The number one reason startups die is that they run out of cash. This is well known; and plenty of resources currently offer excellent advice for surviving turbulent times. But this is scary stuff with existential consequences for small-scale businesses; and guidance around cash-preservation can be overwhelming for company leaders. Having experienced challenging environments in 2001 and (even more so) 2008, I remember making the mistake of being trapped for days in forecast models or repeatedly scouring a laundry-list of line-items to be considered for cost-cutting. I was mired in the tactical weeds and later came to appreciate that some broader perspective would have helped guide my approach. The purpose of this post is to share a few lessons learned on this front and to offer some high-level frameworks to inform the thought process behind cash-conservation efforts.

I. Secondary Goals / Sacred Cows: Leaders intuitively understand the goal of cash-retention initiatives — to survive. It’s quite simple; just don’t run out of cash. But it is never that simple; and that is why it’s helpful for leadership teams to clearly set secondary goals for any expense-management initiative. This approach answers the question, “what is the NEXT most important objective of this effort (beyond simply staying solvent)?” For some companies, that may be safeguarding the customer experience and brand loyalty. For others, it could be maintaining the engagement / continuity of the entire team or retaining top talent. For more mature businesses, it might mean ensuring the business is positioned optimally for whenever the economy eventually turns around. Another way to arrive at similar clarity is by identifying “sacred cows” — those parts of the business where compromises will never be made. Whichever route is taken, this exercise helps leaders keep one eye — even in a crisis moment — on what is important for the longer-term health of the business.

II. If / Then / Then-by-When: The purpose of this mnemonic is to help leaders rise above the detail of expense-management and think beyond the tyranny of spreadsheets. It forces execs to go through a three-step business planning process, as follows:

1. IF: This step fills in the blank to the hypothetical condition: “If X happens.” This part of the exercise explicitly focuses outside the company. It examines the external environment beyond the business’ control, but which materially impact the company. An example of this might be: “If the COVID-19 quarantines in the US end in late-April, and we subsequently see a robust uptick in the economy which unleashes previously pent-up demand.” These “if” statements should be broad in scope and easily modified or tiered to reflect different levels of environmental headwinds. This tiering allows a range of comparable scenarios to be easily crafted. Extending the prior example, one could envision a hypothetical scenario that establishes a far more severe operating environment (e.g. longer period of quarantine, slower recovery, stunted return of demand). Codifying and refining these scenarios are critical steps in defining the landscape the company needs to navigate. Without them, expense management efforts are a bit like shooting in the dark.
2. THEN: This step completes the prior “IF” statement and is really a two-part endeavor. The first part helps identify various thematic or qualitative impacts on the business. This is harder than it appears and demands rigor across the entire business. It’s easy to fall into the trap of focusing exclusively on the most obvious and monolithic conclusion: sales will suffer. The second part of this effort is to try to quantify the impact. This is where the spreadsheets really do come into play. This comes naturally to many financially oriented executives; and it is often the place where they start and end their efforts. But I’d argue for the value in tying this kind of financial modeling directly back to the efforts described above. This two-part effort completes and quantifies the statement: IF X happens…THEN Y is the impact on our business. In so doing, it offers the clear target at which the company needs to shoot in terms of financial stewardship.
3. THEN-BY-WHEN: This is the action portion of the exercise. In response to the clear target established by the prior steps, it answers the question: “THEN, what will we do to mitigate…and BY WHEN?” Making decisions on what action to take is difficult; and it helps to apply this kind of a structured approach. But the real challenge is around timing. Decisions benefit from more information, which we are able to accumulate as time passes. Unfortunately, every day that we defer actions while awaiting more information, we lose the benefit of actions not taken. For this reason, this step acts as a forcing mechanism for action; and it does so according to a schedule that is intentional and pre-planned.

In sum, this framework forces structure in what can otherwise become an ad hoc reaction to environmental challenges. It demands that company leaders a) thoughtfully envision potential scenarios, b) identify the qualitative and quantitative impact of those environmental forces on their business, and c) codify the steps and related timelines needed to address the challenge faced.

III. Assumptions, Decisions, and Control: Re-forecasts are inherently unsettling; and it can be difficult to know where to begin. One way to get a foothold is to separate where to make “assumptions” and where to make “decisions.” A general rule of thumb is to make assumptions about the top-line (sales / bookings and corresponding revenue) and make decisions around expense management. Why?

The truth is that companies ultimately cannot control whether clients actually buy from them; so, they need to make educated assumptions about customers’ buying behavior. Further, we’ve found it helpful to first focus on (and make the most pessimistic assumptions about) the types of revenues that companies least control. This generally means new sales to new customers, since they are the most speculative and rely most on customers making a proactive and incremental outlay of cash. Then, we move methodically down the risk ladder. The next most at-risk revenue class tends to be expansion sales to existing customers. Then come usage-related revenues. Finally, existing client renewals tend to be the most secure (but still ultimately at-risk!). When companies have great data, they can even further refine their renewal assumptions based on cohorts (products used, type or size of customer, and date of initial purchase). Breaking revenue streams out in this way allows companies to thoughtfully and granularly quantify risk to the top-line.

When (and only when) a company updates its top-line expectations, they can then begin to make informed decisions about expense-management — because they ultimately control expenses and can manage them accordingly. It’s helpful to sequence expense related decision-making opposite to that on the revenue side. Start with the expenses over which the company has the MOST near-term control and work the other way. This is because controllable costs offer the best ability to quickly aid in cash conservation. Highly controllable costs are almost always discretionary / un-committed, non-personnel expenses (e.g. marketing campaigns). Month-by-month subscriptions tend to come next. Consultants and contractors are also somewhat manageable (albeit not nearly as easy to pare back). Drastic measures such as “reductions in force” are far trickier still; and long-term leases (e.g. rent and pre-paid annual contracts) are often most challenging to derive savings from in the short-term. The following graphic from an excellent recent study by A&M (Alvarez and Marsal) concisely captures these dynamics and expands well-beyond.

A note about the elephant in the room: By far the most excruciating expense-related decisions revolve around personnel costs of the core team. Unfortunately, this is also the richest vein to mine from an expense management standpoint, because the majority of expenses in SaaS businesses are people related (yet again proving the adage that nothing valuable is ever easy). Moreover, the dynamics of personnel decisions are deeply complex and interdependent both financially and culturally; and leaders need to make choices in this area with the utmost consideration and care. This topic certainly warrants a more complete discussion but is not the focus of this particular post.

Okay, so…with these frameworks in the toolbox…what comes next? As is often the case when it comes to operational execution, it starts with communication. A range of diverse stakeholders will be involved in, and impacted by, any of the activities described above; so clear, effective communication is key. Although these decisions are made based on data and reason, their communication demands empathy and compassion — none of us wants to be the leader who gets stuck in spreadsheets(!). In a world where working at a physical distance is not just a choice, but a necessary health condition, such compassionate communications are more important ever.

This blog recently featured a post that invoked the First Rule of Holes (“Stop Digging!”). That piece had been triggered by some business-planning discussions; and it advocated taking a structured approach when tackling deceptively difficult business questions. In that case, the seemingly innocuous question was “What do you do when it’s not working?” That post offered a framework to assist in the first step of problem-solving — actually identifying the existence of a problem in the first place.

This is part two of that post. It picks up where the last one left off: developing hypotheses to test why something isn’t working. Building on the initial framework, this piece endeavors to share a structure to use in the critical step of diagnosing the source of a business problem.

When I joined my first subscription-based software business in 1999, the term Software-as-a-Service wasn’t even a thing. Since then, SaaS has emerged as the dominant form of software delivery, accompanied by quantum leaps in the study and understanding of its underlying business model. Correspondingly, there is a wealth of outstanding available resources that explain the fundamental principles and performance indicators used to evaluate and operate SaaS businesses (including this and this and this, to name only a few). These and countless other sites are invaluable in explaining the metrics that matter in SaaS. But there is an important metric that seems to consistently fly below the radar. While it likely has many names, we call it DROP ALLOWANCE. Drop allowance takes an opaque retention target and brings it to life by applying it to the actual pool of renewing client logos and revenue. The purpose of this post is to examine the concept of drop allowance and to explore some related metrics and their use.

First things first: drop allowance is focused on GROSS CHURN. For good reasons, the SaaS world seems to have increasingly focused in recent years on NET CHURN and the related NET REVENUE RETENTION. While those KPIs can be quite useful, I’d argue GROSS CHURN (and the inversely correlated GROSS RETENTION) is unique in its ability to spotlight and quantify the underlying stickiness of a software solution. Whereas successful upselling can boost NET REVENUE RETENTION and camouflage troubling subscription-drops, there is simply no hiding drops and down-sells with GROSS CHURN. And, although virtually all SaaS businesses set targets for some flavor of churn/retention, seemingly fewer monitor gross churn against an actual drop allowance pool.

Another point of set-up: the core value of a drop allowance is to translate high-level retention targets into something meaningful and actionable for operators of the business. Churn/retention targets tend to take the form of high-level percentages (e.g. “…our goal is 5% gross churn,” OR ”…we’re planning for 95% gross retention”). The problem is that such percentages tend not to be very meaningful on a day-to-day basis to front-line people responsible for ensuring client renewals. To combat that, drop allowance can be easily calculated, as follows:

• % Retention Target [x] Total $ Renewal Pool = Retention $ Target
• $ Renewal Pool [-] $ Retention $ Target = $ Drop Allowance
• $ Drop Allowance [/] Average Contract Value (ACV) = Logo Drop Allowance
• $ Drop Allowance and Logo Drop Allowance can be budgeted and monitored on a monthly basis

Hopefully, this is all straightforward, so let’s dig into an example of a business with the following profile:

We’ve found that this small act of translating percentage-based objectives into a $-based goal to be helpful to the whole team, and particularly to renewal professionals (such as Client Success Reps, Account Managers, and Salespeople). But that’s just a start. Next, layer in ACV, as follows:

This simple math makes it clear that if we head into the year with 300 paying clients, achieving our retention goal relies on having no more than 15 average-sized cancel their subscriptions across the course of the year. Gulp — this just got real.

Of course, we have large clients and small clients; and this approach also helps quantify the clear-and-present danger of large drops to our company’s health. Although I tend to err on the side of believing every client is worth working to retain, this also raises awareness among the team around where to direct their finite retention-focused resources.

By quantifying the total number of budgeted dropped logos, this also offers an approximation of the acceptable rate of drops across the year. If this business has ZERO seasonality (and hence, no renewal concentration in any given quarter or month), it can theoretically afford to average 1.25 logo drops per month [15 Average Logo Drops Allowed / 12 months]. But we can be even more precise than that, and this is where the real value of metrics related to drop allowance emerges. For the sake of argument, let’s proceed with that simplifying assumption that there is zero seasonality in the business; and that all 300 of the existing clients had been sold evenly across all historical months. We could plot out the renewal pool ($1.5M across 300 clients), drop allowance ($75,000 across 15 logos), and a related monthly budget for each, as follows:

Then we can make it more useful and dynamic by showing these numbers as cumulative across the year, as follows (with shading to help readability). It would look like this:

So far, so good, right? Now…let’s move out of the realm of plans and averages, and into the messiness of the real world.

Let’s assume for a minute that we’re through five months of 2020, and we’ve been actively managing and monitoring our renewals, and they look like this:

Viewed through this lens, it’s clear that retention has significantly worsened after having started the year well. But without a baseline, it’s hard to deduce much beyond that general assessment; and it’s even harder to quantify when we factor in complexities such as down-sells, seasonality of renewals, and widely variable client-sizes. Instead, leveraging drop allowance can offer a granular budget-versus-actual look every month (or even more real-time) and on a cumulative basis, as follows:

This is where the real pay-off comes. Armed with the above information, we can boil all of this renewal complexity down to one single metric that will tell us how we are performing on renewals, not just against the (maddeningly distant and monolithic) year-end goal, but rather on a rolling basis and relative to the seasonality of our renewal pool. This can be done by establishing a ratio of the RENEWAL POOL COMPLETE (“RPC”) [A] / CUMULATIVE DROP ALLOWANCE USED (“CDAU”) [B]. Using the numbers from above, it looks like this:

Admittedly, that is an awful lot of words, so we like to simply call this the YEAR-TO-DATE RETENTION RATIO. Whatever it’s called, this KPI offers easy-to-understand clarity around gross retention. By looking at this one number, we can know where we stand, relative to what renewals have already come due and which are still outstanding throughout the year. Quite simply, a YTD retention ratio >1.0 means that we are outperforming relative to possible renewals year-to-date; and a ratio below 1.0 should be cause for concern (i.e. we’ve already used up more of the drop allowance than budgeted, relative to renewals past due). Because I’m a visual learner, I like to see all of the above numbers as charts; below is a simple one for the YTD RETENTION RATIO from this example.

This chart helps highlight how YTD retention ratio can serve as an early warning system, signaling the need for intervention. More so than most metrics, it spotlights changes in churn patterns with speed and sensitivity, which can tip-off operators to dig into any number of related variables and levers. Taken together, these can that help inform a number of operating decisions, including: timely personnel changes (e.g. does this problem warrant hiring an AM dedicated to renewals?), systems investments (should be invest in client engagement solution?), and process improvements (e.g. how can we enhance our on-boarding?). I’ll plan to dig into this aspect of things in a future post.

Closing: I know that was a lot of math above, so let’s conclude with a few closing comments.

• Yes, I acknowledge that this example is artificial because all businesses have some degree of seasonality; and none will have such a uniform level of renewal dates every month. Furthermore, there is a wide variation in client sizes, so the simplifying assumption of uniform contracts is unrealistic. Lastly, this sterilized example neglects the messy and distressing reality of down-sells. All true. But these things do not negate the approach. In fact, these complexities further necessitate this kind of a simplifying metric. And, the system still works. All that’s required is to plan out the renewal year by bucketing up all renewals according to their anniversary/renewal date and to include down-sell amounts when you calculate monthly drops. These are steps arguably every business should be taking anyway, so hopefully, it’s not a heavy incremental lift.
• We’ve debated from time to time whether or not to look at this as a ratio [RPC / CDAU] but rather as a net number [RPC {LESS} CDAU]. In such a case, a number >0 is good, and a negative number is bad. I personally find the ratio easier to understand, but reasonable people have disagreed on this. I’d say to use whatever you find most helpful.
• I believe many companies are doing something similar to this, but the drop allowance concept doesn’t seem to get a comparable level of airtime as other important SaaS KPI’s. I believe nothing is more important to the health of a SaaS business than gross retention, so hopefully, this granular level of detail is helpful to folks looking always to get greater visibility into renewals.

The “law of holes” was drilled into my head as a kid; and it is sound advice. The problem, of course, is proactively identifying whether and when you are actually digging yourself a hole.

I was recently reminded of this dynamic while visiting with the impressive leadership team of a 40-ish person SaaS company. We had met to discuss a range of topics relating to the life cycles of growing businesses. One person posed a seemingly straightforward question to the group that resulted in an immediate and spirited exchange: “What do you do when it’s not working?”

As a rich discussion unfolded, I remained silently stuck in the subtle, complexities of the question. While the debate whizzed past, I did what I often do when stranded in such situations — start to draw. The graphic below is a more formalized version of my notes and thought process from that session. It’s also an attempt to offer a simple approach to tackling this deceptively tricky question, and potentially others like it that prove surprisingly elusive to wrangle.

In a previous post, I shared observations relating to the process of re-platforming a SaaS solution. I was grateful when a former colleague reached out to comment on that piece. He offered that the term “SaaS” was somewhat limiting in this case, and that the principles in the post applied to any number of modern software delivery models. And, because no good deed goes unpunished, I asked him to guest-write an article that topic. Thankfully, he agreed! Chad Massie is highly qualified to opine on the issues encountered when deciding how to utilize cloud services while modernizing the architecture of a SaaS solution. I’m delighted to share his thoughts on this topic on Made Not Found. Thank you, Chad for the post that follows.

____________________________________________________________

For any business, but especially for those providing software as a service, cloud infrastructure offers a tremendous opportunity to drive organizational value. The question is not if a cloud strategy is appropriate, but rather which strategy to pursue and how to ensure that business and user value drive the decision-making. The five observations below were developed over five years of operating a high volume, high availability, cloud native software platform, and though there are several technical take-aways, the most important lessons are the human ones. Those observations and the related reflections on people and teams are below:

There is no single cloud strategy

In ways that can be both advantageous but also challenging, not every software or business will be best served by the same cloud strategy. This provides great flexibility in terms of timing and investment, but it also signifies that time spent up front posing the essential questions, understanding the needs and clearly defining the desired goals, and establishing the acceptable risk profile will pay considerable dividends (e.g., start with why).

The primary question of whether to “rehost” or “replatform” or “rearchitect” has no obvious answer. Each of these approaches has pros and cons — from a technical perspective, of course, but just as importantly from cultural, operational, and business value angles — and all can offer benefits for your organization. A rehosting strategy can help reduce near-term risk but might slow the upside value for an aging application; rearchitecture can provide a path for addressing major technical debt and modernizing the user experience but brings with it more significant complexity and change that may be more than your business or team is in a position to accommodate. Again, understanding your own context and priorities will help lead you to a better decision for your organization. You might determine that experimenting with an application that has a lower risk profile (e.g., an internal application, a non-mission critical platform) or a specific operation (e.g., disaster recovery) is the path that will ensure long term success, or you might determine that an all-in approach is the way to best serve your customers and inspire your staff.

Cloud is a culture (change)

Processes, organizational structure, and technical strategies that were foundational to success in an on-prem or hosted SaaS operation will not necessarily translate in a true cloud environment. The cloud requires a shift in cultural thinking, and as a result, demands a well-considered change management strategy for your team(s). One common theme is establishing a Devops mindset whereby the members of your various technical teams are involved in the full lifecycle of product delivery and support. Another is fostering an environment of knowledge-sharing and a blamefree ethos. The amount of new learning to be performed and the pace of change in cloud technologies require open communication, collaborative work, and “failing forward.” Further, the culture of learning and partnership requisite to success in the cloud extends beyond technical roles; product, marketing, finance, support, and management positions will all see implications to their work and their team interactions as a result of a cloud-oriented strategy. They must be incorporated into the transition planning and energized by the opportunities every bit as much as the technologists.

Patterns are your friend

Similar to the way software and user experience patterns have emerged over time, there exist many proven cloud architecture and process patterns that can help reduce effort and risk while ensuring security and operational reliability at scale. Whether incorporating elements of Amazon’s well architected framework, pillars of great Azure architecture, or Google’s cloud adoption framework — or something else — make use of these cloud patterns to shorten the time it takes to realize benefit for your organization. As with anything in life, though, an extreme position can limit our perspective, and cloud architecture is no different; it is both a science and an art. The scientific patterns and frameworks should be used to help streamline your architectural approach, but their parameters shouldn’t get in the way of your team’s creativity, the practice of experimentation, and applying their unique contextual knowledge in crafting the most valuable solutions for your business.

Instrument, monitor, and automate

Cloud infrastructure and the technologies that have been developed to support cloud-based software lend themselves extremely well to measurement and instrumentation. The fidelity of this information provides exceptional insight into the operations of your technical platform, in identifying issues proactively, and in understanding user behavior. Additionally, since utilization of a cloud infrastructure eliminates the dependence on physical hardware and enables access to on-demand scale, your strategy should push to automate as much as possible. Besides reducing repetitive efforts, automation will diminish the risk of human error and security exposure, increase overall quality, and help in delivering an optimal experience to your end consumers.

The cloud is constant innovation and reinvention

Advancing a cloud infrastructure strategy is an amazingly exciting journey. The dynamic nature of the landscape forces evolution and thoughtful change. As with any sound technology strategy, it demands attention to maintenance, performance, and reliability, but it also provides for reinvention and innovation in manners that did not exist previously, especially for small and medium sized software businesses. Rather than investing large amounts in original R&D, you could choose to utilize your cloud vendor/partner as your R&D arm, investing your resources in making the most of the innovative assets they bring to market while also providing enormous professional growth opportunities to your team. A cloud architecture gives you much more flexibility and a broader range of strategic options than has been historically available to SaaS companies, allowing you to select an approach that best meets the needs of your business, your team, and your customers.

Though the pathways toward a cloud architecture are now much more well-worn than they were several years ago, each software platform and each business is different. Coupled with the reality that cloud technology is a perpetually changing environment, there are no universal strategic approaches that will guarantee success. However, if you start with the right questions and understanding of the business drivers, build a work and communication plan aligned around strategic goals, and advance a team culture that values learning and collaboration, I believe the lessons above are applicable globally and can help ensure that your organization reaps a cloud strategy’s tremendous benefits.

The CEO role can be described in countless ways. One definition comes from the Corporate Finance Institute, which states: “The CEO is responsible for the overall success of a business entity or other organization and for making top-level managerial decisions.” Accompanying that description is a list of the CEO’s roles and responsibilities, which is peppered with dynamic verbs such as: leading (X), creating (Y), communicating (Z), ensuring, evaluating, and assessing. Such a high-powered portrait of the CEO is unsurprising, especially given the commonly held notion that “real” CEOs should courageously lead from the front. And although Jim Collins’ classic book Good to Great introduced us to Level 5 leaders who are characterized as humble and reserved, the image of CEOs as vibrant action-heroes-in-board-rooms is a persistent and alluring one.

It is with all of this as context, that I was surprised in a recent board meeting when a CEO characterized his role in an entirely different way: as Chief Conversation Officer. “If you can create good conversations,” he offered, “You can create good outcomes.” This initially struck me as being a far more passive role-assessment than I’d expect to hear from an actual CEO. But, with its unwavering focus on delivering results (which is undeniably the responsibility of CEOs), this description resonated with me as being worthy of serious consideration.

Upon further reflection, I view this as an accurate and valuable addition to the responsibilities of the CEO. It is undeniably important for CEOs to foster effective discussions among a broad range of stakeholders. They need to create open dialogue with prospective customers in order to gain an informed understanding of jobs to be done. It’s imperative to cultivate candid conversations with existing clients in order to consistently improve products, inform future investments, address service issues, and avoid churn. A balanced and candid exchange with team members is crucial to enable them to perform, and to identify what obstacles stand in their way personally and professionally. And, finally, open dialogue with owners / investors is needed to align expectations and leverage their helpful perspective from above the fray of day-to-day operations.

Being a good conversationalist takes work; and not every CEO is naturally gifted in this area. Rather, the art of conversation is the subject of countless studies and far exceeds the scope of this post. But, as this previous post highlights, a bit of structure and a few simple practices can help CEOs up their game in terms of fostering effective conversations with consistency and intentionality:

1. What / How Questions: Effective CEOs hone the ability to consume, analyze, and process large amount of information very quickly. And, although this skill improves their efficiency in decision-making, it can also make conversations with CEOs seem more like interrogations. A few simple word choices can alter this dynamic and lead to far more natural and interactive conversations. When engaging stakeholders in conversations, executives should steer clear of yes / no questions and avoid starting queries with “why,” “why not,” “who,” or “how many.” Far better are questions that start with “what” and “how;” almost inevitably, starting with these words results in a question that invites real input and opinions from the responder. In her excellent post on how to manage 1-on-1 meetings, Mathilde Collin (Co-founder and CEO of Front) offers a list of questions she frequently asks employees — nearly every one of them starts with “what” or “how.”
2. The Power of “What Else?”: Two simple words. Used effectively, they form a question that is astonishingly powerful. This question is wide-open for responders to interpret in many ways: “what else is on your mind, what else do you think I should know, what else do you feel is important to say?” This short phrase can be a key tool in engendering the kind of trust that allows someone to share their (invaluable) inner thoughts, which can be far more insightful to the business than still more stats and figures. To be clear, tone / inflection / intent are all critically important here. This CANNOT be communicated either explicitly or implicitly as “what else you got?” This was the go-to move of a former boss; no matter how substantive our discussions were, he would conclude with the inevitable question: “Is that all you got?” Suffice it to say, that didn’t establish a strong foundation for productive conversation.
3. Silence Can Be Golden: People want to hear what CEOs think; and chief executives get comfortable articulating their thoughts for audiences of all sizes. But CEOs get less forced-practice in listening. This is particularly true as CEOs interact with stakeholders with whom they have less frequent contact. The expectation is that CEOs do the talking, others do the listening. In this dynamic, breaks in conversation can present themselves as awkward silences — which we as humans prefer to avoid. Although it may be counter-intuitive, good CEO-conversationalists lean into those silences; and the benefits can be profound. Giving someone the white-space to slowly open-up and share an important-but-inconvenient fact or opinion, could just prove seminal in informing a thorny decision.
4. Kill the Conversation Killers: We CEO’s are an action-oriented bunch (see points above), so it’s possible someone might read this blog and be tempted to rush headlong into a bunch of CEO-conversations. Don’t do it. Conversations are powerful things; and they can go spectacularly wrong for countless reasons. Thankfully, humorist and relationship writer Jessica Wildfire recently posted an incredibly useful roster of 10 Fatal Mistakes that Kill Conversations. In all honesty, I found this list anything but funny. Rather, I’ll sheepishly admit that at some point in my life, I’ve probably broken every one of these guidelines. But I don’t intend to repeat those mistakes. Likewise, this is a great list for any Chief Conversation Officer to keep handy and review from time to time.

This whole topic of CEOs as Chief Conversation Officers reminds me of the well known African proverb: If you want to go fast, go alone. If you want to go far, go together.” In today’s business environment where speed is rewarded, CEOs are wise to also remember to focus on going far, together. And that if you are going to travel far, it is always better to have good conversations along the way.

Strong communications skills are a must-have for any aspiring executive; and leaders in small-scale SaaS businesses need to be comfortable in a range of messaging situations. In these intimate, dynamic businesses, public speaking represents a major slice of a leader’s communications responsibilities. Executives’ speaking duties can take many forms, with a main one being at trade shows or conferences. At these events, the cardinal rule is knowing one’s audience, as discussed in detail here. But this same rule applies to all speaking situations and all audiences, of which leaders are faced with a broad span. Although this is a seemingly obvious point, it is frequently underestimated and poses a surprisingly tricky hurdle that blocks many leaders’ public speaking efforts. This post examines this issue and offers some simple ideas to help leaders navigate the complex and sometimes intimidating world of speaking to different groups.

To start, I want to refute the widely held notion that public speaking is an innate trait that some of us are born with (or, cursedly, without). While people undoubtedly start with a range of natural abilities, public speaking is an intricate skill that inevitably requires practice and discipline. The more practice, the better one becomes — obviously. But what is less obvious is that the environment in which one practices has a massive influence over how that competence evolves. To make this point, let’s take an example from the world of professional tennis:

Rafael Nadal is one of the world’s all-time great tennis players, having won 35 masters titles in his remarkable career. He has won the French Open a record twelve(!) times, including the recent 2019 crown. Conversely, he has won Wimbledon “only” twice, and not since doing so in 2010 at the age of 24. Why the discrepancy; after all, tennis is tennis, right? As it turns out, Nadal grew up practicing thousands of hours (literally) on the clay courts of his native Mallorca, Spain, which is the same surface on which the French Open is played. He is imminently comfortable on that playing surface, and far less so on the grass courts of Wimbledon’s All England Tennis Club.

Public speaking is very similar: we improve where and how we practice. I don’t mean the physical space (the playing surface is irrelevant here), but rather the types of situations we experience on a regular basis. In my experience, the most important factor in a presenter’s evolution is the kind of audience to which he / she becomes accustomed. This point was driven home recently by an executive with whom I was working. He has vast experience in sales leadership roles and is supremely competent and confident in front of prospects and customers. Having recently moved into more of a general management role, however, he suddenly has far more responsibility for presenting to internal audiences comprised of company-wide team members. He expressed that he finds the experience to be a new and different challenge, to which he is still becoming acclimated. He further shared that he currently requires far more presentation prep and notes in order to feel ready to present to this group. Given his background, this makes total sense; and it raised for me the following related observations.

A large part of leading SaaS businesses revolves around balancing the needs of different stakeholders, as referenced here and more briefly here. I often think in terms of a company’s four key sets of stakeholders: (1) its addressable market, (2) existing clients, (3) company team members, and (4) shareholders or owners. In the context of public speaking, it is helpful to think about these stakeholder groups and simply bear in mind the uniqueness of each as an audience. If nothing else, doing so can raise a presenter’s awareness around which audience represents a personal comfort versus one that may fall further outside his / her comfort zone. This alone can lead to more thoughtful and effective prep.

For some presenters, it can be helpful to overlay the concept of “altitude” on this stakeholder framework. Specifically, we often use the term “altitude” to describe the appropriate level of detail for a discussion or presentation. As a general guideline, each stakeholder group tends to have a different preferred altitude, or level of detail, at which they want to be engaged. This might look something like this:

1. Shareholders (highest altitude, least appetite for day-to-day details)
2. Prospects (somewhere in the middle / top)
3. Clients (somewhere in the middle / bottom)
4. Team members (lowest altitude, most day-to-day details)

Taking this concept further, presenters can further identify the general / typical information needs of each different stakeholder group. This might look roughly as follows:

1. Shareholders: Company financial performance in the recent past, the present, and the foreseeable future…and any items that could materially impact that performance.
2. Prospects: Product and services information to inform a purchase decision that should prove over time to have been a wise, positive-ROI investment.
3. Clients: Evidence to inform an ongoing renewal of commercial decision (i.e. will the “pain of change” (hopefully) far out-weight the “pain of same” in the vendor-client relationship).
4. Team members: Do I have the necessary resources to successfully do my job today; does this continue to be the right company for me to achieve my career and professional goals?

Finally, it’s also worth noting that the each of these stakeholder groups is comprised of a rich and diverse set of sub-groups. For example, within a group of team members, the needs and perspectives of software developers will be different from those of salespeople or marketers. Likewise, in the shareholder category, existing owners who are current board members will have a very different viewpoint than prospective new investors. Further segmenting each stakeholder group can only help a public speaker to mindfully target content and delivery style to match the audience needs.

To finish at the beginning, public speaking is a critical tool in a business leaders’ toolbox. Knowing one’s audience is paramount across a wide spectrum of prospective speaking situations. And this framework can hopefully be helpful in making it easier for thoughtful leaders to prepare effectively and present expertly in any situation.

One of the benefits of the SaaS delivery model is that it enables an iterative approach to product development. Because of the relative ease with which software updates can be delivered, SaaS solutions evolve fluidly and organically, with small improvements, enhancements, and fixes introduced often in a seemingly steady stream. But this does not mean that major upgrades are a relic of the past or that big-ticket development initiatives are obsolete. Rather, even with the most thoughtful product planning, time has a way of cruelly revealing ill-advised feature choices, scale-limiting technology decisions, and ever-changing market needs. In this way, each incremental release of new code propels SaaS businesses along a predictable path toward a crucial and somewhat unavoidable question:

Whether to continue building onto an existing solution (with all its pros and cons), or to re-think the whole approach, with the benefit of invaluable knowledge learned over time?

Such initiatives come in many flavors and go by different names, such as: re-platform, major upgrade, re-write / re-build, next-generation development, future proofing, and addressing tech-debt, to name just a few. Nearly all successful software companies contemplate such an effort at some point in their life cycle; and it is a fraught decision with existential ramifications. While the benefits of these types of initiatives can be positively transformative, they also represent significant potential costs and risks (e.g. large investment of time and resources, opportunity costs for projects not pursued, freezing new client sales, brand-damaging disruption and alienation of existing clients, and loss of critically important subscription revenue). Having participated in a number of these major initiatives as an operator over the years, I’ve come to appreciate that these are extremely complex and there are no silver bullets. Likewise, every one of them is unique; and yet, these situations share numerous characteristics and dynamics, with applicable lessons to be learned from each. With that in mind, below are five quick observations and takeaways relating to this common, yet extremely high-stakes, situation.

Note: For simplicity’s sake, I’ve used the term SaaS throughout this article, although these principles apply to any number of modern software delivery models. This raises the important strategic decision of how to utilize cloud services while modernizing the architecture of a SaaS solution. I don’t intend to address that topic here, but will plan to tackle it in a future post.

1. Strategic Clarity: To quote Simon Sinek, “start with why.” Be very clear on precisely why you are undertaking such a monumental endeavor in the first place. What specific results / benefits do you expect to achieve and how will those benefit your customers and prospects? If you can’t concretely answer these questions and communicate them honestly and with conviction to customers (no spin!), then the whole initiative may warrant re-thinking. Likewise, be very explicit about your strategy, and don’t compromise on it. At a high-level, what is the approach and the thinking behind how you seek to achieve the goals identified above? Tactical and execution questions will arise, but don’t blur them with strategic questions. Moreover, don’t confuse strategic risks (those that are inherent in your strategy and cannot be meaningfully controlled or managed) with actual risks that can and should be mitigated. Once the strategy has been set, focus maniacally on controlling those execution risks that can be actively managed.
2. Beard-scratchers Welcome!: Projects such as these bring big, messy, strategic decisions that impact all parts of the business. Accordingly, it is important to make plenty of “white-space” in people’s schedules to allow for extended and unbridled debate at all stages of these projects. Moreover, these debates need to include a wide range of constituents with different perspectives. In some ways, this is counter to the “get-done” culture at most small-scale SaaS businesses, where the inclination is more “to do, than to think.” In these companies, we try to protect people’s schedules, in order that they can crank out the important work on their plate. Likewise, we tend to strive for efficiency in our meetings, with tight agendas and a minimization of any wasted time (“let’s get back to actually doing stuff!”). It is critically important to fight this urge and to get in a room and debate. These are almost never “30 minute” decisions; they need to be given the room to breathe and the benefit of many people breathing life into them.
3. Landing the Rover on Mars: It is paramount that the whole organization understands the long-term product vision as early as possible. The far-reaching vision impacts not only near-term product decisions, but also virtually every supporting operating decision across the entire organization. This will ensure that decisions that are made today at all levels of the organization actually support ultimately arriving at our envisioned destination for the future. And, make no mistake, every seemingly small decision will have a material downstream impact. We’ve used the following metaphor to help drive home the implications of this point: “If you want to land a Rover on Mars…be precise in your trajectory. Because, the distance between here and there is so large that if you are one degree off target…you will wind up on Pluto.”
4. All-In vs. Modularity: This point refers to the concept of a platform, environment, eco-system, or suite of solutions — terms that SaaS businesses tend to use to describe their product sets. Most SaaS providers contend that customers will derive disproportionately large benefit from holistically adopting all parts of a “platform” in concert, versus cherry-picking one-off products or functional modules. In this way, 1+1+1 should equal 30…not 3. At the other end of this spectrum sits “modularity,” which connotes (among other things) freedom of choice. Specifically, customers can elect to mix best-of-breed products or point solutions to address their business needs. Each of these approaches has strengths and weaknesses; and I’m not here to argue one over the other as being universally superior — as always, context matters. However, it is absolutely worth examining the goal of a given initiative through this lens. Where on this spectrum does your company expect to position its offerings at the successful conclusion of this initiative; and how will you convey value to prospects and customers? Whatever that point is…identify it, embrace it, and own it. So many product and go-to-market decisions will be driven by this decision; and the only truly bad decision is no decision at all.
5. On-Ramps and Highways vs. Parallel Surface Roads: Because the dangers of negatively impacting current customers with any kind of disruption are so scary, we tend to be risk-averse in these efforts. It can be helpful to compartmentalize these risks with the help of the following metaphor: The current / legacy solution represents surface streets for clients. Those windy, narrow streets get them where they want to go, but the routes are often slow, fuel-inefficient, and require local knowledge. Our revolutionary new solution represents a super-highway — high-speeds, easy navigation, and clear line of site to desired destination. Clients understand the benefits of the highway, and they want to travel on it; but making the cut-over from surface streets can be intimidating and treacherous, so they are reluctant to make the switch. Their concerns can lead us into playing it safe, by minimizing change and simply recreating / replicating existing functionality in the new platform. Don’t succumb to this temptation — doing so is analogous to paving parallel surface streets — ultimately no better and no faster than the existing ones. Second, on-ramps describe how clients gain access to the new solution. SaaS businesses need to provide clients with multiple different “on-ramps” so that clients can choose WHEN, HOW, and HOW FAST they choose to move over and adopt the new solution. Paying close attention and investing heavily in providing many different on-ramps (not just one-time or one-size-fits-all) are the best ways to ensure that all clients ultimately elect to get on the highway.

While these concepts are applicable in many ways, they are just that — concepts. They need to be applied in pragmatic ways that make sense for each unique reality that SaaS businesses face. As stated above, there are no easy answers to solving to these supremely complex issues; but hopefully the tenets above will help folks navigate these major initiatives as they arise.

With those fateful words, the meeting ends on seemingly solid ground. Unfortunately, too often a team’s commitment begins to erode almost immediately after adjourning. In these scenarios, a corrosive force is hard at work, devastating teams and laying waste to even the most solid plans. It’s called re-trading, and it takes place when someone(s) revisits a settled decision with the intent to change plans after the fact. This post attempts to shine a light on the toxic team behavior and offer some thoughts for combating it. But first let’s take a step back and offer some context:

“Disagree and commit” is a management principle which states that individuals are allowed to disagree while a decision is being made, but that once a decision has been made, everybody must commit to it. According to Wikipedia, this principle has been attributed to such icons as Andy Grove, Scott McNealy, and Jeff Bezos. Whatever its true origin, it “pinpoints when it is useful to have conflict and disagreement (early states of decision-making, but not after the decision is made). It is also helpful in avoiding the consensus trap, in which a lack of consensus leads to inaction.” In general, this principle is useful in organizations that value different perspectives but have finite resources to pursue seemingly unlimited ideas (i.e. in most growing SaaS businesses). It works well, so long as people commit in good faith to a plan and then maintain that commitment even in the face of inevitable adversity. It fails miserably when people’s commitment wavers and they seek to revisit the original decision via a re-trade. The re-trade can present itself in any number of different forms, including:

• The person who never liked, nor cynically ever had any intention of committing to the plan
• The person who didn’t pay close enough attention to the detail, and now does not feel beholden
• The person who does his / her own thing and doesn’t even realize they are deviating from plan
• The person who believes that ever-changing circumstances justify repeatedly re-visiting the plan

Whatever the precise form, re-trading reflects an unhealthy team dynamic. Interestingly, re-trading rarely takes place within the context of an open setting (i.e. a leadership team meeting), but rather often in 1-on-1 conversations behind closed doors. This is a useless waste of time. It sows the seeds of mistrust (what are they whispering about in there?). It creates factions and unproductive conflict. Even worse, these discussions often spill over beyond the attendees of the original meeting. In this way, leadership team members can dangerously undermine their peers, which completely freaks out the broader team (no one’s happy when the “adults” bring “the kids” into their fight). Needless to say, if these whisper-campaigns gain traction, they can completely derail the original agreed-upon plans. Left unchecked, these side conversations can also have a debilitating long-term effect on future decisions. Specifically, if people believe that they can re-visit decisions after the fact without negative consequences, then they may be incented to simply lay-low during initial debates and surreptitiously seek to get their way later-on. In short, once re-trading becomes normalized, no future decision will ever be safe from the threat of a re-trade.

On the contrary, in his classic book “The Five Dysfunctions of a Team,” Patrick Lencioni offers a succinct description of how truly cohesive teams behave:

1. They trust one another.
2. They engage in unfiltered conflict around ideas.
3. They commit to decisions and plans of action.
4. They hold one another accountable for delivering against those plans.
5. They focus on the achievement of collective results.

Lencioni’s model also offers insights regarding ways to combat the re-trade. As I often say, there is no cure-all for human behavior. But if re-trading blooms in darkness, then sunshine is the best disinfectant. Specifically, pre-emptively calling out the dangers of re-trading goes a long way toward helping teams arm themselves against it. Unlike Voldemort in the Harry Potter series (“He-Who-Shall-Not-Be-Named”), openly acknowledging the potential for re-trading raises people’s awareness of and vigilance against it. Naming and shaming this behavior can give team members language to identify and resist peers’ efforts to engage in after-action 1-on-1 gripe sessions (a central means to waging a re-trading initiative). It also allows leaders to establish criteria for when it is appropriate to re-open past decisions. Specifically, facts and circumstances do change over time. And, if the realities on the ground justify it, then decisions absolutely should be reconsidered by the team. By establishing this as the one reason to re-open prior decisions, leaders can set a high bar for when / how / why plans can openly be re-litigated. Finally, because an ounce of prevention truly is worth a pound of cure, Lencioni’s model offers good guidance on how to address the root cause of re-trading. Maniacal focus on building trust and embracing unfiltered conflict early-on in decision-making processes will always be the best way to avoid downstream re-trading and all its devastating effects.

“So, we’re all in agreement, right? Great, let’s do it.”

As SaaS businesses scale-up, one of the most important responsibilities of an executive is to participate in and support sales efforts to prospective new clients. New client sales are critical to the health of any early SaaS business, and senior executives can play a major role in helping sales teams attract customers. For many leaders, this is an entirely natural act which they execute with ease; for others it can be an uncomfortable stretch. In either case, their involvement needs to balance two competing goals: (1) help win business today that results in successful, profitable, long-standing customers, and (2) build the team’s ability to win more and more of these types of deals in the future. This second goal sometimes gets lost in the shuffle; and it significantly complicates how thoughtful executives engage.

Nearly two decades in SaaS leadership roles have taught me many lessons around an executive’s role in sales meetings (and contributed significantly to my hair-loss early in that period). As I think about those lessons, a majority tend to fall into three general buckets: two “Do’s” and one “Don’t,” as follows:

1. Do…Make the Sales Rep CEO: When a sales professional is working an account, he / she alone is ultimately responsible for the success of that sales cycle. Period. Even in team-selling environments, the rep is on the hook. If she closes a deal, she’ll get the commission and the quota credit. If not, she’ll need to answer hard questions. Regardless of what the company org chart says, she is the team leader in charge of that sales cycle. That person needs to be empowered to get the job done. So, when requested by a sales rep to provide executive representation in a sales setting, I almost always respond that I am happy to, as long as she is willing to assume the role of CEO for that engagement. Said another way, she needs to run the show. I go on to explain that I need her to tell me exactly what is expected of me and specifically how I can support her in successfully closing that particular deal.
   
   This tends to do a number of things. Best case, it empowers the sales professional to dispassionately direct the guest-executive to do precisely what’s needed to win the deal (versus deferring to the executive, who is actually the least knowledgeable person about the account). I love it when a rep gives me painstakingly precise instructions for what value I can bring to a sales process that will help us earn business. At worst, this approach can lead to blank stares. Sometimes a rep hasn’t completely thought through why they want an exec on a call; and this can smoke-out that lack of clarity. I’ve actually had reps tell me, “I’m not sure what I need from you, I just want you to do your CEO thing.” I explain that without context, my schtick just isn’t all that great…and I politely decline the request. In most cases, though, this simple tactic puts the accountability for a successful outcome exactly where it belongs — on the sales professional. Typically, this leads to the salesperson rising to the occasion, using her account knowledge to make the most informed call on meeting strategy, and taking full responsibility for driving a successful outcome. Any action by an executive that leads to this end-result is a must-do.
2. Do…Conduct After-Action Analysis: It goes without saying that relentless pre-meeting preparation is a primary ingredient for successful sales calls, so we’ll skip right over that. What is less common, I’ve found, is prioritizing a ruthlessly candid post-meeting assessment. Immediately after the meeting. Too frequently, people rush off to catch planes or jump onto their next set of scheduled calls. The result is that massive amounts of tacit learning from meetings evaporates forever. Instead, it is well worth the effort to schedule extra time and strictly adhere to the discipline of consistently sharing post-meeting impressions and assessments. These don’t need to be terribly formal, but I like breaking them into two distinct sections. The first is: what happened in the meeting / what went well / what went poorly / what did we learn / what next steps should we consider taking to earn business from this account? This is all about this particular sales cycle, and what we need to consider in pursuit of this specific client. The second is more of a process assessment: how was our preparation / how did our staffing align to the prospect’s participants / how well did our overall messaging work / how was our intra-team interaction / what will we want to replicate with other comparable prospects / what about our approach should we reconsider in the future? This is all about using the data from this meeting as a pure learning opportunity for future application. Separately, I like to start by putting myself directly in the cross-hairs for feedback from the sales rep (aka the CEO for this sales call). “What could I have done differently — please tell me?” To the degree that there are reasonable steps that I can take to better help our salespeople, I really, really want to know what they are. Beyond that, though, I also want the salesperson to know that it is a two-way street, and we should each embrace the opportunity to share our perceptions. I almost always have post-meeting feedback for sales professionals, and / but I first want them to have an opportunity to give me feedback, for the good of the team. This practice can be really unsettling for everyone at first. But I’ve found that it quickly becomes a natural act and a staple among high-performing sales teams that incorporate executives into the selling process. Another “do.”
3. Don’t: Become a Verb: They called it getting “Gibby’d;” and it wasn’t a compliment. I was relatively new in senior leadership roles, having been battle-field promoted within a company experiencing hyper-growth. My unshakable belief in pre-meeting preparation led to a practice where our team of presenters regularly conducted rigorous rehearsals in advance of important sales meetings. Often those practice sessions were the first time I may have heard a particular salesperson present; and sometimes those presentations were pretty flawed. That’s when I’d jump in to “save the day.” I’d start making suggestions about sales strategy, meeting flow, presentation assignments, slide layouts, talk-tracks, competitive positioning, and any number of variables relating to the impending meeting. Generally, these sessions were the night before or the morning of big meetings; and the last thing anyone needed was to have a bunch of late-breaking changes foisted upon them. Although some of these last-minute changes definitely proved to be helpful for a specific meeting / sales cycle, they simply weren’t worth the downstream fallout. Specifically, they undermined the whole effort to empower the sales professional (“no…really, you are the CEO of this sales call…”) and lowered confidence and morale among these critically important team members. In sports, the rule of thumb is never to try something in competition that you haven’t successfully done a number of times in practice. In this scenario, the lesson was not to make any changes that could unsettle a sales professional before a meeting. Conversely, the big learning was to do everything possible to ensure that your sales professionals are feeling their absolute, super-human, bullet-proof best when they walk into sales calls. They’re doing so will allow them to overcome many other imperfections on that particular meeting and build a strong foundation for future sales. To the degree that changes to strategy or tactics are warranted — and they often are — the responsibility of the executive is to ensure that those changes are raised and practiced well in advance of game-day. Lesson learned: Don’t become a verb; just keep your eye on the prize and do the job the salesperson (aka CEO-for-the-day) assigns you.

In closing, executives have a huge role to play in supporting sales efforts as businesses scale; and it can be difficult to balance the desire to help win deals today while building the team’s ability to win consistently in the future. Hopefully these few rules of thumb help leaders land on the stepping stones and avoid some of the stumbling blocks.