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Who hates annual employee performance reviews? Everyone, that’s who.

Employees hate them, managers hate them. HR probably hates them.

There are plenty of studies and articles and trends to back this up. Like this one. And this one. Publications like The New York Times and The New Yorker are spreading the word. And there’s even a book about how much performance reviews suck.

So, what’s the solution? Resigning ourselves to stick with something that doesn’t work? There has to be a better way.

I’ve experimented with many different ways to conduct performance reviews. Formal. Informal. Annual. Quarterly. Ad hoc. Paper. Online. 360 reviews. You name it, I’ve probably done it.

The problem with performance reviews has been written about extensively (as evident by the links above). The bottom line is that they are:

• Not agile and therefore not aligned with the rhythms or realities of the modern workplace.
• Often not specifically relevant to the employee’s role or their actual contribution.
• Too time-consuming & too cumbersome to administer, so managers and staff just go through the motions.
• Potentially damaging to the employee/manager relationship unless the manager is highly skilled at giving the right feedback and coaching for improvements.
• Not consistently effective at getting the outcomes you want from the employee.
• Easily buried away in some folder and quickly forgotten about just a few days after the review (i.e. not relevant to the realities of work).

My solution: Just do away with the annual review. It’s a relic.

My biggest problem with annual performance reviews as the primary formal feedback mechanism with an employee is that workplace goals, strategies and tactics change too frequently for a yearly review to be relevant.

People also ebb and flow too frequently for an annual review to be relevant. Yes, employees have certain characteristics that don’t change much over time, but they also have so much that can impact their situational work performance—from the specific nature of their most recent projects and responsibilities, what is happening in their personal life, even what’s happening within the walls of the office or the company culture. I am not saying an A player drops to a C player. Individual performance is nuanced and never really static.

If you want to throw traditional performance reviews out the window and take a more agile approach, here is what I found worked best for me:

Frequent, regularly scheduled meetings Meet with each of your team members regularly, without fail.

When you approach reviews as something that should be agile, the nature of the meetings will shift over time. Sometimes one-on-one meetings will be perfunctory. Sometimes you will dive deep into issues or trends you are seeing. Sometimes it all be a ‘roll up your sleeves’ working session to hash something out together. Sometimes you will use the time to course-correct or give specific feedback. Sometimes your team member will give you their thoughts and feedback on concerns or opportunities.

And for those times when you have something very serious to cover, simply document it by sending a brief recap email, with any necessary action items, after the meeting. Other than that, don’t get too hung up on the formality of the meeting. If you need some type of mechanism to keep track of action items, to-do lists or major initiatives, a Trello board that you share privately with your team members can help and is easy to keep up to date from week to week.

Here’s the thing, if you are having productive, meaningful meetings on a regular, frequent basis with your employee, why would you need an annual review? I am not sure you do. When things are really off track, you are both going to know about it because you are going to be talking about it and trying to solve the issue.

360 reviews I am a fan of 360 reviews when used carefully as a tool for personal and professional growth.

My approach to 360 reviews is to NOT share all of the ratings and comments directly with the person who is being reviewed. Instead, I use it to help create a whole picture of the employee for me so I can better coach them for improvement. When I do a 360 review it is because I want to give the employee’s team members and/or direct reports the opportunity to anonymously share candid feedback about their coworker. Rather than do them on a regular, annual schedule, I like to take an ad-hoc approach—using them when it feels like the time is right (which ends up being every 12 to 18 months, on average).

360 degree reviews can illuminate aspects of the employee’s performance, attitudes and behaviors that you may not be privy to in your day-to-day interactions. And let’s face it, jerks usually know how to hide it in front of their managers, so bad behavior tends to be hard to root out.

It helps to know what coworkers think about the employee and understand their experience and perspective. It can reveal strengths and weaknesses that you might be overlooking.

My approach is to conduct an anonymous 360 review with the employee’s coworkers (and/or direct reports if that is applicable), review the feedback and then decide what to share from the 360 results, if anything. Sometimes I only use it to help guide some of the feedback or direction I give the employee.

Wildcard: Formal meetings There are times when you need to schedule a more formal meeting with an employee to discuss their performance—either when they are performing exceptionally well or poorly. When an employee is doing a really exceptional job, it is time to lavish praise on them. This may be combined with a meeting to inform them of a promotion, a bonus, a new set of responsibilities or a raise. Take time to sit down outside of your regularly scheduled meetings, one on one, simply to praise a top performer and thank them for their contributions. They will appreciate it and remember it.

On the flip side, when an employee isn’t doing a good job, you have to put all the cards on the table in a formal meeting (ideally with HR or another trusted executive present). These meetings should be clear, concise and direct, communicating the areas that need to improved, and ideally informing them of areas they are performing well in. Meetings such as these should always be documented—formally via a written letter that states the issues and remediation plan, or informally via email (depending upon your company culture).

The key to getting rid of the annual review To do away with annual reviews you just need a few tools that are probably already at your disposal:

• Schedule a regular, predictable cadence of meetings. Don’t miss or reschedule them.
• A system or tool for tracking meeting notes, as well as goals, initiatives, progress, and outcomes (OKR tools are great for this!).
• A consistent approach or document you use when things are off track with an employee.
• Defined times to assess compensation and make adjustments (either at the annual employee anniversary or at the same time each year for all employees).

Bottom line: Find a more agile path forward After years of experimentation and trial error, I can say that it is important to find a process and cadence that works for you an that you can keep up with on a consistent basis. I no longer believe in the formal annual review, which is obtuse, overly time consuming, bulky, and too easily buried and forgotten.

Shorter, more frequent feedback sessions are what is needed and if those meetings include goal setting, tracking, feedback, and coaching, you will cover all the bases. Don’t do annual reviews just because you think you should.

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A sales methodology is just a standard approach to selling. It’s the how.
Not to be confused with a sales process that describes the steps in the methodology. It’s the what.

Do you need a sales process? Yes. Do you need a sales methodology? Yes. They go hand in hand.

Without a sales methodology, your sales team will not know how to sell. And more importantly, they will not know how you want them to sell. Even if you have a team of very experienced salespeople, this is true.

It’s your responsibility, as the sales leader to prescribe the approach you want your team to take. You can’t leave this up to each individual. That’s not scalable, and it’s also not effective. Even the most experienced salesperson needs and wants a guide for how you want them to sell to your buyers.

“The sales methodology is like a set of rules for how you sell your products or services to customers.”

Sales Hacker

How to implement a sales methodology The first step, of course, is to select which sales methodology is right for your organization. I’ve listed some popular ones at the bottom of this article. Familiarize yourself with the options and determine which makes the most sense for your type of sale.

Once you have selected the sales methodology, you will need to:

• Create sales playbook materials in support of the methodology
• Train existing team members on the new sales methodology
• Incorporate training into your new hire onboarding materials
• Conduct periodic refresher training via lunch & learns, workshops, etc, to ensure the methodology is adopted and used correctly on an ongoing basis
• Lean on the sales methodology during pipeline reviews, coaching, opportunity huddles, and deal strategy sessions

Rolling out a sales methodology will fail if you don’t incorporate it into your sales culture and make it part of your everyday conversations. Only you, as the sales leader, can ensure the sales methodology is successful.

Avoid the “we don’t need one” trap If you hire experienced salespeople, it’s easy to fall into the trap of “we don’t need a sales methodology”. You think they are experienced and they know how to sell so why get in their way.

I’ve made this mistake myself and it resulted in poor sales execution and salespeople approaching every deal differently, making deal management frustrating for everyone—the customers, the sales team and me.

Every salesperson needs a framework for how you want them to sell. And every team needs to use the same approach to selling. Without one, you are no more than a loosely held together band of lone wolves, each making things up on the fly, or randomly pulling in various approaches based on the situation.

You’ll find yourself being unable to coach and provide deal strategy, because each deal will be in a different state. Some sellers will use X as a qualification criteria, others will use Y. Some will handle objections this way, some that way. Some will have a late-stage deal with fundamental information still uncovered, others will have deals stuck in the first stage because they are digging too deep.

If you hire experienced salespeople, it never hurts to hear about what type of methodology they have used in the past, what’s worked and what hasn’t. A sales methodology can be adapted as you use it and find what’s working best. But at the end of the day, you need to be prescriptive about how your team sells, no matter how experienced the team is.

The upside of implementing a sales methodology When you roll out a sales methodology to your team, you will all be rowing in the same direction, approaching your sales process with the same philosophy. Coaching will be easier because you will be using a common framework to assess deals and provide feedback. Reporting will be more consistent because everyone will be using the same method to progress deals through the buyers’ journey. Deal strategy will be less complex because you will be using the same playbook.

Consider that a sales process defines a step or stage, but that a methodology defines what is happening in that stage—the information we are exchanging with the buyer, the way we are finding, creating and addressing need.

Plus implementing a sales methodology is just more effective. Your results will be better for it.

The downside of implementing a sales methodology I’ve experienced only one downside of implementing a sales methodology: turning your team into robots.

Anybody can follow a sales methodology, but it takes skill to do it well. When you start using a methodology—regardless of which one—even your most experienced salespeople can slip into “check the box” questions and robotic conversations. That turns the benefits of a sales methodology into a massive fail.

So, when you roll it out, make sure your salespeople understand they still need to use their natural curiosity and relationship building skills. Monitor conversations closely the first few months to ensure the implementation of your methodology is creating a great buying experience. Do a lot of coaching, role play, and deal strategy sessions to really infuse your sales methodology into your culture and make it second nature for everyone.

Some popular sales methodologies You can make up your own, you can combine things you like from existing methodologies, or you can use one “by the book”. Here are some popular sales methodologies often used in SaaS companies—no need to invent one yourself, as there are many tried and true sales methodologies like these:

• Spin selling
• MEDDIC
• Challenger sale
• Solution selling
• Sandler
• SNAP selling
• Gap selling

The post What’s a sales methodology and do you need one? first appeared on SaaSX.

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The bigger the addressable market and how much it is needed by the market indicates how much effort is needed for the customer success function. Customer success is your product. Your product is customer success. Period, end of story.

It’s time to change the culture of expectation for customer success.

Having worked with products that had incredible product-market fit (PMF) and products that didn’t, I can tell you that perfectly executed customer success plays do not make or break a product. What makes or breaks a product is how good it is, and how the size of the total addressable market (TAM) is for that product.

Product/market fit means being in a good market with a product that can satisfy that market.

Mark Andreesen

What customer success can’t do No amount of customer success brute force can convince customers to adopt a product they don’t want, need and find valuable. No customer success intervention can get a customer to use a product they don’t find easy and useful. Customer success can’t be held accountable for:

• Getting a customer to adopt your product.
• Getting a customer to use your product.
• Getting a customer to renew their subscription if they haven’t been using your product and receiving value leading up to the renewal term.

What customer success can do Assuming product-market fit exists, what can customer success influence?

• A customer’s relationship with, and affinity for, your company and brand.
• A customer’s strategy for successfully using your product to meet their business needs.
• A customer’s vision for how and where your product can be used, leading to deeper adoption and organic expansion.
• Your customer’s willingness to renew their subscription, assuming the customer has been using the product and receiving value from it.

Customer success as a push or pull function Customer success follows a fairly standard playbook, especially in SaaS. The motions are onboarding, adoption, engagement, expansion, and renewal. 80% of these apply to any SaaS company, with the 20% being specific to the company and product.

As you think about the strategy of your customer success, consider how push/pull it is (using the rudimentary chart included in this article). If you need a “push” customer success strategy, you will need more customer success staff and resources, because it’s more effort. You may even want to consider shifts in overall market and product strategy to help move it up and to the right on the chart. That’s not easy, but it is what’s required to reap the rewards of a more “pull” customer success strategy which is considerably less effort.

Don’t get me wrong—customer success motions are rarely effortless. But as you move up and to the right, they do become easier and the strain on customer success as a function is lifted.

The post Customer success IS product. first appeared on SaaSX.

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Growing a SaaS company at >50% YOY (at scale) is hard. If it was easy, everyone would do it. One of the big reasons it’s so hard is that you’re constantly trading off between short-term results and long-term scalability. This is true in technology, where there’s constant angst around amassing tech debt in the name of feature pace. But it’s also true in sales, marketing, customer success, operations, support, and product. Short- and long-term tradeoffs complicate the best-laid plans.

Long-Term Slow Down I fell into this trap for a few years back in the day. Leaning too far to the long-term side slows down short-term performance. And that can turn into slogging rather than flying. When you think long-term first, and focus on processes more than performance, you lose agility and urgency.

For me, urgency is a critical success factor in driving outsized growth. I seldom see one without the other.

Short-Term Mayhem The other trap is speed at all costs. The common misnomer here is that the debt you amass in short-term prioritization takes a long time to come back and bite you. Wrong. It comes back faster than you think. And it can bite very, very hard. The irony here is that when that debt does bite you it impedes short-term performance. And, if you’re sprinting like a bat out of hell, you may very well grow so fast that you attract premature liquidity interest. Guess what? When the wheels are flying off the car flying down the road at 180mph isn’t the best time to go through diligence.

The cost of only focusing on short-term growth is that you accrue debt everywhere — people, processes, systems, technology — you name it. Do that for longer than short bursts with recovery between them and you burn the company and its people out. That’s neither sustainable nor healthy.

Dividing & Conquering Short- and Long-Term Tradeoffs My preferred solution to the short/long-term conundrum was to have people divided into two camps. The floor-it-at-all-costs camp just answered to urgency. And the long-term, process/systems camp wove a sustainable net in parallel. The important cultural thing here was that neither group could resent the other. Most of the time that worked out, as long as we maintained transparency to the why and cross-built appreciation between the divergent missions. The yin and yang of that relationship became a rallying cry for conquering short- and long-term tradeoffs.

The long-term groups end up taking great pride in stabilizing and creating sustainability. The short-term groups stay urgent and almost reckless but know they have a net to catch them. Both are driving growth. This is a critical understanding and appreciation. The short-termers are driving this month and this quarter. The long-termers are driving this year and next. Both are driving valuation.

So if you want to give the sales and marketing teams the freedom to get a little bit reckless, charge the ops team with making that possible. And if you want to give a skunkworks engineering group carte blanche to launch MVPs, create a group that tidies up behind them to ensure that everything still works and complies with standards. And if you need to experiment with divergent pricing and packaging, do it — fast — but then have some folks come behind and translate that into systemic reality. It’s the separation of church and state that makes the short- and long-term tradeoffs work.

You’re Charging on a Credit Card — When Do You Pay? Short-term actions lead to debt. The only real question is when do you pay it down? If you charge stuff on a credit card and don’t pay it down or off each month, you accrue interest. If that goes on for even just a few months, the interest can outpace your ability to pay. And the TV you just bought for $499 ends up costing you $2,000 over years of minimum payments. SaaS debt is no different. If you pay it down each month or quarter, you can stay out of the debilitating cycle of debt eating up your innovation capital.

If you let short-term debt accrue unchecked, sooner or later, it will eat you alive. You will eventually be forced to stop innovating, which can lead to a not insignificant momentum kill. That’s far more costly than focusing a group of longer-term thinkers on paying it down each month.

Obviously, I don’t believe that short-term and long-term are mutually exclusive. I don’t even believe that short- and long-term tradeoffs are at odds with one another. But I do believe they’re different people, incentivized equally but differently to serve very different masters that both contribute to growth and valuation. Either without the other makes >50% growth way harder than it needs to be. And it’s already pretty damn hard.

The post SaaS Strategy: Balancing and Managing Short- and Long-Term Tradeoffs first appeared on SaaSX.

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Nurturing the characteristics of a charismatic company to inspire devoted, loyal advocates to provide social proof.

Social proof is huge in SaaS marketing. What people think and say about your SaaS has a lot to do with its momentum and market fit. But how they feel about your solution has wider implications. Real advocacy comes from having a devoted tribe. That’s the difference between marketing coming from just you, or having thousands of authentic voices spreading the word on your behalf. The latter is incredibly powerful. And it comes from creating a charismatic brand.

Inspiring devotion from visitors, followers, and customers. I saw this play out at ion interactive before we were acquired. Devotion wasn’t limited to customers. It started with people who were familiar with us. And then it extended to those who actively followed us. And yes, it culminated in passionate customers. The customer piece was great, but the wider social proof that came from people on the outskirts had massive value as well. Just last week I interviewed someone who was clearly a devoted, passionate, ion advocate. She was never a customer. And only used the platform for a short time. But she loved the company. More accurately, she loved what we stood for. Our point of view deeply resonated with her.

6 ways to nurture the characteristics of a charismatic SaaS company and inspire social proof. My inspiration for this post came from a breakfast meeting I had yesterday with an old friend. One of the topics we discussed was what made some SaaS companies spread like wildfire while others have to work so hard for traction. There are a lot of factors in play there, but one of the ones that came up was fan-like devotion and social proof. That led to a discussion around the idea of charisma and how that dovetailed with SaaS culture. And that led to how founders can nurture the characteristics that make a company magnetic.

Today, as I was noodling this article, I Googled charisma and did some reading. It’s interesting to me to think about these characteristics outside the context of a person, in the broader context of an entire company.

Charisma is the ability to attract, charm, and influence the people around you.

Psychology Today

Being attractive, charming and influential sounds like a pretty good road toward breeding passionate advocates.

Charisma — a personal magic of leadership arousing special popular loyalty or enthusiasm for a public figure (such as a political leader)

Merriam-Webster

But, what makes a company charismatic? I’m going to draft off of six elements of personal charisma courtesy of Psychology Today and reframe them in the context of a company…

1. Emotional Expressiveness As a company, do we express our point of view spontaneously and genuinely? This cuts to the core for me, which is authenticity. An authentic voice is a unique one, and a differentiated, real perspective on a space or problem is both valuable and useful — inspiring advocacy and social proof.

2. Emotional Sensitivity To me, as a company, do we listen, have empathy, and express our brand with a high emotional IQ? Do we make everyone who interacts with us feel valued and heard? One of the most critical things a growing SaaS company does is listen, ingest and respond to feedback in the form of evolutionary changes. When those adjustments show emotional sensitivity, they exemplify a charismatic brand that is more likely to engender passionate advocacy and social proof.

3. Emotional Control How do we react as a company? To adversity? The market? To competitors? And to success? Do we remain calm and centered as a brand? Do we show maturity, control, and confidence in everything we do? Part of being an innovator is leading as a nascent entity. Inspiring confidence is critical. And showing that, as a company, we are calm, cool, collected, and in control is a vital contributor to our charisma.

4. Social Expressiveness SaaS companies are often content marketing juggernauts. We communicate a lot. Our ability to be informative, transparent, authentic, entertaining, and engaging has an impact on the success of our content. More importantly, the power in our words impacts our charisma and social proof. Keep in mind that your brand’s social expressiveness is far more about perception than reality. Your public voice, and point of view, should be clear, articulate, and conversational.

5. Social Sensitivity A SaaS company’s ability to be in tune with its advocates tracks back to its listening skills. How well does it read and interpret the virtual room? How well does it internalize sentiment to respond with tact and sensitivity? To me, this is also about being perceived as being on the same team and same page as your tribe. When your tribe is in the boat and you’re all rowing together, you move much faster.

6. Social Control You know the people who always seem to have a way to connect with a stranger they meet for the first time? The grace and poise designed into a company’s voice and point of view can make it welcoming and easy to connect with. The inverse can be standoffish and far less inclusive — not the characteristics of a charismatic company nor one that generates mass quantities of social proof.

Listen and feel. Be authentic and real. Earn your tribe. And your social proof. So there you have six elements of charisma — three emotional and three social. I believe they align with companies as much as they do with individuals. In a sense, they’re more difficult to cultivate in a company because they need to be executed against by so many different people. But, if the mission and values, and the point of view, and the founders and leadership, all point to these six elements, you’ve got a real shot at being the charismatic brand that attracts passionate advocates. Meteoric growth is a lot easier with all those extra people rowing with you.

The post Is Your SaaS Charismatic Enough to Build a Tribe? first appeared on SaaSX.

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Many SaaS companies go through due diligence in a less-than-ideal state. That’s a lot less stressful when you know what that means.

A while back I wrote about what to expect in SaaS due diligence and provided an interactive institutional readiness report card to help you prepare, but today I want to address the consequences of being unprepared for SaaS due diligence. Founders find themselves in diligence situations feeling unprepared all the time. Could be with a bank for a line of credit. Might be for venture debt. Could be for investment. Perhaps for an exit or partial liquidity event. Or could just be for an annual audit. Diligence is pretty common and universally painful. How painful? That depends on preparedness. Today, I want to look at what it means to you and your process if you go into diligence unprepared. Punchline: It’s not the end of the world. But it’s going to cost you time, resources, and money.

What is SaaS diligence? It’s strangers going through your closets and hampers looking at your underwear. In SaaS, due diligence processes look at many things at a high level and certain things at a deep and specific level. For more on this look back at my articles on what to expect and how to prepare to be acquired. From a pragmatic perspective, SaaS due diligence is similar to an audit where they take samples of everything and drill into those things where the samples don’t true up. So let’s take the position that some important samples like churn, revenue or COGS don’t true up. That’s what we mean by being unprepared for SaaS due diligence. But what does that mean to the deal?

What is being unprepared for SaaS diligence? Let’s start with the less painful stuff. There are many ways you can be unprepared for SaaS due diligence. Contracts could be undocumented. There could be unknown liability or legal exposure. Employee records or policies could be incomplete. And so on. Many things like that do have consequences, but they’re contractual reps and warranties more than they are valuation killers. So in a way, they’re less painful. (Still stressful.)

Reps and warranties are essentially risk mitigators that get written into your contract with the buyer or investor. Anything they’re uncomfortable with, or unsure of, will likely end up in reps and warranties for you to sign off on as your responsibility, not theirs. There are many flavors of reps & warranties — some longer term, some shorter. Some with potentially harsh financial and legal consequences and some not so much.

The more buttoned up you are, the fewer anomalous reps and warranties will be in your contract, and the less stressed you will be to negotiate them out or sign off on them.

The top (or bottom) three ways to be unprepared for SaaS due diligence There are real, painful consequences that impact the process and financial outcome. These consequences come to be when important SaaS due diligence items are unprepared. My top three ways to get yourself into this super-hot water are revenue, churn, and COGS. There are others, but the consequences are similar, so I’ll just focus on these three.

Consequences of being unprepared in SaaS revenue booking Revenue accuracy directly drives valuation. In SaaS, you’re likely getting an IOI or LOI based on a multiple of your top line revenue. So if validation of your revenue doesn’t match your stated revenue, your valuation takes a discount. And, if there’s something fundamentally broken in how you have booked revenue — for example you’re showing $3M/month in MRR but really only a million of that is recurring — your deal is likely dead in the water because you’re not what they thought you were.

But the far more common scenario is that some of your revenue is weak. This is why many SaaS companies pay the piper and send their financials through a quality of earnings (QOE) study prior to any third-party diligence. A QOE can find your weaknesses so you can shore them up before a third party finds them. But again, this is about consequences, so let’s say you either didn’t go through a QOE or you couldn’t fix what was found in your QOE.

SaaS valuation weak revenue discount factors Weak revenue results in valuation discounts. It’s that simple. Aggressiveness in the discounting will depend on:

• How much they want to do the deal — if the big-picture, strategic value far outweighs the potholes, they’ll be forgiven
• How bothered they really are by the revenue weaknesses — Is it bookkeeping or is it actually impacting the business value?
• How deep they think the problems are — which translates to how thorough they believe their diligence has been in scoping the problem
• Do they have motives that mitigate revenue weaknesses — cash flow, profit, assets

So if you have invoices in AR that can’t be substantiated. Of if you’re booking is inconsistent, undocumented, or just plain wrong. Or if you misclassify non-recurring as recurring, be prepared to see your 8x valuation drop to something less. It’s pretty likely that uncertainty in revenue will be used as a negotiation bargaining chip. And that can get nasty. (In my opinion, it’s best for the deal for founders to stay off of those calls and let accountants and attorneys hash that out so you can keep your blood pressure down.) These types of things can feel like attacks.

SaaS revenue weakness consequences If you know or think you have SaaS revenue weaknesses that are likely to be exposed, be prepared for the following:

• Extra deep, thorough (read painful, expensive, resource-intensive and time-consuming) revenue and contractual diligence follow-on questions and documentation
• Discounts on valuation resulting in a reduction of overall deal value (likely late in the game)
• Extra time (read fees and closing timeline delays) for accountants and attorneys to negotiate how the weaknesses are mitigated on both sides

Consequences of being unprepared in SaaS revenue churn Revenue churn is both an automatic discount of revenue and a massive indicator of market fit and future value predictor. Whatever you say your revenue churn is had better be correct, or like revenue, you’re gonna take some hits. I see it as the #1 suspect metric in SaaS due diligence. Everybody wants to unpack churn and validate it down to the penny. (Alright, maybe not the penny, but you get the idea.)

Being unprepared in churn due diligence might translate to churning (or not churning) revenue on the correct date. It might look like booking expansion MRR that’s actually non-recurring. It could be that your contractions aren’t properly booked. Or that customers who pause (forever?) are still “customers”. There are a lot of ways to screw up churn. And, quite frankly, there are a lot of lenses that people look through here, so it’s easier than you might think to feel unprepared for this one.

SaaS churn weakness discount factors Some of these are similar but different than weak revenue discount factors. I have a lot of maybes in these churn factors because that’s how churn is. It’s a very maybe thing (and you need to be prepared for that):

• If your growth outpaces your churn (meaning your revenue is so strong that nobody cares) then maybe your churn weakness gets overlooked
• But if your churn weakness is GAAP more than it is real, maybe it’s less important
• If your churn weakness nets out to roughly the same numbers despite underlying problems, maybe it doesn’t matter

SaaS revenue churn weakness consequences If you think or know you have weakness in your churn bookings, be prepared for outcomes like these:

• Extra deep, thorough (read painful, expensive, resource-intensive and time-consuming) churn diligence follow-on questions and documentation — including additional customer and ex-customer interviews
• Discounts on valuation resulting in a reduction of overall deal value (likely late in the game)
• Extra time (read fees and closing timeline delays) for accountants and attorneys to negotiate how the weaknesses are mitigated on both sides

These are similar to revenue consequences but there’s an important cautionary difference. Churn weakness is often less expected because churn world views can be so divergent. So churn weakness can catch you by surprise when you think you’re well prepared. Just be ready to dig in, go back, justify your process, and defend your numbers. If they smell something bad in churn, you’re in for a deep dive in due diligence.

Consequences of being unprepared in SaaS COGS What sits above and below the line in cost-of-goods versus operating expense has a lot to do with how a SaaS company is perceived and valued. SaaS companies are expected to have a relatively low cost to deliver revenue (15-30% depending on services mix). If that cost is understated, there are consequences.

If you’ve got any customer support or customer success wages or other costs down below the line in opex, they’re getting re-classed. Or maybe you’ve got some infrastructure stuff down in expenses rather than COGS. Or perhaps you have stuff down in R&D that’s actually viewed as cost-to-deliver. And there’s the common one that drops services costs down to opex when it’s rightfully COGS.

If your COGS percentage is 10% and gets recast to 26% expect these consequences I’m not going to talk through any mitigators here because I think they’re less likely to apply. Understated COGS will have impacts unless you’re being bought for EBITDA (which is unchanged regardless of how things move around up in the income statement). But if you’re a revenue-valued SaaS, here are some of the consequences to be prepared for:

• No matter what, you’re likely to take a hit to closing valuation in that your deferred revenue is subtracted as a liability. But, in practice, what’s actually subtracted is often the cost to deliver that deferred liability, so your COGS percentage is used here. If you have $6M in deferred revenue and 10% COGS you’ll take a $600,000 hit. But if your COGS is recast to 26% you’ll take a $1.56M hit.
• If your recast COGS is too far flung from your LOI COGS your deal could die. This is because it’s a fundamental value prop of SaaS companies and many investors and institutions have COGS guidelines that govern what constitutes an investible SaaS company.
• Recast COGS is a negotiating opportunity that relates to future value and scalability. It’s likely that a SaaS company’s COGS pattern is reduction with scale. If recast COGS shows that’s not the case, credit for future value will be reduced, which could manifest as a rather random-feeling reduction in overall multiple. This becomes an opinionated debate, so just be ready for this potential outcome. It’s basically the argument that the company’s maturity is less than anticipated in the LOI.

Preparation for be unprepared for SaaS due diligence All you can really do is be prepared when you’re unprepared. You get into trouble when you hold your lack of preparedness against your investor. It’s not their fault you’re not ready. It’s yours. And that will cost you time, resources, and money. You’ll get through that reality much easier if you go in understanding and accepting the potential consequences. These processes are stressful and tough enough without outsized expectations.

This is not to say that you accept outsized consequences either. Of course, you and your team of accountants, attorneys, and bankers are going to defend every term and dollar. But weaknesses have consequences in negotiations, diligence depth, closing timelines, and closing valuations. As long as you understand that going in, you’ll be in a better place to weather the storms and still close the deal.

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A commented Google Slide Org Chart Template to help you look at SaaS marketing roles and responsibilities from the CMO to the coordinator. I’ve been working a lot recently with SaaS marketing org charts. That work has been in the form of growth planning, organizational design, and talent evaluation. Scale matters a lot in thinking through the marketing needs of a SaaS company. A startup needs a marketer. A fledgling market-fit stage company needs a small team. A funded, pedal-to-the-metal growth play needs a lot more — including a CMO. Wherever you are in that continuum, the attached SaaS marketing org chart template can still be helpful to visualize roles and responsibilities. You simply contract or expand the chart for your scale, stage, and needs.

Revenue scale isn’t the only driver of org-chart scale. Different SaaS companies have different marketing needs. Some are more sales driven than marketing driven. Others have more demand-gen needs than brand needs. And a few may have little need for traditional marketing at all — although those are rare.

SaaS Marketing Org Chart Google Slides Template As you look at my SaaS marketing org chart template (and the included comments on each role), align it with your stage, scale, and needs. If you just took a $20M round earmarked largely for sales & marketing, you likely need multiple people in many of these roles. If you’re bootstrapping at $1M in ARR, you likely need one strong, multi-hatted marketing Swiss Army Knife. And if you’re at $100M in revenue, you likely already have the pieces and need more of them — with increasing specificity — to deepen core competencies and scale predictably.

Jobs to be done at every level. Marketing is a lot of work. But, it shouldn’t degrade into activity-based work. When marketing is focused on data-driven outcomes it’s both productive and scalable. But it’s still a lot of work. There’s strategy and process design at the top; program and measurement design in the middle; and heaps of execution to make it all happen. And, in my worldview, all of that takes place in creating compelling assets and getting them distributed. Yes, it’s all organized by channels and assets. And yes, that all tracks back to my ideas on the art and science of SaaS marketing.

The point is, when you do have the scale, you need the people. And you need them at all levels to execute the myriad jobs to be done. It’s not all high level. And it’s certainly not all low level. It takes a village of talents and skill levels to create and maintain predictably scalable SaaS marketing.

So, I hope you put the template to good use as you evaluate, design, or build your SaaS marketing organization (and remember to read the notes on each role.)

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A lot of SaaS marketing is made up. The best marketing is not. And the reasons for that may be way deeper than you think. Yes, this is another post espousing the value of authenticity in SaaS marketing. But it’s much more than that. Storytelling in tech marketing is critical because what we’re marketing is often obtuse, complex, and conceptually new. All of that is challenging to communicate in compelling, spread-like-wildfire ways. But the story of why is much easier, much more emotional, and holds the gravitas of 1,000 esoteric facts. And when that SaaS storytelling is real, original, authentic and impassioned, it’s even more powerful.

When SaaS storytelling is real, original, authentic and impassioned, it’s even more powerful.

SaaS Storytelling is Far More than Marketing But I want to take a step back and speak to something even more powerful. And that’s the power of real storytelling as told by far more than the marketing team. When the entire organization believes in the story, it’s infinitely more powerful. Everyone talks about it. Every department contributes to message momentum. Every task is executed within a single worldview. And yes, this does track back to having a rock-solid point of view. But more than anything, it’s about always remembering the why and making that the guiding storyline.

SaaS Storytelling Builds a Tribe Not only do employees want to believe, so do buyers. Believing in something makes it easier to buy. And more forgiving to keep, despite inevitable shortcomings. Anna loves to talk about building a tribe, and the fact of the matter is that tribes churn less because they believe in something greater than the sum of its features.

The fact of the matter is that tribes churn less because they believe in something greater than the sum of its features.

Many SaaS companies, and brands in general, lose site of their authentic story. It often gets lost in marketing spin that is, and is often sniffed out as, hollow. That inauthentic messaging may bring campaign success, but it’s far less likely to bring enduring growth that comes from a believing tribe. Spin is not storytelling, it’s storymaking, and I hate it.

Growth-stage SaaS founders usually started out with a pretty solid reason why. It’s often a pain that we see or experience and one we believe we can solve. When we have a strong addressable market, it’s then a pain we believe many people or organizations need to solve. Wrapped up in that mission is the authentic story that people can believe in. And that’s the story that will make it easier to recruit top talent, attract impassioned customers, build organic traffic, acquire customers less expensively, and keep churn in check.

Of course it’s not quite that simple, but it is in one sense. We all have the choice to build on a foundation of authenticity or to execute short-term spin campaigns. You can smell the latter a mile away. If you’re chasing your competitor’s story instead of your own, you’ll end up chasing them to the bottom. If feature or price parity is all you worry about, you’ll seldom leap forward with true innovation.

Your authentic story can and should guide the entire organization to continuously innovate and elevate as a leader rather than a follower. Let everyone else spin and chase you and your innovations. Let everyone else spend more to get less passionate customers. When you tell the real story instead of making up a fake one, you set a line of differentiation that no one can cross. It’s your story. Authentic storytelling is a differentiator that defines momentum both inside and outside the organization.

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I have been thinking a lot about the continuum of maturity in SaaS customer success organizations. It really boils down to degrees of a spectrum ranging from reactive to proactive. Here are the 11 areas I evaluate when assessing a customer success organization for strengths and weaknesses. How well they execute against these usually indicates how successful they are at engaging customers and guiding them to positive outcomes.

1. The handoff from sales to customer success
   • Is there a documented process, with best practices for the handoff of a customer from sales to customer success? Is it lean, agile and effective? Having a process isn’t enough to indicate maturity, because if the process is complicated, time-consuming or clunky then it’s just a burden on everyone. Whether your average contract value is $5,000 or $500,000, the handoff isn’t rocket science and doesn’t need to be complex. But it does need to be done well, in order to set the customer, and your team up for long-lasting success.
2. Onboarding process
   • You may need one onboarding process for all customers, or you may need slightly different versions for different types of customers and contracts. But either way, you have to have one. If you wing it or approach it as ‘unique to each customer’ you are going to drop balls, miss important steps and set your team up to constantly be scrambling. Don’t chalk chaos up to your high-growth. Customer onboarding is one thing that should be orderly, and efficient, no matter how fast you are growing and adding customers. Make onboarding a repeatable machine.
3. Lightweight onboarding load on customer
   • It’s one thing to have an onboarding process, it’s another for it to be designed to be lightweight for your customer. If your onboarding process just dumps a bunch of work on the customer, you are likely to find yourself with a lot of disengaged customers and extended onboarding periods that lack velocity. Design your onboarding to be less work for your customer, not more.
4. Value-driven touches
   • Customer success should add value to the customer journey. A playbook that is designed for CSRs to reach out every 45 days to “check in” is pointless. Customer success representatives should be adding value at every touch, finding ways to educate customers, support them and bring insights. It’s up to customer success leadership to create the infrastructure to enable this, and the standards to hold it to.
5. Proactive intervention
   • Customer success that simply reacts to problems isn’t really customer success. Many customer success teams simply go through the mechanics of processing requests, renewals and expansions, with little proactive work at all. In addition to proactive outreach on a regular cadence, excellent customer success teams proactively intervene based on a set of flags—when a customer disengages, when a stakeholder changes, when there is a significant business event, etc.
6. Health scores
   • A mature customer success organization keeps tabs on the health of their customer base, and intervenes (see above) when needed, well in advance of a potential crisis.
7. Renewal process
   • Renewal really starts on day one and isn’t about processing paperwork or reaching out 90-days in advance of the renewal. The #1 priority for a recurring revenue business is to get the revenue to renew, so renewal should be at the top of the strategic agenda and it should stay there in perpetuity.
8. Retention & churn segmentation
   • I expect a mature customer success organization to know who is most and least likely to churn and to score customers accordingly. Customer success leadership should be monitoring and communicating this to the company up, down and sideways, especially in a feedback loop to the sales, product and leadership teams.
9. Churn post mortem
   • Every renewal counts, and when a customer is lost, a post-mortem should be done. Not a cursory, ‘go through the motions’ type of post-mortem, but a true, introspective look at what could have been different, and what would have possibly retained the customer, going back to the beginning. This is how customer success teams improve and evolve.
10. Minimal churn surprises
    • There will always be customer churn. And there will always be some churn surprises when the customer you were certain was going to renew doesn’t. But if you are constantly being surprised by customer churn, something is wrong. Know your customer base and know when they are likely to churn, so there are few surprises. And also so you can get ahead of those potential churns well in advance.
11. Customer success playbook
    • You know I am a big fan of sales playbooks, but I haven’t written much yet about customer success playbooks. They are equally important. A central repository for how to execute customer success plays—from onboarding to at-risk, to renewals should be documented, updated and managed on an ongoing basis. It helps ramp customer success managers and ensures everyone is executing in the same way, learning from each other and adapting.

Notice what’s not on the list? Do you see the glaring item not included on this list? Retention. I try to separate net and gross retention when evaluating customer success organizations. Churn mitigation should be a goal shared across the company equally, and to reinforce that culturally I just don’t consider it in this equation.

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Even experienced leaders can easily forget that one voice shouldn’t drive change. I try and write from recent inspiration and this post is far from an exception. Over the last few weeks, several of the CEOs we work with have all reinforced the problem of the lone voice driving change, which is a symptom of mismanagement of the SaaS feedback lifecycle. These are experienced business leaders who know better but can still get caught up in reacting to a single opinion. And it’s prevalent across disciplines too, with my recent experiences including sales, marketing, product road mapping, investor relations, and customer success.

SaaS companies that react to lone voices can have a hard time staying a course. They may also have fractured identities resulting from too many cooks in the kitchen. Mismanagement of the SaaS feedback lifecycle often manifests in product roadmaps that cater to a customer’s perspective rather than market need. This is probably most common in startups who listen to whale customers more than the market.

Listening and Acting Are Different In SaaS, listening to feedback is critical to rapid iteration and growth. So we’re conditioned to listen to everything. We set up systems and processes to capture as much market feedback as we can — from prospects, from customers, from employees, from investors, from advisors, and so on. That’s perfect. We need to listen to everything. That’s easy.

But disseminating and acting on what we hear needs to be more discerning. This is where the SaaS feedback lifecycle gets dicey, even for seasoned pros. It can be hard not to act on a single voice, especially if we’re fragile on the topic, or nascent in our thinking. We get an input, perhaps from a very respected source, and we’re prone to execute against that perspective. But if it’s still only one, let’s think about how to validate that a bit more before acting.

Think Like a Journalist The college for my advertising major at the University of Florida was journalism. So my core classes, before I got into my major, were journalism. Fact checking is the most basic of journalistic principles. If you can’t validate a fact with an additional source, it’s not a fact. We can apply that same standard to feedback we get.

If the lone voice is validated, by at least one, preferably two additional sources, then and only then is it worthy of consideration for action.

Even Surfacing the Lone Voice Can Be Disruptive One thing it feels like we’re often reluctant to say — because it feels blasphemous — is that feedback can be just plain wrong. You can hear something from a lone voice and capture it. But if that voice automatically gets elevated in a staff@ message it gets credibility. If it’s wrong, it just planted a bad seed. So even widely disseminating all feedback can be disruptive. It’s about considering your audience. The leadership team should be able to handle everything. But to share everything with everyone in the company can be confusing and distracting. I’m all about transparency, but we need to strategically guide our organization through curation.

Three Rules of the SaaS Feedback Lifecycle To summarize, I like to think about the SaaS feedback lifecycle in the following three stages.

1. Listen to Everything Methodically capture feedback from everywhere.

2. Curate Before Surfacing Validate perspectives against your strategy and point of view before sharing with the whole company. Share everything with leadership, if you like.

3. Corroborate Before Acting If you hear a voice that you respect, work to reinforce it before acting. Look for more than two aligned perspectives prior to even considering a change.

Why does this matter? Opportunity Costs of Lone Voice Reactions The bottom line is that acting on lone voices wastes resources on small opportunities rather than large ones. Since we’re in the business of executing against massive growth, that’s a path to mediocrity that we can’t afford to take.

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