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3 Investments That Eliminate Rep Productivity Challenges

Editor’s Note: This is our third installment in our “Building a Revenue Machine” blog series. In our first and second installments, we discussed how to fix inconsistency in your sales process and how to create enough pipeline to hit your number.

Today, according to CSO Insights, companies will spend nearly $20K per year/rep to improve productivity. And yet, rep productivity remains at an all-time low, with reps only spending 33% of their time on actual selling.

Overburdened with non-quota attaining tasks such as data entry, submitting internal requests for collateral, finding their own content, etc—reps are losing focus on their pipeline. According to Forbes Insights, “71% of C-level executives know that sales productivity is, in fact, paramount to enabling a company to grow.”

What we’re seeing in the market today are Sales Leaders who are actively working with their reps to improve productivity by:

  • Reducing the number of mandatory fields in the CRM to get a deal
  • Implementing CPQ tools to streamline the quote-to-cash process
  • Adopting effective sales tools that eliminates manual data entry
  • Investing in Sales Operations to unburden reps from administrative tasks

Investment #1: Consolidating Tools

Ironically, we constantly hear about “tool fatigue” from Sales Leaders. With over 300 different sales tools on the market, what started as a tool that helped reps has turned into an unmanageable toolkit that doesn’t work.

If this unmanageable toolkit is overwhelming reps—it’s a sure sign that you’re overspending on invaluable tools. Instead of cobbling together eight different solutions for sales productivity, embrace consolidation and focus on a few tools that align with solving rep productivity and your business needs.

Rather than spending on a productivity tool, a dialer, a tracking tool, etc.—purchase the vendor that offers a full solution, not just bit and pieces. If reps are only spending a third of their time on selling activities, often toggling between those eight different tools, that’s not an effective approach.

Investment #2: Automating the Process to Increase Capacity

Sales will never be automated, but smart Sales Leaders are embracing the notion that the menial aspects of the sales process must be automated. Would you rather have your most expensive resource (the Sales team) focus on closing deals or spending hours on data-entry?

If you don’t focus on automating low-value tasks, the friction that currently exists will continue to persist—which doesn’t help rep productivity. You need to invest in a tool that automates tasks like updating your CRM, creating tasks to send follow-up emails, setting up an email campaign with longer-cycle opportunities, etc. Through automation, it allows reps to focus on their warm opportunities while either eliminating repetitive tasks or staying top of mind with longer-term prospects.

Simply put, automation improves a rep’s capacity to do more selling and allows them to focus on:

  • Having meaningful conversations with prospects to move deals forward
  • Managing the number of active opportunities in their pipeline
  • Shortening the sales cycle by having a laser focus on delivering value to prospects
  • Driving higher close rates (while leveraging automation) and increasing the Average Selling Price

Focusing on sales capacity allows everyone to know how many opportunities need to be in the pipeline and the number of opportunities that need to close for reps to hit their number.

Investment #3: Sales Enablement as a Discipline

The responsibility of Sales Enablement is to provide reps the resources and skills they need to deliver your product’s value proposition to match a customer’s pain points.

The Sales Enablement discipline carries out the following responsibilities:

  • Establishes a process that every rep can follow
  • Ramps new reps faster
  • Refreshes the skillset of seasoned reps that are looking to grow and learn
  • Plays a critical role in driving value to customers

As companies continue to scale, Sales Leaders will continue to invest in Sales Enablement because it alleviates the sales productivity challenges imposed on them. When reps are equipped with the right content, the right talk track and know how to handle customer objections—that drives an efficient sales productivity.

How to Beat the Challenge

The most effective Sales Leaders rely on ToutApp as the one-go-to platform that consolidates tools while solving for friction at every stage of the sales process. ToutApp focuses on auto-logging to your CRM, providing a dialer and gives reps real-time insights into their communications—literally putting minutes back in a rep’s day, so they can focus on deals.

For a deeper dive into a Sales Leader’s challenges, stay tuned to our blog for the second installment next week. Or, to take immediate action, download our latest eBook the Sales Leader’s Guide to Building a Revenue Generating Machine.

Download ebook

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5/31/2016 – ToutApp Product Updates: Outlook, Exchange and Web Access

Every Monday, big or small, we’ll be writing a short blog post updating you on updates to the ToutApp platform. This week, we’re announcing a number of massive improvements we’ve made to our Microsoft and Outlook eco-system integrations.

Tout for Outlook (Windows)

Tout’s Outlook plugin has been battle hardened in production for nearly 4 years. Interestingly enough, nearly 20% of our user base is still running an older version of our Outlook plug-in.

This latest version of Tout for Outlook includes:

  • Massive performance improvements
  • A cleaner looking UI
  • The ability to see Recommended Templates
  • And, your ability to add and see the status of people on Tout Campaigns

To install the latest version of Tout for Outlook, just download the plugin here.

Tout for Exchange Server

Tout now integrates with Microsoft Exchange Server. When you connect your Tout account to Exchange, you’ll enjoy the benefits of Reply Tracking and Calendar Integration. To learn more, go to the Exchange Settings section in your Tout account.

Tout for Outlook Web Access

Today, we’re also announcing the beta of Outlook Web Access. With Tout’s integration into Outlook Web Access, customers can enjoy the same great experience that is available inside of Outlook for Windows and Gmail. Features include: Templates, Email, Presentation and Web Tracking, Scheduling and more.

To get access to our beta program, please contact Support.

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How to Create Enough Pipeline to Hit Your Number

Editor’s Note: This is our second installment in our “Building a Revenue Machine” blog series. In our previous installment, we discussed how to fix inconsistency in your sales process.

Pipeline is the leading indicator whether or not your team is going to hit their number. Many Sales Leaders struggle with having a solid view of the health of their pipeline. We’re sure that you’re familiar with these common pipeline questions:

  • Does the team have enough qualified pipeline to hit their number?
  • Does the team have enough new opportunities to add to the top of their pipeline?
  • Is there a well defined plan around how pipeline is generated?
  • Are reps able to manage pipeline as it moves through the sales stages?

Every Sales Leader is struggling to find that answers to those common questions. Having enough pipeline is the life-blood of your business. You need to have it if you want to close deals and meet your business goals. That seems obvious, but pipeline creation and coverage remains a top challenge for Sales Leaders everywhere.

However, many Sales Leaders are beginning to realize that there are two core areas to invest in to conquer this challenge.

Investment #1 – Defining Responsibilities Around Pipeline Generation

If you want to overcome your pipeline challenge, the first thing that needs to be solidified is defining who owns pipeline generation.

Take the time to strategically think about who should own pipeline generation and why they should own it:

  • Are the individual reps responsible for building their own pipeline?
  • Do you segment your Sales team between Account Executives and Sales Development Representatives with the latter owning pipeline?
  • Should Marketing be held accountable for pipeline?

These are all critical points to consider. The answers will make up your playbook for your business. You need to take a stance on pipeline generation and hold either your reps, a Sales Development team or Marketing accountable to its production.

Investment #2 – Defining Consistency for Pipeline Generation

When Sales Leaders are looking to define responsibilities around pipeline generation, the next step is to define how to create consistency around it. There has to be consistency around messaging, in follow-up and in actions—consistency in pipeline generation is no different.

If there’s no consistency around pipeline creation, how are reps expected to hit their number quarter after quarter? With this realization, Sales Leaders are beginning to implement different strategies in order to create consistency.

Account Based Sales and Marketing: According to ITSMA, 78% of executives are willing to respond to unsolicited outreach from companies, if it contains ideas that are strategically relevant. Deploying both an Account Based strategy for Sales and Marketing allows for multiple strategic sources of targeting and outreach that will fill the top of funnel pipeline.

Through these strategic approaches, your Sales and Marketing teams can tailor your solution and content to individual accounts, thus hyper-personalizing experiences and turning accounts into opportunities.

Multi-Touch Outbound Sales Campaign: For reps that need to generate pipeline, effective pipeline generation heavily depends on how well equipped reps are to manage their pipeline. Reps need a scalable outreach communication workflow that allows them to touch every opportunity, no matter the stage of the said opportunity. In short, reps need to communicate with their opportunities across email, phone and social in order to generate pipeline and move them through to the next stage in the process.

Sales Development Team: One movement among Sales organization is segmentation between closing deals and prospecting roles. Of the organizations implementing this strategy, their Sales Development team is responsible for generating pipeline and booking meetings for their quota-carrying counterparts. Meaning, all outbound communications is done through the Sales Development Representative (SDR) up until a lead is qualified and turned into a working opportunity.

Automation Through Marketing: Marketing plays a huge role in generating Top of Funnel leads and nurturing them in becoming a qualified lead. If tasked with generating pipeline, it’s not enough for Marketing to loosely define leads and throw them over the fence to Sales.

How to Beat the Challenge

Sales Leaders today are heavily investing in tools that increases pipeline coverage in a scalable and predictable way. ToutApp’s platform offers integrated Sales Campaigns which allows reps to run a well defined and consistent multi-touch campaign so that prospecting for new deals (if your closers are prospecting) or wondering if the fresh out of college SDR you’ve hired is pushing hard enough—is never an afterthought. Further, Product Marketing can contribute and oversee the best messaging and see real-time insights on what’s resonating.

For a deeper dive into a Sales Leader’s challenges, stay tuned to our blog for the third installment next week. Or, to take immediate action, download our latest eBook the Sales Leader’s Guide to Building a Revenue Generating Machine.

Download ebook

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5/23/2016 – ToutApp Product Updates: Hyper-Personalized Campaigns & International Dialing

Every Monday, big or small, we’ll be writing a short blog post updating you on updates to the ToutApp platform. This week, there are two major improvements I’d like to talk about.

Tout Hyper-Personalized Campaigns

Campaigns continues to be our most popular feature on the platform. Not just for prospecting, but for all kinds of business workflows across the sales process.

Today, you can now start to add a “Send Email” task into Campaigns but require that the rep send a hyper-personalized and custom email based off a very prescriptive template.


image 1 - campaign custom

 

As we’ve worked to improve Campaigns with customers over time, we found that the smartest customers were running automated campaigns for certain tasks like prospecting into a massive SMB target list while they wanted to run hyper-custom but consistent campaigns for Fortune 500 target lists.

With this latest version of campaigns, you can dial up or dial down your hyper-personalization based on what’s appropriate for your target audience.

Pro-Tip:

In addition to scheduling phone calls, emails, and social interactions, come up with creative uses for the “Custom Task” step. My favorite? If you’re prospecting into a Fortune 500 account, add a custom step to research their latest quarterly financials and use it to figure out what’s strategic for them.

image 2 - research financials

 

As usual, these tasks for your campaigns will show up everywhere you work — in the Live Feed, Gmail, and Salesforce.

Tout Phone Goes International

Ever since we’ve started to make improvements with Tout Phone, we’ve seen astronomical increases in its usage. While ToutApp started as primarily email platform, we’ve clearly branched into Phone and Social and the data shows it.

image 3 - tout phone growth

Today, we’re also adding your ability to make International calls through Tout Phone for certain regions of Europe, North America and other key destinations. Just enter the +COUNTRY CODE and then the phone number in Tout Phone (for example, to call London, you’d enter +44 20 8480 2364 and we’ll tell you if calling that region is included in your plan and then connect you.

And as always, we’ll log everything automatically to your CRM.

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[Event] Recruiting and Retaining All-Star Reps

It seems as though every company today, whether they’re seeking Field or Inside Sales reps, struggle to recruit and retain high-performing reps. And this problem exists for good reason—high-performing individual reps can have an enormous impact on your business and the culture of your sales organization.

With a highly competitive hiring pool, perks and growth opportunities abound—it begs the question, how do you compete and get the best reps for your business?

This month, in association with Sales Hacker and Enterprise Sales Meetup, we’re hosting a panel event on how to recruit and retain all-star reps with panelists Carolyn Betts Fleming and Trenton Truitt. Our panelists will discuss how to identify and hire the best Account Executives and Sales Development Reps, and then how to make sure they remain committed to your business and drive towards peak performance.

Event_Recruiting

Space is limited to 100 attendees and tickets are going fast, so grab your seat now and join Bay Area Sales Leaders for an in-depth conversation on recruiting and retaining high-performing Sales reps.

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How to Fix Inconsistency in Your Sales Process

Every Sales Leader wonders, why can’t every single rep perform like their top performer? Top performers consistently outpace the rest of the team by an order of magnitude. The Sales Leader’s challenge is how to identify what’s working for top performers, and implement it across the team.

What’s the single thing that you believe will make your team successful? Consistency. A well defined sales process aided by Sales Enablement yields consistent messaging and processes to get to a successful sale. Great Sales Leaders refer to it as “one smooth sales motion” and the key to achieving it is driving consistency across your team.

Traditionally, Sales Leaders have tried to instill best practices and consistency through hours of sales training in a sales kickoff. But, studies show that within 30 days of a training event, 79% of what people have been taught is forgotten.

Today, Sales Leaders are investing in two areas and embracing consistency using software that reinforces best practices, consistent messaging and consistent actions at every stage of the sales process.

Investment #1 – Driving Consistent Messaging in the Sales Process

According to TeleSmart Communications, only 13% of customers believe a Salesperson can understand their needs. To overcome this challenge, you need to match your product’s value to a customer’s pain points. That’s where very crisp messaging comes in.

Common cases where you want to define consistent messaging includes:

  • Messaging tying a customer’s pain to your product’s value proposition
  • Clearly articulating the ROI your product delivers for your customer
  • Accurately articulating how your product differs to competitors in the market
  • Collaborating with Marketing to create clear collateral that will helps navigate negotiations through procurement, security reviews and other gatekeepers.

In delivering a consistent message that resonates with a customer’s pain points and business needs, it shows customers that your reps are actively listening to customers and working to solve pain points.

Field Sales forces and Inside Sales machines still have to follow up on critical meetings with well crafted messaging over email, articulate value over the phone to drive a deal forward, and even embrace social media to forge relationships casually.

In all of these interactions, having a clear strategy in messaging is consequential.

Investment #2 – Driving Consistent Actions in Your Playbook

The second investment in driving consistency revolves around standardizing the sales process across the team. This means having your reps follow a consistent, repeatable and documented sales process of delivering value and consistent messaging at every stage.  

A consistent sales process solidifies the following outcomes:

  • Qualified pipeline at the appropriate sales stages
  • Accurate visibility into state of pipeline
  • Improved visibility to enable accurate forecasting
  • Health of opportunities in pipeline

You need a way to measure that reps are following the process and checking off the box of “I sent this email at this stage,” before sending out the next communication. Being able to measure the process gives Sales leaders visibility into:

  • Where deals are in the pipeline
  • Where reps are getting stuck
  • Being able to predict how reps are performing in relation to their number

How to Beat the Challenge

Sales Leaders today utilize ToutApp’s platform to automatically recommend the best messaging that alleviates customer pain, drive consistent actions with your playbook and aligns Sales and Marketing together.

For a deeper dive into a Sales Leader’s challenges, stay tuned to our blog for the second installment next week. Or, to take immediate action, download our latest eBook the Sales Leader’s Guide to Building a Revenue Generating Machine.

Download ebook

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Introducing the Sales Leader’s Guide to Building a Revenue Generating Machine [eBook]

Sales Leadership has always been a tough job. Between managing the dynamics of a team, navigating through a complex B2B buying process and figuring out the best tools to build and add to your sales stack—it amounts to a lot of stress and challenges.

We’ve spent hours researching and worked with our community of Sales Leaders to distill down the four top challenges that every leader faces and how they’re spending the budget to solve those challenges.

To fully understand where a Sales Leader’s challenges are rooted, let’s review the current State of Sales:

  1. 33% of a Salesperson’s time is actually spent selling. – CSO Insights
  2. The average company spends $10K – $15K hiring an individual and only $2K a year in sales training. – The Bridge Group
  3. Only 57% of reps said they are equipped with strategies, tools and skills to exceed their numbers. –  Harvard Business Review
  4. 67% of all Salespeople do not attain individual quota. – Altify

So, that’s the bad news. The bad news is that even with an excess of tools, best practices and sophistication—Sales teams are still not winning. The good news is that you, the Sales Leader, can build a revenue generating sales stack that support your playbook. 

This eBook covers:

  • The four top challenges every Sales Leader faces
  • The key areas of investment you should make to overcome those challenges
  • How a sales success platform properly aligns with your sales process

Download the Sales Leader’s Guide to Building a Revenue Generating Machine eBook to get informed, motivated and transform your sales team into a revenue generating machine.

Download ebook

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5/16/2016 – ToutApp Product Updates: Phone, Campaigns & Dashboards

Every Monday, big or small, we’ll be writing a short blog post updating you on updates to the ToutApp platform. This week, there are three major improvements I’d like to talk about.

Tout Phone

Calling is just as important to selling as emailing. As we look to become the “single pane of glass” around your sales communications, we’ve been rapidly expanding our Tout Phone features.

Today, you can start to use Tout not only inside of ToutApp.com and the Live Feed, you’ll also be able to call someone right from Salesforce by clicking on the “Call with Tout” button.


tout-actions image 1

 

Additionally, just being able to call isn’t enough. So we’ve added features that customers have been clamoring for. Today, available for our Enterprise and Premium clients, you’ll be able to utilize Local Presence and if you’re an Enterprise customer, you’ll also be able to record your phone calls (you are responsible for adhering to relevant call recording laws).

tout phone image 2

Best of all, all of the data around phone calls will get cleanly logged into Salesforce so you can run reports on activities and outcomes.

Pro-Tip:

Tout Phone logs whether a phone call placed was answered by a Human or a Machine. It’s then logged to a field in Salesforce called “Tout Call Answered By.” You can use this field to run interesting reports on call outcomes.

Tout Campaigns

Campaigns has been our most popular feature as of late. So, not only do we have a v2 of the feature in the works that completely re-works the whole experience, we’ve also been making the core version stronger.

With this latest release, we’ve revamped the Campaigns and the overall prospecting experience with ToutApp so that instead of having to Push to Tout, and then go to a Tout Group and THEN Send an Email, you can now simply just click on the “Add to Tout Campaign” button to add a Lead or Contact to a Tout Campaign.

tout campaigns image 3

Tout Salesforce Dashboard

The beauty of ToutApp is that while it helps reps send better emails, call at the right time, and use the Live Feed to figure out who to focus on, it also logs a ton of data to Salesforce for analysis.

To help with this analysis, we’ve created a killer Management Dashboard where you can at a glimpse leverage Salesforce and Tout data to answer these three questions:

  • How’s my overall revenue team doing in terms of revenue to goal?
  • How’s my pipeline team doing in generating enough pipeline coverage?
  • How’s my closing team doing in moving opportunities through the sales stages?

By combining ToutApp data with your CRM data, we’re able to give you a unique view across your revenue team on your quarter to date progress. For us, this is just the beginning of a set of things we’re bringing for the sales leader to better manage revenue.

tout dashboard image 4

Helpful Resources

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How to Scale a World-Class Sales Team

In our latest Tout Live event in association with Enterprise Sales Meetup and Sales Hacker, we brought together Lesley Young, SVP of Commercial Sales and Sales Operations at Box and Frank Swain, Chief Revenue Officer at ToutApp, to talk about their experiences in scaling Sales teams.

The night’s talk covered topics such as metrics, sales methodologies and the importance of building a repeatable sales process. But, the one thing that both Lesley and Frank discussed most was the importance of building a strong Sales team that’s designed to go after larger deals, do more and scale. We’re sharing with you key takeaways and quotes from the event below. 

Create a Hiring Rubric

“The biggest challenge in bringing on people fast is you have to make sure you maintain the quality of the success criteria and not give that up. And that’s really hard when you’re use pressure to meet numbers,” said Lesley Young.

Hiring good Salespeople is tough. In a job market where good Salespeople are in high demand, it can be detrimental to companies that hire too many reps, too fast and dilute the quality of good sales just to scramble to meet their numbers.

frank_lesley

Frank Swain, Lesley Young and Mark Birch.

For both Frank and Leslie, the first order of business when hiring reps begins with having a rubric or an Ideal Candidate Profile.

“The main thing I’ve learned from the past three to four companies is, as you start to grow and scale, it breaks down. It’s important that you have a process around screening and hiring your candidates,” said Frank Swain.

Frank believes in having a defined Ideal Candidate Profile for every Sales role within the larger organization and looks for three main characteristics in every candidate:

  1. Intelligence
  2. Strong character
  3. Drive

“If you hire people who have drive, they’re going to be just as hard on themselves as any manager. So, it’s really important to bring the right folks into the organization,” said Frank.

Hiring reps with the trifecta of characteristics will not only lead to high-performance and scalability, but more importantly it will transform your business from $0 to $X million.

Invest in Onboarding and Sales Enablement

Bringing on the right reps is only the first phase in scaling a sales team. The second phase is bringing them on, giving them proper onboarding and continual support throughout the sales process via Sales Enablement.

“The worst thing you can do is invest all this time into hiring someone, onboarding them through a camp [training] for a week and then put them out on the field where they’re left to their own devices—and six months later they’re not successful,” said Lesley.

Bringing a rep on and onboarding them costs a lot of money. Failure to do so results in rep turnover at a higher rate—which hinders an organization’s ability to scale and wastes company money.

Much like onboarding customer and ensuring that they’re successful on your platform, the same strategy must be applied to your Sales team. The money that your company has invested in hiring the rep, onboarding and training shouldn’t be a wasted effort, rather it needs to yield a return in revenue.

Implementing a Sales Enablement program, even at the early stages of companies will allows you to train reps, retain them and scale the team properly. Whether it’s rolling out an intensive five-day training “sales camp” like Box or a rigorous program that’s rolled out over a series a weeks that’s focused on a singular skill like ToutApp—training and enablement is a must.  

“I learned this part the hard way by not having a rigid Sales Enablement program in the early stages of the companies that I’ve been involved in,” said Frank. “What ends of up happening is I run around trying to get all the deals closed at the end of the quarter.”

Have a Culture of Clear Expectations

According to Gallup, “a sales force is built on the capabilities of its managers. Front-line supervisors play a key role in influencing the performance of the Salespeople they manage and motivate.” This means that it’s a manager’s responsibility to manage and cultivate a culture of clear expectations that drives towards peak performance.

“You have to create a culture where success is celebrated. Ring the Sales Gong and make a big deal about all the wins,” said Frank. “But, you also have to set attainable goals. If you set a goal that no one is going to reach—no one’s going to be motivated.”

If a rep is doing a great job, the team should celebrate those wins. If a rep isn’t on track to meeting their goals, the manager and rep should work together to get them on track. Sales is about your number—and every Sales Leader must set clear expectations with their reps on that number.

“If you build the right kind of culture, people will do their own whip cracking. You have to be clear on what the expectations are and when someone goes off track, you bring them back on track, and if it’s not working—it’s clear,” said Lesley.

Scaling a sales team is a huge task. And it takes more than these three steps—but if you follow these steps from our experienced Leaders, you’ll be on the track to scale.

Want More on Scaling Sales Teams?

For full coverage on How to Scale a World Class Sales Team, watch the full-event video with Lesley Young, Frank Swain and moderator Mark Birch here.

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Growth at All Costs vs Profitability

Note: We’re A/B testing headlines for this post. Content is still the same.

There’s a massive shift happening here at Silicon Valley. 15 years ago, since the last dot-com bust, Wall Street started to reward tech companies going public on growth. Over the past two years or so, public market investors started to skip the middle man and start to value growth even more by investing directly into the private markets and driving up valuations.

They opted to reward on growth because rewarding based on pure eyeballs or buying a .com and a paper napkin idea wasn’t enough (as the first bubble showed), but rewarding based on profitability was too hard (because let’s face it, a profitable Internet business was still hard to come by).

If the last few months are any indication, it has become clear that growth alone is not enough for companies to go public any longer. You have to have strong business metrics. Shockingly, you have to make money. You have to be profitable.

Our goal here at ToutApp has always been to build a solid, long-term, self-sustaining business that changes how selling is done for every sales team on this planet.

In this post, I’m writing to declare that ToutApp is focusing our business strategy to aggressively pursue profitability, so that we can become a solid self-sustaining business in this new environment vs. a grow at all costs business.

This focus comes from companies (some of which are customers of ours) that have inspired us in how they’ve built their businesses and thrived including but not limited to Atlassian, Qualtrics, WebEx, ProCore and Ultimate Software.

Through the rest of this post, I’ll explain my reasoning and why this is going to be great for us, our customers and the broader sales software industry.

The change in Silicon Valley

Recent posts by Bill Gurley about overvalued unicorns and Fred Wilson’s post on negative gross margins plaguing startups are both confirmation that the rules of the game are changing. In case you don’t trust the internal Silicon Valley echo chamber, another data point to consider is Fidelity writing down its investments into private companies — no longer supporting the “grow at all costs” mantra.

For most of the world, this is not a novel idea. For Silicon Valley, this too isn’t a novel idea. In fact, in Peter Thiel’s CS 153B class, he expressly talked about the importance of long term sustainability vs just measuring the typical growth at all costs that plagues Silicon Valley.

So if you are trying to analyze any of the tech companies in Silicon Valley, AirBnB, Twitter, Facebook, any emerging Internet companies, all the ones in Y Combinator, the math tells you that three quarters, eighty-five percent of the value is coming from cash flows in years 2024 and beyond. It’s very far in the future and so one of the things that we always over value in Silicon Valley is growth rates and we undervalue durability.

Growth is something you can measure in the here and now, you can always track that very precisely. The question of whether a company will be around a decade from now, that’s actually what dominates the value equation and that’s a much more qualitative sort of a thing.

Our pledge is to get to cash flow positive as fast as possible and turn a profit by the time we IPO.

The days of IPOs based on growth and top line numbers are over. Box’s IPO which barely eeked through may very well have been the last one. Do you know how many tech IPOs happened last quarter? Zero. Zilch. None.

I believe that the next 10 tech IPOs are going to be profitable businesses with long term sustainability – and that means company building in Silicon Valley must adapt. Similarly, Founders and VCs must adapt in how they run their companies.

Why wasn’t profitability a priority in the first place?

So you might ask as I asked myself. Why not grow at a slower clip, and take in less cash, and build a really strong sustainable business at the onset?

Here’s the thing. In a vacuum, it’s very easy to focus on fundamentals, build a strong foundation, and grow at a pace that you can handle.

Ironically, I feel that the single thing that plagues Silicon Valley’s misaligned incentives around growth is Silicon Valley itself: the free flowing availability of VC cash not just to you but to three other entrepreneurs that are willing to chase the same idea.

Before we took on a single $1 of venture capital, ToutApp reached cash flow positive. With the influx of our $3.3m cash in our Series A from Jackson Square Ventures, we stepped up the burn a bit but we still managed amazing employee to revenue ratios and grew nearly 300%.

As soon as we raised our Series B of $15m, a few things changed. The expectations for growth became bigger (as it should). But that wasn’t the problem. The problem was that within months of announcing our Series B led by a16z, similar VC firms announced investments into our category funding competitors that went after the same cheese we were after.

This caused a chain reaction of external changes that lead to a domino effect internal to our business. Externally, the market became flooded with product. Internally, it caused every player in the space to race to outspend each other in the pursuit of growth.

With the availability of free flowing cash at all the companies in the space, we all set out to outspend each other and grow. Bigger Dreamforce booths. More marketing spends. And more Salespeople and SDRs to spray the market and pray that they buy.

And, buy they did. While our overall business grew by 80% the segment of the business we focused our business resources on grew by 160%. But of course, as we see in Silicon Valley as a whole, that growth comes at a cost: fundamentals. Even with good fundamentals, you always want great — because that yields an even longer term sustainable business.

This story is not specific to the sales space. The same has played out in food delivery, the “do it for me space” from house cleaning to park my car for me spaces, and it even permeated in perhaps the unicorn that started it all: the ride sharing spaces. A lot of times, over investment in a space results in hyper competition and a race to the bottom.

At ToutApp, we decided that the outspending the competition and continuing to raise unlimited amounts of VC while our employees and my stock ownership dips lower and lower is not only a fools bet, but also something that is probably not going to work any longer.

Fred Wilson aptly pointed out my sentiment around this when in his post he said:

Getting a huge lead on your competitors, raising a ton of money to operate a scorched earth strategy and force your competitors out of the market, will work for some. But not nearly as many as the capital markets seem to think.

Founders will have to get to profitability through creativity, ingenuity and scaling through technologies instead of just hiring. 

Earlier this year, we announced that ToutApp would not take part in paid sponsorships in any further Sales industry events. This is just a small part of our strategy for us embracing operational ruthlessness to achieve true success for our company.

In this new environment for Silicon Valley, founders will have to drive their companies to embrace frugality, focus on operational ruthlessness, and play the competition game not by outspending but by outsmarting. (Again, all obvious things every startup should do, but perhaps didn’t in the recent environment)

As we continue to define our strategy here at ToutApp, there are a few guiding principles I’ve established in the company:

  • Out-teach the customer instead of out-spending the competition
  • Provide objectives in every department for driving efficiency and automation and establish negative incentives for driving headcount and “building mini-empires in the company.”
  • Relentlessly track down friction points across the business and streamline for a buttery smooth customer experience through the product
  • Out-innovate the space instead of playing catch up and creating “me-too” products
  • Drive for cash flow positive and drive surplus proceeds right back to the customer and employees

Over the past 10 years, VC-backed companies have solved scaling problems through humans (by hiring more people and ballooning in size), whereas in the next 10 years, we’ll be solving problems (ironically enough) through better technology. I believe tech companies will start to have engineers dedicated to internal systems and processes so that they can do more with their people instead of hiring more.

This new environment requires a bigger emphasis on core financials and BizOps earlier in a company’s life

I’ve always been enamored about how PE firms run operationally efficient companies. I believe the same type of operational ruthlessness will find their way into VC-backed businesses as well.

Nick Mehta, Fred Shilmover and Byron Deeter recently hosted a webinar on how to run operationally lean companies during a downturn. If you’re a founder of a company, I highly recommend watching the recording here.

The webinar highlighted things we already started to prioritize more than ever in our business. For companies to succeed, beyond creating a great product and having a fantastic go to market strategy, they have to start building disciplines around operational ruthlessness.

Some key things that particularly resonated with us and we’ve embraced since the beginning of this year already include:

  • Rule of 40% – Good SaaS companies should aim to run at > 40% of Revenue Growth (Y/Y MRR growth) plus Profit Margin.
  • Apply hyper focus on successful segments & De-emphasize segments that are costly to retain & acquire
  • Focus on increasing ASPs
  • Track distribution of ASP, and apply marketing efforts on MRR buckets where customer concentration is low
  • Focus on lowering Payback Periods

What this means for Venture Capitalists

We may be entering a time where Founders will actually turn away from doing monster rounds. This will mean that VC firms, beyond the cash they promise to provide, will have to differentiate in uniquely new ways. This also means VC firms with the billion dollar funds they’ve just finished raising will have to find effective ways of deploying it.

At ToutApp, we’ve had the great fortune to work with both Jackson Square Ventures and a16z. Two very different firms.

Jackson Square Ventures follows a model where it is a firm comprised of extremely experienced general partners with both deep operating experience and nearly a decade each of VC experience. I’m on a texting basis with our partner Greg Gretsch, and at any time I’m stuck on something whether it is operational or strategic, he’s available to dig in and help or loop in one of the other partners. “Greg, I’ve got a really stupid question and I’m not sure who to ask,” I would say in the early days when he invested in our eight-person outfit and this first time CEO. “There’s no such thing as a stupid question,” Greg would assure me.

A16Z is on the other end of the spectrum. They follow an agency model. When I have an issue and take it to our partner Scott Weiss, he puts in his thoughts but more often routes me to an expert in the firm that can help. I’ve worked closely with a16z’s recruiting teams, Executive Briefing centers and even HR practitioners over the past year and it has proven to be very helpful.

I’ve had the luxury of enjoying both models and have found each to be phenomenal in their own ways.

In this new period of company building, Venture Capital firms will have to beef up skill sets (either through general partners or through teams) that help their portfolio companies embrace operational ruthlessness.

In my mind, this is a step different from recruiting, introductions and strategy that VC firms bring to the table. This will be a discipline in itself that sets the tone for how companies are instrumented and run efficiently.

What this means for ToutApp

For our customers, this strategy will ensure they are partnering with a company that is here for the long run with a fundamentally sound business model.

In terms of our day to day operations, nothing changes. In terms of how we compete, our plan is continue to build a team of great people that think deeply about the business and executes aggressively and smartly.

In environments like this, it’s no longer going to be about out-raising and outspending the competition, it’s going to be about outsmarting the market and delivering a uniquely different offering for our customers that is a no brainer for them.

In Conclusion

It is astonishing to me that even though human beings have been building companies since the beginning of time — we still suck at it. But in this period, I believe we are headed into a golden age in how efficient high growth money making corporations that also do good are built.

Game on.

 

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