The only job of a chairman is to make you a better CEO. My goal for 2018 is to do that job better. I’ll start with one suggestion. When you set your goals, don’t forget your own personal growth.
Simple questions can be deceptive. At a dinner the before Christmas, an entrepreneur I know asked me: “What does a good Chairman do?” I gave a clumsy, vague answer. I find my own brain frustrating about stuff like this sometimes. I have a great memory for facts and I am pretty good at seeing through problems. But I struggle to recall fundamentals when asked on occasions.
On my way home of course, the clear answer returned to me. So Rebecca (CEO of Pick Protection) the simple answer to your question is this: Your Chairman’s only job is to make you a better CEO.
The Economy of Nature
I spent most of my career working in a culture where personal development was embedded deep in the DNA. Every year you had to show that you had made improvements in your skills and capabilities. And you had to have a plan to keep on with personal growth for the next year. Without these things there was no career progression.
This was an example of single mechanism that determined the whole culture of the business. People over complicate culture. It is subtle and nuanced but there are always a small number of rules and practices that regulate the whole system. I saw a similar effect when I was in Estonia last year.
Your business is a little ecosystem of its own. So I look at it as having its own Serengeti Rules. A simple change can regulate the behaviour and health of the whole system. In nature this is a predator. In business, its about how you value your team and how you treat your customers.
The triangle demands three complementary elements
I lived a culture governed by personal development for 29 years. I found some simple frameworks to make it practical and real. This gives me a basis to assess core skills. Analytic skills, management skills and so on. It also covers so called soft skills.
“Soft” in this context just means hard to measure. None of these things are fluffy or spongy in any way. They are the essence of the toughest part of your job - leadership. And there are no KPIs. So much for numbers!
I think about three dimensions.
How do you build relationships and influence key people outside the organisation? This is a wide range. Negotiating skills, social and business communication, listening and pitching. It includes maybe the vaguest thing of all. The shape shifting concept of impact or gravitas.
Can you find and attract the right people? Motivate them to perform. Bind them together into a team which is more than the sum of the parts. And help them realise their potential inside your business and beyond.
This sounds tough and it is. If you get it right you will help talented people achieve amazing things. Intercom wrote about this in the opportunities of growth recently. I would go much further. Growing with your company is the only reason good people will join you. Plus, I have always found this to be the most fun part of leadership.
I always circle back to the start. How have you grown? What have you learnt? What will you achieve next? In the short term this is about leaders growing with the business. Its also a long term thing. Being an entrepreneur can feel all consuming. Yet it is only a stage. Don’t lose sight of your duty to yourself. Who knows where the next 30 years will take you.
The Chairman's Charter
My only job is to make you a better CEO. There are no numbers or metrics or KPIs that track how well its going. You need to bring innovation, passion and commitment to make this work. All the fundamentals of a great entrepreneur in other words.
All I have to offer is experience. I have a simple test to check if I am using it well. The CEOs I work with should be capable of achieving more than I ever could.
Watching people grow into great leaders is the most fun I can have. Feel free to challenge me when I am not doing my best to make this real.
"Leadership and learning are indispensable to each other."
John F Kennedy, Undelivered remarks for the Dallas Trade Mart, 22 November 1963
The UK Government is trying to tackle a problem that has no solution. No not Brexit, productivity. Hiding behind royal engagements and outrageous tweets over the past few weeks have been a couple of huge announcements. The Chancellor’s budget speech and our new Industrial Strategy. Both focused on the question of productivity.
UK productivity has been sluggish to terrible for as long as I can remember. The latest official data tells us UK productivity per hour is 15% less than the G7 average. And growing at a slower rate.
Government does not have the answers
The Chancellor calls these sort of numbers “economicky.” In my mind they are the essence of life. They are also the main reason I am so passionate about the tech sector.
Successive governments have shown that policy biases and ill judged, small scale subsidies are not the solution. Its not about shiny new ideas - Grand Challenges in the words of the industrial strategy. Government needs to focus on infrastructure, regulation and education. Leave productivity to entrepreneurs and consumers.
Technology is an integral part of the productivity solution. At the leading edge this means research in advanced areas like AI. Medium term these are essential but in the short term they will have little impact. By definition cutting edge ideas apply only to a small segment of businesses. That results in a limited impact on productivity.
The right agenda for B2B SaaS
The big prize will come from established businesses making better use of technologies that are already proven. Luckily, this is also what B2B SaaS needs to happen to drive the next wave of growth.
At a high level its simple. Either:
In both cases your customer’s productivity improves. If everyone does this then the productivity of the whole economy improves.
You may oversee that ittle in the UK budget or the industrial strategy will help achieve this goal. Correct. Don’t waste too much time looking for examples elsewhere either.
This will only happen if entrepreneurs and leaders make it happen.
Everyone I know in a SaaS company is working to make this happen. And every business is different facing its own challenges and opportunities. You need to find the right way for your company.
5 principles to help your SaaS and your customer
You will not go far wrong by following these 5 principles:
The Chairman's view
If this is too much, remember the first item on the list. Help your customers deliver business change. Without this, you will not have a sustainable or scaleable business. And your SaaS product will make no difference in the world.
Its like a meta variation of the old saying: execution, execution, execution. Government will not solve the productivity puzzle. We will. So let’s get on with it. Wherever you live, your country needs you!
When we visited Estonia we heard from a young Mexican working for a company based in Tallinn. He lived in the city but travelled on business across the world. He was able to gather all the information required, enter it into his tax return and submit online in less than one minute.
It would not be easy to replicate Estonia’s digital government on a national scale. But this level of speed and efficiency should be an achievable benchmark for financial information within a business. The conversations I have and the things I see every day tell me that is not how things are today.
7 Lessons about the challenges of financial information
Startups and growing businesses need better financial information. My financial information survey was the first step in a plan to tackle that problem. Nothing in the survey has changed that view. Now I am able to refine it to a small number of specific statements about what needs to change.
Here they are!
1. Revenue forecasting is the hardest thing. Neither past performance nor external market views help much.
2. Cash flows and funding needs are the biggest worry.
3. Founders and entrepreneurs want a system to help make decisions and plans. It should be:
5. Lack of visibility about cash flow is the biggest worry. Lack of skilled resources to focus on finance is also a concern.
6. Your numbers should help you understand your business. Achieving this means to integrating data from multiple sources, not just financial numbers.
7. Founders and entrepreneurs what data to help understand how their business is doing. It should be:
Painting by numbers
Learning from potential customers is an exercise in humility. This survey asked some broad and fundamental questions. As you might expect, this has led to identifying some much sharper questions. Not to any definite answers.
The responses came from a wide range of perspectives. Many different countries, roles in the ecosystem and levels of experience were represented. This means you have taken me further forward than I could possibly have hoped.
A full analysis of the survey responses is available to download in this slide deck.
The Chairman's View
I started out on this project because startups need better financial information. Next step for me is to figure out how best to answer the challenges posed by the generous response to the survey.
The job of “finance” is to make the numbers into a voice the entrepreneur can listen to and learn from. All the admin, accounting and compliance should just happen. Real time, right first time, invisible. Low cost. I know the job to be done and my aim is to find or build the tools to do it.
The many who offered to help will be hearing from me shortly. Thank you in advance for your further assistance.
Click here to download the full survey results and analysis.
Rowan and Birch are both trees common in Scotland and the forests of Estonia. Estonians use these resources as a food source. Birch sap is a popular drink. Rowan berry schnapps a complex delicacy. No-one in Scotland does more than look at either tree. I have never heard of these species being used for food or anything else.
I learned about the potential of Rowan and Birch on a recent visit to Tallinn. Estonia is a little country of 1.3 million people. Our purpose was to find out what makes it one of the most talked about places in tech. Innovative use of resources is at the heart of the story.
Digital ID - The star of the show
The main character in that story is the Estonian Digital ID. Every citizen has a virtual avatar. It allows them to use public services, banking, health care and much more. Everything except marriage, divorce and buying a house can be digital.
Your digital ID is also your signature on any legal document. The digital version of a contract or agreement is regarded as the original. Anything printed and signed is treated as a copy. A total inversion of the way lawyer driven cultures like the US and UK operate.
This virtual self does not need to live in Estonia. You can create your own digital ID through the Estonia e-residency programme for only €100.
Ownership and openness - Two profound principles
It all works because of some fundamental principles. Two in particular struck me. First the citizen owns the data. And everything is open and transparent.
Citizen ownership is not an aspiration or a policy. It is a hard reality that changes the way the whole system works. In our culture security is a tool to build moats or fences or walls. The defences of corporations, banks and entire nations. In Estonia security is designed and built to protect the rights and privacy of each and every individual.
Turning security on its head provides a basis for trust. Openness and transparency cements this by offering a clean and simple form of control. Your digital ID lets you see everyone and anyone who has accessed your data in real time.
Imagine a couple. One is a police officer and the other an ordinary law abiding citizen. The police officer uses that privilege to review data about their partner’s digital behaviour. The partner sees this and asks the police for an explanation. Once the unauthorised access is discovered, the police officer ends up in jail.
This is not made up. Its a true story and every Estonian from the President down knows it. The consequences of being open are profound. Trust has deep foundations. Bottom up rather than imposed from the top. Confidence enables a whole host of digital services and value propositions.
We can all learn from this and apply it.
And the impact runs deeper. I met perhaps a dozen Estonian founders, entrepreneurs and investors during my visit. Every business I learned about was founded on integrity. Digital trust has transformed the entire culture. Both Government and business ethics reflect the highest standards.
How was such a transformation possible?
How did this happen? One of the highlights of the trip was hearing first hand from Linnar Viik. Estonia set itself free during the collapse of the Soviet Union in 1991. He was one of the team tasked with building systems for a whole new country. They had no money to spend and no legacy to build on. The innovative choices they made back in the nineties still form the base for digital trust today.
Its a great story and you can listen to Linnar tell it as To E or not to E. It would be easy to conclude that all this was only possible because of the absence of legacy. Estonia had it easy because they started with a green field. We could never do that here.
The Chairman's View
That is both arrogant and unfair. It reminds me of an old joke. Para Handy is sitting on a capstan by the harbour when a stranger approaches and asks for directions. His helpful reply is “Aaah well, you know, I would not start from here."
Estonia emerged from a long history of oppression, authoritarian rule and worse. You would not wish this on anyone. And the country still has a long way to go. Yet they have built a unique foundation with trust at its core.
Its a great reminder that user experience is as much about the road travelled as it is about the destination. We should not complain about the challenges of our legacy - rich developed country, excellent public services and the world’s oldest democracy is not such a bad inheritance. Let’s learn from Estonia and build a better society and better businesses for ourselves. No excuses.
I set off for Tallinn with high expectations. My goal was simple - to listen and learn. The place, the culture and the digital story far surpassed my hopes. My sincere thanks to Peter Ferry, Dianne Ferry, Neil Mathieson and Chris Martin for making it all happen.
This article is a summary of my most powerful first reflections. I aim to write more about the lessons and the ways I can apply them in the weeks to come. You can see a little more about the trip in Tartan in Tallinn. If you get the chance to go yourself, grab it with both hands.
At some point in every enterprise sale you run into the person who loses their job when the company implements your SaaS. Customers buy the benefits of your SaaS. Benefits are realised through change. Change destroys jobs. If you're lucky it creates better jobs in exchange.
Customers buy the benefits of your SaaS. Xero and Quickbooks simplify the accounting process. This reduces the need for purchasing managers and debt collection specialists and wages clerks. Cost efficiency is often measured in headcount reductions.
Hold on I can hear you say. My SaaS is about enabling growth not a nasty old cost cutting tool. You are not alone. Sales and marketing tools are one of the busiest sectors in the whole SaaS landscape. But growth is only different because it kills your customer’s next job, rather than the one he or she has today.
Surely growth is different?
Think about a typical about a typical SaaS value proposition. A beautiful, easy to use tool that generates twice as many qualified sales leads for every dollar of marketing spend. (I made this up but it sounds real huh?)
For a sales rep this means more time talking to people who are likely to buy. That’s great. Except, any smart sales manager is going to turn that into more demanding targets. Better leads will lead to you needing a higher conversion rate to earn your commission.
The sales manager doesn’t have it easy either. His target will be stretching upward as well. His boss might think that at these conversion rates he can manage a bigger team. And who do you think needs to listen to the complaints of all those Willie Loman sales types struggling to handle the new reality.
At the top of the hierarchy, sits the sales director. This is a different animal. A typical C suite leader. Rational and ambitious. A lion in the sales jungle. All that extra growth and efficiency sounds fantastic.
This person may not even recognise the nagging doubt. Achieving this dream means either a smaller team or a bigger target. Or both. And the credit for soaring sales might go to an upstart SaaS tool rather than a brilliant sales leader. Not every forward thinking sales director sees this analysis as the ideal career stepping stone.
Hope and change loom larger than facts and figures
It all comes back to hope and change (remember those days?) A base case for new software might be as simple as eliminating existing roles. Often things are not so simple. The benefits of SaaS come through better growth, higher margins, great agility. These gains sound abstract but rational analysis shows they are real.
And there is a human reality too. Your SaaS will change jobs today or make the jobs of at least some people different tomorrow. This kind of change is necessary to deliver benefits. But everyone is a little scared of change.
Change the shape of a job in future holds a particular fear. These are the jobs the people you talk to today are hoping to get. The sales rep wants to be the manager. The manager aspires to be sales director. Once in the C suite the director fancies the CEO role.
These hopes matter more to your customers than the day job. Most people in big corporations enjoy what they do. They all hope their next role will be better than their current one. Taking away a known opportunity is a bigger threat than losing what you have.
Making the rational case for the new world is easy. Your new job will be better than you hoped. Easier, less admin, better results. Its still different. Getting there fast just multiplies the effect. Remember there’s a reason why breakneck speed is described that way.
The Chairman's View
When you sell to the enterprise you are not making an individual sale. You are making multiple sales to a variety of different people who all happen to have the same logo on their business card. Some of them are going to feel threatened by your SaaS.
So build the business case. Understand how the customer needs to change. And then help the people you meet deal with the emotional side. Understand the impact you have on their work today and their hopes for the future. That is what I call walking a mile in your customer’s shoes.
Strategic marketers always aim to deliver a lion’s share of the online market, but, much like the jungles and grasslands ruled by the lion, the online market is loaded with competitors vying for the same consumer prey. In order to thrive in this kind of environment, strategic marketing must possess a combination of strength, intelligence, and timing.
A lion hunting for survival surely recognizes that it is involved in a zero-sum game with the incredibly high stakes of life and death. While strategic marketers are not subjected to a literal life-or-death scenario, the stakes are indeed so significant that it requires one to adopt the mindset of the king of the jungle.
Why is a Strategic Marketer king of the online jungle?
The strongest lions understand when it is best to take a calculated risk, when to be patient, and when to be aggressive. The same must be true of strategic marketers looking to differentiate their brand from a host of competitors, which is why the most effective strategic marketers are rightly characterized as the kings of the online jungle. In order for strategic marketers to become more effective and efficient as hunters, it is absolutely critical to develop a deep understanding of their figurative prey, the consumer.
Consumer prey: Attacking with respect and knowledge
In his book Born to Run, Christopher McDougall discussed the relationship between the lion and gazelle by writing, “Every morning in Africa, a gazelle wakes up. It knows it must outrun the fastest lion or it will be killed. Every morning in Africa, a lion wakes up. It knows it must run faster than the slowest gazelle, or it will starve. It doesn't matter whether you're the lion or a gazelle -- when the sun comes up, you'd better be running.”
As the lion wakes up each morning to hunt the gazelle, it is not only aware of the task at hand; it is also aware of every one of its past successes and failures. A strategic marketer must also be aware of how important it is, to paraphrase McDougall, to be up and running the moment the sun comes up. Running without a purpose, however, is hardly likely to yield the desired outcome.
In order to engage in purposeful, effective marketing, the strategic marketer must apply the lessons learned from previous experiences while also tirelessly pursuing the attention of consumers. The most effective strategic marketers seek the attention of consumers through strategies that show respect for, and demonstrate an understanding of, the specific consumers within a particular target audience.
Navigating and conquering the online consumer hunting grounds
It is only with a healthy dose of respect and knowledge that a strategic marketer is able to navigate and conquer the online consumer hunting grounds in the same way a lion is able to navigate and conquer the hunting grounds of the jungle and the grasslands. In the world of strategic marketing, the stakes are so high that merely surviving is not quite enough; strategic marketers must adopt a carnivorous mindset that allows them to ascend to the throne of the online jungle.
Reed Gusmus is the director of marketing at QASymphony, where he is responsible for utilizing his exceptional B2B digital marketing expertise to develop marketing plans capable of generating new customer acquisition while also stimulating ample revenue generation.
I talked in my last post about the value of numbers in running your business. For many entrepreneurs financial information looms largest when they prepare a business plan. I am still looking for as many people as possible to share your opinion on both these challenges –– final reminder I promise.
Some sort of financial forecast is integral to any startup business plan. There is no need to explain to founders why this matters. A good business plan can be the key to unlocking investors' wallets. I meet a lot of entrepreneurs who are focused on this stuff. Yet more often than not, they are a bit sheepish when it comes to the numbers.
In the glory days of amateur rugby the spirit of the game sometimes overcame the urgency for results. At these rare moments, Bill McLaren sometimes used to quote a mythical Irish wit “the situation is desperate but its not serious.” (See origin)
Financial forecasts in startup business plans remind me of this philosophy. A set of financial projections is essential to the whole fund raising process. But in truth they don’t count for much. Investors make decisions based on the team, the market size, the level of innovation/ disruption and maybe the business model.
Financial forecasts - why bother?
There is a good reason that financial projections don’t figure high on this list. In early stage, innovative businesses, the link between forecasts and reality is pretty tenuous. The business has no track record to act as a guide. The risk of failure is overwhelming. Most VCs and angel groups invest in 1-3 out go every 100 business plans. Then expect only 1 in 10 of those to succeed. No-one has the expertise or experience to beat these odds.
Investors talk all the time about being risk takers. And they are but that is not a good paradigm for how the process works. The key factors in any investment decision are all about reducing risk. The best chance of success lies with having a great founding team. A huge market also reduces the risk of failure. And so on.
Nonetheless, preparing a set of financial forecasts is an essential part of the process. You have a choice. Get lost in the process and pray that no-one asks about your numbers. Or use it as an opportunity to think about your business plan and enhance your credibility.
3 ways your business plan numbers are different
The way to tackle this is not to think about getting the forecast right. It will be wrong - get over it. These numbers are different for three main reasons:
The Chairman's view
The key to business plans is not precision. It is storytelling. A good financial forecast is driven by the business plan. The revenue numbers reflect the market opportunity and the sales model. For example, enterprise SaaS leads will take a lot longer to turn into revenue than SMB free trials.
Cost calculations are the same. Once you explain your business model, the structure of the cost base should be clear. Your audience will know where their money is going to be spent.
More important, investors want to see how that translates into growth. Its like filling up a car. Easy to do but hopeless if you don’t know where to find the accelerator pedal.
A lot of entrepreneurs take professional advice when producing a business plan. Nothing wrong with that. Remember you are not selecting for technical skills. These are important but easy enough to find. You pick a designer than can make your story come to life in pictures, fonts and colours. Select an advisor that can paint your business by numbers.
The startup world is all about the future. Founders talk about creating the future. Seizing the opportunities of a golden age. Never been easier to start a company. So you might ask, why bother investing time and effort in past performance?
Those board reports feel as if they are nothing but a mechanism for keeping investors and non exec directors happy. Annual accounts are even worse. They feel like ancient history. The numbers don’t make sense. For certain they don’t shine a positive light on the great things your company is doing.
Its all pain and no gain. Yet this misses some important point. Here are four simple reasons why that thinking is wrong. This stuff matters.
“I had also, during many years, followed a golden rule, namely that whenever published fact, a new observation of thought came across me, which was opposed to my general results, to make a memorandum of it without fail and at once; for I had found by experience that such facts and thoughts were far more apt to escape from the memory than favourable ones.” Charles Darwin
Four lessons from history
Any of these is a good enough reason to get some consistent reliable metrics about your SaaS. What about accounting numbers though. Aren't those for the birds?
Accounting rules are relevant
In some respects yes. The rules vary from country to country. Part law and regulation, part accounting standards. Accounting standards in turn are half local and half international. All before you get to the interpretations of well paid professionals (like what I used to be).
It can be quite hard to understand the story published accounts are telling. That is not a good reason to discard this data altogether. For a start standardisation and rules are limiting but also useful in some cases. Investors like comparing numbers. Knowing they are all prepared to the same standards adds a lot of value. And you need to be able to convince investors.
Most angel investors don’t make a big deal over this. Take a longer view and the situation changes. VCs and corporate investors want to see proper accounting numbers. The same is true for or any form of exit - trade buyer, financial buyer or IPO. Tom Tunguz wrote a good article on this exact point. Published when the accounting rules for SaaS changed this year.
Not only that, they want to know how you get from the figures you look at every day to the formal accounts. When I did due diligence, one of the first questions on the checklist was “Have the management accounts been reconciled to the financial accounts?” Its still there.
So you need to ask yourself, what happens when someone appears with deep pockets. Do you want to present the numbers with confidence? Or scramble around delating diligence until you are ready?
The Chairman's View
So numbers matter. Get the right financial information and you can make better decisions. Use your numbers to present your business with more credibility. Yet preparing and managing this stuff is still a burden. And it can feel that there is very little help out there. I plan to change that. Share your opinion and be among the first to hear how managing financial information can be faster, easier and better.
Please share your opinion - Sunstone Financial Information Survey
TL:DR I have noticed that many entrepreneurs, investors and others struggle to prepare and understand financial information. I plan to change that. First, I want to understand whether this is a real problem and how widespread it might be. I have included a link to a short survey which explores the challenge. I am hoping you will complete this and share it with your networks. I want to get as wide a range of opinions as possible from people who like you.
This is my first post for some time. Over the last few months I have been taking time for a bit of reflection. I don’t really do ashrams or meditation or mindfulness. So for me this mainly means playing a bit of golf and having lots of coffees and lunch and chats.
I embarked on this almost by accident. Certainly without any sort of plan. The trigger I guess was the good luck my wife and I have experienced in the last year. Because of that, I find myself with the freedom and headspace to take on a bit more. I have been working with startups and early stage companies for four years now. I feel I can make a greater contribution.
Out on the links, the thought rattling around in my head has been: How can I leverage my time and experience better to make a real difference to the growth and dynamism of early stage technology businesses. This sound quite formal when I write it down but its really not. Its a theme I keep coming back to day after day, shot after shot, latte after latte.
Pursuing this idea I have had a ton of great discussions with people who want to make a difference. Many of them are already spending time, expertise and money to help. We all know its making a difference.
Yet every time I talk to anyone it feels like I am missing something. It doesn’t matter whether I am having coffee with an entrepreneur, walking the fairways with fellow investors or engaging in a discussion group with people committed to the startup ecosystem.
The conversation is full of ideas about scale, ambition, innovation and priorities. Focus on how we can help companies achieve more sales, raise more investment or become more international. Its all great but….
At some point after an especially early morning, a different way of thinking clicked into my head. Maybe people like me should stop thinking about where we are going. Leave that to the entrepreneurs. Instead of fuelling ambitions or chasing moonshots, why don’t we focus on making the day to day stuff easier for founders and teams?
Once you start thinking like this lots of sources of friction and pain present themselves. Much of this I can’t do anything about (IP — please will someone disrupt this one!).
Over a little time I have started focused on something I think I can help with. Numbers. Numbers always cause problems. Forecasts and projections, business plans, budgets, valuations and anything that looks forward. Board reports, operational v financial v accounting, cash flow or profit, KPIs and so on.
I have noticed that many of the people I talk to struggle to prepare and understand financial information. Professional expertise in this area is expensive and does not always meet startup needs. I plan to change that.
First, I want to understand whether this is a real problem and how widespread it might be. I have included a link to a short survey which explores the challenge. I am hoping you will complete this and share it with your networks. I want to get as wide a range of opinions as possible from people who like you.
If it is of interest, I will be happy to share the outcome of this survey with you. You will also be on the priority list to get early access to the next steps in my plan to make finance faster, easier and better for startups.
Here is a link to the survey https://sunstone1.typeform.com/to/w6r0ot your support is much appreciated.
A time comes when a B2B SaaS company starts to think about sales to big companies. Becoming an enterprise SaaS in other words. It soon becomes obvious that getting enterprise sales is not easy. Then its a short step to the place where you decide its time to start hiring sales people.
There is a bit of consensus in Scotland right now. A lot of companies are on the cusp if they can just get the right sales team onboard. The problem is great sales people are hard to find. And expensive.
I sit in a lot of conversations about how much to offer sales people. For most SaaS founders it feels like a big risk. The salary alone can add 20 or 30% to the monthly burn rate. Then comes the vexed question of commission. How much should you offer for on target earnings? What is a reasonable target?
At this point I like to confuse the issue by offering my thoughts. I don’t think targets and commissions are a good model for rewarding sales in general. I believe they are terrible approach for a SaaS startup.
The four killer flaws
Commissions based on the achievement of targets (or quotas if you prefer) are popular for three reasons. First they are simple, clear and easy to measure. Second the targets can be tied in to your overall revenue goals. Finally, sales people generate real value. And this is the established way of rewarding them for it.
All these arguments sound attractive. Everything is a balance though. And there are four big reasons why this traditional thinking does not stand up:
There are bunch of conflicting incentives and messages inherent in traditional per head sales quotas. I love this article by Steli Efti, a true sales guru, pointing out the downside risks of getting this stuff wrong.
Luckily there is an alternative that avoids many of these pitfalls. And it grows naturally with your business.
How team targets work
Most of my career, I worked towards team based targets. In a startup this is dead simple. You need to have one goal. Everyone in the business has to have a laser focus on achieving that single goal. So everyone shares the same target. Hiten Shah explains the importance of this.
As you grow, different teams will emerge. Targets and objectives will grow more complex. But each person will be a member of one or more teams. They share objectives with everyone in the team. This leads to a natural process. Objectives grow and diverge with your business. They are not made up to fit with “iconic,” expensive, big name hires.
In a large business, most senior people are part of more than one team. The effect is that everyone has a different set of objectives. Each individual target is shared with the team but no two people have the same combination.
For example, in my last year I was leading two major account teams and part of an industry business unit team. I had shared objectives with each of these teams. Yet no other individual had the exact same combination of teams and objectives.
Be clear team targets do not mean splitting objectives up into separate portions. Each member of the team shares 100% of the same target.
The Chairman's View
How does this affect reward? First and foremost everyone gets rewarded better because the business performs better. Teams work towards the same goals. People support each other. Incentives are unify not divide.
Performance reward in this system has to be based on total contribution. Simple numbers matter but they don’t tell the whole story. Total contribution gives you the opportunity to look at everything. Close sales, build relationships, deliver great customer service, product innovation - whatever really matters.
You can take the chance to factor in the important cultural things that get left behind in a sales culture. Respect, diversity, honesty and personal growth all matter. So recognise them.
Its true that total contribution is much harder to measure. At the same time it is fairer.
Leadership earns more respect. The right behaviours are supported and encouraged. Well worth the effort.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.