How To Adapt Your Sales Strategy To The Current Sales Environment | Modern Health SVP of Sales

Saastr fans, welcome to episode 7 of the CRO Confidential podcast. I'm your host, Sam Blond, delighted to be here for another incredible episode. We have a real treat on our hands. Our guest today is Hannah Wilson. Hannah is, um, an amazing person and very close friend of mine. Uh, we worked together, uh, at benefits at Rainforest, um, and just continue to have this amazing relationship where we catch up, uh, on sort of like a biweekly basis, it seems. And so hopefully, um, today's episode will be a little bit of the types of things that we talk about in our, uh, casual conversations that happen somewhat regularly. Um, as a bit of an intro, Hannah is today at Modern Health. She's been there for almost 4 years. Hannah joined when the business was about 15 employees and a few hundred thousand dollars in ARR. Today, Modern Health is north of $100 million in ARR. The business is valued at over $1 billion. Founders Fund is a proud investor, as a side note. But Hannah, so excited to have you and looking forward to today's conversation.

Yeah, me too. Thanks for having me.

Great. Well, um, we're going to jump right in. The news of layoffs continues. Um, seems like Every week there's a new company doing a big layoff, and, uh, uh, several companies in fact. Lots of startups have missed their 2022 revenue goals, um, forecasted slower growth for 2023. Lots of talk around companies focused on mitigating burn, cutting costs, extending runway. Well, my personal perspective on this, which is relatively aligned with Jason M. Lemkin's, is that we've sort of returned to normal. Um, normal is, is still much more challenging selling environment environment than we've experienced over the last 2 to 3 years. Um, and so today we're going to talk about two things. The first is, how has Modern Health adapted your sales strategy in this new environment? What changes have you made that have been most impactful? And then the second thing that we're going to talk about— this is sort of back to the reference of layoffs— how can a company determine the right number of people to have on your sales team? Um, we're going to start with number one. Uh, Hannah, why don't you just tell us a little bit about what you've experienced in the selling environment over the last 6 to 9 months at Modern Health?

Yeah, definitely. And just to set a little bit of context on, on Modern Health itself, so people have a good understanding of who we're selling to. So it's a comprehensive mental health benefit that we sell to employers. It's everything from digital programs to therapy and coaching. We sell it to the chief people officer as a benefit that they can roll out alongside all of their other benefits. And we sell to companies as small as 100 employees all the way up to Fortune 100 companies, the Intels of the world. So we see a broad range of companies, I would say. One thing that's consistent, and I bet most sales leaders would agree with this, is that the buying decisions, which used to be with the functional lead, which in our case is the chief people officer, are now oftentimes getting pushed to the CFO, sometimes the CEO. We hear discussions about boards. And so it's really had to change the way we sell, given that we're now selling to essentially a different buyer in addition to our, our traditional buyer. And then I would say on top of that, it's even more challenging because oftentimes if you're selling to someone that's not at the VP level or the C-level, it's really hard for them to sell up internally. In an environment where they're constantly hearing, you know, we're cutting budgets, we need to do more with less. And so those are just some of the different dynamics. I mean, people are definitely still buying. I think we just need to change the way we approach it.

Makes a ton of sense. So it sounds like more friction to getting deals done today than what we'll call like the heydays of 2021 and early 2022. And the, the friction exists, uh, because of some budget cuts, but really additional stakeholders, often sometimes in finance, entering the buying process and blocking the deal. Do you think that's sort of like a fair summation of what you've experienced?

Yeah, we are definitely seeing that more than we have in the past.

Awesome. Well, that's helpful, uh, context, and, and would love to learn, and I'm sure the listeners would as well, um, how have you adapted your sales strategy?

Yeah, so I think there's a couple of things we're doing. One, you know, we've had to think more about how we talk about the cost savings aspect, and I think a lot of companies are making this shift as well, because if you think about it, I when we were selling to the chief people officer primarily, they would just get intuitively the importance of offering a mental health solution. They would understand what the, you know, the overall value to the business was. But now we need to equip them to basically have that conversation with a CFO who has different goals and priorities. So we've really had to think about, well, what would a CFO care about? And so our first foray into that was thinking, okay, well, how can we better justify the true ROI of what Modern Health offers? And so, you know, we started to quantify what that ROI is, both in of what we think of like softer ROI, what is the savings you would get from, you know, reduced attrition to like harder dollar ROI, which in some cases is very impactful in terms of like if you're a large self-insured employer, you're actually going to save money by moving, you know, to a next-generation mental health solution because you're paying less in out-of-pocket therapy costs. And there's a whole number of reasons, but really equipping our sellers to be able to have those conversations as it relates to money and cost savings. And actually, we had a check-in with our CSM at Gong the other yesterday, and we were looking at some of the data. And what we saw was that if, if AEs are talking about money, if they're talking about ROI, we actually double our win rate. And so that was real validation of we need to be having these conversations, we need to be proactive about it. And we need to be equipping the HR leader to go and sell that internally, because it's hard for them to go make the business case when there's so much pressure coming down from the top. And so being really specific with that HR buyer of like, this is how you should present it, these are the questions you might get, this is the pushback that you might And so we've done a lot of training around ROI and talking about cost savings.

That's awesome. So just quickly summarizing what I've heard, it's sort of like a big change that you have made is around messaging. And messaging historically for your specific product was probably things around like remaining competitive in the marketplace, being able to offer the best benefits to your employees, retain talent. Those types of messages, again, back in this sort of like 2021 and early 2022, hyper-competitive talent environment, because that's what people cared about. And today your messaging has evolved to hard dollar savings. If a company is self-insured, they are paying out of pocket for mental health treatment for many of their employees. Your fee structure is such that by just paying something like $10 PEPM, the dollars that they are paying for that treatment will be lower than the dollars that they are paying today for the mental health treatment of their employees. And so that's sort of what you're leading with rather than this remain competitive in acquiring and keeping the best talent.

Yeah, I would say that was our first reaction when we started hearing that conversations were getting to the CFO level was like, okay, we got to talk about cost savings. And in a number of areas, we definitely do have to talk about that. And that's really moved the needle. That said, we actually— one of our AEs posted on LinkedIn about this the other day that like CFOs aren't a monolith. Like they're not just some like scary person that sits behind a, you know, a curtain and makes decisions just based on dollars. And so we tried to figure out like, okay, like how do we demystify the role of the CFO? And one of the ways that we did that was we actually set up a meeting with our CFO. We have a really awesome CFO at Modern Health. He's been at large public companies, he's been at small startups. And so we just invited him to come to a sales meeting and we said, okay, how would you make decisions? Like, what do you need to hear? And what he said was actually a little bit surprising. Surprising to some of us. It wasn't, you know, he said, I do get a lot of ROI cases from vendors that are trying to sell into us. And I can pretty easily poke holes through most of those ROI cases. So I actually don't look at the ROI. What I actually do is I'll talk to the functional leader, they know their function better. And I'll ask them like, you know, if there's one resource that you need, what is it? And he said, it's the sort of conviction that that particular functional lead, in our case, the CPO would bring. He said, if our CPO came and was like, I cannot get rid of modern health, this is the one benefit I need, like, he's like, That's really what would make more of an impact to me. And so then we started to think about, okay, so one, we need to better understand like, who is it that we're selling to? What kind of CFO is it that's making these decisions? What's going to resonate with them? And we actually did a training earlier in the year led by Mariana Kessel, one of our really strong enterprise sales leaders. And it was all around these we believe statements. And I know there's been a lot on YouTube and places about using we believe statements, but it's really coming from a place of, you know, we're in a competitive environment, we need to differentiate ourselves. So it's leading conversation. With this is what we believe. You might not— if you don't believe this, maybe a competitor is better for you, but this is truly what we believe. And, you know, the same conversation that we had with Gong last week where we were looking at our conversion rates, we saw that when we use these we believe statements and this approach to selling, we actually double our conversion rates as well. And so what was so powerful to that about me, what I was starting to think about was in this environment, like the conviction of the buyer, there's so much hesitation. About making big purchases. There's so much messaging coming down from the top about cost cutting. You need to give your buyers that, that confidence. And one of the ways you can do that as a seller is to have that conviction and to talk about this is what we believe. And so I think that's been really powerful as well.

So much included in that answer that we could drill into. One, one of the first ones you mentioned this like we believe type statement. Can you give an example? Like what, what is a we believe statement that's been really effective for folks to try and then sort of extrapolate that and make it their own with their product?

Yeah, yeah. So for example, like, you know, we look at one of the things that we do really well is we provide resources to employees wherever they are around the globe, whatever language they're in. We give therapists in their country. And we believe that it's really important to be able to provide your employees, if you're a large global organization, all of your employees around the world with equitable access to high-quality mental health care. That's what we believe, and that's also a differentiator of ours. And so those kinds of statements, whatever it is for your I think can be really, really powerful.

Super helpful. And so in that example, it's possible that a prospective buyer or business believes in providing a benefit or treatment for employees based in one area that may differ for employees based in another area.

Exactly.

Yeah. So lots of takeaways. There, there are a few that I'll talk through. One is, is it's not one size fits all when it comes to messaging. We talked about adapting this like ROI, you're gonna save hard dollars by moving forward with modern health. And you talked to your CFO about this and he or she poked holes in this like ROI statement that any vendor can come with. And ultimately for your CFO, it was all about like, does the executive need this product? Is it something that they consider critical to the success of their organization? And so a big takeaway from that— well, actually, there are two. One is it's important for the seller of the product to do some discovery around what does your CFO care about? Because if somebody asks you that, your answer is going to be different from the CFO who only cares about the ROI analysis. So it's important for sellers to do that discovery and sort of come up with a custom plan for getting past the gatekeeper that in today's environment as a CFO. And then the second thing that comes to mind— I love your story, Hannah, around, uh, we talked to our CFO. And it's almost universally true where the, the product that you are selling at your business, you have the buyer of that product internally. And so, you know, at Zenefits, we were selling, uh, HR, largely HR, uh, software. We had HR people within the company. Um, at Brex, we were selling to founders and finance leaders. Well, we had founders and finance leaders in the company. And having conversations communications from the perspective of what do you care about, you can learn so much from those. I remember we had Pedro and Enrique, who were the co-CEOs at Brex, so the founders, and then we had Michael and other folks in finance and accounting, Michael Tannenbaum, who was our CFO, talk to the sales team about things that resonate, how to position the product. And so companies probably under-leverage that internal resource around, you know, what, what the buyer, if they are selling to this, this person externally, what they would care about. Anything else that comes to mind on changes that you've made that have had a big impact in this new selling environment?

Yeah, I mean, I think those are probably the biggest ones. And then really coaching our SDR team as well on how to ensure that we're getting conversations with, you know, the director of benefits, the VP of benefits, more senior levels, who have more sort of broader insight into the decision-making process at the organization, I think has been Awesome.

Um, good segue. So, uh, you manage a large sales organization, SDR sales. I, I think you have some channel sales in there with the, the broker channel and more. Um, in this new environment, have you made any changes just to set context to the sales org at Modern Health?

Yeah, we have. I mean, we're, we're still at a phase where we're growing really quickly. That said, we, we understand that, you know, the changes that are happening in, in the broader macroeconomic environment and the, the premium that's placed on efficiency and whatnot not. So we've really been thinking about how do we allocate resources most effectively. And so one of the things we're doing is we're not— even though we're scaling revenue significantly, we're not adding account executives, we're actually putting that revenue to areas to make our current account executives more productive. So one example of that in our business is, as you mentioned it, we have channel partners, their benefits consultants, we get a lot of leads from them. We have a role called partnership managers. And at this point, you know, 4 years in, we sort of have a pretty good understanding of how much of revenue we can generate per one partnership manager. And so for us, we, you know, we have that math. And so we can say, okay, if we add X number of partnerships managers, we're going to get this much more leads for the business, this much more revenue. And so that's one example of an area that, you know, we think we can get more productivity out of our AEs, which has the added benefit of for the team as well of having higher earning potential, having more at-bats.

And so that's one change we're making is figuring out where we can put those dollars so that we can grow revenue even And so my interpretation of what you just said is you looked at the size of each of the different, um, teams or organizations, and you determined that you may have too many folks in the AE role and not enough folks in something like a partnerships role, maybe an SDR role. And so the end result of that analysis was you probably remove the sort of lowest performing folks on the AE side and invest the, uh, dollars that you save on those AEs in partnerships and SDR. And the ultimate result of that sort of reorganization that I've just described is more revenue for the business. Is that the approach that you all took?

Yeah, I mean, I think we're looking at it in every area, like how, you know, every dollar we spend, what's the biggest lift we're going to get. So whether that's investing more in our SDR organization that's investing more in technologies that are going to boost our lead gen and less in technologies that, you know, aren't going to do that. So I think it's, you know, for me, this environment is just pushing us to be stronger as a business and, you know, make some, some decisions that are really going to propel us through that next phase of growth. And so I think you've talked about this on previous episodes, but really looking at this as like an opportunity, both for growth of the business and growth of individuals. I think it's, it's really kind of like sharpening the knife. Life.

And when it comes to the team sizes specifically, so we've talked about 3: SDR, this like partnerships or channel sales team, and then the traditional sales team that is AEs. How do you determine what the right number of folks to have on each of these teams is?

Yeah, it's not easy. And I will say I've gotten it wrong. I've gotten it, you know, too big. Sometimes it's like too many, sometimes it's too less. It's really, really And I think you know this as well. As soon as you work for a company where you start to get some traction in the market, the first thing you'll hear from, you know, your board or from investors or from even from your own leadership team is often, well, just hire more AEs. You know, every AE will have a $2 million quota, hire 10, we'll generate $20 million for the business. And I think you and I both know that sometimes that math, it doesn't actually work out like that. And it can be pretty painful if you do take that approach. And so I think at the beginning I sort of maybe over-rotated and, you know, We got to, gosh, you know, maybe half of where we are now with like 7 AEs. And so we were super lean, probably a little bit too lean. And then, you know, you start to get like, okay, we got to scale up more. And, and yeah, if you're not, if you don't have the leads behind it, that can be a really, you know, risky place to get with, with continuing to hire at that, at that pace.

Yeah. Scaling sales teams, scaling revenue, whatever framing you want to use, it's a lot more challenging than just plugging numbers in a spreadsheet. Spreadsheet, um, as we've learned. I'll, I'll tell a story about Zenefits, uh, where Hannah, you and I both lived this, um, and then I'll try and get to the way that I determine the right size of teams, like the things that I use in determining. Um, but at Zenefits, this was back in 2015, we had just raised $500 million, uh, and so we were very cash And in the sort of like April, May of 2015 timeframe, we started getting warning signs that pipeline wasn't scaling in line with what we needed it to, to hit future revenue targets. And so it wasn't that we were missing like April, May targets, it's that we weren't creating enough new opportunities to hit revenue targets for the second half of the year. And the decision that we made was, was in the summer of 2015, we hired about 90 new salespeople each month, June, July, August, um, 60 SDRs and 30 AEs in each of those months. This is all done, um, down in Phoenix. And we knew that like a lot of stuff would break. Uh, we knew that first of all, not many people, or a good chunk of these folks wouldn't even make it through the training. Um, so we would actually end up with like 40 new SDRs. 2/3, or we'd lose about a third during training. We ended up with 40 SDRs and 28 AEs because, you know, we'd make some mishires. We knew that the folks would not perform to the same level of the historical team because they would be brand new. And so we couldn't expect to have the same, you know, onboarding or ramping trajectory that earlier folks And we knew that it would be a little bit of like the blind leading the blind leading the blind. There would be a new AE sitting in a class with a brand new manager right next to them, like their manager, with maybe like a brand new trainer leading them on like how to sell Zenefits. And so these folks weren't totally set up for success. I think the way that we thought about it though was it was a bit of a winner-take-all market. And we had this existing team of exist— of successful people. And whatever we added on top of these existing folks would be incremental revenue. And so the existing team would continue performing the way that they had been historically. And this new team would close some revenue incrementally more than what the existing team was closing. And we were wrong. Um, what actually happened is on the SDR side, we added all of these new SDRs to the SDR organization, and it was dilutive to what was the— what already existed. And so if a current SDR had a few hundred accounts and these accounts were of a certain quality, when we added, you know, 2x the team size, we had to dig deeper into lower quality accounts, and we had to have fewer accounts per SDR. And what that meant was even the existing team was creating fewer opportunities than they had historically, and the quality of those opportunities was lower. The same thing was true on the AE side. We had AEs that were receiving lower quality opportunities because of what I just described on the SDR side, and they were receiving fewer opportunities, uh, again because of what I described where opportunities were spread to more people and the people were less tenured. Um, and so the actual result of hiring a bunch more SDRs and AEs wasn't that we had, uh, incrementally more, uh, uh, revenue, but sort of less efficient revenue on a per rep basis. We actually had less revenue. We closed less revenue by hiring all of these people because it was so dilutive to the existing team. And I believe that that is what has happened with a lot of companies over the last couple years, where they have overhired, um, and it has been dilutive to an existing successful team team. Um, the efficiency across the board has been diminished, and now we're seeing a bunch of layoffs to right-size these teams. The same result that we had at Zenefits, where we went through a number of rounds of layoffs subsequently of what I'm describing. Um, the other thing that happened at Zenefits that's, I think, relevant for this conversation— we took this environment that was company-crushing revenue targets. We were the fastest-growing tech company ever at the 70% of the team over quota, everybody making money because 70% of the team was over quota, and people were getting promoted left and right. Uh, you started as an AE, you got into leadership very quickly because you crushed it. Um, that same experience was true for a lot of other folks. And we went from that environment— by the end of the summer, nobody was hitting quota, company was missing revenue targets, nobody was getting promoted because we had too many people. And so it was this like culture of winning, like the most extreme possible example to like just this really depressing environment where nobody was successful, nobody's getting promoted. And so again, these are some consequences that we didn't consider. And I'm gonna quickly, hopefully, because I tend to talk a lot, I will try and quickly go through 3 things that I've found helpful in determining the right size of the team. So 2 of them are objective. The first one is leads. Do you have enough demand to support more salespeople? And the test for this is I look at reps' calendars. I just do a calendar share. How many customer calls is each rep having on a daily basis? And are they, are they full? Can they take more? Or are they overflowing with customer calls? And if they are overflowing with customer calls, it's a a good test for being able to add more people to the environment. You can also just talk to them. Do you have enough demos on your calendar? I remember at Zenefits, reps were complaining, I can't take more demos, like, please provide help. And so we knew that it was time to hire more folks. So ask reps, do the calendar test. If you hire more people when reps are already sort of starving for leads, your sales are going to dip because you're just going to spread the limited leads that you do have to reps that are less tenured and have a lower conversion rate? Um, the second thing, this one's also objective: do reps source their own revenue, and how much revenue is each rep generating on their own through outbound? Um, Brex, we set the expectation from a very early stage that you are, are going to outbound, and about 50% of our closed revenue was outbound AE. And so we knew that if we hired— and it was universal, all AEs were closing revenue. It wasn't like an outlier or two that was pulling up the rest of the team. And so we knew that if we hired new AEs and they just mirrored the existing environment, we would actually generate more revenue because they were sourcing their own demand and closed revenue through outbound. Um, and so just look at the data. Where is your revenue coming from? If it's from outbound through your AEs, Uh, you, you can expect that to continue with scaling the team. And then the third thing, um, this one's a bit more subjective, uh, is the new hire set up for success? Um, and so you can just sort of imagine yourself in the new hire's shoes coming into the role. Will the average person be successful? And I think there are a couple ways of determining this. One is, um, is the majority of the team over quota. Like, if most people aren't successful in the existing org, why are you hiring more people into an environment where the average person isn't already successful? And then the second one, which is just a little bit subjective, you know, it's benefits. Like, we should have— we really should have known that that brand new SDR just graduated college, sitting in the, the classroom training on day one right next to their manager. It's also their day one at the company, led by a new trainer. That person's not going to be successful. Successful? And so you have to do some sort of a subjective assessment of, is the sort of infrastructure that we have in place such that the average new person will be successful in this environment from sort of like a leadership managerial structure standpoint? So those are the 3 things. Um, do we have the demands to support more folks? Um, are our AEs sourcing their own revenue? And, uh, is, is this new hire set up for success given the environment that exists today. Don't know if you have any thoughts or experiences based off of any of that.

Yeah, I mean, I've obviously lived through most of those experiences and so I've come away with a lot of the same takeaways. But I think it's just, I would double down on what you said. It's like, it's all about leads. Like, you know, we take a, when we did the plan for this year, we just painstakingly looked at how many leads we realistically thought we could generate. Obviously we're gonna have aggressive targets, but we went to, you know, our partnerships team, our marketing team, and we said, okay, how many leads can you generate? And that sort of serves as the basis. And then one of the other things we look at, and Ryan Bash on my team, who I know you've worked closely with, who is one of our phenomenal sales leaders, he really looks at this in a detailed level, is like, how many new calls per week should an AE be taking? From the standpoint of looking at the ACV and the conversion rate, what's gonna get them to the target? But then also looking at, you know, like to your point, like, will they feel like that is enough to make them successful? And so if you get down to that very simple metric and you can align on that as a team, like if we can just get to 4 calls per week, you know, Maybe in an enterprise environment, it's one call a week, maybe in an SMB environment, it's 20 calls a week, whatever, you know, and then you can work backwards from there to say, like, you know, based on the number of leads we can get, how many AEs will we have in seed? And, and like you said, I mean, it's so critical to get that right, because you've spent all this time and energy recruiting all these really good AEs, and you want to make them successful. And I've almost, you know, even in really high growth environments, I've almost never seen AE capacity being the limiting factor to growth, like, if you hire hire good AEs, by definition, they want to be the best, they want more at-bats, they want more earning potential. And so that, you know, I think you can just, you know, increase productivity that way.

So don't hire salespeople in a demand or lead-poor environment, you will end up with less sales. If your environment today, if you share rep calendars, and you see a lot of white space, or you see a lot of meetings that are not meetings with customers, um, so like blocks to do prospecting, um, things like that, it likely means your team is too large. And if you cut the bottom-performing whatever percent of the AE team, what that means is you will give the limited number of opportunities that you do have to performers that have a higher conversion rate and actually convert more revenue or more sales with fewer salespeople. And so that's, I think, a good way of determining, do we have the right size team? Do we need to hire? Do we need to shrink the team a bit? As painful and frustrating as that experience is, because it's generally preceded by mistakes like the ones that I described at Zenefits. We just never should have hired all of those people. But you need to course correct. Um, and so a lot of companies are doing that, and hopefully this is helpful in determining sort of like how deep to cut if you need to, or potentially how many folks to hire if you need to, uh, do that and you're in the fortunate position. Thank you so much, everybody, for listening in. This is episode 7 with Sam Blond and Hannah Wilson in the books. Hannah, thank you so much for joining. We'll see you back here in the next week or two for episode Episode 8. Okay, bye-bye.