My Next Webinar
My next webinar is promoted by in conjunction with SIIA and sponsored by Scout Analytics. You can Register Here. We’ll be talking about the following:
- Why and how to implement a process-driven business model to measure customer success and grow recurring revenue
- Why companies need to integrate their point solution technologies into a more comprehensive, strategic vision
- How usage data is applied to measure and act on key moments throughout the customer journey
In a nod to the times, this will be less than the usual 60 minutes so there’s no reason to skip!
See you there! D
Xactly Kicks It Up a Notch
Chris Cabrera’s new book, “Game the Plan”
Kudos to Xactly, the SaaS based incentive compensation solutions provider. Last week they ran a very successful user meeting in San Francisco that I attended but more importantly they made some real news in the compensation space.
Conferences like this are often news generators or more precisely, they’re PR engines. Everybody with a show announces something, even if it’s just the next release of their products. News outfits dutifully carry the announcements along with a few quotes from the boss and an analyst or two and that’s that. This is not to say that the announcements are unimportant, just that they strike a certain level.
But that wasn’t the case with Xactly. Last week they announced some thought leadership that could only come from a relatively mature SaaS company. They took a big chunk of the data they managed and made it anonymous so that no one knows whose data says what. Then they looked for patterns in the way that companies pay their people; a methodology that they will replicate across multiple industries. They call it a benchmark.
First up was the SaaS industry, i.e. companies selling software as a service. Xactly has deep roots here and it was relatively easy to run some analytics against the data but what they discovered was amazing. According to the company, 79 percent of SaaS sales reps miss quota and only 14 percent make or exceed it. Now let’s peel this onion.
First, wow Batman, that’s gotta be a lot of unhappy reps trying to live on base salary and I’d bet there’s significant churn in the ranks. Why stay if you can’t figure out a way to make a living? But second, as CEO Chris Cabrera said, these companies are looking for growth rather than profit. He’s right, of course, if you’re burning venture capital, revenue is less important than market share and the name of the game is to put as many reps into the territory as possible to up the chances of gaining penetration.
This might be something we’ve intuitively known for a very long time but to see it in concrete numbers raises the perception significantly. More significant, to me, is the fact that Xactly has similar benchmarks waiting to be released on seven other industries. Very soon, for the first time in history, we’ll be able to see patterns in sales compensation in eight markets. This will inevitably help managers and HR types to truly understand compensation and it will help reps to better know whether their jobs are keepers or if a little churn is in order.
But it can also serve to inform the sales reps that they’re being, shall we say, used? Used. If there is a 79 percent chance you won’t make quota, would you accept a standard pay package that essentially treats you like a human advertising medium while paying you like something else.
Could this possibly be good news for marketing automation vendors? It could if sales people started avoiding SaaS jobs like a bad habit. In lieu of the hardcore sales approach, lack of quota attainment might make sales people scarce to the point that companies will need to get more savvy about how they market and that could be good for marketing automation. See? With so many reps not making quota I could see the VC’s calling time out on their portfolio companies’ business plans too.
All this is well and good but the significance of this announcement doesn’t stop here. There are lots of companies with similar data that can be scrubbed to reveal distinct patterns in a variety of industries. For instance what would Zoura’s subscription billing data reveal if subjected to the same treatment? Or Salesforce? What might these companies learn from reviewing their industries’ data? What might VC’s discover about their investments or entrepreneurs learn about white space in markets? The possibilities might not be limitless but they are significant. It seems that best practices ought to be forthcoming soon.
This is a new world in which almost anything can become known quickly. It seems to me that Xactly has made a big down payment on the second machine age after a book by that title. They’ve found a way to leverage already collected data using simple computers and some smart people. They will be able to share what they learn with their customers to enable them to be better at a critical piece of their business — compensating performance.
This isn’t going to cure cancer or global warming but I believe we’ll look back on this in ten years as the beginning of a new era in data driven management. Cabrera has been talking about this approach for a long time and I know several other CEOs who have similar ideas and I think this could be a game changer. As I intimated at the beginning, this was not your average conference announcement.
SuiteWorld’s Vision
Zach Nelson, CEO of NetSuite, was talking about CRM a lot in his recent keynote for SuiteWorld, his company’s user meeting that was held in San Jose last week. You might not think that’s unusual given that the company has a whole suite of cloud-based ERP-CRM-eCommerce, but it represents a departure and one that I don’t even know Nelson is fully aware of.
NetSuite built its reputation and a half billion dollar business around the idea of front to back office integrated systems delivered through the cloud, and Nelson is the first one to say that integrated is a poor word choice since the two major components are built on the same code base and data. They were never separate so how can they be integrated? Nevertheless, the company has always made its money on its ERP system, which is comprehensive and a serious competitor in the space. So it was interesting to me to hear so much discussion about customer orientation and the importance of customer experience — things that are common in a CRM discussion but medium rare in ERP.
The primary link between front and back office for NetSuite has always been eCommerce for the obvious reason that it exposes a company’s back office directly to the customer. My friend Esteban Kolsky last year debated Nelson on his assertion that ERP was the “real” CRM because it contained information about customers. Nelson’s assertion sounded hyperbolic to me and I said so in a post at the time.
But this year’s assertion was different. It was more nuanced and brought in not just customer data but also customer experience and all the other soft-benefit words in vogue, hence my surprise. It is important when an ERP vendor, or a vendor fundamentally exposed to the ERP business, decides to take on the language of the front office because, for me, it signals an interest in adopting a more process-oriented view of customer facing business than is typical of ERP.
This is big in my mind because it says ERP might at last be getting in line with CRM on the customer focus level which is, I think, necessary for the overall success of the front to back office integration. Let’s face it, it’s really, really hard to organize the front office for a marketing process, a sales process, a service process, and still have the back office doling out data a la transaction.
One place where this all synchs up is at subscription billing. We may have traditionally thought of billing as a transaction par excellence, but in the subscription era, it has become a system of engagement, a place where customers converge on a vendor for much more than correct invoices. In subscriptions, vendors lose some amount of direct customer contact and the billing process can be an important source of customer uptake and use data and it can be one of those touch points that best informs customer service. The important part of billing is that it can replace some of the contact lost in other forms of communication. It was no surprise therefore, that NetSuite introduced an enhanced version of its subscription billing solution at the show.
That’s all good news in this regard. But as things go, NetSuite seems to be still trying to get its customer-centric messaging right, in my opinion. For example, they still refer to transactions and systems of record when they more appropriately mean processes and systems of engagement. If you’re going to start talking about customer-centricity there’s no halfway point, you need to show that you are in it, that you get it.
Such is the situation many vendors find themselves in when changing models, even slightly and NetSuite should be applauded for its move to engagement, so I am not complaining. But the move needs to be made quickly and crisply. We live in a subscription economy today, for sure, but more important is the fact that the economy has spawned a subscription culture in which even if you aren’t actively selling subscriptions, your customers are expecting subscription class relationships. These relationships are more intimate, solicitous, and above all data capturing and analytic.
An ERP system that gets this is going to be one that injects its back office data more freely into front office processes to better inform them about customer needs. NetSuite isn’t all the way there yet, but they are the ERP vendor that has perhaps gone furthest in making the connection and for that alone, it was good to be at the keynote because it provided a tantalizing insight into the future.
Maximizing a Product Rollout with Incentive Management
Bringing a new product to market or even a new version of an existing product is not what it used to be. Back in the day your market was probably empty, a green field where you could find opportunity under a rock. Everybody needed what you had and selling was relatively easy.
But things don’t stay that way for long and today you have to work hard to insert a new product into a crowded market. As a result, a product launch takes on the proportions of a military campaign. You gather information and make projections, your marketing team develops and positions their ammo, and you train your sales troops and drill their objectives into their noggins. Then you go to war.
Ok, so the metaphor is deliberately hyped but there’s still a grain of truth in it. Rolling out a product is a big deal, it does require careful planning, and there are a lot of moving parts, which is why there’s so much planning to begin with. In short there is risk. However, there is always risk in marketing and sales. There is risk the market will change and your core product will get on a fast track to commodity status, a risk that your sales team won’t be able or inclined to sell it. A product rollout is just one more risk.
Most often we handle risk through a portfolio strategy, we don’t put all our eggs in one basket, as Mom used to tell us. We get that but how do we use this wisdom in a product rollout?
If you have more than one product, you already have a portfolio though you might ignore this fact. Each element in the portfolio has a risk associated with it and — get this — the risk is perceived differently for the business and the sales person. The sales manager and anyone higher up understands the importance of selling the new, new thing. It usually has the best margin and is more profitable than older items that are rolling down the road to commodity-town. Everyone should want to maximize the new product, right?
Well, if you are a sales rep, the risk you see is in the grind to make quota. If you are compensated on revenue and not profit, loss, or margin, then the fastest and easiest route to the cheese is often by selling what you know best because, hey, revenue is revenue. That’s where compensation management makes a great contribution. Using compensation management gives an organization and the sales team the chance to balance out their respective risks.
For the business, this means assembling a portfolio of requirements or expectations that include supporting the new product rollout as well as maintaining the continuing business. Many organizations will put a separate quota on the new product to ensure compliance so that while a rep might be able to make a lot of money avoiding the new product, he or she will not be considered a solid citizen without also contributing to the rollout.
For the sales rep, it’s all a game anyhow, in the best sense of the word. A mixed portfolio of quotas is just grist for the how-am-I-going-to-make-club-this-time calculation that everybody does.
So the sides are evenly matched, except in one very important area. How are you going to keep score? For sales reps, score keeping is done on a W2 form, but for managers it’s much more difficult. Let’s agree that we never want to hand out a goal and an incentive unless we have a way to measure attainment. The spreadsheets that many businesses use for relatively simple, how-much-did-you-sell incentive compensation calculations basically roll over and play dead if you have to begin figuring out multiple products, their unique incentives, and attainment — and we aren’t even bringing splits into the discussion.
Very quickly several things become increasingly clear. First, while you might have gotten away with using spreadsheets for incentive compensation in the good old days, today is different. Second, taking a portfolio approach to selling makes a lot of sense, if you have the tools to do it right. Third, you have to stay ahead of your competition and in this case it means if your reps are using spreadsheets to track their individual performance, it’s time for you to get more sophisticated by using a modern, database-backed system that can easily track multiple people, products, incentives and more. Only then can you accurately and fairly reward the people who took the greatest risks and met or exceeded expectations.
Woody Allen once quipped, “To a knife fight, always bring a gun.” This is like that.
A Sub-Ledger for the Hybrid Enterprise
There is a business problem that comes up in the life of every company and these days, it seems that a lot of companies face it at once. It’s the question of how to transition from one business model to another without clobbering your current revenue flow. Even if a company’s executives really want to change their model the reality is that the current model, as clunky and outdated as it might seem, is still generating revenues and profits so there is always a faction that says, not yet.
You know where this goes. It’s the story of the boiled frog. It starts with the animal sitting in a pot of tepid water when the heat gets turned on and the frog slowly fades into drowsiness rather than realizing the danger and hopping out. Or so it goes. I have never run the experiment.
We pride ourselves on our large brains and all that they have created. In the last several millennia we’ve built tools and intellectual constructs that give us ways to think about all sorts of things. We’ve been so successful that according to some scientists by some point in 2014 human knowledge will be doubling about once every eleven hours.
Regardless, we still have a challenge when it comes to shifting business models and there’s nothing more trying today than figuring out how to shift from a model that makes and delivers things for a price, to a model that makes things but delivers them incrementally over time, a.k.a. the subscription model. That’s because collecting the money in the second transaction looks nothing like collecting it in the first. Along with the basic act of collecting goes a long list of other important issues like continuously nurturing customers so that they continue to consume what you are delivering.
There’s also accounting for the revenue flow. And then there’s the kicker — most businesses in this situation have decided to branch out into subscriptions while still maintaining their tried and true accounting systems. But the finance and accounting systems in place don’t “do” subscriptions very well, and that might be an overstatement.
But according to a recent study by The Economist magazine’s Intelligence Unit, the issue of collecting the money involved in subscription transactions was only the fourth biggest worry for executives surveyed. Number one was lack of internal co-ordination and second was the technical aspect as in how do we integrate these seemingly disparate ideas so that we can have a single, integrated, and accurate view of the business?
How indeed?
Well, the simple answer is that you need a system for that. Sometimes our big brains, inventiveness, and the sheer joy of tinkering prevent us from taking on solutions right in front of us. I am of course talking about the all to human propensity for using spreadsheets to plug all kinds of business problems instead of biting the bullet and getting a real system.
Many years ago companies used spreadsheets in lieu of CRM systems because they were readily at hand and enabled smart people to model sales processes within them. Alas, a model is not the thing itself and too often a model won’t stand up to volume, which is what happened with spreadsheets in CRM. Among their many shortcomings, spreadsheets don’t have databases and the models they represent are ill equipped for high volume operations.
Fast forward to the subscription economy and you can see the same trouble. Companies getting involved with the subscription model sometimes use spreadsheets as their sub-ledgers feeding into the company’s general purpose ERP system. This tends to work well enough for the company’s first few subscription customers but if the subscription model becomes successful, the spreadsheets can represent a not so happy, happy problem. At least the auditors aren’t happy.
This is preventable. The initial impulse to use spreadsheets as a sub-ledger perfectly models the situation many businesses find themselves in when they adopt subscriptions and they should be applauded for this. But no business can stay in spreadsheets for very long because it turns out that the subscription model is not simply a new way to bill customers.
Subscriptions, really are a business model meaning they have to be accounted for throughout the customer lifecycle including first discovery of a business problem, evaluation, the sale, product use, customer nurturing and bonding, and, most importantly, customer advocacy. It does no company any good whatsoever to do the early stages of the lifecycle well only to fall down on bonding — which too many companies do.
Subscribers expect their vendors to be with them in their moments of truth throughout their lifecycle journeys. The penalty for not being present is attrition and churn but the benefit for doing things right is renewal and advocacy. Luckily, subscriptions throw off a great deal of data that subscription vendors can analyze so that they can meet their customers within those moments of truth. But a spreadsheet won’t catch that data. A spreadsheet can contain today’s data but without a database it can’t tell you about yesterday so that you can predict tomorrow and successful subscriptions are all about predicting demand and meeting it.
This is where lifecycle subscription management systems come in. These systems started out as simple billing and payments solutions but the gap is widening between them and more advanced systems that provide a range of financial, accounting, and database services that make them appropriate for enterprises beginning the transition from conventional models to subscriptions. A system like Zuora, for example, provides the technical integration with popular ERP to enable an organization to co-ordinate its subscription business with its conventional model. That’s why I am advising my clients to evaluate solutions like Zuora as they take their first steps into the subscription economy.
