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!

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

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.

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.

Please don’t call Atlassian a unicorn!

Unicorn’s are start-up companies whose valuation has exceeded $1 billion dollars. We’ve seen a number of recent Enterprise software companies fall into this category (most of them now public) including Box, New Relic, Hortonworks, Dropbox, Cloudera, MongoDB and more… Besides the $1 billion valuation the one other thing these players have in common is that they burnt a huge pile of cash to sustain growth and earn unicorn status. In some cases, the more revenue they brought in the more they burnt. As long as we continue to be in the current funding environment these kind of unicorns can get to the promised land if they can sustain high growth to the point where at some point they are able to converge their revenue and spending. Needless to say this is a high risk endeavor. Silicon valley loves these kind of growth stories because they are exciting and needless to say we don’t hear as much about the companies who burnt themselves into the ground early on but rather we focus on the big success stories.

I don’t want to call Atlassian a unicorn because that term has too much association with companies like the above that burn themselves to their IPO. No, Atlassian is a very unique company with an amazing story. A company that has built an incredible business model which is high growth, profitable and who are doing that in a very crowded market with many free and very low cost alternatives. The company has defined its values in a very unique way which I think represents how different they are vs. most other Enterprise software unicorns:

The tools space is difficult. There are many free and lower cost alternatives to Atlassian’s flag ship product JIRA (Disclaimer: I am a happy customer). In the tools space developer sentiment changes daily. Regardless, Atlassian pursued a very unique path of focusing the majority of their budget on R&D, building an operation that only “sells” in a low to no friction manner (w/o salespeople), and doing that with a reasonably priced but not ultra-low cost product. While their model may not be the right one for every space I am sure their model will be studied for years to come. Atlassian clearly still benefits from JIRA having become a household name among development leaders but having been in the tools space for many years I have learnt to appreciate the effort it takes to continue to sustain market leadership. This is especially true in a world of free and low-cost competition and competing on awareness with the hyped product du jour.

Actually I was wrong. I think Atlassian is the only true unicorn here and the others are successful behemoths.

Subscription Compensation Plans – Beware The Fine Print On Multi-Year Deals!

It is no news that a well run subscription business will typically focus on MRR (monthly recurring revenue), ARR (annual recurring revenue) or ACV (annual contract value) growth as the basis for growth compensation. What these metrics have in common is that they are closely aligned to recurring revenue growth (monthly or annually) as opposed to bookings or TCV which are too fuzzy when it comes to impact on recurring revenue growth. TCV stands for “Total Contract Value” which is the total customer commitment incl. recurring and one-time payments. There are many articles that discuss how to build SaaS/Subscription compensation plans so I will not elaborate on the basics.

This article means to raise awareness for how multi-year agreements (i.e. TCV or Bookings) tend to be an important, yet not well optimized part of a subscription compensation plan. And by not managing this aspect of the compensation plan well, companies may be driving behavior which is misaligned with their business realities.

In a subscription business the focus is on maximizing ACV and not TCV. Therefore, the assumption is that you’ll always prefer to maximize ACV with a goal to maximizing recurring revenue growth. The thinking is that there is no value in discounting TCV in order to get a three-year deal if you can close at a significantly less discounted rate on ACV (unless cash is in short supply which I will cover later on).

However, we also know that subscription businesses churn and a reasonable amount of that churn is outside of our control (project ended, company gets acquired, company goes out of business, leadership change). As a result there can be value to the company in closing multi-year deals whether those are commitments or prepayments. Knowing that multi-year deals can help counter balance churn (at least for a period of time) subscription compensation plans typically do have a commissions kicker for a 3-year deal. A 20%-40% increase in base ACV commissions is quite typical (we will focus on three-year deals here although the same applies to other terms). Note this is in stark contrast to the days where reps would get 3x the commissions for a three-year deal when they were compensated on TCV (Bookings). Having a moderate kicker tries to ensure the focus remains maximizing ACV while still encouraging longer terms if it doesn’t require a significant discount.

Here’s what a sales rep’s commission would be on a plan with a flat 9% commissions rate and a 20% kicker for a three-year deal (assuming no discounting):

Now where’s the fine print? The very knowledgeable rep will actually dig deeper here and try and figure out if it’s in his best interest to try and spend the time and energy to close a three-year deal. This is where, with not very careful compensation plan structuring, we may find misalignment between the rep and the company’s best interest.

Let’s assume the rep needs to offer an additional 10% discount in order to incent the customer for the three-year deal. Here’s what the above calculation would look like with a 10% discount on the three-year deal:

You can see that the rep only makes a tiny bit more on the 3 Year deal. Is 8% higher commissions enough incentive to make the rep spend time and energy to work through the additional hurdles of extracting 3x the commitment out of the buyer and the procurement team? In most cases the answer is an absolute no. The rep will prefer the path of least resistance, get the easier deal closed and move on… I have observed this happen countless times.

Now let’s test the difference between these two scenarios to the company assuming a 15% annual ACV churn rate which is high but for on premise Enterprise software not atypical (note that ACV churn rates tend to be higher than MRR churn rates because they are calculated only based on what is up for renewal and do not benefit from prior multi-year deals in their non-renewal year):

You can see that even with a 10% discount the company brings in more revenue in the 3 Year scenario than in the 1 Year scenario – in fact almost 15% more. Needless to say that the lower the churn rate the more companies will want to focus on maximizing ACV but the reality is that with non-SaaS based offerings we typically do see higher churn rates and there is also an opportunity cost of spending the renewal reps time on the renewal vs. looking for additional growth opportunities.

This is not just theoretical fine print but I’ve actually seen this play out in such a way and having a negative impact on future revenue growth. In an Enterprise subscription business where the cost of doing business is significant and the ASPs are non-trivial to the buyer ensuring your reps are incented to close the “right deal”, meaning the right balance between discount and term, can make a material impact on MRR growth.

So what are the actions you should be taking to ensure that your comp plan truly drives the desired behavior on this front?

Three things:

  1. Make sure you understand what your churn rate is and how it’d impact the average deal over three years. This would tell you how much you’ll lose on average to churn and what the value of a longer term agreement is to the company.
  2. Make sure you model out what the right maximum discounting incentive should be to drive a customer into a longer term deal.
  3. Put in place a kicker for multi-year deals which ensures the desired deal pays a real incentive over a one-year deal – at the desired discount rate. It should be significant enough to grab the reps’ attention. Don’t forget you can be generous because you’re saving the year 2 and year 3 commission payments!

If you take these factors into account, you’ll typically find that you can create an incentive plan which is good for the company and the salespeople. As long as you ensure to limit the discounts the rep is allowed to offer it will allow you to leverage the “savings” in churn and saved future commissions to create more aggressive incentives for both the customer and the sales rep.

Other facts you should be taking into account:

  • Don’t let a multi-year term customer make you “lazy”. You should be managing customer success on an ongoing basis. If you don’t, you will have an unpleasant surprise at the end of the multi-year period. It will kill the assumption of this article that the churn rate on a 1-year deal is the same over the three years as on a three-year deal.
  • While it can be considered borrowing from the future, in some cases multi-year prepayments can have a dramatic positive impact on short-term cash flow and in certain situations can be the cheapest short-term source of capital. It can be a win-win for both the company and the customer. In such cases you may want to consider additional incentives. This is not a long-term strategy but can be beneficial for short-term requirements e.g. your fundraising is taking a bit longer than you hoped for…
  • Best practices in subscription businesses dictate that new business and renewals are separated (new business team vs. customer success team). Therefore, it’s critical to realize that the salesperson has little incentive to think about the future renewal but rather at closing the deal that will pay him maximum commission today.
  • The buying and procurement process for a renewal of Enterprise software can be quite cumbersome and take up a significant amount of company time even for what would appear to be a simple renewal. Therefore, the benefit of multi-year deals is not purely a question of maximizing revenue on the deal but also lowering the overhead of working on renewals. That time is better spent by your customer success team in focusing on making the customer successful and ensuring they become passionate advocates.
  • The goal of maximizing recurring revenue and new logo acquisition needs to always be top of mind for the company. It is a best practice in subscription businesses to focus quotas on ACV and not TCV. The salesperson should be recognized for hitting their ACV targets. No bragging rights for TCV. The multi-year calculations above are meant to represent commissions only incentives. Only ACV should retire quota and salespeople should only be hitting accelerators when they exceed their full ACV quota.

In summary, multi-year deals can be valuable to your company but there are many details to consider when building them into your compensation plans. While every situation is unique I’ve tried to cover most of the critical aspects of multi-year deals that need to be considered as you work them into your compensation plans in a way which is aligned with your company’s goals.

Good selling!