A Step by Step Guide to Revenue Growth with Mark Roberge, Harvard Business School

Please welcome senior lecturer, harvard business school and former CRO HubSpot mark roberge. Saster. Good morning. What are you doing up so early? All right, we got a fun journey today. Get right into it. What's the failure rate for a series A startup? If you measure failure as don't even give the money back to the investors. 75%. What's the failure rate of a series C startup got series C funding? You're further along. 75%. We are screwing up the scale, and I want to work with you all today. I've been working on a little framework to think about it and hopefully work with a bunch of companies on it. I'd love for you to take it, play with it, and improve it. Okay, so start off quiz in a chart. Quiz in a chart. Take a sip of your coffee. 9:00am awesome revenue growth on the X axis. Awesome revenue retention on the Y. The question is not where do you want to be? That's easy. The holy Grail upper right, 100% revenue retention, 200% revenue growth. The question is, how do you want to get there? What's the best way? Option A is we can go have awesome revenue retention. 100% revenue retention, but mediocre growth. 30, 50% revenue growth. Option B is awesome revenue growth, 200%, but mediocre revenue retention, 70%. How many people want to go option A? How many people want to do option B? All right. Option A has it. You're smart. We're talking a lot about this. I don't think we think that way, though. Getting back to the series C failure, I don't think we think that way. When someone says, how's your company going? What's the first thing you say? How fast you're growing revenue. If you're an investor, what's the first question you ask them? How fast you're growing revenue? We should be talking about revenue retention because I don't think that second path actually exists. In my experience, it's much easier to put up the throttle once you've got great revenue retention than it is to actually fix a retention problem while we're scaling. You actually have to slow stuff down to speed it up. So why not just start there? So that's what I want to throw out there today is a framework on how to think about it deeper than just like, hey, let's get product market fit, and then let's add 20 reps. Because in my experience, you're firing 20 reps a year later. You haven't checked the boxes. And so I just Want to throw out a framework around product market fit measured by customer value creation. Then go to market fit measured by unit economics. Then we scale fast growth and moat. It's not that we slow down, it's just that we work on the right things. So how do we. So first off, I'm saying we start with customer success. And what is sales? What is sales? Isn't sales really around customer value creation? And revenue is an outcome. Sales is not about revenue generation. It's around customer value creation. Revenue is that outcome. So let's figure out why did that actually happen? Why are we so obsessed with sales being focused on revenue? And I think it comes out of the 80s and 90s. And how we used to sell with shelfware. How did that game work? We sold software. It cost millions of dollars. These people deployed servers in their office. Once they purchased it, it was all about getting the contract. Once you had the contract, all the servers were set up. You flew in your professional services people. It took six months to set it up. It took six months to train people. And the product sucked. But it didn't matter. No one used it, but it didn't matter. And that's where Shelfware came about. Some executive put their career on the line to buy your stuff and walk around and say it's awesome. But things have changed thanks to you. We have the subscription revenue, the subscription economy. It's so easy to use products now, but it's just as easy to leave. Totally changes the game. It's all about Churn and retention. And we got this megaphone called social media that every single customer can talk about a great product experience and they can also talk about a bad one. The first thing people do when they see your product is they Google you and see if you have a one star or five star rating. The game has changed, but we haven't caught up. Sales is first and foremost around customer value creation. Revenue is an outcome. So how do we measure customer success? A lot of people are talking about it. Yeah, customers start with the end. A lot of people are talking about that. How do we measure it? Yes. Revenue retention, logo retention north of 90%. Annual logo retention north of 100%. Revenue retention. That's awesome. However, that is a trap because Churn is a silent killer. You could be marching around and thinking you've got it all worked out. You signed up 50 customers, you got them on annual contracts. They're all still paying you, but a year later, half of them cancel. Churn is a lagging indicator. And as startups as GMs of new products and new markets. We can't use Churn as an indicator to learn. It's too much of a lagging. So we have to identify a leading indicator to learn fast. And I think a lot of you call it the aha moment. What is your aha moment? For Slack, it was when a team sends 2,000 messages. For Dropbox, it was when a user added a file in a folder on a device. For HubSpot is when people use five of the 25 features in the product. At that point, their correlation to long term value was huge. If they didn't do it, they're a flaky customer. So what do you know in the first 30 or 60 days of your product usage that becomes your aha moment? Can you measure it? Is it correlated to your life, to your unique value proposition? Then you've got it. And then measure it. If you ever asked me to come to your board meetings, I want this to be the first slide. I want this to be the first slide. This is how I think we quantify product market fit. And so what this means is, okay, in January, we signed up 24 customers. After one month, 3% of them hit the aha moment. 3% of them say, set the product up and use it every day. But after two months, 27%. After six months, 39%, we're doing it. And look what happens as we go down the chart. We've been running a bunch of experiments. We've been working on product market fit. And in August, we signed up 39 customers. Two months later, 56% use the product every single day. Compare that to where we were in January, only 27%. We're doing awesome stuff. We have product market fit. We are creating customer value. Let's move to the next step. So this, in my opinion, should be that first slide in the board deck. And then once you set it up, align the whole go to market around it. The salesperson that you hire is number 10 in growth stage is different than the salesperson you hire at this stage. It's a little bit more like a product manager and a salesperson. It's not the person that you're gonna give the deck to and say go. They're gonna say, it's not working. It's the person that talks to customers and does great discovery and comes back and says, hey, listen, I think we're a little off and this is what we need to do. And we don't pay them just on revenue, we pay them on setup. Half of it happens on the Revenue. Half of it happens when they set the product up right. Customer success is not measured by retention. It's a lagging indicator. They're measured on the setup. Marketing is not just MQLs to drive revenue. Marketing is about getting MQLs around customers that love our product. We gotta check off this customer success box and product just obsesses over the chart. They just go back to the chart and they obsess. Why are only 27% of the customers using our product every single day in the first two months? And what can we change to adjust that? We revolved the whole company, the whole go to market machine around solving customer success and we put them in a room together every night at 5pm let's do film review. Hey Mrs. Salesperson, record your sales, your discovery call. Let's get a room. Product marketing, customer success. Let's listen to what the customer's saying and let's figure out if we've got it right. How often we run that meeting is how fast we learn. Run a daily film review 5 to 6pm every night to move through this process accordingly. And now you've got hopefully check this off and it's all green. So now I have an opportunity. Not just do I have the framework but I have got as to who I'm going after, how I'm running my playbook, who I'm hiring, how I'm copying my rep. Pricing doesn't really matter at this stage. Just make it high enough that they're committed to setting it up. Free is not good because they're not committed. Pricing is around commitment. But this changes as we check that off. If you check that off now we can move to unit economics. And you folks know this stuff. LTV to CAC greater than 3 payback period greater than 12. This is go to market fit. If we scale prematurely, we're going to scale a cash bleeder. So now we can set ourselves up around this and our plan changes. We have to expand the market a little bit. Now we've got someone who's going to follow the process, not just build it. We have to codify our sales process. Pricing and demand gen matter a ton to get LTV to CAC work and our comp plan does as well. It's going to drive our cac. So this gives us a little bit of a flavor as to where are we in this journey and how does that stage influence the decisions we make. Let's get into the fun part. Growth. So when are we ready to grow and how fast? So now that we have this in place. This is our speedometer. This is our speedometer. If you're telling me that two months into a customer life cycle, 70 or 80% of those people set the product up and use it every day, awesome. You have product market fit. And if you're telling me that as you watch that the LTV to CAC is greater than 3 and the payback's less than 12 when you run through your pricing and your comp plan and your conversion rates, awesome. You have go to market fit. Let's scale. And scale is not like tired 20 reps tomorrow. Scale is a pace. It's a pace. So let's say hey, let's add one rep every other month and then let's watch our speedometer and let's do that for six months and if we do that, if we go from two reps to seven over that time period, if this still looks good, let's go faster. Let's add one rep a month or let's add two reps a month and keep watching and when it breaks, let's slow down and fix it. But at least we have a better framework around when to scale so we can solve that 75% failure rate at serious C company and bring this stuff up in a little bit more of a systematic way. Okay, so some companies follow that. They call me up and like mark, we nailed it. We've got it. 10 million revenue. 200% revenue year over year growth. Triple, triple, double, double. 4.3 LTV to CAC. We're killing it. We raised 30 million bucks. We're going to expand the team. We're going for it. We're going to go from 10 to 30. Usually what happens is they go from 10 to 15. Insurance increases. What happened? They never looked under the hood to see what was going on. Usually you only have product market and go to market fit in a smaller slice than you think. And what the company essentially did when they looked under the hood was holy cow, if we split up our company by like the size of customer and how we went after them, we only had product market and go to market fit in the top center. We really only know how to sell the mid market companies through inbound demand gen great. 5 million 8 month payback period. 6% logo churn. You nailed it. Product market and go to market fit but you haven't figured out the rest. Outbound. Your payback's way too big. You're adding BDRs but they're not efficient enough enterprise. No one's using the product you haven't figured out your onboarding and the small business, the churn's too high. But guess what? When we raised the 30 million bucks, we didn't know this. When we raised the 30 million bucks, we realized mid market wasn't enough to scale, inbound wasn't enough to scale. So we added a bunch of BDRs and we hired this really expensive enterprise sales team. And we did it prematurely because we never looked under the hood and realized where we truly had product market and go to market fit. Had we done it again, we could have said, okay, I know exactly where I'm ready for scale and I know exactly where I need to expand. I gotta figure out the other boxes, otherwise I'll never get to 30, 50, $100 million. So we gotta crack the nut on those boxes. And the answer to that is not add 20 reps and go. Like when we started our company, we didn't say, hey, I have an Idea, let's add 20 reps and go, no, we're great at product, you know, let's add a couple engineers and a cross functional team and experiment, experiment, experiment and figure it out. So that's how we have to set this up is yeah, let's go from 10 to 30, but let's go in the right spot. Let's really triple down in mid market inbound. That's what we know how to do. And let's set up three cross functional experiment teams and keep them small and help them to figure out how to sell the enterprise. Help them to figure out how to do outbound, help them to figure out how to do the SMB and check off product market fit and check off go to market fit and cross our fingers that 6 to 12 months we got one of these to go and then we can move into scale. So we have just too broad of an optimism around where we've actually figured out our business. The other thing that happens is sales and marketing alignment. We get to add some new mediums and we really got to instrument sales and marketing together. I worked with hundreds of teams on this. Sales and marketers hate each other. So this is like a problem. Like all marketers think salespeople are overpaid spoiled brats and all of the sales people think that marketing does arts and crafts all day and they just end up going back to their relative corner of the office and set up their trade show booths and do their cold calls and that's the kiss of death in today's environment where 90% of customers start their buying journey in a Domain owned by marketing, that is the website, social media, email, et cetera. And they progress into a domain that's owned by sales. And if these two people are not getting along, it's the kiss of death for your company. But if you can align them, it's a huge competitive advantage. So how do we do it? So I'm not a huge fan of the lead score. I'll go back. You guys know Volpe? He was my kind of partner in crime at HubSpot and setting this up. And we were really kind of pointed about it. We said okay, we know like we have 10 mid market reps and each mid market rep needs 50 leads a month to hit their number. And we know they're going to connect with half of them and convert half of those to a demo and close 30% of those demos for an average of 700 mrr, like clockwork. So Mike, I have 10 reps, they each need 50 leads. I need 500 of those mid market leads. That's really good. But some of those leads were VP of marketing that downloaded an ebook. And some of those leads were VP of marketing that requested a demo. They both counted. But which one closed at a higher rate, the ebook or the demo request? It was the demo. The demo closed by three times. But which one was easier for marketing to generate when they came to the website? Much easier to get someone to download an ebook. So when Mike's team fell behind on the sla, all the calls to actions turned to ebooks. And we were like, where's the demo requests? So we got a little more pointed around it. We separated our lead flow into quality of customer on the left side, the quality of the company, not the role, the company and the engagement. Abc. Very simple, right? So hey, let's just make it up. Over 10,000 is an A, in the middle is the B and under 100 is or under 1000 is a C. They're all qualified, just different amounts. And then engagement. Let's make it up. A blog sign ups, a C, ebook downloads a B, demo request is an A. Now I can put some prices on this. So over time I can actually multiply the close rate times the number and how much they spend and actually get these numbers. But in the beginning, let's just make it up. So I'll give you $100 if you generate an AA. I'll give you $10 credit if it's a CC. Now I'm in a position to put marketing on a revenue quota. Woo. Marketing on a revenue quota. Yeah, so it goes from 500 leads a month to $500,000 of lead value. And if you want to get there through whatever the Math is like 500 AAs or 5,000 CCs, I'm going to make my number. And so all of a sudden all the calls to actions on the site change to higher quality stuff like demo requests and trials. Because we're giving marketing proper credit for it now. Sales does not get off the hook. This is a two way relationship. If marketing is gonna be that specific, sales needs to be too. So I used to do a lot of studies around like I knew I need to call lead right away. We've seen those studies. I know that like, you know, I gotta, you know, call them a lot. But like how often do I call? Like when I get, when I call lead, do I call and I get voicemail? Do I call him that afternoon? Do I try them again tomorrow? Do I try next week? Do I try them 5 times or 10 times? Like these questions started to stress me out and I was like, for each rep, should I give each rep one lead a month and tell them to call the lead a thousand times or do I give them a thousand leads a month and tell them to call each lead once? I don't know either one of those answers is not good. But where's the right time? So I did some analysis and this was in the HubSpot funnel when we were like 50 million and I think we had 100 reps and some of the leads, they were only called twice. That's what we show on the x axis and Y shows the profitability. Some of the leads were called 15 times. So you call a lead 15 times, you're going to get them on the phone more often, you're going to close more deals. But is it worth it? That's a lot of work calling them once. Yeah, we got to do a better job than that. So where's the optimal amount? Well for small businesses shown in the orange, the optimal amount was 5, for mid market was 8 and for enterprise it's 12. And that correlates with a lot of research that's been done in the space. And so now I had this blueprint that I could go to the reps and say, folks, we have calculated the path to making the most money at HubSpot. And they were like, woo, I love that. And folks, we have built it into the CRM so you don't have to think about it. You hit voicemail that you left a voicemail and it just goes away and comes back and they love that. And then we've codified it into our systems. So we built a chart that says the do not be on it chart. Very easy to do, any CRM you want. It's just, what are the rules? Okay, you call a lead within two hours. You call a lead three times in seven days. You call a lead six times in 21 days and just build it in. And it's basically, if your name shows up on this chart, you're violating the rules. So just don't be on it. And now I've got a situation where I can manage and monitor the heartbeat of my go to market the heartbeat of my company on a daily basis, every night. This dashboard went out to the whole company on the left hand side. Where is marketing against that $500,000 goal? Right. It's halfway through the month. The red line's perfect, and the blue line crawls along there. Now, I can't have marketing crush it in the beginning and then take the rest of the month off because I don't have the reps to call that many leads at once. And I also can't have them go to sleep for three weeks and make it up at the end of the month because I'll have reps sitting around for three weeks twilling their thumbs. So there's a lot of science in here. They have to crawl that orange line pretty closely. And then for the reps they don't get off the hook, the don't be on it. I measure my heartbeat every single day and I know very quickly if it's broken. I'm not waiting until the end of quarter revenue number to know how we're doing. All right. Then we get to talk about the hiring and the role. What do you look for in a sales hire? What do you look for in a sales hire? Eighth hire I made. We were just like 15 people in a garage across from MIT. And I asked, I convinced this person that was the number one salesperson at a big public company in Boston. They had 800 reps. And this person said, I'm quitting. I'm going to join this small company called HubSpot. And I was like, wow, this is amazing. Rolled out the red carpet. Welcome. Teach us to sell. And I was amazed. They didn't crush it. They weren't terrible, but they were kind of mediocre. I was like, how is that possible? How is it possible? 800 reps, they're number one. We're this rinky dink shop with seven reps and they're not our number one rep. And then I thought about it. I'm like, holy cow. The context is so different. This person's literally working for a company that's doing super bowl ads. Like, you call them up and they know exactly who you are and what you're selling. And the sale takes five minutes. No one knew who we were at the time. No one knew what inbound marketing was. It was a very complicated sale. And you could imagine the type of rep that works in those two different contexts is extremely different. So I realized at that point, it's very dangerous to be at a show like this and go to your neighbor, hey, what do you look for in a sales rep? Because your context are different, Copying it could be disastrous. However, there is a blueprint that you can build that's really important in your scale to be able to engineer your sales hiring formula. So I just sat back at that moment and I said, okay, what is it about our context? What are the characteristics that correlate for us? And, like, how weighted should each one of those be? And I was really specific around what did I mean by curiosity? And what do they mean by prior success? And what would a low, medium, and a high score sound like? And I worked on this over and over again as we watch people do well and not do well. And so over time, once we hired like 30 of these, you can actually run a regression analysis. So I got a PhD at MIT who was like, salivating over this data, loved it, and he ran this analysis and it showed that, like, the characteristics at the top had a really strong correlation with success, and the ones at the bottom were actually negatively correlated. I was blown away by this because at the time, we were talking about how the customer's desiring a different type of seller. But this statistically showed it. It's like the stuff that we typically associate with a car salesperson. Closing ability, convincing objection, handling, negatively correlated. And the stuff at the top, preparation, domain, experience, intelligence. That's how we describe, like, a great consultant or advisor. And it totally set the tone of the type of team that I wanted to build. Right. So anyway, this is a key thing that we've got to do, especially in the scale mode, is we want to set that sort of quantity framework and test, test, test six months into a rep's life cycle. Are they doing great? Yes or no? If they're doing great, why? And did we look for it in the interview process? And if they're doing poorly, why didn't we catch it and we can iterate on it so quick? Little quiz. Oops, I'm going. So these five components here, these three components were all in the top five over time as we approached IPO for HubSpot. But which one do you think was number one? How many people think intelligence was the number one correlator to sales success? How many people think it was coachability? How many of you think it's curiosity? Ah, I got you. It was coachability. Everyone always thinks it's curiosity, but coachability was the one. I don't know why it was. Maybe because we were doing things so differently. But it was those reps who checked all the other boxes. Huge success. But they showed up on the first day and they said, mark, thank you for the training, but I've been selling for five or 10 years. I'll just be in my cubicle selling. And there was an issue. And so the coachability was really the thing. And that's my favorite part of. I'm not going to go through these, but these slides are posted on my LinkedIn and my Twitter. If you want to download them, they'll hit in, like, a minute. But if you want to go through and copy or get ideas around our interview process, my favorite part was the role play. Just have them do the role play, see how they did, coach them on it, and have them do it again. That process was so correlated to my ability to pick salespeople. All right, now, the other thing is the coaching. At this point, that's what a salesman does. Hire coach, hire coach. Not run pipeline. Hire coach, hire a coach, not do the job for the reps. If they do these two things well, they're gonna scale. What's a good coach? So I've been trying to learn golf for, like, 15 years. I've taken, like 10 lessons. One golf pro, he says to me, mark, take a swing. And I did. He says, okay, here's what you need to do. Turn your grip over a little bit. Lean back in your stance. Put more weight on your right foot, not your left. Think one o', clock, not two o' clock on the backswing, and give me more wrist on contact. And I was like, are you kidding me? Another coach said, okay, Mark, take a swing. Here's what I want you to do. Turn your wrist over a little bit. Now take 100 swings. 20 minutes later, he's like, how's that feel? I'm like, I think I'm getting this. This is pretty good. Now lean back in your stance a little bit. Take another 100 swings. It's such an obvious example, but I'VE personally promoted like 50 reps to manager. And they all use the first golf pros approach. They get a new rep out of training, they see them messing up on 50 things and they throw up on them for 90 minutes with feedback and you can just see the rep's head spinning and nothing changes. The best coaches will identify, they'll see the 90 things, but they know the one that's the most broken and they focus there and they use the metrics to diagnose it. So if we look at this particular, this is a funnel. Each color has different reps at each stage. The person in the purple is really doing bad. They're the worst in the team. They've sold the lowest number of units. But why? Why is that? Well, they're making tons of calls. They're just not getting them to the demo. And I can actually click in further and realize, you know what, the reason why they're not getting the demo, is it because they're working tons of leads and no one's calling them back, or is it because they get them on the phone and someone hangs up after 30 seconds? My coaching's way different, but I can use the numbers to diagnose it. And so I call that metrics driven sales coaching, where once you get to a big org, what I'd do is on the second day of the month, I'd meet with all my directors and ask them, what are you coaching everyone on for John? What are you coaching him on? How'd you choose that? And how are you going to coach him? And because I did that, all my directors would have the same meeting with their managers and their managers would meet their reps on the first day of the month and they'd build out this whole process. We'd walk out of the first day of the month knowing exactly what we're working on with each rep. They are totally bought in and how we're measuring success. And now I can hold my reps accountable to that month over month. I've got a paper trail. And I can say, you know, Bob, you love John. You hired John six months ago and John is not doing well. And you said you've been coaching him on sense of urgency development for three months now and it's not moving. You hired him, you're coaching him, you're accountable. My mentor was a little more aggressive than that. He'd say, go to the bathroom, look yourself in your mirror and ask yourself, are you a bad recruiter or a bad coach because you messed up somewhere? And this process gives us a way to hold our large organization accountable to really good coaching. It applies to big sales too. This is just a different, this is an example from Insight Squared. But this just shows for million dollar deals, you're just showing how things move through the funnel over six months. Doesn't have to be calls and all that kind of stuff, but you're just measuring progress of the funnel. So there you go. There's hopefully a tighter rhythm around how we actually, when are we ready to scale and how to scale. The last part I want to do is on compensation. This one's not talked enough about. We're losing reps too quickly. And it really, it amazes me like why for a role where success and failure are so quantifiable, like I can't walk into an engineering team and be like, hey, this is Julie. She's my best engineer by 7%. How do I do that? But sales, I can, hey, sales team. This is Julie. She's my best seller by 7%. I can do that. So why do we comp our reps on like an annual raise of 3%? It's silly. And why do we make it based on a year when it's so quantifiable? So what I've used in a lot of companies is put in, hey, you're a sales associate, you join, you make 40,000 base, 40,000 variables. I'll give you 5,000 options. When do you get promoted? You get promoted when you hit the stuff on the right. When you have sold over $60,000 of business. Mrr. When your last three months, you average over 5,000amonth. When your contract values are over six months, you get promoted. It could take you six months. Some people, it took 20 months. But when you do, we raise your variable. We'll give you 10,000 more options and there's your next target. I've seen companies keep their reps by over 7 years when the average in the industry is 2.2 using this method. So hopefully that gives you a little bit of flavor, a little bit of framework. I'd love your feedback on it as you try. I've used it for probably like 25 companies. It's worked quite well in terms of knowing where you are in your journey, when to scale and how fast and how you align your go to market around it. I want to just talk about one thing. There's a great investor. Jay Poe at Bessemer came to me last winter. He's like, we need to put this into venture. We need a venture firm that's backed by Go to Market Professionals and run by Go to Market Professionals. I was like, dude, that's a big idea. Don't quit your job yet. Let me introduce you to my buddies and let me see if they're into it. And he crushed it and got a lot of their money. So we added Joe Rowley, the former chief growth officer at Marketo and formed this company called Stage 2 Capital where we've made five investments and had great backing from the community on the go to market front. 60 sales, marketing, customer success, CEO oriented executives. Jay Simon, the president of Atlassian, Emmanuel Scala at Toast OJ who used to run sales at Dropbox and now Asana Halligan at HubSpot, Sydney Sloan at Sales Loft, Hillary over at Zoom. These people are backing this movement around, bringing this go to market mentality to the investor side. So if you're ever interested in something like this, check us out and we're gonna try to add to the startup ecosystem from this perspective. The other thing I wanna thank you about is the continued support on the book. I get my most sales here in Silicon Valley, so thank you. I think a lot of you know that 100% of the proceeds are donated to build.org my friend Ayele just got promoted to CEO last year and she's doing an awesome job. Anyone involved in Build Build is awesome. They bring entrepreneurship to the high schools that are struggling most in the top 20 cities in the country. And they teach these kids how to be an entrepreneur. Freshman year with the goal of getting them into college. 99% of these kids graduate high school and 85% go into college. And that is way higher than the rate. And thanks to your support, the book has given them over $50,000 in donations. So I thank you and I'll just leave it with one more thing, which is, hey, I'm the appetizer this morning for the main course, which is diversity. Yes, scaling is exciting, revenue growth is exciting. We hope to influence the ecosystem. But this is the most important movement that we have going on in 2019. We've been working on it in tech, in venture, in entrepreneurship, in business for 20 years. It feels different this time. It feels real. And I think Jason's going to come up and tell us more about this. But these two ladies at Salesforce have done an awesome job and I can't wait to hear more about that story. Hey Jason, thanks for joining us. Thanks.