S1E163 - 2021 Modeling, Planning, and Forecast with Robert McClaw of BurnRate.io

And we'll go ahead and get it kicked off. So before we start, I would love for people to just go into the chat real quick and just tell us where you're dialing in from. It's always fun to see. We're big proponents of chat. So please, by all means put your questions in there for all of us. Be sure to add a comment. If we have a question come up and you want to add to it, go for it. Like we love to sort of have those that extra commentary. Without further ado, I'll go ahead and say thank you so much to our sponsors. Find them gong lead411- Perception predict and burn rate IO who we have as our special guest today. So Robert from McClaus from Burn Rate. Just quickly, you know, give people a sense of like where your perspective is and what does burn rate do? Because I think it's a pretty interesting concept that you've created.

Yeah, thanks. I've been in capacity planning for a decade now. It started out in actually commercial real estate and understanding turnover in buildings and building out that SaaS business. I really needed to move from being a technical founder to understanding sales and applying that engineering mindset and a capacity planning perspective on salespeople and understanding how a team needs to scale is really where it came from. So Burn Rate is designed to help you understand exactly how to grow the team and give you a schedule breakdown of how to hire based on what you've typically seen in spreadsheets as AE ramp up. So if you're wanting to understand quota ramp, we take it a lot further to help you get really specific about what that means in terms of how long it takes to hire.

Is there a story behind you're creating this? Like, oh my God, these are the 10 mistakes I made or here? Like I think that gives a good baseline of where perspective.

So I'm a soft. I've been a software developer for 20 years. Sales is not my thing. I actually hated sales. I hated salespeople. I hated everything about it. Just put a button on a website and let me buy it. Right. I didn't want anything to do with it. I had a co founder that was supposed to be selling and I built the app. So that didn't work out. It turned out selling commercial real estate buildings didn't translate to selling commercial real estate software. Who knew? So I had to figure it out. I had to get in and understand. I had no idea about how any of this stuff worked and I went to Sasher.com and was starting to learn about it. And I caught an article that said on your first hundred hires as a startup, 70% will be non technical and most of them will be in sales. And I was like, holy crap.

Silicon Valley has been lying to me. I thought I was building a tech company, but if 70% of my employees aren't tech, I'm not building a tech company, I'm building a sales company. So starting to think through and understand that and then look at all the spreadsheets that were out there. It's like these Spreadsheets are crazy. 87% of spreadsheets have one or more errors. And like the spreadsheets that are given out to sales leaders and founders have like 160 or 200 assumptions on them. There's no way you're ever gonna get that right. There's not a chance. Those are black holes of your time. And so I really wanted to build something that would help you mentally separate the different parts and, and break it down and build on success. Right. Get the core parts of the problem. Right. And when you're scaling a company, your biggest expense is people. When you're scaling a company, your biggest mistakes are often around hiring, either hiring too few people or too many. And I hear all the time startup founders are like, we just raised 5 million. RVC said hire 10 reps. Well, you're dead. You're dead under that plan if you're not careful. And you're going to burn all kinds of money. And there's so many ways you can screw that up.

I know we talked offline for a second that you've got a spreadsheet you want to share. Then I want to move into, let's Translate this into 2021 planning. Right.

But I think absolutely establishing this really strong baseline is super important for folks. Absolutely. So let me share my screen on my other machine here and we'll dig in.

I've put together this sampled spreadsheet and this is typically what you're going to see. And what I want to point out is two things. One is that we're using a new add in for burn rate for Excel to be able to bring in some top line revenue that you need here. Then I've got acv, just a sample ACV in terms of how many or what your deal size is going to be. This kind of walk through how you would build the spreadsheet out as a VP of sales. And there's one simple mistake that you can make that will kill your career if you're not careful. Kill your business. You'll get Fired, you'll be out on the job market again. It's real simple. So from here, I need to know how many deals I need to get done in order to be able to make this number, right? So I'm going to go in and I'm going to say it's real straightforward. Here's my new customer. ARR. And I'm gonna divide it by my acv, right? But look at that.

So, dreaded fraction.

The dreaded fraction, right? And so I've got a decimal point in here. Now, if you're not careful, my next reaction to this is gonna be, well, I'm not gonna do 5.24 deals. It doesn't make any sense. So I'm gonna go in and I'm gonna hit the button to round this, right, to give me a whole number. But what just happened and that you are not aware of more often than not, is that Excel just rounded that number, okay? And if the decimal is under 0.5, it rounded that number down. But you didn't necessarily know that. And so what happened was, here's the deal. I got five, six, whatever deals I needed to get done. Now let's show you. I want to take this back so that you can see the whole number. And we're going to add a new line here that effectively does what Excel does when you round this out, okay? So now, by the way, you're not a VP of sales, you're not a capacity planner anymore, you're a computer programmer. Because now we're looking at formulas and all that stuff. So. And built in Excel functions. So I'm going to round that, I'm going to drag that out, okay? So you might come over here and you might, you might autosum this and say, all right, well, you know, it'll all work out in the wash. And the number of deals I need to get done, well, let's autosum the next row and show you from that perspective. It does, right? It. The math all worked out. Whether you rounded or not, you get the same result. But here's what you actually needed to do, okay?

You didn't need five deals in the first month, okay? We're gonna bring in a new formula. And that formula right here is we're gonna round that number up and so round it down and set it to zero decimal places. You actually needed six deals in January, okay? You needed six, you needed seven in March, you needed 10 in July instead of nine, right? You, you needed 15 in December. So the actual number of deals you needed to get done for the year in order to make this work. That's.

This way you needed 115 deals, not 109. Right. 24k ACV maybe doesn't seem like a big deal. 300k ACB ACV. You have a massive problem on your hands. Okay, so let's take a look real quick at the difference. It's real straightforward. Okay. We're just gonna minus this in.

Okay.

So you've left six deals off your plan. Okay. You get through a quarter. Every quarter has at least one deal missing. Okay. So you're gonna miss your targets every month just based on. Here's what we need to do in order to hit our top line and here's how we break it down. So I want to show you then how that plays out for the company. This is your jobs on the line for this. Okay. It's really important based on how you would typically do this. Okay, we are going to take the. The rounded version and minus your ACV right here. Sorry. So this is B8 minus or times your.

ACV.

Times your actual needed deals. Okay.

So watch what happened? Let me drag this out. So at the top line, you needed to get $125,000 in. In January in order to make your number. You actually only did 120,000. So you're off. Here you exceeded. That's great. Here you didn't. Here you exceeded. Here you exceeded. Here you didn't. So the total here, let's break that out across your top line, you needed to do 2.6 for the year. What do you actually got done?

I'm getting a kick out of watching an engineer.

I know, I know.

I'm making the same engineers struggle with this. How the hell is a sales leader supposed to get it right? I never went to Excel class growing up.

Well, that's the thing. Most people did. So let me. So let me go in. Here's results. Done. Right. Okay, so. So you're still short. That's what I was pointing out. And then we actually were doing this off of the. The other number. That's why I was a little off. Okay, so then let's take in your results. Done right here. Okay, so this is.

The actual number of deals that you needed. Right. Times your ACV to get you 144.

Right.

You want to do better than what the model said. You want to be able to achieve more. And if you do it the way that Excel lays it out and rounds that down, you're going to see, gosh, those six deals are going to come into Play. They're going to get to the end. Now you're at 2.7 here I didn't make my number Here I did. Okay. Here I did passed it. Okay. And if I, I think the challenge here was it should be oops.

Back here.

I just love that you can do it fast while we're all watching, as opposed to just spreadsheet available. I think that's the smartest thing he's done rather than here you go, here's what it should look like.

Yeah. So this is ultimately what it breaks down to under this. And I think I made a mistake in here somewhere. But the number's lower. Okay. You didn't hit your number. At the end of the day, there's six deals that are off of the table here.

You rounded it up. Burn rate rounds it up for you so you can exceed what the plan was. Now you look good. As a VP of sales. I exceeded my minimums and I moved on. And so that was ultimately one of the big things that we found that was like, wow.

The way Excel calculates this stuff out and the way you need to get this done matters. There are very simple mistakes you can make in this that have a massive impact, not just on your career, but on the growth trajectory of the company. And so that's why our algorithms take care of all that other.

So the really important question is, do you still hate salespeople?

Absolutely not. What I learned and what I love about this side is sales is the engine for the business. And growing up on the tech side, I thought it was tech. It's not, it's sales. And if it's the engine for the business, it can be engineered and you can teach it to engineers. And so I think that there is a lot of work to be done still in the industry around building an engineering minds, bringing an engineering mindset to the sales side of the house and how you scale out teams and how you make it a predictable revenue engine. And what has surprised me the most in talking almost 200 companies over the last year is that even publicly traded companies are disasters in some cases when it comes to their sales process and how they manage execution and manage the team. So we're still really early in SaaS and there's so much work to be done on making this stuff. Well oiled machines across all the companies that are out there.

I can imagine once you go to your 20 million or 100 million, these numbers become very significant.

Yeah, well, that's just here, right? That's not even talking about the capacity planning side of things. And when you get to what does quota ramp up look like and the mistakes you can make in not remembering how or not tracking how long it takes to actually hire for that role on your capacity planning spreadsheet. So your AE quota ramp up will show you you need to bring somebody on in August. Let's say they need to be making money in August, but the sales before that are blank. So they're not telling you like how long does it take you to interview people and how long does it take you to have them accept the offer and get them trained. And so every day you're late hiring a rep with a million dollar a year quota costs you $4,000 in lost revenue every single day.

Say that again. For people in the back.

For the people in the back. If your Reps have an $83,000 a month quota, million dollars a year, every day you are late putting their butt in a seat, talking to customers and closing deals cost you $4,000 in lost revenue. At series A, you are likely hiring anywhere from five to 12 reps in a year.

Most companies are six weeks or more late in hiring. That's 124 grand per rep. That's not getting put on the boards because you're not keeping track of your human pipeline that has to process your lead pipeline and where that intersects.

Now I have like a bazillion questions and comments on this. I've been doing this for 20 years.

Yeah, you're that old, Scott.

Yeah, I just look a lot better than you for my age. So the number one reason people miss targets, miss quota in the sales, vp, head of sales capacity is not having enough headcount. That's the number one reason more than anything else. Okay, here's the biggest challenge. And this is for you, Robert, or you Richard, if you want to tackle it. The biggest challenge is if you go into an early stage company. Let's say I go into, you know, burn rate, for example, and I'm the, and I'm the head of sales and Robert's my boss. Robert says to me, I need you to forecast out 2021 and 2022 by the way. And I need you to get within 90 to 95% accuracy, revenue and headcount. And I'm over here like, well I have, we haven't even closed a deal yet at all. I don't know the sales cycle, I don't know our ACV yet. I don't know how many reps I'm gonna need. But that's what I'm Being tasked with. So difficult situation for any VP to be put in. Where does one begin? Robert or Richard? What's the first couple steps that you guys would take?

I'm gonna let Robert answer because apparently I've been doing it wrong for all these fucking years, so. And I'm older than you, Scott, so.

So, like we broke down a ton of spreadsheets. There's so many floating around on how to do this. And it's like, all right, on 200 assumptions, where do you start? Right? It's always in revenue. It's always the simple understanding. Ask the question, where are we at? Either it's, you know, either you're a recurring revenue business or you're not. So where are we at in revenue today and where do we need to get to within the next 12 to 24 months? Right. If you're on a venture track, if you're a venture funded company and you need to figure this out after you hit a million dollars in revenue, you need to triple your first two years and double your next four in order to hit 100 million arrangements, that's the trajectory that VCs want to see you at. Okay, that zero to a million. That's the hard part, right? It's understanding how long is it going to take us to get there. More than likely it's going to take you two to three years to get to that million dollars in revenue in the first place. And so you need to plot that out accordingly. Okay, so once you understand I'm at nothing and I need to get sales done, you can't have a grow. You can't like take, I want to grow 8% month over month and times that by zero. Not going to get you anywhere. Right. So you need to set an end goal and work backwards. And how are you going to be able to approach it from that perspective? Now setting that end goal is nearly impossible to do in Excel and have it running backwards and then run forwards later. That's where burn rate's nice because it comes in and lets you set a target in the future.

But for the most part, once you start to figure out, okay, well, we're at nowhere, by the end of 2021, we want to do 300 grand in ARR. Now you start to break down. How long do you think it's going to take you to get a deal done and work from that first deal on the boards? It's probably going to be at least three months before you figure out everything you need in order to accomplish that. So while you're Planning for that, you drop that number in and then start to think about.

The math to get there, right. From a million to 3 million doesn't over 12 months, doesn't change. It doesn't matter what you're selling. You need to put the same amount of money on the board every month. You're growing at 9.6% month over month, and that's. It doesn't matter what product you're selling. What matters then is your contract value. And how many of those deals can one person do in a month? Yeah, right. And then start breaking that down from there.

One of the tricks that I applied, and this is not necessarily a science, it's actually not a science really at all. But, you know, when I'm the early VP of sales, I've got to try to sell this product myself. And I pay attention to the pipeline that I've built and how long it took me to bring in the first deal. And then I try to future forecast that out. To think, if I was doing this job 100% of the time, how many deals could I reasonably close, as, you know, with my level of skillset and acumen and prowess or whatever. And I typically divide it by two.

To forecast what a sales rep is gonna be able to do. Kind of sandbagging it a little bit and, you know, puffing up my own ego maybe a little bit as well. Right. And that's just. That's a safer kind of application to the modeling and figuring out what my head count needs to be that forces me to have more bodies, which at the beginning, you know, you can make a case either way. But at the beginning, I think it's helpful because you're getting as much data points as possible and you're learning.

What type of sales rep is going to be successful in this kind of role. And I'm getting as much input as possible about our scripting and our sales process and that kind of stuff. There's factors here, Robert, that often get missed when you model things out. I'm going to name a couple and you can agree or disagree, but I'd love for you to expand on it. And these are things that I've learned over the years and advocated for when I had conversations about forecasting with CFOs. So seasonality is one of them. Right. Like if the summer is a dead zone, do we downshift the quota? If the winter is a hot zone, do we upgrade it a little bit? Holidays, holidays are a mess when you're trying to forecast and model out. For example, when July 4th lands on a Wednesday. This is every sales VPs worst nightmare because nobody's really doing anything the Tuesday before the fourth of July. Nobody's doing anything the Thursday or the Friday. What happens is everybody disappears all week, but you're still on the hook for that revenue. Right? So I'm thinking of seasonality of holidays and I'll turn it over to you now. What are some other factors and triggers that people are not considering when they're modeling things out and forecasting?

So holidays and seasonality are really important, right? Q4, what tends to happen? Right, because you have all of these holidays back to back to back to back and nothing gets done in December. You know, deals are only getting closed if you're texting the CEO on December 28th because you know he's out of the office or whatever.

What tends to happen overall is that because there's such a higher focus in October and November on getting deals done because you know, very few of them are going to happen in December. Everybody pushes planning off until that, that quiet time. Right? And here's the problem with that again. We've Talked to over 100 companies at least on these processes. Doesn't matter where you are, doesn't matter what you do, it takes you at least three months.

To. From posting a job on the market to having a fully trained butt in a seat is a three month process, okay? And so if you've pushed off your next calendar year, in this case 2021 planning until December, you're screwed. And you don't even know it. And here's why. Because you are going to make hires in Q4 that aren't going to put money on the books until Q1, right? If your plan doesn't go out, and if your 2020 plan doesn't go out at least three months into 2021, you're going to miss those hires because it's a slow period. And you're like, no, I don't need to ramp, I don't need to do anything with that seasonality, okay? Most people slow down their hiring. And so where you needed to actually ramp up to make sure the deals that didn't get done in Q4 are getting done in Q1 and you're really killing the first quarter. You have to ramp up your hiring, you have to know what that looks like and you're going to have to potentially take the hit in order to make that happen. I understand what that looks like. And so.

We'Ve seen it time and time again where the model your plan goes to December. And it says you need to have eight AES on board and you missed that time to hire and you have higher revenue goals for next quarter. And so not only did you need to hire the same number of people you hired in Q3, you're probably going to have to hire two or three more on top of that. And so your Q1 will be shot. You don't even know it. You planned December 15th. Everybody's happy. You know what more than likely happens is it's January 12th and everybody signs off on the plan. And then you look and say you needed five new AES ramping up in January, when I'll crap, we didn't hire them on October, we're screwed.

So what about. So there's a couple of questions that are coming up. One about what about repetition. Right. Lose. Right. It's a huge piece.

Yeah.

And I do want to sort of shift this discussion, too. Like, I love this baseline we're giving and please, folks, keep asking questions in the chat, but I'd love to hear a little bit about repetition. And then like, what are we even doing with 2021? Like, that's a whole other seasonality issue. Like, I don't even know. Right. Like, and I think that's why a lot of people are here is like, how do I even try to build that in and understand stuff like that?

In terms of attrition, you need to understand that you are going to lose 25% of your staff per year as a baseline.

Let's shout that out with a microphone megaphone, please. Because.

Not enough people are honest and candid about that.

As a baseline, you are going to lose 25% of your staff every year. Okay. When you're doing. And it's one of the next things that we're working on as a feature. When you're doing your. Your quota plans. Right. There's a time factor in there as well. And that your rep is only going to be around for what, 12, 14 months. There's not a lot of data on that. How long reps stay around. And so we don't know yet. But it's one of the things we want to find out. But you're going to lose a quarter of your staff if you are not keeping track of. If you don't. If you make that mistake that a lot of VCs make founders make, which is over hiring and they don't have enough leads, you're going to lose 40% of your staff. Okay. Or more. And so it's really important to understand that balance between the two and know that it costs you three times what you spent to fill that role in the first place in order to replace that person. Okay. Those are two very important factors you have to keep in mind in that process.

What about, how do you even factor in.

Product development not hitting their goals? Right? Like, I've been through that. Like Scott. This is. Scott's question is like, get fired in 18 months as heads of sales, but nobody fucking ever gets fired for missing their deadline of the product release.

Has that been formulated out yet?

I mean, in our model, no. And from a, from an operations standpoint, that, that's, you know, there's a difference between planning and forecasting. There's a. Forecasting takes where you've been and tries to figure out where you're going. Planning is setting a target and how are you going to get there? Right. When it comes to what you're selling. For me personally as a founder and a CEO, that's an operational issue where the engineering team and the sales team need to be really working together to understand what the ship targets are. And that in turn, internally you need to have. Here are the features that we're shipping and accountability to your customers on where you are with actually doing that. Because customers don't mind so much if A, feature slips if they know A, what you were working on, and B, like, okay, did something else get shipped instead? But if there's not that accountability, then salespeople promise features that engineering teams can't deliver. And having been on the engineering side, but even.

Look, I know Scott, you know, and I know several of these people on this call, we're not out there pitching the future, we're pitching the product. Right, Right. But, but, but the goal has been built into or the new release is being built into. Oh, we're gonna have this by July and holy shit, it doesn't get here till September yet. Nobody adjusted the number. Yeah, and this hap.

That's.

That's the piece I'm super.

Because people, the CFO and the CEO have baked in a lift into. Into their forecast because such and such feature will get released.

But they make, keep in mind, I don't know, they baked in a lift. I think they baked in a compensation guarantee for themselves.

No, they baked in a lift.

Trust me. They baked in a lift.

I've been, I've been. I've been at this longer than you have lately.

You have, you have.

They bake in a lift now these days, Richard, like you're clocking along at a particular rate and all of a sudden they're like, oh, this new feature comes out at the beginning of Q3. We expect it to increase sales velocity by 20%. And if you don't fight as a VP of sales, you're stuck with that. And when that feature set doesn't come out until the start of Q4, guess who's still on the hook for the increased revenue? We are.

That this is great. So, and believe me, I got one more around these and then I do want to go to 2021, particularly with the CEO and the CFO, you know, with the average tenure of the head of sales, 18 months. Right.

And shrinking.

And shrinking. Right. What are you seeing it now, Just out of curiosity?

One fundraising round.

Think about it. So, depending on the situation, okay, you get a series A VP of Sales, okay. That's typically, you might get one at seed. It's probably going to be the founders until a A is when you're going to get a real person in there. That's, that's. Now you've got revenue targets, now there's expectations, right? So they're going to go in, they're going to do exactly what we just did in Excel earlier is try to figure out how many deals you need to get done, what's the ramp up going to look like. Try to figure out how we're going to deal with sales cycles, right? Remembering that the career trajectory of a VP of Sales does not include being an Excel wizard. Okay? Chances are you got really good at selling, you maybe manage some people, and now you're like, okay, I want to take the next step in my career.

They're not even good at managing people, let's be honest. Like, they're not.

Nobody taught you Excel, just like they never taught you how to actually manage the person whose cat died. Nobody told you how to have that conversation, right?

So, you know, you're going through that process and then you're having to hit targets along the way, right? And now there's expectations. VCs wants to want to know what's going on, right? If you made that mistake in the spreadsheet and you're not hitting your numbers because there's a disconnect between the planning tools and the execution tools. You're not usually going to see trends until the end of the quarter, right? And then the VC or VP or the CEO is going, okay, what happened? VP of sales has to dig in and try to figure out, okay, well, this thing, there's all these execution tools over here where the data is, there's all this going on in the planning tools, maybe you have some rev ops going on and you put somebody on it. Three weeks later you have an answer, okay. Oh, by the way, during those three weeks, shit kept happening, right? Stuff was still continuing to go wrong. And so those adjustments take a long time. You only have 3/4 as a VP of Sales in order to prove that you know what you're talking about and can hit your number. It's not a lot of time because after that, if you haven't, if the CEO after three quarters is still going, what the hell's happening? What's going on? Then in the founder's mind and the investor's mind, they're already replacing you and building the a new VP of sales budget into the next round of funding. And by the time that next round clears, they're fundraising based off of hiring a new VP of sales and then you're out.

So, Scott, now do you believe that sales is a science, not an art?

It's always been a little bit of both.

You'll never get me to convert.

So.

So Robert, let's move to 2021, right? Because Covid thing like, are people writing multiple plans? Because we just don't know, are they, you know, have they been able to look at the past now and try to figure it out? Because, you know, there was depending on the industry, there was a huge drop in April and May. In, in late May, we started to see people starting to get curious about coming out of, you know, what we were going through and curious about the next product or service they might buy. And in some cases the businesses is picking back up. In other cases it never dipped right. Like if we're zoom. Congratulations. Yeah, but what are you seeing in the modeling of 2021 or what are you recommending to people as they look at this stuff?

So we saw overall with the companies that we were working with, a real serious diploma for some in Q2 and at the end of Q1, right when the lockdown started happening, we were in San Francisco at the time and pretty much every company locked their budget at the end of, at the middle of February. Right. And if they hadn't done it by March 12, then it was done.

Then it started unlocking again in April, May, and some companies, and some surprising companies, companies that pivoted or adjusted based on what was going on did really, really well. SaaS is a great business as a whole in that.

I think David Sachs or somebody pointed this out that most companies will pay their SaaS bills before they pay their debt. Because you got to keep the business running. Right. And so that's better than having a SaaS contract for a lot of people is better than having having a loan against it, like being a creditor. So.

In 2021, and the first thing is planning is not a quarterly or an annual thing. And get that out of your head right now. I'm going to be real direct about that. Things change rapidly. Planning has always needed to be a monthly thing and understanding what your plan is, the tools have just been terrible to help you actually do that. And so it's such a time suck that you punt it as long as possible. But based on if you're growing, the number of hiring motions that you're going through every month will continue to grow. You'll go from having to deal with five different people to seven different people to 12. Right. And that never ends unless you're dying as a company. So it's important to understand that you need to stay on top of that all the time. At minimum. You should have three plans you need to have. Here's how we've been growing and if we can stay on pace, here's what we're continuing to do. Don't bake in that. If you're, if the CEO is like, oh, we're releasing this product and we want to bake in a lift, don't do that in your baseline plan. Okay? It's a machine. The machine needs to operate. Your focus for 2021 is to refine the machine and make it as efficient as you can. Okay. And watch that. Then get a little more aggressive. Say all right here in the aggressive model, six months from now we're going to roll out this feature set that's going to open up a new market opportunity and raise our acv. Let's see what that looks like. And then you need to have your vaccines aren't out. The December spike in Covid goes crazy. Congress can't get its crap together and get another stimulus bill out the door. And money is hard to come by for companies that aren't able to grow right. And that right now SaaS businesses are doing really well. Some retail businesses are doing really well, some places are adjusting, but not everybody's making it. And so if more companies start falling off, you're going to see a decline in sales as well. So you need to understand that worst case and don't be operating towards it, but you need to be reviewing it on at least a bi weekly basis to make sure that you are seeing that trend. Because if you wait it takes three of any data point to see a pattern. Right? And if you're only looking quarter to quarter, you're toast because it's gonna take you three quarters to see the problem.

I can tell you that I would have this particular spreadsheet up all day, every day and I would stare at it for at least a few minutes every single day, just like obsessively trying to figure out what needs to change, what's going to tinker. You know, we're entering into the winter. A nobody on the planet ever been through quarantine and Covid during the winter. Right, that's. And I mentioned this yesterday, like the winter is liable to add a whole new level of what the fuck onto 2020 that we're not ready for. Right. So we got a couple good questions from the audience. Richard. I'm gonna go to Brian Baron first. He's got a good question for Robert. What's up, Brian?

Hey guys, how's it going?

Good, man.

Not much. So, Robert, how do you plan for a company that sells different products? Maybe they have different deal sizes, different length of time payouts, different for each AE or, you know, str, whatever. So when you are selling different products and it's not just a simple, like this one thing that you're selling, how.

Do you account for not zoom, Right?

So how are you accounting for those changes?

So this is where you get into these situations where, you know, Excel really starts to fall apart when you get into the complications of the business. Right. And there's a lot of factors that come into play even just think about this, right? Most when you're looking at the number of deals you need to get done and you're looking at your pipeline conversion rates and you want to build out your top of funnel plan. Most people in Excel will just take those conversion numbers and roll that back up to the top and say, all right, well in, you know, July, I need 10 deals done. That means I need 200 leads at the top of the funnel. Well, not in July, because it takes you time to get through the selling process. So you actually needed those 200 leads back in March, right. That that funnel needed to go back this way so that it trickles down into July. But the spreadsheet doesn't account for that. Right. And if you try to start accounting for those things, that becomes problematic. And you can easily make mistakes. When you get into, I've got SMB, mid market and enterprise, and I've got different deal sizes and different ACVs. Right now you're adding if you want to try to show July. Now you've got three columns for July, not just one. Or you've got three spreadsheets, three sheets within the document for each one. Huge hassle. How we handle that with burn rate is today is that you set up different teams and those different teams have the different ACV targets and you track the hiring motion for each team individually. Because just as an example, an SMB AE is going to have a shorter hiring cycle than an enterprise ae. And you need to understand that you can hire more people quickly on the SMB side. It's going to cost more to scale the enterprise side. So we break that out separately. In the future, we intend to let you put in the different products and put in your percentages and let you set those percentages per geographic team and say, here's how overall the structure is working and these AES are targeted to this product and these AES are targeted at that one. But when you get down into, hey, we've got, you know, two, three, four different products, that's where the spreadsheets get gnarly. And they will be a gigantic black hole of your time if you're not really careful.

Yeah. So Robert, are you. Robert, are you going to get fired if you don't hit all these release dates? Just want to make sure our original.

Conversation.

Dang, that would, that would suck. We tried. It was a great question. I. And what we do, we try to get very granular with our customers and break out like, these are the features we're rolling, rolling out this month and then show them when they got rolled out. For me, as a, the best thing that I can do for sales on the product side is show customers that we are continuously delivering value. And so if you are a VP of sales in this and you're trying to figure out your capacity plan and you're planning for 2021, the biggest thing I would do that's to try to control the things that you can't control is to make sure that the CEO and engineering and you are working very closely together to get more rigorous about displaying continuous value delivery. Because the best thing that you can do to sell to your customers is tell them, hey, we're shipping a new feature every two and a half weeks. We're answering feedback and making adjustments and constantly evolving this platform for you to deliver more value than you ever expected.

Now, I've been one of these VPs of sales before in my lifetime that has this massive color coded Excel spreadsheet that literally takes like 90 seconds to actually load onto the page. And one of the big challenges that I've had in terms of forecasting and modeling out Anthony Zhang is gonna, he has a great question about it. He was messaging me privately. So Anthony, why don't you ask Robert this question? It's a good one.

Yeah, absolutely. First of all, I want to give Burn Rate a shout out. This looks amazing. You should see the spreadsheets that I have going on right now with all the different calculations and conversions. So this is a dream come true. But one of the things that I'm curious about is really around modeling out CAC and ltv. One of the things that I'm working on right now for another company is building out their sales comp structure. In order to build out an effective comp structure, you understand how much does it cost to acquire customer. Now you have your SDRs, your AES, your customer success managers even, right? All those are a cost. And so you don't obviously don't want to overpay your sales rep. And then you also want, you know, a one year to two year LTV to kind of profit off of that customer. So how do you typically model out CAC and LTV to factor in all these different things?

So I think you hit on the number of reasons why doing things like try in Excel. Just saying, here's your fully burdened AE cost are really bad for modeling, right? Because.

The reason we focused on what we have to start with in terms of the hiring schedule is because dates are everything. You cannot just average out your costs and then drop them in a month and then, and then know what's going on because your burn is going to be, your cash burn is going to be vastly different. And so, and just think about this. If it's a, if you've got a three month hiring cycle and then you have a ramp, right? You have initial recruitment costs that come when you post the job, right? The day they come on board, you have base salary to consider, you have signing bonus to consider. You have your tech stack of all the different licenses that you have to pay for, right? And all of those things come into play before they're even starting to train to put money on the board. And so if you as a, as somebody that's trying to understand cash flow, just say, okay, well this rep all in fully burdened is 13 grand, which by the way is the minimum in Silicon Valley, right, for how much this is going to cost. You are missing a whole bunch of detail on when these other costs come into play that will affect your cash flow ability to hire. And so there's a lot of focus on CAC and LTV in terms of where you're going. And a focus on that tends to miss the cash flow perspective itself. And if you have enough money to actually make the hires that you want to make while they're being compensated. So today Burn Rate is not doing that yet. What we tell our customers to do is go check out quotapath.com QuotaPath helps you build those compensation plans and understand how you're going to compensate your staff. And then that platform ties to Salesforce or your CRM and helps you actually execute that so you can get a better handle on how that cash is going out the door. And then we are going to pull those plans back into Burn Rate and help you see how based on the number of deals you're getting done, how that flows over time so that then at that point you can start to understand a real customer acquisition cost, LTV cost because you have the marketing funnel in there at the same time and you're starting to track how much it costs you to get through that funnel. Right. And now you're starting to get more accurate with what the real long term value is. You can take shortcuts today on that in Excel and that's fine. That's the standard approach. You need to be aware that with Excel, Excel is a great name for a product. The problem is it because it's idealistic. Right. It wants you to excel as a person doing your job. The problem is if everything that you're putting in your spreadsheet is average, you're doing averages of this and averages of that, your results will only ever be average.

And you need to understand that while you're working with stuff and while then you're working with your CEOs and your staff is that whatever's on the spreadsheet is going to be a, a mix of stuff. If you want to do better, you have to understand what that means to actually where you're going to push on that and where you're going to keep an eye on things. So I hope that helps.

So I, you know, I know we need to move to wrapping up in a second, so wanted to, wanted to ask one more thing and without, you know, let's assume I don't have Burn Rate. Right?

Yeah.

Because you know, it's a whole other discussion to talk about this and then go sell it to some CFO who might go, well, you should know how to do this anyway. Right. Some other line.

Yeah, that's why we don't sell the CFOs, but that's a different conversation. How?

Without. And I don't want to be a product pitch, but how do you.

How do you pitch the CEO and the CFO on this? Look, we need three different plans. We just don't know. Right? And I think it's going to be a challenge. And I think they're, they're gonna, particularly with the VC SaaS model, they're gonna be like, well, you got to pick one, you got to do it. You got to go with your best case scenario, not your worst case scenario. Or, you know, look, everybody got funding in late 2019 or early 2020, and now everybody's expecting this massive return. You know, are you seeing, I guess maybe the question is, are you seeing the CEOs and CFOs or even the VCs going, yeah, we need to scale this back a little bit. Like to some extent, I've heard from some well known SaaS companies that break even was the new hitting goal in 2020, and are you seeing that in the market for 2021 or is it still like a hope and a prayer?

Well, so it's really important. Distinctions are important. It's really important to understand that VC and CEO operations are not necessarily aligned in terms of terms of what's best for a fund versus what's best for the company in terms of what's best for the fund. They want you to push as hard as you can. They want you to hire as fast as you can because they want you ultimately to have to need more money coming in the door.

So they can push up their markups. Right? So they can raise another fund on the fact that the value of their companies is larger. Okay. And so that structure and strategy wants you to have to burn quickly and then need more money and then sell more of the company. So that's the alignment on the VC side that the founders and the C suite is dealing with in terms of trying to figure out what your strategy is moving forward. The thing to keep in mind right now is that there is not a person alive that knows what's going to happen in the next six months. It doesn't matter how smart they think they are. We have never been in a situation where. And you might say, okay, well this is just like the pandemic of 1918. Okay, great, we didn't have a technology system and Zoom and SAS and all of this other stuff. So these are thousand new variables. And we. And that's never. I don't if I remember correctly. I don't think there was an election going on during the pandemic of 1918. Maybe when it's. If it stretched into 1920, but at the time there was not a presidential election. So too many factors going on for anybody to prognosticate. So a prudent leader is going to have multiple plans of attack and know when to turn your best or worst case scenario on.

So, Scott, how are you? Like, I know Scott is the master at managing the board and the CEO as best he can. Sometimes they're just not willing to listen. How would you position this? Right. Like you're, you know, Robert's the math guy, right, and understands it at that level, but you're the guy who goes out and does this with your CEOs and founders and VCs. What kind of things might you be suggesting to them?

What would I suggest to the audience? Or what would I suggest to.

No, if you were in this role. If I'm in this role and I've got to go to my CEO and pitch these three different plans, or, you know, you're in a meeting with the VCs and they're asking you for some ridiculous prediction, what would you do?

I mean, I know what I do and I know what I've done. And I wrote this in the chat earlier, which is I go to war, for lack of a better term, I do not let myself get pushed and stretched. And candidly, it doesn't make me very many friends in those rooms in the moment. Later on, it does make me friends because I think they respect the fact that I was sticking to my guns and then I actually deliver on the lowered number that I fought for. So if I have these three plans, I'm gonna say, here's a conservative one, here's an aggressive one, and here's the one that I feel is most likely to be attained. That one is never dead center in the middle, by the way. So if the conservative one is a zero and the aggressive one is a hundred, my most likely plan is not a 50, it's like a 35. Right? And I fight. I'm talking knock down, drag out, meeting after meeting after meeting. And I'm using all of the math that I can that I'm capable of. I'm using things that we've already talked about, like Rep Churn and how that impacts things, seasonality, holidays.

Being dependent upon particular features, all this kind of stuff, market fluctuations, random guesses in the beginning, right? And I just think that the big difference is most people don't stand up for themselves. Candidly. It's intimidating, man. You know, it's intimidating enough when you have a conversation just with your CEO. It becomes more intimidating when the CEO and the CFO are in the room telling you that you're being a wimp and that your, you know, forecast is kind of not good enough. Right. And we need to grow faster. I'm like, I push back and I'm like, well, I could tell you what you want to hear, right? So if you're looking for somebody to just tell you, yes, like, I can tell you that. But I don't think that you hired me for that particular reason. I think you hired me because I theoretically know what the hell I'm talking about. And I'm going to give you a realistic picture of what is possible. And then I have to deliver on that. And it gets even more difficult when you're having that conversation and the execs are in the room and the board and the VCs are in the room. And it gets even more difficult if you're trying to fundraise a Series B or a series C and they're asking you for, you know, what are you going to do with this money and what is the revenue going to look like two, three years out from now? Right. And how come you're not going to be a $500 million ARR company in two years? I've had all these conversations before, and.

My biggest piece of advice is like, you've got to use the math that we've been talking about. Use all these different kind of trigger events and things like that. And you've got to be willing to fight to keep your number in a realistic, conservatively, but still stretching kind of range, or you're going to get trampled and people don't stick up for themselves enough.

I think that's great. I think it's really positive. And Robert, thank you so much for joining us and like, shedding a ridiculous amount of light on a topic that I think a lot of people would like to know more about and maybe didn't even know where to ask or where to start. And so I think you've given us a great spot and we really appreciate what you're doing and bringing this to the forefront. So thank you very much.

Yeah, no problem. I mean, I. What I love about all of this is I now that I took that journey, I see the intersection of the operation side of the business and the sales side of the business and what it takes in order to make this happen. And What I love about what I do every day is I'm an advocate for you folks, because this is the hardest part of business that most founders and everybody else overlooked. To all of Scott's points, I think the first thing that you can do as a leader is reasonably set expectations for the people under you and the people above you and then over deliver. Right. Make sure you're following the Montgomery Scott principle of warp field repair, which is on Star Trek. Scotty was always like, it's gonna take five hours, and then it took 20 minutes. Overestimate and then deliver effectively is the best thing that you can do for that. And then. And we're here to help. So if you have any questions about anything, drop me an email. It's roberturnright.IO I'm happy to help out any way I can because we're here to create jobs and help salespeople succeed. So.

That's awesome. Yeah. Someone just put in the chat that maybe we should do it in December, see what happens.

Yeah.

Because it could totally shift. Right? All right, well, thank you, everybody for your attention and your time today. Thanks for the great questions from the audience. And again, Robert, thank you guys for. For coming on board and sponsoring this.

Oh, thank you. Appreciate it.

Thank you to our regular sponsors as well. Lead 41 1, gong, perception, predict and find them. Please go check those folks out because they will help you. Bye, everybody.

Have a great. Have a great Q4, everybody.