It’s Friday, it’s been a busy, but great week. Sometimes, my mind starts turning into jelly and goes to weird places. I imagined myself interviewing for the CRO position in a high growth start up.
Dave: Thanks for the opportunity to speak, I’m sure I can have a great impact in driving growth in your sales organization.
CEO: I’m excited to speak to you. Can you tell me a little about the results you produced in your last role.
Dave: We were scaling aggressively. We grew ARR tremendously past two years that I’ve been there. VCs are investing and have driven our market cap to hundreds of millions. You know how important the “Rule of 40” is for our organizations, our “Rule of 40” number, based on 200% growth last year, is 50! If the person you are looking for is an expert on scaling, I’m your CRO!
I’ve built a growth machine. Last year we hired and onboarded 80 SDRs and AEs. At the end of the year we had grown to 50 AEs and sales people.
We drove the performance of those people, reducing CAC payback by 20%! I’ve a great track record at driving growth!
CEO: That’s really interesting. Let me drill down into that data a little…
You hired and onboarded 80 SDRs/AEs ending with 50 at the end of the year. What was your the average tenure of your people?
Dave: It was roughly 11 months. But we had a great onboarding program. It took about 3 months, then we got them producing really quickly. Our sales cycle was about 15 months.
CEO: Hmmmm, and you’ve only been in the role for about 18 months…..
Dave: Yep, but I get things done quickly! I’m a master at scaling, I brought in my tried and true methods, and changed everything in the organization. And as I mentioned, last year we grew by 200%!
CEO: What percent of your sales people made quota last year?
Dave: About 40%! We had some real killers that always exceeded their numbers.
CEO: What was their win rate?
Dave: It was about 16%. But again, we grew by 200% and exceeded our goals. I build prospecting machines, I hold my people accountable for high levels of prospecting and outreach. They do 1000’s of touches a day. How much growth do you want, I can scale everything to help you achieve your goals?
CEO: What were the rough gross margins?
Dave: Gross margins were about 75%
CEO: Help me understand, if your Rule of 40 was 50, your growth was 200%, it means your EBIDTA was -150%. With gross margins of 75% you must have had monstrous sales/marketing expense. What am I misunderstanding?
Dave: If you want to make money you have to spend money! Do you want to grow? You have to drive growth by investing in sales and marketing. I’m your man!
CEO: I’m confused, even though you drove great growth, the financial losses were far greater than the results you produced. You spent more money trying to win business than the revenue you produced? What would have happened if you drove higher win rates? You were already spending money, but if you got your win rates to 32%, you would have doubled revenue? What if you could increase the number of people hitting their quotas? What if you could reduce the churn?
Dave: I’ve great experience in scaling business. Your investors want you to scale, and that’s what I do. We are hitting on all the things your investors care about, I scaled the company by 200%. We had a Rule of 40 number at 150. I can do the same thing for you!
CEO: Let me think about this. Using your numbers, if you could scale us to $40M. We have a GM of 75%, which produces $30M of Gross Profit. Using your Rule of 40, of 50, that means our EBITDA percentage is – 150%, or a net loss of $60M on $40M of revenue. Since our operating expenses are minimal, that would suggest sales and marketing expense of roughly $90M. So you are suggesting you and double our revenue to $40M if I give you a budget of $90M?
Dave: Listen, you got to understand the SaaS metrics and how to scale. You have to spend money to make money!
With that, I shook my head and got out of my dream state.
Now some people will read this, thinking, “This makes a lot of sense, it’s consistent with everything we see in SaaS!”
And some will think differently…….
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