“Better” is always Different
Standing Out When Interviewing for a Leadership Role in the Revenue Organization
(I want to thank Fred Mather, an experienced Revenue leader, for his suggestions and edits to this post.)
“The person who follows the crowd will usually go no further than the crowd. The person who walks alone is likely to find himself in places no one has ever seen before.” Albert Einstein
“The things that make me different are the things that make me ME. – Piglet” A.A. Milne
As a candidate interviewing for senior leadership roles, the “hit rate” will be low. Executive search firms are tasked with casting a wide net and sourcing lots of qualified candidates. At best you will be one of five candidates given serious consideration, and the odds may be lower in this economic environment.
There are a lot of articles and podcasts with advice about questions you will encounter in a senior revenue leadership interview – covering being able to speak to what motivates you, your leadership style, how you hire and train, the processes you follow for planning and operations, and how you deploy and use technology. This is not one of those posts.
As a former CFO, I want to share my advice on how to make a positive impression in an interview process, particularly when speaking to people with a strong financial background. An essential ingredient of a Revenue leader is the ability to speak confidently about metrics and numbers.
The tools I offer below could differentiate you from competing candidates.
A. Position yourself as a Business Leader
Great leaders are both business savvy and functional experts. By “Business Leader” I mean three things:
1. Business Leaders are curious and take a deep interest in the other functional silos in the company – specifically Finance and Product.
2. Business Leaders understand how value is created by the company’s business model.
3. Business Leaders who run sub-functions within Revenue (e.g. marketing or account management or customer success) understand how to win while enabling the whole revenue ecosystem to also win.
B. Go beyond the Basic Metrics to the next level of Financial Thinking
1. Embrace “profitable growth” as a principle. The revenue organization usually focuses on bookings and revenue. Revenue leaders I respect understand the nuance of driving growth while doing so profitably. Exactly how that is defined depends on the business model, company cash position, other metrics etc. This annual survey done by KeyBank Capital Markets on private SaaS companies provides some useful benchmarks for all important SaaS metrics split by size of company.
2. Understand when new customers will become profitable – In subscription businesses with recurring revenue, the metric I prefer is CAC payback (expressed in gross profit months). In transactional businesses (marketplaces or e- commerce) I like to understand the frequency with which a customer transacts and how many future transactions are required to earn back the acquisition cost on that customer.
At the request of their investors, a number of companies report on the LTV: CAC ratio. Until your business reaches scale (several hundred if not 1000+ customers in B2B business and tens to hundreds of thousands in B2C businesses), I find this metric can be easily manipulated and misinterpreted. I recommend staying away from it.
3. Segment your customer base (if you need to) – Most (if not all) Revenue Leaders understand segmentation and often build it into their team structures, particularly as a business expands. Segmentation matters when serving two customer types that behave differently. If you customer behavior varies among segments than pure averages for metrics contract value, sales cycle length, upsell % etc. are always misleading.
When introducing segmentation, remember that the consequences will affect all parts of the organization including Product, Marketing, Sales Enablement, and more. Segmentation can cause distractions and add costs in the short run. Know the work required beforehand and consider a pilot or test first before rolling out broadly.
4. Do cohort analysis – A cohort is a group of customers who first bought from you in a particular period, typically monthly for consumer offerings and quarterly for B2B offerings. Cohort analysis looks at how each individual customer group behaves over time (upsell, downsell, churn, repeat purchase etc.). In cohort analysis you are hoping to find (ideally) that customers acquired in more recent periods are performing better in terms of $ spend and logo retention over time than older customers. Cohort metrics are a key to building more accurate revenue forecasts for revenue from “renewing” or “repeat transacting” customers.
Cohort analysis will ideally show trends like this when put into a graph.
5. Understand how to measure churn properly - Most companies like to state a single number for their churn rate. Often however, that number is not particularly illuminating.
In consumer subscription businesses, churn is best though to in terms of a retention curve. Meaning what % of customers who purchased in month 1 and still paying/active in month 2, 3, 4, 6, 12 etc. The typical churn curve shape is concave – steeply downward sloped in the early months and then flattens out usually around months 6 through 12 (as in the graphic above).
In B2B subscription businesses, most customers are on an annual contract. Simply dividing customers that churn in a month by the total customer base is highly misleading, since only a small % (around 10% of the total customer base on average) would be eligible to cancel in any given month by their contract terms.
Sophisticated leaders in the CEO, COO and Finance roles understand all the points listed above. Well run companies spend time explaining, thinking about, measuring, and reporting on these topics.
C. Think Like an Investor
You are investing in a company when you take a job there. The investment is your time, which is more valuable than your capital because it is finite.
“Thinking like an investor” means asking questions or bringing up topics (if you are asked to give a presentation) that showcase your approach to creating value. These questions should also serve the purpose of getting information from the business that you would like to know before taking the job. Some examples of topics to cover would include:
1. Balancing Growth and Efficiency: Expect Board members to ask for both faster revenue growth and reduced burn. Usually these two things are mutually exclusive and often negatively correlated. Every business which is valued at a high multiple shows strong growth. If the high valuation multiple persists for a long time, it is because that growth is efficient.
Remember to stress that you will drive growth while measuring and improving efficiency along the way. And, that you plan to adjust the dials on how much growth to pursue based on the CAC payback period, the customer payment frequency (i.e. annual upfront vs. monthly in arrears), the average contract length and the cash position of the business.
2. Unit Economics: Unit economics is a simplified way to measure the return earned by acquiring a new customer. If the company has not discussed their unit economics with you in some detail, ask them about it. Or, present your best guess on their unit economics and use the presentation to open a discussion to get the data you want.
3. Unique Approach to Distribution: Aim to understand if the business has low-cost, proprietary customer acquisition channels? Example would include: (i) owned channels that provide product-led growth; and (ii) earned channels that contribute to positive reputation which in turn drive virality and referrals.
4. Secret Sauce in Retention: Does the product have attributes that bind the customer to the business? By this I mean more than simply high switching costs. Are there network effects where the product increases in value to a customer over time by the existence of other customers using the product?
5. Built-In Organic Growth: Is there a mechanism that drives organic growth? For B2B businesses, this relates to an upsell mechanism based on metrics such as seats/users (attached to something of value based on how the product is used).
D. Sending Positive Signals to Finance / Investors
The CEO will make the final decision on hiring Revenue leaders. The Board, and sometimes the Finance leader, will participate in the interview process and may have influence over the CEO’s decision. The latter two parties will be involved in total compensation setting (particularly bonus plans and option packages).
Sending positive signals to the Board and Finance leaders will help your case. Some examples of positive signals include:
1. Sharing bad news early – Celebrating wins is critical. And be willing to share bad news early. Let Finance leadership know early about customer renewal concerns including downsells.
2. Forecast based on a “Waterfall” model rather than Sales Capacity – Waterfall models are accepted as the “better” way to forecast. A waterfall model approach would involve starting with leads or qualified leads generated by Marketing (inbound & outbound) and then use conversion rates to calculate opportunities / trials and closed won / paying customers. Yet, some companies (especially early stage ones) still rely on sales capacity models. Implying that you rely upon sales capacity forecasting models will likely raise a red flag with an experienced finance leader.
3. Undertake experiments accompanied by metrics – A new revenue leader is often hired to shake up things, change processes, and implement new, untried ideas. Ideas to supercharge new customer growth or improve retention are always welcome. Finance leaders want to see these ideas accompanied by a thoughtful forecast which lays out the necessary investment and the expected results/payback over time.
Ask to work with the FP&A team to help create these simple forecasts. Building alignment with the FP&A team will go a long way to establishing a positive relationship between the Revenue organization and the Finance team. Finance leaders do not expect revenue leaders to be right; they simply want a commitment to accountability and will value it hugely.
4. Data hygiene matters – The revenue organization invests more money than any other function on software tools to automate processes, measure behaviors and improve performance. These software tools can offer a huge amount of valuable data, which Finance will use in their analysis. However, the data needs to be correct, with consistent definitions, and up to date. Otherwise it is “Garbage-In, Garbage-Out”.
5. Focus on the quarter and the long-term – Every revenue leader is focused on hitting the targets for the current quarter. Finance leaders are sometimes concerned that revenue leaders may optimize the short-term results (this quarter or next quarter) at the expense of the longer-term value creation. Signal that you care about both and want to balance the short-term and the long-term.
It is always safer to follow the wisdom of the crowd. However, greatness is only achieved by those willing to think and act differently. Great companies and top-calibre CEOs are interesting in attracting and nurturing those who think differently and are committed to making a positive impact. Be a revenue leader cut from that cloth of difference. You will be rewarded in your career.