Do not loose touch with the buyer

Is technology distancing us from the buyer?

The breath and depth of tools in the marketing (and sales) technology landscape is exploding. Many of you may have seen Scott Brinker’s overwhelming Marketing Technology Landscape graphic. Gartner predicts that by 2017 the CMO will spend more on IT than the CIO. There are a number of key drivers for this change.

We have all heard the statistics that an overwhelming amount of buyers do their research online before completing an offline purchase. This means that a major emphasis of growth marketing is focused on being discovered and educating the buyer online, ultimately in the hope of generating a high-value MQL (marketing qualified lead). Just this one sentence represents hundreds to thousands of tech companies focused on marketing automation, SEO/SEM, content management and distribution, predictive lead scoring, and many more categories.  In addition, these systems then need to integrate with the sales IT systems. The CMO today is not only being bombarded from all directions by hundreds of vendors but also has to answer to boards and the executive team on inbound marketing strategies and metrics.

The pendulum has definitely swung from traditional direct and in person marketing towards content and education. Sales leaders are required to deliver detailed, real-time metrics of lead conversions, opportunity creation rates, ASP, yields, pipeline growth, churn, and more. While I believe the pendulum needed to swing, I question whether management teams are not over rotating the other direction and distancing themselves from the buyer by focusing too much of their time on the sales and marketing technology implementations vs. spending time learning from and selling to customers.

Some things to consider:

  1. Lead scoring (predictive or not) tries to ensure sales reps are spending their time on higher quality leads and enjoy higher conversation rates to opportunities. This does not mean there isn’t opportunity in the non marketing qualified leads but there is an assumption that it becomes progressively harder to find the needle (opportunity) in the haystack (raw leads). At Zend we had seen many of our lucrative deals come from leads who had been in our database for quite some time and had just never been qualified in. So while not always possible, it may just be more impactful to dig deeper into the lead pool and find cost effective ways to do so. Less time on tuning the system and guesswork, and more time on picking up the phone and truly qualifying leads by talking to people.
  2. Digital marketing promises an abundant amount of leads at a fraction of the cost of more traditional approaches such as events. I do believe digital marketing is critical but in certain (not all) markets we have seen strong results from in person events. Typically, a prospect’s commitment to a conversation and follow-up is higher in an eye to eye encounter. It also enables the sales reps to much better qualify the tire kicker vs. the prospect who truly has interest and influence to move things forward. So before you abandon in person marketing opportunities think it through carefully.
  3. Meeting customers (new and existing) in their offices is invaluable. The ability to truly understand motive, environment and the various stakeholders goes way up. It also makes it way easier to get honest feedback from customers and build a personal relationship which can contribute at many levels e.g. getting the customer’s help to get a deal in before end of quarter, get a customer’s commitment to contribute time to being a design partner on a new feature and more… We consistently saw that end of quarter deals were more likely to come if there had been some face to face connection with the key stakeholder. Again, the more time is spent in the office tweaking the systems the less leaders are on the plane spending quality time with the customer.

Don’t get me wrong. I am a technologist, very metric driven and I absolutely believe the pendulum needed to shift towards more online engagement and education. I also believe that sales and marketing leaders need to be held accountable for both the forward and rear looking business metrics. But I do believe that sales & marketing leaders are spending less and less time with customers due to the increased overhead of implementing systems and reporting on the metrics.

There is no better way to gain new customers and learn how your existing customers view your value-proposition than human-to-human interaction. My advice to sales and marketing leaders is to embrace technology but don’t let it outright consume you. Carve-out a sustainable amount of your and your team’s time to make systems improvements but ensure that time is well spent and managed. One of my past board members would say “You can report on the news or you can make the news”. I prefer to make the news!

Free

Freemium and open source business models. Friends or Foes?

Basics of the freemium model

The freemium model started being popularized in the 1980s, frequently under the term “shareware”. The term freemium model became better known in the past decade. Freemium stands for the combination of “free” and “premium”. It refers to a licensing model that starts at free in the hope to gain broad traction and then convert a subset of users to a for-pay, premium version of the software or service.

In the era of information overload and too much choice, the freemium model promises an awareness and marketing boost by enabling a broad and lower friction adoption model. Generating the necessary pull to make a freemium model work is critical and requires providing enough value in the free edition to drive broad adoption and preferably word-of-mouth based adoption.

To then encourage free to paid conversions it is important to expose some of the value-add premium capabilities within the free product. This is usually accomplished by exposing premium functionality with some limitations. The ability to use the product perpetually for free is what makes a freemium model different from a free-trial model. In a free-trial model the buyer knows they will need to make the buying decision within a matter of weeks.

Making a freemium model successful

The trickiest aspects of making a freemium model successful is to get a number of levers right:

  1. Provide enough value in the free version to ensure broad (preferably viral) adoption.
  2. Have clear cross over points from free to paid so that the target prospect will have strong motivation to pull the trigger on going premium. There are many ways to differentiate free and paid including storage space, bandwidth consumption, features, support SLAs, and capacity.
  3. Implement effective premium tiering to drive up the average selling price and tailor to multiple prospective buyers and use-cases.

To motivate a content free user to move from free to paid it is important to have big, must-have reasons to make the purchase. Preferably the user hits some limitation which is important to them which creates an impeding event. Incremental motivating drivers (should-haves or nice-to-haves) may not create enough urgency when the free version is “good enough”.

While in the free-trial model the trial expiration is a hard limitation which forces a buying decision, the same does not exist in a freemium model. This is why freemium models tend to work best when there are some significant hard, must-have reasons to upgrade such as more storage space needed (e.g. Dropbox or Box), data volume limits (e.g. Splunk), and number of servers to meet a needed amount of capacity.  When such clear reasons exist it tends to be easier for the vendor to give away more features for free to drive the broad adoption of the product. Also, in such situations there is less cannibalization risk when the target audience are the ones making significant use of the product.

The quality of implementation of the freemium model within the product is also a critical success factor. Not only is it best to find ways to expose the value-add within the free version but there should also be a smooth, low friction path from free to paid. To ensure that happens, the product itself should be upgradable, preferably in product, so that the user can continue their work right away. This is easily achieved when delivering a software-as-a-service, but in the shrink wrapped software world it typically requires the free version to ship with the premium features ready to be turned on with a change in license key. Needless to say it can get quite tricky to implement an effective freemium model within the product and there are many nuances making it successful.

Freemium as part of an open source business model

Monetizing open source projects via freemium models is even more complicated. Many open source vendors monetize by developing proprietary value-add functionality to the open-source software. The value-add in conjunction with support SLAs is what drives conversions from open source to paid. The open source business model on its own is not a true freemium model as the open source project usually does not expose the vendor value-add. In a significant amount of cases the open source vendor is not the one who controls the distribution of the open source project and/or cannot for political reasons bundle proprietary value-add within the open source project. Therefore, the open source software is not equal to the free version in a traditional freemium model.

Hence, in order to implement a true freemium model in an open source market the vendor often needs to have a “community edition” (CE) which is a free, value-add version of the open source project. The goal would be for the CE version to be the way the user adopts the open source project and at the same time expose some of the premium value-add of the premium version.

However, this exposes a number of challenges which are unique to freemium models as part of an open source business model:

  1. There is one more level of differentiation that the vendor needs to tailor to which can ultimately dilute the value-add of the premium version. The vendor is not only contributing functionality to the open source project to ensure its ongoing success (the foundation of the business) but also, in addition, they need to give away functionality that differentiates the CE version from the open source project to create enough motivation for the user to obtain the OSS project via the CE product. In this open source differentiation model there is one additional “free” tier that needs to be differentiated which means that the vendor’s value-add functionality is now spread across three tiers (open source, free and premium) which makes it harder to retain enough must-have value for the premium editions.
  2. As noted earlier, the most effective premium value-adds in freemium models tend to be related to capacity whether storage, servers, bandwidth or other hard limits on workload or data. These hard limits create a compelling event where the target user needs to make a buying decision. However, in an open source model the often most effective workload related limitations are irrelevant because the base open source project can be deployed in an unlimited fashion, think of MySQL (unlimited storage), Hadoop (unlimited compute), or Lucene (unlimited indexing). This is probably the biggest reason why freemium models are difficult to implement in an open source market. There can be workload related limitations to the proprietary value-add (e.g. APM limitations, servers under management limitations) but the base workload which has made the open source project so successful cannot effectively be limited as they are not limited in the open source version.

While I am not saying that a freemium model can never work in an open source business model, most of the successful open source companies have implemented some form of free trial model vs. true freemium model.. This approach creates clearer differentiation between the premium product and open source project. This is especially important as workload based limitations do not typically work as well in open source freemium models so all the possible value-add needs to be focused at differentiating the premium version from open source vs. diluting the value-add with a second free version between open source and premium.

By example, in 2003 Red Hat eliminated Red Hat Linux (their free distribution) in favor of Red Hat Enterprise Linux (subscription-only binaries).  With that they eliminated that middle free tier between open source Linux and a premium Enterprise offering. There was no longer such a thing as a commercially-blessed but not supported Red Hat distribution. That change enabled Red Hat to become a billion dollar, high margin company. Red Hat must have realized that it is too difficult in an open source model to differentiate your product twice. It worked!

All this does not say you cannot build a very lucrative business on open source. Many have done so including Red Hat, Cloudera, MySQL, Zend and others, but I do believe the freemium model may not be the best fit for many open source companies. In most cases, open source companies will be best off focusing on two initiatives – making the OSS project successful and concentrating their value-add on the premium offering. And in cases, where it makes sense to deliver some of the value via a service, even better. In those cases, workload capacity can be an effective limiting factor.

Would love to hear your thoughts in the comments below. In what cases do you believe a freemium model does or does not work as part of an open source business model?

PersonasNew

Buyer personas: the often missed ingredient to product roadmap planning

Product roadmap planning is one of the trickier product management tasks. The product leader’s role is to balance all the different product roadmap pressure points and focus on maximizing the business outcome. The number of variables the PM needs to take into account are substantial. This makes the job that much more difficult especially as engineering resources tend to be constraint.

Some of the contributing factors influencing how product leaders will weigh priorities include:

  • New customer acquisition vs. customer success focus. product investments targeting new customer acquisition will typically be somewhat different then investments targeting customer retention. Of course, you’d like to focus on areas which benefit both but that’s not always possible. For example, that new addition that really helps demo well and show instant value will not necessarily be important for longer term customer retention.
  • Bugs and feature requests. Typically, these requests directly come from customers via the support or the technical field organizations and could fill up the whole roadmap for many years to come. Also known as “the bug tracking system”.
  • Longer-term product vision and strategy. Typically, the CEO and other key leaders in the company have a long-term view for where the company needs to go to maximize market opportunity and outcome. Such investments will often be in conflict with short-term pressure points.
  • Competitive dynamics. There are situations where competitive dynamics really come into play but often they are not the primary reason why the business isn’t growing faster. There is risk of thinking too much about competition although it can be important if you’re clearly and consistently losing to the competition on a very clear set of capabilities.
  • Technical debt. No one except for the product people care about this category. But we all know that if ignored for too long, technical debt can lead to major velocity and longer-term customer satisfaction challenges.
  • Large customer requirements. Often large customers take your product to new limits. As part of that there may be recurring asks from the largest of customers which are not as relevant to the broader customer base. These are often tricky requests and need to be weighed very carefully as they may require a lot of investment for a small set, yet high paying customers. Weighing opportunity cost against benefit is key.
  • Broader market dynamics: The market is always shifting in new directions. Short-term such investments typically won’t pay off in revenue, but if you don’t get ready today you will be left behind. For example, companies who were proactive about Cloud vs. companies who were late and reactive and are now playing catch-up. Also known as getting stuck in the innovator’s dilemma.
  • Expanding use-cases: There are often ways to make adaptations to the product that can broaden its applicability into new use-case scenarios. For example, when Splunk moved from being primarily an IT-centric log analytics engine to broadening the same technology to machine-generated data and tailoring it to additional non-IT use-cases e.g. sales & marketing metrics. This can fall into the longer-term product vision category but I think one that deserves a separate callout as it is often less about making a big technology investment but rather a minor investment plus repackaging and repositioning. The go-to-market impact may be a lot more significant.

And the list goes on… Needless to say product roadmap planning is a very challenging effort and needing to weigh the short and long-term effectively within the constraints of finite engineering resources is often the product leader’s biggest challenge.

There is one aspect of product roadmap planning which I feel many product leaders leave out but should not. That is matching up buyer personas with the product roadmap. For most products, there is not just one target persona. While not every persona is the decision maker it becomes critical that there be value for each influencing persona. Therefore, constantly weighing the product value by persona will also give the product leader a good idea of which personas are being well taken care of vs. others who may not perceive as much value in the offering. While many companies try and map out their target personas this is typically done in a very shallow way and ultimately is not used to truly weigh product value and roadmap investments. It tends to be used more in targeting exercises by marketing and sales enablement tools.

Some key things the PM should know about the target personas include:

  • What flavor of titles they may have?
  • What some of their characteristics are? Their background and thought process, what they care about, how they typically spend their time, what makes them look good in front of their bosses?
  • What their key concerns are? What do they need to get done? what do they need to improve? what keeps them up at night?
  • What is the value you currently offer to that target persona? If you are very honest with yourself, in a product which requires buy-in from multiple persons, you will never have every feature be valuable to every persona. It needs to be crystal clear how the product value intersects with their concerns and ensure that there’s perceived value there.

At Zend, the company I co-founded, we spent time mapping out the value per persona. Our PHP application server, Zend Server, has a number of personas that need to buy-in to the product. This includes the head of development, the production operations team and developers. We are a very developer-centric organization and have invested in developer tools for many years. However, as we went through such an exercise it became very clear that we had very strong value for the head of development who was constantly looking to further professionalize and streamline application delivery (our decision maker) and we had strong value for the production operations team thanks to strong management, security, compliance and DevOps capabilities.

But as we mapped our capabilities onto the developer it became clear to us that while we had huge value to production applications, we were a bit lighter on the “what’s in it for the developer?”. It was very interesting given developers are our #1 lead source due to the successful developer tools we deliver to the market. But Zend Server was not primarily designed as a development tool but rather a runtime capability to best support running business-critical applications.

With this learning and the fact that developers are extremely important to us we recast our 12-month product roadmap to prioritize value targeting the developer persona and reduced the amount of investment in enhancing our production features. While we did not reduce the production investments to zero, we significantly reduced them for a limited period of time in favor of developer value. With a very clear and immediate focus to add more developer-value and leveraging our deep technology expertise in the PHP runtime we designed, a new product capability called Z-Ray. Z-Ray’s goal is to change the game when it comes to developer productivity and code quality. Deliver in-context insights into developer’s code while they are developing it without requiring them to change how they work. We developed this capability in an agile manner with customers in the mix from a very early stage (alpha). The ongoing customer feedback made a good idea great, and within nine months we shipped the killer feature.

Z-Ray has made a big impact on our customers and the enthusiasm by the developer persona. In addition, we successfully tied the capability into the DevOps and production cycle so that it also adds value to the other target personas including head of development (benefit: team productivity and code quality increases), the DevOps role (benefit: reduce friction throughout the DevOps cycle by tackling errors early on in the development and testing stages) and the production ops role (benefit: Z-Ray has production capabilities and it also helps eliminate many errors going into production, hence, less nightly awakenings).

But this article is not about Z-Ray. It’s just one example of many on why weighing product value and product roadmap against the target personas is as important of an exercise as weighing against the many criteria listed above. Without clearly understanding the value delivered to each target persona, product leaders will not effectively balance product roadmap investments and will lead sales and marketing astray on how they communicate and engage prospects.

My previous article on the product marketing discipline emphasizes how important it is these days to ensure communications have the right level of depth and specificity to truly get attention in the market place. Getting the personas and delivered value right is a big part of making that happen!

Speed

The Web is about to get 2x faster. Engineering heroism at its best!

Today the Web is about to get twice as fast. PHP, the most popular Web development language, which runs by some estimates 80% of the Web sites, is getting a big step-up in speed.

Underlying this exciting news there is heroism. What are the typical kind of heroic business stories we talk about? Do the following stories sound familiar?

“Dec 31st, 6pm deal closed! John, the head of sales flew to the other side of the globe to get that big order in that’d make or break the year.” 

“The customer’s e-commerce app is down during the holiday season. They are panicking and losing revenue every minute that goes by. Fred, our senior technical consultant was all over it. Resolved the issue within 15 minutes. The customer sends a thank you note to the CEO. We saved the day (and a lot of revenue).”

“The funding round just hit a road bump a week before we don’t make payroll. We hit a timing issue with one of the investor’s limited partners and they can’t fund for two more weeks. The CEO meets with the bank and gets their commitment to support that extra week of liquidity.”

These are the kind of stories we hear about in Silicon Valley. Time sensitive. Adrenaline rush. Crisis. The hero makes that real-time effort and makes it happen!

This is what I call the fun part of being a hero. It is quick. Energizing. We’re stressed but our survival instincts kick into gear. We do what we need to do in the heat of the moment. Not quite as heroic as taking a bullet in battle for a friend but that’s about as close as it gets in high-tech.

But what is forgotten in these stories are some of the heroes that don’t have the benefit of being on the adrenaline rush of real-time heroism. The ones who are running the marathon and not the sprint. Living the grind. The disappointment.

With today’s release of PHP 7, PHP-based Web sites will be running twice as fast without needing to make any changes to the underlying software code. This is an amazing accomplishment! It’s not typical that general purpose computing platforms that are in such broad use are able to get such huge performance boosts without requiring a significant re-engineering of the application.

But this is not a story of technology but rather of true heroism. A story of persistence. A lot of sweat. Many disappointments and frustration.

PHP has been around since the 90s. Throughout the years we and others invested a lot in ensuring it continues to get faster from release to release. We partnered with companies like Intel to ensure that we always had the latest hardware and tools to ensure it evolves as chips evolve. But at some point we hit a wall… We got to the point where we were only able to make incremental improvements that barely moved the needle.

At the same time we saw a small subset of competitive languages that, while coming from behind, were making faster progress than we were. In 2012 we decided on a “me too” effort where we embraced some of their thought process on how to get better performance. For roughly 18 months we put a huge effort into getting our proof-of-concept to run the simple application benchmarks faster than all of our competitors. It was 18 months of hard sweat by our main hero. But then we tried to run real-life, complete applications on this proof-of-concept and within a few minutes 18 months of hard work and high expectations went down the drain. We found that the real bottlenecks these applications had were not addressed by the embraced methodology.

Man, what a disappointment! No heroism here as heroism is usually equated to success. And this was a long slog… No adrenaline… Frustration!

At this point it would have been quite easy to give up on the big gain and continue to make incremental progress… After all, we were running most applications very well anyway… Typically as good or better than the competition. That’s why we run close to 80% of the Web workload anyway… So who cares?!

But no, this is where heroism really kicked in. Beaten down and bleeding our hero decides to go down a different path. This path cost another five months of hard work without knowing what lies on the other end. Working incredibly hard and long days without knowing whether we’d meet disappointment again. We, the leadership, encouraged, cheered on, but deep inside were bracing for another potential disappointment.

The day arrived where we were able to test the new and improved work. Wow. The new version made everything fly. It also eliminated major bottlenecks which gave us many new ideas we could work on and it just kept on getting faster, and faster, and faster…!

It took heroism to make the Web run twice as fast. Not heroism of quick results, being in the limelight, feeling the adrenaline rush, or even saving the day.

This is engineering heroism at its best. Fully owning the problem, creativity, thinking big while going through a prolonged period of disappointment, grind, lack of visibility on progress being made. Heroism that didn’t save the day, but that enables the future for PHP and the Web as a whole.

Thanks Hero!

Donuts

Is the Product Marketing Role Becoming Extinct?

Here’s an interesting question for enterprises to consider: What if product marketers have no role to play in the future of your organization? Though provocative, it’s a question that cannot be answered without a common understanding as to what the modern product marketer actually does, and more importantly, what they should be doing. So with that as the backdrop, let’s take a closer look at the role.

Product marketing is typically viewed as the outbound product discipline. In other words, the product marketer (PMM) bridges the gap between customers, the product management team and the rest of the company.

Some of the practical responsibilities of typical PMMs include:

  • Developing the product positioning and messaging
  • Delivering a broad range of product-centric content to various marketing initiatives (e.g. website, events, webinars, digital content, data sheets, etc.)
  • Playing a major role in enabling the sales teams and partners by delivering sales tools, training and competitive insights
  • Being the master orchestrator of product launches
  • Supporting industry outreach, including press and analysts
  • Defining and reporting on the key product metrics (lead generation, revenue, discounting) and ensuring the business is heading in the right direction

As crucial as this roles sounds, in the past years I’ve increasingly observed companies who do not have the product marketing title in their marketing organization. This is not because the product marketing discipline or the responsibilities listed above no longer matter. Quite the contrary.

There are a few fundamental changes in both the customer buying cycles and product delivery discipline which in many cases are decentralizing the role of product marketing.

In a 2015 survey, 74% of business buyers told Forrester they conduct more than half of their research online before making an offline purchase. Moreover, 67% of the buyer’s journey is now done digitally (SiriusDecisions). In addition, we know that the B2B buying cycle is increasingly becoming a multi-persona decision making process. Add to this the fact that there’s an increasing amount of noise and information overflow in the market and you’re facing a huge uphill battle to effectively market your product. We are experiencing the democratization of buyer education and are no longer in control of the timing and stage in which the buyer will find the relevant material.

These changes have had a profound impact on demand generation and how marketing teams organize. It is increasingly becoming a game of high quality content delivered to the appropriate persona through the most relevant channels. Sounds simple, but it becomes very complex as you’re trying to gain attention and interest from prospective buyers.

First of all, in order to drive success, the whole demand generation team is now expected to deepen its expertise in product value and target personas. It can no longer just be the PMM delivering the needed positioning and messaging as the complexity of omni-channel demand generation tactics require the team to be very thoughtful in how to deliver a well targeted, consistent experience across the buyer’s journey. They need to be able to think that through for multiple personas which significantly increases the complexities around certain assets (like the public facing website, for instance).

With buyers completing a significant amount of the journey without ever talking to the supplier, content marketing has become the key focus area for many marketing organizations. “Content is king” has a whole new meaning.  While PMMs tend to have good all around skills and have had responsibility for certain aspects of content, including messaging, presentations, videos, datasheets and more, their role and skillset has not been defined around managing a high-quality content pipeline. In fact, as buyers are now self educating ahead of time more than ever, the content needs to be very targeted and high quality.

As a result, we’re seeing directors of content and/or story tellers emerge as roles within marketing organizations. Not only do these people produce content themselves but they are also reaching deep into the organization to get access to the best technical expertise from subject matter experts in order to truly deliver content that goes far deeper than the content typically delivered by the typical PMM. SMEs include solution consultants who are doing customer implementations, for technical products it can include engineering, operations and product management team members who can go into the gory details and deliver the most insightful and educational content. Needless to say, this is more of an editor-in-chief role vs. a product marketing role.

Also to consider is how the Agile process has shifted the organization as a whole, marketing included. PMMs as they were defined were largely a stage-gate effort, not reflective of how products are developed or released. Marketing can no longer wait for these processes to come into marketing, but rather get involved in early PM decisions and roadmaps. The timing does not afford the previous sequential process.

With that, as product release cycles shorten and product development becomes more customer-centric, the expectations from product management have grown significantly. We don’t only see this in smaller companies but also in large companies like Microsoft where the product owners are now expected to own the product end-to-end. This not only includes being in charge of the product line metrics but also fully owning the agile product definition process.

This is in stark contrast to the PMM typically having been closer to both the business results and product definition. The latter was a shared PMM/PM discipline centered around MRDs and PRDs, now primarily owned by the PM as the product owner leading the agile process. Due to these changes the organization as a whole including sales, marketing and services tend to go directly to product management more than ever as they seek out the most up-to-date source of information.

With all that said, while I do believe that product marketing as a role (not as a discipline) will cease to exist within many organizations, I also believe others will continue to prefer keeping this role in place due to the nature of their business and organizational structure. Or said differently, product marketing as a role will not go extinct like the dinosaurs did but we are likely to see less of the marketing HC spend get allocated to this role as the demand for other titles such as demand generation and content roles grows.

But the future is bright for product marketers. In my experience, people who’ve fulfilled this role have had an opportunity to build out a very broad skillset including product positioning, customer success, G2M strategy, business development, campaign management, public speaking, and more.

So while there may end up being fewer jobs in product marketing, based on their strengths, we will see PMMs show-up in new roles. Primarily in content marketing, demand generation, product management, alliances, and many other roles within and outside the traditional marketing organizations.

What do you think? Is the role of PMM going away? Please share your thoughts in the comment section below.

A special thank you to Christine Bottagaro, CMO Rogue Wave Software for being a great sounding board and sharing her insights with me on this topic

Money

Sales Leader: Underspending To Plan Will Not Be Rewarded!

Does the following sound familiar? Sales fall short at 93% in the first quarter. The leadership team is disappointed, but there’s some good news. Once the CFO closes the books, you see you’ve offset the shortfall with lower spending, and you’re even a bit ahead of the cash forecast. The lower spending and better than expected cash flow falls into a few categories: a couple of backfills in R&D and G&A that have yet to happen, slightly lower marketing spend and customers paid faster than expected. The savings also include a couple of bigger buckets: lower sales commissions and three sales headcount lower than planned. The lower actual spend and the few CFO implemented hedges in the plan resulted in cash flow plans being hit. So there’s concern but not panic. At least not yet.

My recommendation is to treat such scenarios like a fire drill. First of all, the sales leadership, while not happy, feels like the good news on cash helped offset some of the bad news. Some sales leaders forget they will never be fired for over-spending, but rather for under-delivering! This is actually a truth that may sound obvious, but in real life sales leaders often don’t take full ownership of their budget. And to make things worse, the CFO sentiment at that point may be not to push higher spending in sales, but to caution the head of sales to not spend more without being sure it will increase overall yields.

As one of the fundamentals of sales planning is building a plan based on expected sales reps’ yields and number of quota carrying salespeople, being behind on ramped sales headcount (HC) is a problem. The typical sales plan is dependent on having enough salespeople in their seats to compensate for bad hires, attrition, regional issues and a number of other challenges that will come up. In addition, in Enterprise software the true ramp time for a new rep can be 6-9 months (even if we prefer to believe it is 3-4 months). This means in addition to the problem of being under HC, any additional turnover (whether desired or undesired) will compound the problem, and even being only a quarter into the year in the above example, in a 20-25 person sales team you could quickly find yourself to be five ramped HC below plan for the rest of the year.

Needless to say, if you’re spending less on commissions due to falling short of plan, the attrition risk also goes up. While sales rep yields can go up to compensate for some of the lower planned HC, the reality is you will most likely be reducing the margin of error, have less overall activity, go dark on coverage for certain regions where you require specific language skills and therefore, have a high likelihood of missing plan over and over again.

So, in the spirit of preventing the downwards spiral and maximizing spending aligned with hitting the numbers (and keeping your job), my advice to you, the sales leader, is to attack this situation immediately in a number of ways:

  • Make hiring an ongoing priority for yourself and the sales managers. You should always be hiring, even if you’re at planned headcount. You should encourage HR to raise a red flag if any sales manager is not prioritizing hiring which happens quite frequently given the short-term pressures typical to sales.
  • I have always encouraged sales leaders to try and be at least one headcount ahead of plan. Sure the CFO will not like it, but you can clarify to the CEO and CFO in reality you are unlikely to be over budget. That’s because the challenge of finding and hiring the right people and the impact of undesired or desired attrition makes it very hard for sales leaders to maintain “at plan” sales capacity. And in the unlikely case you do end up being one headcount ahead you will most likely see it level out quickly due to either have a low performing rep you can let go or you may suffer some natural attrition.
  • If you’re not able to get to your budget spend on HC, think of how you can leverage those dollars to help accelerate results for the sales organization. You could invest in live dialer solutions to get your existing reps to have a lot more conversations. You can transfer some of that budget for a short-term oriented marketing campaign to bring in more leads or encourage hand raising within your existing market database. Or you could increase travel spend to focus on what’s within reach in the pipeline to grow probability and deal size.
  • Spending HC savings on variable cost as discussed above is not the only solution. You can also spend on hiring initiatives. If you’re doing most of your recruiting using internal resources via LinkedIn or referral programs, you can complement these efforts with paid external recruiters and/or increase the incentive for the internal referral program.

I realize that some of you reading this may not quite agree, believing there are many other factors that may justify not sticking to a spending plan, e.g. not enough leads, fear of reducing yields for existing reps thus risking undesired turnover, and more.

But my point is simple. Being risk averse in the face of underperformance is a guaranteed recipe for further underperformance. It is critical as a sales leader to understand that every dollar not spent on trying to increase yields or ramped HC is significantly reducing the company’s chances on an ongoing basis to hit its numbers. Are there other factors? Sure… Could the CEO and CFO at some point decide to recast the spending and revenue plan? Sure, but until that happens, it is the sales leader’s responsibility to do what it takes to bring in every cent possible. You will not get fired for spending all of your budget to try reverse a trend of shortfall.

UnlimitedVacationDays

What Your Employer Won’t Tell You About “Unlimited” Time Off

Every once in a while I come across a posting where a company markets its “Unlimited Time Off” policy. While these are typically younger tech companies focused at attracting top talent, we also see industry heavyweights like GE (senior EEs) and Netflix with such policies.

The message is typically focused on trusting their employees, supporting their lives and families and eliminating the overall hassle of needing to plan around and report on vacation days. This all sounds great in theory, but how do these plans hold up in the realm world?

While I am not against such a policy, it does bother me employees don’t seem to fully understand the pros and cons of such a policy. This lack of understanding may actually disadvantage companies who do not offer unlimited time off to employees. In fact, experts estimate about 2% of companies have an unlimited time off policy. I believe that in general, such a policy works mostly in the favor of the employer and not the employee. Here’s why:

According to Glassdoor, approximately 75% of employees do not use all their eligible vacation days. There are a number of reasons cited, including fear of losing their job, fear of getting behind and no one else at the company being able to do the work. If employees have high anxiety of taking time off when they have clear accrued vacation days (sometimes also hitting a cap), I believe the level of anxiety would be significantly higher in an unlimited time off environment. At least when a worker has accrued vacation days it simplifies the conversation. There are no stats that I have found as to how much vacation employees take in an unlimited time off environment, but I would bet it is no more than in a limited vacation environment, and more likely less.

The biggest misalignment between the US worker and an unlimited time off policy is the fact that there is no accrual of unused time off, and therefore no payout on termination of employment. At a time when employees are anxious about taking time off and only 25% take all their vacation days, it means the majority of employees are losing money from such a policy.

As I said before, I am not blanket against an unlimited time off policy, but I think the market should understand this is primarily an employer and not an employee benefit. These benefits include no accrual of vacation days on the balance sheet (and hence no payout on termination), less administrative overhead of having to track vacation days and potentially attracting better talent with a time off story that sounds great.

There may be one big benefit to employees though. If these policies truly help companies attract better talent, then you may get to work with better people. This perk aside, it’s important for employees to completely grasp the disadvantages of an unlimited time off policy. It might look good at first glance, but keep in mind it’s more profitable to the employer.