations develop, refine, and execute the revenue strategies that power significant, sustainable year-over-year growth.
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Tags: #GrowthStage, #GrowthEquity, #RevenueGrowth, #SalesProcess, #Forecast, #WinRate, #Tips #Communication #RevenueStrategy #SalesCulture #SalesTools
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