How to Set and Hit Revenue Targets with Sam Blond, CRO at Brex | SaaStr Software Community

My name is Sam Blonde. As Jason said, I'm CRO at Rex.

I just moved to Miami, and so.

This is like a marriage of two of my favorite things, Miami and Saster. So, as I said, just incredibly excited to be here. My topic today is how to set and hit revenue targets. The background on this, I'll give some context before I step in. I invest in a number of different companies as an angel investor and try and catch up with founders pretty regularly of these companies. And over the course of the last couple months, just with the turn of the year, one of the things that came up on virtually every call that I had was, how should we be thinking about setting targets this year? That was sort of like leading up to the year and then several subsequent conversations right after January 1st, it was like, oh, we may be in bad shape on our target. And so this concept of setting and hitting targets just came up very regularly with founders that I was talking with. Seems like a timely topic, and so I'll talk about it a little bit here on my philosophy, and hopefully it's valuable and excited to answer any questions that you all have about 15 minutes from now. So this may seem obvious, but there are two variables to hitting targets. The first one is where you set the target, and then the second one is how you perform. As I said may seem a little bit obvious, but most people focus primarily or almost exclusively on the latter, which is how you perform. Today, we're mostly going to be spending time on where you set the target, which is equally as important of a variable. I regularly hear folks say things like, we missed plan or something like that. So a question that I'll ask is, oh, tell me more. Say like, well, you know, we grew 10% month over month. There was a deal that pushed at the end of the month, and so we just came in a little bit short, and I was like, okay, but it sounds like you're sort of satisfied with where you finished. It's like, yeah, we grew 10% month over month. And then I asked the question, well, like, maybe you set the target a little too aggressively. And then founder or salesperson or whoever I'm talking with is like, yeah, we probably set the target too aggressively because we're satisfied with where we came in. We missed the target. So again, we're going to talk a little bit today about how to set the target and some philosophy behind that.

Just a few things to talk about when setting the target. The first one is when to set your first target.

So when you're a CEO, you're oftentimes closing your first couple deals, you don't really need a company revenue target at that point. You're really just trying to acquire customers, find product, market fit. You're being scrappy, doing what you can to get the business off the ground. When you really need to set your first target is when you have dedicated salespeople who are focused on revenue. So if you follow Jason and Zaster, you've probably heard a number of different times, when you're ready to hire your first sales rep, hire two. And so when you hire these first two sales reps and they're ready to start selling, they need a target. So that's when you're ready to set your first target. I think the one sort of counterexample to this is there are companies, and Brexit is one of these companies, where the business grows a little bit, and they haven't launched just yet. And so you do a big launch of your website, you do a big PR push, and you start acquiring customers as part of this public launch. And so in Brexit's case, we actually had a couple sales reps before we created revenue targets because we hadn't launched yet as a business. And so either one of those events, whichever one happens second, either you're closing business, you have two sales reps, or you launch the company. You need to have a revenue target that you're going after. Initially, you want to set targets on a monthly cadence. There's no advantage early on to setting targets that are farther out into the future. You want to set monthly revenue targets. At Brex, we launched In June of 2018, we had a June target. When June completed, we set our July target. When July completed, we set our August target. We'll talk a little bit about how this evolves over time, but. But initially, just set a monthly target and start setting your targets every month going forward because you don't have enough data to set targets for a longer time horizon. And then the last thing, which is a little bit more controversial than the first two, is how you set the number. So my philosophy on this, again, slightly different from maybe others, and this is where it might be a little bit controversial. I set the target with 90% confidence that we're able to hit it. And so I'll give an illustration here. If you're a CEO, you have. It's not linear. So three months ago, you closed $5,000 in ARR. Last month you closed $3,000 in ARR. This month you closed $7,000 in ARR. So a little bit of variance. As a CEO, you have a couple sales reps. It's time to set the first company revenue target. You feel good about the pipeline. Coming into the month, you've got two sales reps that are going to start closing business. You think you can get to $10,000 in ARR in the month? My recommendation given like that environment, is to set the target more conservatively. Set it at something like $8,000. You feel really good about getting to 10. Set it at 8, you have 90% confidence you're going to get there. You might be able to get to 10, but be more conservative and just make sure that you get to the number that month. I'll talk a little bit about why in just a moment. So why not set aggressive targets from day one? And the biggest reason is you want to create a culture of winning and you want to set the tone for that culture of winning early. And so on this slide, you'll see a couple different visuals. I'm originally from Kansas City. I now live in Miami. So of course I had to incorporate the Chiefs into the slide deck. If you're from Kansas City, you're sort of obsessed with the Chiefs. And you can just imagine what the Chiefs are the winningest team in the NFL over the course of the last four years. And so you can just imagine what the locker room is like for the Kansas City Chiefs. Players are helping each other. There's a lot of effort that goes into.

Improving. You go into the games thinking that you're going to win. It's just a really positive environment and energy that exists in that locker room. And you compare that to the Detroit Lions, who I apologize for anybody from Detroit. They are the most losing team in the NFL over the course of the last four years. I don't know if there's glare from the Miami sunshine, but the picture is a Detroit Lions fan with a bag over his head that says 0:16. And so you can imagine what a Detroit Lions locker room is like where you have the expectation that you're going to lose a team. Players are fighting with one another, coaches are getting fired. There's just one huge difference between the NFL and these teams right here that, you know, huge difference between the Chiefs and the Lions. The Lions can't lose their first few games and then say, you know what, we need to get a W. We're going to go play a college team next week. But we actually can because we set the target. And so as you see here, the question is, what do you do when you miss a Target. And so back to the example that I gave just a moment ago. You, you set the target at $8,000 and you come in at 6, you miss the target. Just make sure you set the next target so that you hit it. Because again, you want to create this environment where the team feels successful, everybody feels like they're winning, and there are long term gains that you realize from that that we'll talk about momentarily. But the major takeaway here is you control where you set the target. So set the target to be hit. And again, the logic here is you want to create a culture of winning, you want really positive work environment, and you will pay dividends over time from realizing that. The next slide talks a little bit about how does setting targets evolve over time. So the first one is Time Horizons Increase talked a little bit about setting targets on a monthly basis that starts to extend over time. So Brex launched in June of 2018. We had monthly targets for June, July, August, September, October, November, December. The year of 2019, we switched to quarterly targets. And so we said at the beginning of 2019, where do we want to be in the month of March? Where do we want to finish? March. Now that doesn't mean that we didn't have January and February targets. We did. It just means that we set targets three months in advance because we had a little bit more historical data going into 2019 that we could use to leverage a few months out. We did the same thing for the rest of 2019. We set quarterly targets. And then 2020, we moved to annual targets again. A year and a half of data, a lot more data. We felt comfortable with setting a target on an annual basis rather than the monthly or quarterly basis that we had done previously. The next one is that unit. Economics start to matter. You know, when you're that CEO and you close $5,000 of ARR your first month and $7,000 your next month, you're not thinking about the customer acquisition cost. You have no idea what your lifetime value of the customer is. But over time you start to understand those things and you need to build a viable business. Those things start to need to be incorporated in the revenue targets. And so that's something that again changes over time from that first target that we talked about setting. The next one is investing in sales ops and or finance to move from an art to more of a science. Target setting is super important. And I'll actually incorporate this with using historical data to be more aggressive. Once you have more historical data, you'll really understand where you can come in plus or minus 5%. And so you can start to be more aggressive and push the team to get further than you were when it was just the CEO sort of shot in the dark. Where do we think we're going to come in? And a lot of that effort comes from sales ops and finance that look into that historical data, look at the pipeline, and they incorporate that into target setting, where it becomes far more of a science than it is the original art. And then the last one is actually second to last one. We'll tell a story. You want to keep the same winning philosophy. So even as you're setting targets in future quarters, future years, you want to make sure that you're setting those targets to be hit again. It creates the same environment that we talked about earlier, this culture of winning, very positive people helping one another, high fives in the office. Just a lot of positive benefits that come out of that. The one story I wanted to tell is on the bullet point of talk to your board about their expectations. So I talked to one founder, this was in early February. He had called me and they had finished. They just crushed it. Of course, I'm not going to name the company 2021. They went from 2 million in ARR to 10 million in ARR. And he had called me after his January board meeting. He said. He went into the board meeting, said, I have a problem, Sam. My problem is I went into the board meeting, I set the target for this year at $40 million in ARR. So we were going to go from $10 million in ARR to $40 million in ARR. And he said, I went in there thinking the board was going to like, start clapping and celebrating with how excited they were about this plan that I had put together to go from 10 to 40. And he said, I was met with the exact opposite. People looked at me like I was crazy. I was going to burn way too much money.

And I was setting the team up for failure because they didn't believe we were going to get to $40 million in ARR. And I said, okay. He's like, so. And there's another problem. We're only in February and I don't think we're going to get to $40 million in ARR anymore. So I was like, okay. And he was like, so what should I do? I was like, well, what was the feedback that the board gave you on the target? And he was like, well, you know, they sort of thought that we could come in at something like 20, 28 million dollars in ARR. That was their expectation. So super successful year, go from 10 to 28, 40 is crazy. And I was like, all right, well, it seems like you got a little bit of a free pass here. Just reach out to the board, say, I've heard your feedback. We're gonna move the target to 28 million based on your recommendation and that's what we're gonna shoot for. And then you sort of solve the problem of the board thinking you're crazy, but also set realistic targets internally. And my point in saying all of that is there was no advantage for this CEO to set the target at $40 million in the first place. What he should have done with hindsight is reached out to the board before the meeting, said, what does a successful 2022 look like to you all? They would have told them $28 million. And then there's no $28 million in ARR. There's no advantage for you to come in with a higher target than that. And so talk to your board about their expectations. One of the suggestions in terms of how setting targets evolves over time.

Talked a lot about setting targets. Two variables, where you set the target, how you perform. We'll talk a little bit about improving performance to target. There are a million things that we could talk about just performance related, but I wanted to stick to specific sort of target related performance topics here. The first one is consistent visibility into the targets themselves. We do a weekly Monday morning meeting. Every team presents the targets that they have for that respective month in the all hands meetings at the company. We talk about what the monthly revenue target is for the company. And we have business reviews on a weekly basis within the business. Also just constant visibility and tracking performance to these targets so that there's just total recognition on what the company and what you're shooting for. The next one is celebrating the wins. So winning is amazing. It's more amazing when you get a lot of recognition for doing it. And so you make sure that you talk about how many months in a row you have hit the target. You talk about how impressive the growth has been at the beginning of every all hands. You clap for hitting the last month's revenue target. And again, you just sort of create a really positive environment where you're celebrating the wins, you're taking pride in your win loss record.

Quick other story. At Brex, we started these monthly revenue targets in June of 2018. The first target that we missed was November of 2019. It was Thanksgiving. Thanksgiving fell on a day where the last day of the month was the Sunday. And so we didn't have as many selling days because of that. And so the first time we ever missed a target was something like 16 or 17 months in. And the team would take pride in being like 14 and 0. We hit 14 revenue targets in a row, we've got to get to 15. And when we were close, there were times where people would be in the office. The last day of the month may have been on a Saturday. The whole team comes in the office because we didn't want to break our losing streak. We wanted to get to 15 and 0. So you drive a lot of behavior by creating this culture of winning and taking pride in your win loss record where people do things that they wouldn't otherwise do, especially if whether you hit or miss. It's like we've got a history of missing some targets, we've got a history of hitting others. So again, huge dividends that pay from hitting your revenue targets and creating that type of culture. And the last one that I'll say in terms of improving performance to target, make sure that your team and individual targets are consistent with the company targets. I think the last thing that you want is, is the company being successful, the company hitting revenue targets and having a sales team or a bunch of sales reps that are missing their target. And so philosophically you want some consistency with those targets, but also you want something like 70% of your sales team over target or over quota. So you can just imagine the environment that exists when the company's hitting their revenue targets. The sales team is hitting targets. You have seven out of 10 people on the sales team hitting their targets. People are making money, you're paying out at like 110% to quota. And you just want to create this environment where everybody feels like they are successful and they are winning. And you control so much of that through where you set the company target, through where you set quota. So you can really manufacture the environment. Taking back to the slide with the chiefs on it, you can manufacture that with the way that you think about setting targets.

Which leads us to the second big point. And then we'll talk about a little bit of a recap. Your business will actually grow much faster with a winning culture. And it's counterintuitive. If you set a target that is higher, you may think that that's going to drive more behavior and ultimately drive higher performance from your team. But if you're missing targets, it's going to do the exact opposite. And so by setting targets that you can hit, creating a winning culture, you're actually going to grow the business so much faster than if you set these more aggressive targets. The team isn't hitting them, People are down on themselves, and it's not an environment that anybody wants to be in.

And so just a quick recap before Brian comes up, and we have some questions. So the first one, when it comes to hitting revenue targets, where you set the target is as important as how you perform. Again, back to those two variables. The second one is it's very difficult to turn around a losing culture. So set the tone early, set targets to be hit and really reinforce and celebrate when you hit those revenue targets. The last one or the third one is your business will grow faster if you're able to create a culture of winning. We talked about that on the previous slide. And then finally, make sure that your company targets are consistent with individual and team targets. And so the company is winning, the individual teams are winning, and your reps are winning all at the same time. There's no discrepancy there between the company being successful, but people maybe on the sales team not making as much money or not hitting their quota.

All right, that's the 15 or 20 minutes for setting in your target. Thank you so much, Ra.