RV218 - Aligning Marketing and Finance for Growth | Go To Market Live Episode 35

Summary

Podcast Summary: B2B Revenue Vitals - Episode RV218

Title: Aligning Marketing and Finance for Growth | Go To Market Live Episode 35
Release Date: October 15, 2024
Hosted by: Chris Walker, CEO of Refine Labs
Guest: Tom Wentworth, Chief Marketing Officer at Recorded Future

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1. Introduction

In Episode RV218 of B2B Revenue Vitals, host Chris Walker engages in a deep dive conversation with Tom Wentworth, the CMO of Recorded Future, a leading cybersecurity firm poised for acquisition by MasterCard. The episode focuses on the critical alignment between marketing leadership and finance teams to drive sustainable growth.

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2. Common Missteps in Marketing-Finance Alignment

Tom and Chris kick off the discussion by addressing prevalent mistakes Chief Marketing Officers (CMOs) make when interfacing with finance teams. Chris emphasizes the confusion between marketing-specific metrics and overarching business metrics.

Notable Quote:

Chris Walker [02:08]: "We need to separate the metrics that help you build the kind of business that someday connects it to a company like MasterCard. Those are business metrics, not just marketing metrics."

3. The Right Planning Process with Finance Leaders

Chris outlines a strategic approach where marketing isn't isolated but integrated into the overall business growth levers, alongside sales and partner channels. He highlights the importance of understanding different sources of revenue and their unique unit economics.

Notable Quote:

Chris Walker [03:06]: "Each funnel has a vastly different set of unit economics. For example, the channel might be your most efficient source of revenue because partners who bring deals to you are bringing super qualified deals."

4. Marketing Metrics vs. Business Metrics

A significant portion of the conversation revolves around distinguishing between traditional marketing metrics—like demo requests and website traffic—and metrics that genuinely reflect business health, such as pipeline win rates and ROI.

Notable Quote:

Chris Walker [03:06]: "Demo requests, pretty great metric. We all want more demo requests. But in and of itself, a demo request going up or down doesn't tell me much about the health of the business."

5. Collaborating with FP&A Teams

The duo discusses the essential role of Financial Planning & Analysis (FP&A) teams in bridging the gap between marketing initiatives and financial outcomes. Chris advocates for CMOs to build strong relationships with FP&A professionals to leverage their expertise in financial modeling and data analysis.

Notable Quote:

Chris Walker [06:35]: "Don't think that you have to know, just ask questions. Become friends with these FP&A people who are so incredible at Google Sheets and Excel. They can help you model these things out."

6. Budgeting and Allocations: Sales vs. Marketing

Tom and Chris explore the challenges of budgeting, especially the tension between marketing and sales departments vying for funds. They discuss strategies for CMOs to justify increased marketing budgets by demonstrating higher ROI and aligning with broader business objectives.

Notable Quote:

Chris Walker [09:12]: "Everything that you do has to come from an agreed-upon top line number set by the CEO, CFO, and CRO. Marketing budgets aren't free; they have to come from somewhere."

7. The Role of CROs and CMOs

The conversation delves into the dynamics between Chief Revenue Officers (CROs) and CMOs. While traditionally, CROs come from sales backgrounds and may not prioritize marketing's long-term strategies, Tom highlights instances where CROs with financial acumen can effectively collaborate with marketing leaders.

Notable Quote:

Chris Walker [11:31]: "If you brought somebody [a CRO] with that sort of financial discipline who understands the actual modeling part of it, I might be okay with that."

8. Annual Planning Strategy

Chris outlines Recorded Future's annual planning process, emphasizing early strategy formulation and alignment with the broader three-year vision. This proactive approach allows for informed budget allocations and strategic investments in growth areas.

Notable Quote:

Chris Walker [30:34]: "We start our annual Planning in late Q1 of the preceding year. We have a strategy team that lays out a three-year vision and gets the company aligned on it."

9. Justifying Marketing Investments

The episode highlights the necessity for marketing leaders to present compelling business cases for budget increases. This involves demonstrating clear ROI, aligning investments with business growth metrics, and collaborating with sales to ensure complementary strategies.

Notable Quote:

Tom Wentworth [24:11]: "What is the ROI that we get on the $30 million we spend on marketing and SDRs? And if it's 2 or 5 and it should be 10, the real metric is we need to improve the ROI of these things."

10. Challenges in Obtaining Customer References in Cybersecurity

Addressing a specific challenge in the cybersecurity sector, Tom discusses the difficulty of securing customer testimonials and references. Due to security concerns, clients are often hesitant to publicly associate with their cybersecurity vendors.

Notable Quote:

Chris Walker [41:02]: "No CISO wants to ever support that. It is not easy. Some companies have negotiated the ability to use their logos in contracts, but it's brutally difficult."

11. Conclusion

The episode wraps up with reflections on the importance of marketing leaders acting as strategic investors in their portfolios. Tom underscores the need for marketing to drive more than just pipeline generation by focusing on enhancing ROI and operational efficiencies.

Notable Quote:

Tom Wentworth [45:42]: "We need to be thinking a lot more like [marketing] was their own portfolio of investments. If you kept spending money on this event and you couldn't feel very good about the impact, then you would cut it."

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Key Takeaways:

• Alignment is Crucial: Effective collaboration between marketing and finance teams is essential for sustainable business growth.

• Focus on Business Metrics: CMOs should prioritize metrics that directly impact business health over traditional marketing metrics.

• Leverage FP&A Expertise: Building strong relationships with FP&A teams can enhance financial modeling and strategic planning.

• Strategic Budgeting: Marketing budgets should be justified with clear ROI and aligned with broader business objectives.

• Navigating Organizational Dynamics: Understanding and navigating the roles of CROs and CMOs can lead to more effective marketing strategies.

• Overcoming Industry-Specific Challenges: Securing customer references in cybersecurity requires strategic relationship-building and negotiation.

Episode RV218 provides invaluable insights for marketing leaders aiming to bridge the gap between marketing initiatives and financial performance, ensuring that their strategies contribute meaningfully to the company's growth trajectory.

Transcript

[Chris Walker]

You're listening to Revenue Vitals with Chris Walker.

[Tom Wentworth]

Cool. We're gonna get started right away. We got an action packed hour. Thank you all for being here. I'm sure other people, Sydney, let them through as they come. We've been kind of going back and forth on the episode. So I spent a lot of time sort of in my monologue last week talking through a lot of the like objections and push pushback that I'm hearing from my ideas and just trying to explain rationally with data around, you know, why my ideas make sense and or can help a lot of people if they take time to understand them. And then every other week we bring in an expert, whether that's a consultant or an advisory firm or this time a practicing operator. Tom Wentworth, CMO and just had an incredible announcement from Recorded Future. So Tom, I'm not going to steal your thunder. I'll let you sort of talk through that. But we're so happy to have you on. We're going to be talking today about the collaboration between marketing leadership and finance. We're going to be talking about how marketing leadership can bring more business acumen to these conversations when it comes to financial Planning, reporting on KPIs, elevating the KPIs out of website traffic and demo requests and getting into pipeline win rate return on investment and business level metrics. And so with that, Tom, really happy to be here. Why don't you give everyone, for those that don't know you like a minute overview about who you are and what you do and then we'll get into it.

[Chris Walker]

Cool. Thanks Chris. Thanks for having me. So I'm Tom Wentworth, the Chief Marketing officer at Reporting Future. We're a 350 million-ish-ARR cybersecurity company headquartered out of Boston. Chris just sort of hinted at we were recently or we are soon to be a part of MasterCard who announced an intention to acquire us. We're in the closed period at the moment, so not much I can say about that other than we're pretty thrilled about the possibility of joining MasterCard shortly. This is a topic that's near and dear to my heart, so I am thrilled to be a part of it because I think this is the One thing that CMOs get wrong.

[Tom Wentworth]

Amazing. Like let's start there. What do you think are some of the common missteps?

[Chris Walker]

You hinted at it and I like a lot of your thinking on like the marketing QBR and all the sort of tactical metrics that are important metrics and I think the key thing I want to say today is we're going to talk trash about a lot of the classic marketing metrics that I still think are good to report on, but they're not business metrics, they're marketing metrics. And I think that's the main source of confusion. You need to separate the metrics that help you build the kind of business that someday connects it to a company like MasterCard. That's what CMOS should be thinking about as execs on the executive team. And there are so many metrics we can fall in love with that don't. And like demo requests. Demo requests, pretty great metric. We all want more demo requests. I'd love to have 3x, but in and of itself, a demo request going up or down doesn't tell me much about the health of the business. So I think it's really all about identifying the metrics that are helpful for analyzing the performance of marketing and then the metrics that help you analyze the impact marketing has on the growth of the business.

[Tom Wentworth]

Incredible. Yeah. Having CMOs aligned to growth rate, ROI and enterprise value, that would be a dynamic duo. So when you think about how a marketing leader is going to start planning with the finance leader, everybody's in annual planning right now and then they're going to look back at historical performance, they're going to think about their targets for the future. What do you think is the right sort of process to work through that as a marketing leader?

[Chris Walker]

Yeah, I think it's. First of all, it's not just about marketing. It's about looking at the growth levers of the business. For most businesses, there are three growth levers. There's what marketing contributes, what sales can contribute, especially in traditional enterprise models, and then for a lot of companies, what your partner channel can contribute. Each of those funnels has a vastly different set of unit economics. For example, the channel might be your most efficient source of revenue because partners who bring deals to you are bringing super qualified deals. They've got better relationships than you probably have. Your win rate for channel deals might be double your win rate for other sources. That's really important to know and look at. So the first thing is looking at what do we want to do from new and upsell. Where do we think those pieces can come from? And then are we appropriately invested given the realities of our business? Win rates, sales cycle lines, etc. You know, do we have the right investments to be able to hit those numbers? I think you start there. And again, none of those have anything to do with demo request, web traffic, mql all right. Those things are not important till you get much, much further along in the conversation.

[Tom Wentworth]

Yeah. And just to go back to the metric stack, we've been spending months now on this show talking about how organizations, marketing leaders and the executive team should be using a stack of metrics that start with investor and financial metrics and then work their way down into performance and unit economics, which a CMO or a CRO is going to own a functional leader and then work their way lower into the creation of pipeline, the closing of pipeline, a little bit more granular and then once you have those insights around pipeline is going down, win rate is going up, NRR is going up. When you have those insights, then when you start looking deeper in the data at demo requests and ROI on your Google Ads and SDR productivity, you have more insight on why you're looking at it. You'd look at the data totally differently if your ROI is 1 to 1 versus 10 to 1. And I think that context is critically important. I think that's why a lot of marketing teams spin their wheels on QBRs is because they're doing all of that detailed analysis without really a good level of insight. Like a demand gen leader doesn't know how much is spent on marketing headcount, they don't know how much is spent on SDRs. It's hard for them to quantify the impact without seeing the full picture.

[Chris Walker]

As a CMO or marketing leader, you don't have to know how all the SaaS metrics work necessarily. I think that's the other thing that people get confused. There was a time when everybody went out and studied vc, Twitter and every VC metric. You don't have to know how to calculate cac. There is somebody in your organization who is much better at it than you are. They're probably sitting in the FP and a team at your organization. There's nothing they want to do more than partner with you on things like this. So don't think that you have to know, just ask questions. Become friends with these FPA people who are so incredible at Google Sheets and Excel. They can help you model these things out. It's literally their job so, you know, partner there to go through and to build out these models. Don't feel like it's something you do because you're going to get it wrong anyway and then they're going to yell at you.

[Tom Wentworth]

I can confirm I've been working with many FP&A teams recently and FP&A people at the director and VP level and The CFO are incredibly valuable and helpful in this type of process, helping us calculate metrics, bounce ideas off of see how their perspective works. And I think the thing that's missing is that marketing and I guess Go to Market overall needs to have a perspective on how the planning happens. When you have finance bring the model together, you get the very simplistic demand waterfall. If we just get this much web traffic and 1% converts, FPA models have found to be very simplistic and break down in real life. I'd be interested in your perspective there. I think that the nuances of Go to Market sort of require the Go to Market team to have a perspective around the planning and modeling.

[Chris Walker]

No. And that's your job as a marketing leader. CMO is. I think it's good for. I have a relationship with our cfo. Recorded future. He's great. But really where I spend my time are with the FP and A team, Chris and Abby, and they work for the cfo. The CFO trusts them a whole heck of a lot more than he trusts me. And if he's hearing from his own team that here's how marketing is operating, here's where they're spending money and how they're spending money, here are the metrics we're seeing, they're going to trust those metrics from their FPA peers. So I think the big win for most people is build friends in FP&A. They're going to give you an honest assessment of the business. Like they're not going to sugarcoat it. They don't know how to sugarcoat things. That's why they're an FPA and not marketing. But if you partner with them, they're going to help you flush issues out well before it hits the CEO CFO level. You want them on your side and you need to educate them on how marketing works because they have no idea.

[Tom Wentworth]

Totally love that we're going to go in a little transition because everybody is sort of thinking about next year. And I'm sure a lot of people are vying for more budget one way or the other or trying to keep their budget the same and not have their budget be going down for next year. And I think a lot of marketing leaders struggle with this process because the business metrics are not there. Right. It's so much different to make a business case to go spend 2 million more on digital. If you spend 10 million in marketing, you get 100 million in pipe and you get a great return on it. And so I think that a lot of marketing leaders do not have the story and the data right in order to know one, whether I should make a business case or not for $2 million more. And then two, if I am going to make it, it should be a no brainer for the business. A marketing business case should be a no brainer. I put here is all the data. This is the biggest opportunity for us. We're going to put $2 million here. This is what is going to happen. I think marketing leaders need to have a lot more conviction around those types of things based on data.

[Chris Walker]

I think most people don't know how budgeting really works. So the first thing that happens is the organization has to agree on a top line. We are going to do this. That number is going to come from the cfo, the CEO and the CRO. And the CRO is probably going to end up pissed off because the number is going to be higher than they want to sign up for. But that's the reality. Because the top line then combined with the bottom line, how much money do we want to make? Right? So everyone these days wants to run, break even to a few percentage points profitable on the bottom line. Those two constraints sort of set the framework for a budget. So if you're going to do 100 million in new and up net new and you're going to spend this much, that lets us make 3, 4, 5, 6 million in the bottom line. That tells you how much funding you can put into marketing, sales, G and A, R and D, et cetera. Often people say, like marketers, I want to spend $2 million more. What they don't realize is, is that 2 million has to come from somewhere because the organization is going to have some sort of number to run off of and generally it's going to come from sales and 2 million more in marketing. You're spending 2 million less than sales. And I'll tell you, the CRO is usually much better at doing this than the CMO is. Even when the metrics support marketing investing more, the CRO is always going to get that extra budget because they're going to go in and say, I need capacity, I need more quota carriers, I need more CSMs. So I think it's important to know that like when you ask for more money, it has to come from somewhere. Unless the company decides to burn more, which is probably not going to happen. The money's got to come from somewhere and it's going to be the sales and marketing line item. And you have to be comfortable going to the CRO and saying hey, look, why don't we slow down some sales hiring this year and let's put a little bit more into pipelines, put a little bit more into awareness.

[Tom Wentworth]

I was on a call yesterday with a CRO and a CFO and they said that exact thing like our traditional philosophy would be hire 10 more reps next year. But I know we have a pipeline problem. Yeah, not a sales problem. I think smart chief revenue officers are starting to realize that some of the problems you can't solve with headcount. I want to get your take on this because it's a heavily debated topic and a lot of the companies that we've been working with recently have a chief revenue officer where the marketing leader VP level is going to report into a CRO. Curious on your take? I'm sure it's depends, but interested what you think.

[Chris Walker]

I personally would never work for a CRO and I love sales. I spent half my career as a sales engineer, so I've been in that world before. I don't think CROs have the right mindset to run marketing where we need to balance short, medium and long term thinking. I just don't think that's the way it operates. However, I'm coming on your show for the first time saying I might be slowly changing my mind. The problem is CROs come from sales background. Essentially, they're salespeople. If there were a CRO who thought about what we're talking about, the financial side of it, and whose job essentially wasn't to be just another seller, but was to build the engine, okay, I'll buy that. What I would never work for personally is a CRO who's just a seller with a fancier title. But if you brought somebody with that sort of financial discipline who understands the actual modeling part of it, I might be okay with that. I just don't think that's what people put in the CRO position. They put in salespeople and give them a different title.

[Tom Wentworth]

It's been interesting recently because I find CROs to be a lot more straightforward and objective in their decision making around this because they're not so tainted with the 10 years of marketing reporting garbage. So they don't know any better and they look at things in a very simplistic way. And I think it actually drives a lot better decision making, at least in some of the engagements that I've had recently. So I'm not advocating for every marketing leader to report into a CRO, but I do think for companies at certain stages that don't have a Tier one top cmo. I think it could be a good thing. And then you have a VP of marketing instead of a CMO at 50 million ARR and then you revisit the CMO role at 7,500. So I think there are some potential ways to play it.

[Chris Walker]

On paper it makes a ton of sense. I mean it is the right model. On paper I just think it's super difficult to find somebody who can do it. But it is the right model.

[Tom Wentworth]

Yeah. So we're going to get into questions pretty soon. I think a lot of people are probably have some hot topics that are in their specific business. Nancy's always got a question, so looking forward to that one as well. There was one other topic that's been on my mind especially for larger companies. I wanted to get your take on it is that I'm starting to see a path where a lot of companies are now like we're going to use in house resources or we're going to have someone else outside do it for us. And I've been weirdly thinking that for the most important things it should be both, not either or we should bring expertise. If it's the number one. If pipeline is our number one problem for next year. NRR is the number one problem in our business at 100 mil. That bringing in a firm for some money to work and guarantee or maximize the probability of success from our in house resources. It feels like a no brainer to me as you get bigger on the ARR scale. I think a lot of executives think in longer time horizons and think like this but interested in where you're at. Landed with that.

[Chris Walker]

Did you read the Mr. Beast document that leaked? Sort of like the. So Mr. Beast built this incredible content creation empire doing hundreds of millions in revenue at this point. And he leaked a document about how to like do business at Mr. Beast Company. Leaked. And a big part of it was consultants are like a cheat code. And he was encouraging everybody on the Mr. Beast team to get external help as often as you possibly can. If they've done something a hundred times, why are you trying to reinvent the wheel and do it yourself? And I think that's super smart. I think teams. So I have another point which I think marketing teams have grown way too big. They're probably 50% bigger than they need to be in a lot of cases. I think hiring external help is the way to both continue to scale without having to have the burden of being over capitalized on headcount. So I'm a huge fan of that. It also is a way. There are smart people you can work with multiple and compare them against each other and see how it works. There's so many good reasons for doing it. I think that's a better way to scale heading into the new realities of our economy than just hiring a marketing team of a hundred people at 200 million ARR and it's just not going to scale.

[Tom Wentworth]

Yeah. From a headcount perspective, Most companies are 95% W2.5% agency contractor. I think that scale needs to slide a little bit moving forward. And yeah, just like the 100 person headcount on the marketing team for 100 million ARR company just doesn't. Doesn't add up. Yeah.

[Chris Walker]

And I think it's because a lot and I would encourage everybody on this call, do not judge your self worth on the size of your team and the size of your budget. It feels good to say I run a team of 150 people. Looks good in your. LinkedIn is a bullet point, but the reality is you want to deliver business impact. You want to be able to say I was a part of a company that generated sold for 2.65 billion and generated tons of enterprise value. That has nothing to do with headcount and budget. So I'm not saying headcount and budget are always bad, but it isn't the thing that you should put as the first bullet point on LinkedIn. It doesn't matter. Results matter.

[Tom Wentworth]

Amen. Let's go.

[Chris Walker]

Sorry for the rant, but that one gets me.

[Tom Wentworth]

That's why we're here. All right, everyone, we're going to go to some questions. I'm going to bounce off so people have some questions. Tom will answer. I might go on a little tangent as we go, but looking to involve the audience a little bit more now that we've set the table. So Sidney, let's queue them up and let's get into it.

[C]

Okay, I got a couple submitted to me, so I'm going to kick off with those first. One person's driving. So a lot of people are driving during this time of episode. Okay, so this question's for Nate. Does the FP and A team work with others on your team and if so, how does that work? And how do you integrate FP and A into your marketing team?

[Chris Walker]

That's a spectacularly good question. Whoever asked that, the driving person, I see them as a part of marketing. They meet with all my leaders. We sit down and look at how are events performing, how is digital performing, how are big global events performing? Like they sit down all of our leaders. They're the ones who help us make sure that we maximize our budget. So I look at them as a part of our team and I would encourage you all to think of that and bring them to your team meetings. You want them to be educated on marketing. Again, back to you want to keep the CFO happy, keep the FP and a team plugged into what you're doing. That's going to keep the CFO happy because they're going to go to the FPA team before they go to you. Hey, what are these? Marketing. What's going on over there? Oh, I was just at their off site and here's what they're thinking about and here's how the engine's working and here's some numbers I've pulled. That's what you want to have happen and shout out to Abby And Chris at ReportingFuture, who are the absolute greatest of all time at doing this.

[Tom Wentworth]

FP&A is a part of marketing. Now, either you got someone on the marketing team that can do it, you hire a consultant, or you bring in your FP and a team in house.

[Chris Walker]

Bring them to your team meetings, make them a part, bring them to your off sites, you know, make them a part of your team.

[Tom Wentworth]

It's not just making a television commercial and buying the media on it. Marketing is a lot more complicated than it was 10 or 15 years ago in terms of how it relates to the business for sure.

[C]

All right, we got another question from Jenna, who's actually on a flight right now so cannot come online and unmute herself.

[Tom Wentworth]

Let's go. Everybody's commuting.

[C]

Yeah, but she said what ROI baseline is good for a 50 million SaaS ARR company 20x30x? It might be good to touch on your guys's definition of ROI as well.

[Tom Wentworth]

I have like benchmarks and stuff on this, Tom, so if you want me to take this one and then I just love your perspective individually after that. So at the highest level, what we're looking at, some people have been calling it go to market efficiency. I'm now trying to reframe it as the cost of growth. How much did we spend on sales, marketing, account management, operations, everything that is used to drive both new and expansion, retention, revenue? How much was that? And then how much net new ARR did we get between new logo and then the net of churn contraction and expansion? And you have all that together and that's a number that's benchmarked across 80 public SaaS companies where less than 175% which means you have to spend $1.75 on go to market to get a dollar in net. New ARR is considered high performing and Delivers A median 10x revenue Multiple compared to very low performers that get a 3.6x multiple when that number degrades. So at the highest level that's what you have. But everyone looks at that metric and complains about it a little bit because they say, oh, it's nice to know, but this number isn't actionable. And it's true on its own it's not actionable. But then you can take it and break it into new logo and expansion and then inside of new logo you can break it into pipeline creation and closing a pipeline. And actually you can quickly diagnose where the issue is on either an effectiveness or an efficiency basis. And so you have those level of numbers when you think about roi. So you have the top level, you have the new logo which is effectively CAC and CAC payback. And then inside of new logo you have a return on all the investments to create pipeline. And then you have the closing which could be PRP or sales CAC type of number. On the pipeline side, the thing that people sometimes get confused on is that it's actually impossible to forecast what you need in pipeline if you don't know the win rate. And so you have to take how much pipeline are we going to get multiplied by the win rate to get an estimated amount of revenue from that. And then my objective in marketing pipeline is to get two and a half dollars in revenue for every dollar I spend on marketing, which would then have the company operating at less than a one year total CAC payback period. So if you want a high performing target range, that's around where you would be. Most SaaS companies are far more inefficient than that. But that's just how I think about it. I think a one to one on marketing spend is the absolute base minimum that you can do because you're going to spend it 1 to 2x as much on sales as you do on marketing. And all of a sudden you're at three or four years.

[Chris Walker]

And I'll just say that most SaaS companies have abysmally low close rates for lots of reasons. 10ish percent. And when you start to look at pipeline requirements at a 10% win rate, that number starts to look like 20 to 1, 30 to 1, 40 to 1. And most companies are not doing that today.

[Tom Wentworth]

It's so true. You have Companies right now over the past 12 months that have gone from 15% win rates to 7 and a half percent win rates, which takes the pipeline requirement and doubles it. So you used to have to make 100mil, but now it's 200mil and you're not going to spend twice as much money to get there. And even if you did spend twice as much money, you wouldn't get there. You'd get diminishing returns and degrading roi. And it literally just becomes an impossible proposition. It's another reason planning and analyzing marketing in a vacuum is very dangerous. It's very dangerous to look at all that stuff and not take into account win rate. Nrr, grr. How much you spend on sales, how much you spend on SDRs, if you don't have the full picture. Because a lot of companies will hire us and they'll be like, we just want you to do a growth marketing analysis. And it's like, we can't. You can't do a growth marketing analysis without seeing the whole picture first and then breaking it down. And so that's something that's interesting too is when you think about your sort of analysis that you do in house with your team and your QBR reporting. We talked about that on LinkedIn a little bit today. Like, what does that look like? I think the QBR process in marketing has a lot, leaves a lot to be desired for at most companies.

[Chris Walker]

Like I said, I think there are classic marketing metrics that you can talk about in a qbr, but not to leadership team, not to board, not to investors. That's where I think the problem really happens. A lot of marketing metrics are not business metrics. They're just marketing metrics.

[Tom Wentworth]

Right on. Let's keep the questions rolling. Great.

[Chris Walker]

Yeah.

[C]

About the board. So how do you prepare and work on a board deck with your executive team and what does that look like for recorded future?

[Chris Walker]

So we're owned by a private equity company, Insight Partners, at least until our transaction closes. And Insight Partners is a pretty standardized process for what they expect portfolio companies to report on. And it is a lot of the same sales marketing channel metrics we've been talking about today. So my board deck is essentially a recap of marketing's contribution to all the go to market metrics we just talked about. With any other thing that I think is important, how we might be changing positioning, market trends that are changing big important projects that we're taking on, that's probably 20% of the story. 80% of the story is more. How is Marketing contributing to the business, financial metrics. And honestly, board meetings often always come down to the same conversation. Do you have enough pipeline to hit this quarter, next quarter and the rest of your next fiscal year? That is what every board meeting I've ever been a part of is about. So making sure that you have a narrative to support that is super important.

[Tom Wentworth]

And just three or four years ago, do we have enough pipeline? That question get asked, okay, just dump a million more in Google Ads, hire 30 more SDRs, we'll get to our pipeline target. But that type of stuff doesn't work anymore in the new environment we're in from an efficiency standpoint and cost effectiveness standpoint. So the answer that people had in 2020 or 2021 to those questions from a CRO or a CMO perspective is really different. Now the real question is, what is the ROI that we get on the 30 million we spend on marketing and SDRs?

[Chris Walker]

Yeah.

[Tom Wentworth]

And if it's 2 or 5 and it should be 10, the real metric is we need to improve the ROI of these things and then we get double the pipeline. I think that people don't really see that distinction here between how do we hit our pipeline target and then improving the effectiveness of everything that we do instead of just spending your way to get there, which has been the historical way to do it.

[Chris Walker]

And the biggest lever is win rate. I mean that's something that marketing can control. There are programs that we can run. I'm at the recorded future client conference right now in dc. That's an investment that'll have an impact on our win rate for sure. Like there are a ton of things marketers can do to impact win rate. And as a lever that can have the biggest leverage in the funnel, much more so than trying to fill the top of the funnel. And I think it mostly gets ignored or it's like, well, what can we do? It's out of our control, but it isn't. There's a ton of things that we can do to impact Monroe.

[Tom Wentworth]

Let's go there because this is an incredible conversation. But traditional marketing metrics wouldn't. It would look like if you spent money here, that it wasn't working right if you're measured on just pipe gen or something like that. So how do you frame it internally where if you go and do these events and digital to active in pipeline, you run direct mail campaigns to people that are in stage two, how are you going through? And that million dollars or more that's being spent on programs, how do you justify that?

[Chris Walker]

So first of all, shout out to direct mail. You know, I'm the direct mail king. Love that, Love me some direct mail. I love events. Back to going into fpa, we have a model. Essentially it is number of marketing campaign touches on open opportunities. So we can go and say if I get in front of prospects via events that we're doing like our current client conference or if I get in front of them with direct mail, pick your channel. That at least is a reflection that marketing is getting in front of the right kinds of opportunities. And if I see a correlation with win rate improving, I can make a pretty educated guess that marketing was able to impact that win rates. The problem is it takes a long time to see things actually play out. But even getting anecdotal feedback just four weeks after you do a big event, go ask sales, hey, did this event help you out? Were there any deals we closed because of it? Share those wins in a slack channel. There's a lot of things you can learn just by asking questions. But for us, we definitely look at how many marketing campaigns get in front of different types of open opportunities and then we make the connection at the end. And if we did that, good things are going to happen.

[Tom Wentworth]

Yeah. And let's just go to as a top level allocator. Right. As a CFO or a CEO when you look at that and you could say I could hire four more reps next year for a million a year, fully loaded or I could deploy $1 million in marketing toward this part of the process and you would have to decide which one's going to give you a better net impact. Yeah, but in a lot of cases it's deploying different types of sales enablement marketing, there's other process control data. There's a lot of things that you can do inside of the process outside of adding headcount. That would be a better investment to optimize that part of the process specifically. Love those anecdotes.

[Chris Walker]

You know, marketing shouldn't just be the pipeline. It's not. We are the pipeline team, not the pipeline generation team. And I think we should spend at least a third, 50% maybe of thinking about things that ultimately are marketing to open ops, whether they're renewal, new upsell. We certainly do that at recorded future and it's probably 30 to 40% of our time and brainpower.

[Tom Wentworth]

Yeah, we do that analysis across marketing budgets today. And almost every marketing budget is skewed toward pipeline generation just because of the metrics they get scored on. I've been trying to communicate to the CFOs and the CEOs. As long as you keep scoring marketing this way, you're not going to get investments on a user conference. You're not going to get a million dollars to get through your win rate from 7 to 13% next year. And I think that we really need to be. What we do at Patto is you take the marketing budget, right, whatever you have, and then you actually divide it toward. This is what we're going to use to create pipeline. This is the ROI we're going to get out of it. This is how much pipeline we're going to get in the middle. This is how much we're going to spend to help sales close, new logos, open ops. This is how much we're going to spend. This is what we're going to do. This is what the impact is going to be. And you could do the same thing on renewals and expansion, however you wanted to play it, which gets driven by existing performance data. If your win rate goes down, applying investment there to fix it is a smart move. Usually. Great stuff. Let's keep it going.

[C]

Got a question from Duke.

[D]

Hey guys. So the finance team that I work with now typically hasn't been involved in these conversations in the past. My question is, what's the best first step to ease them into this process before evaluating? If you need an outside resource outside.

[Chris Walker]

Of the company, I think it's on you to educate them on marketing. Like I think most people who do FP and A work, they went to school for accounting. Their idea of fun on a Friday night is taking on a Vlookup challenge in Excel. If you get them excited about marketing and the potential for marketing to impact the business in a positive way, then I think it's, you know, getting them involved in some projects. Find a project you can partner with cac. Hey, I really would love to understand the CAC at our business. Can you help me work on a CAC project? Great way. I think I would just find a project to partner with them on and slowly start the indoctrination process of getting that team to understand that, hey, they can be a part of this growth engine for the company, which is a cool way for they want to do that too. Like they want to be a part of the growth story so you can sort of bring them there. And maybe in your case you've got to start a little bit of education like a project.

[Tom Wentworth]

Yeah. And I think if you're above 20, 30 million in revenue that go and get someone on the outside and make it Go faster because the time matters more than. Yeah, love it.

[D]

Thank you.

[C]

Okay, this one is about annual planning. So what type of prep do you do as a CMO for kind of this first initial annual planning conversations and then what do you expect from your team once you get a little bit further in?

[Chris Walker]

Yeah, so we start our annual Planning in late Q1 of the preceding year. So like in the end of March of 2024 we started 2025. So we have a strategy team that sort of lays out three year vision and gets the company aligned on three year vision. Sometimes three year vision has product components to it, it has go to market components to it. You know, we may decide that we want to win in a certain market. So if we decide that in March, it's pretty powerful to be able to start to get that ball rolling. Once we hit middle of the year, we finalize the three year strategic plan. Once we get into Q3, we start then going to all the business leaders to say based on this three year strategic plan, what's going to happen over the next 12, 18 months? How is that going to impact your organization? Do we need more people in a certain function? Do we have some geographical expansion? Are there new products we're going to bring to market? So we start to think about headcount and budget implications of changes to strategic plan. And then once we hit Q4, that's when we start to finalize what's top line number going to be, what's bottom line number going to be, how much are we going to allocate to sales and marketing and then how is that sales and marketing going to get broken down to my point earlier? Sales usually wins that conversation because they start with how much headcount capacity and then sort of everything else might go to marketing. I would encourage you to partner with your CRO to say let's think about hey, we put an extra million dollars here. Are we going to get better impact than 3 BDRS or 2 more CSMs or pick whatever your role is and we definitely do that at recorded future. And then as we head into later into Q4, we present final plan to board who approve final plan for execution on January 1st.

[Tom Wentworth]

How do you decide how you allocate between headcount events? Digital.

[Chris Walker]

Yeah, I mean that's a. So that's with. I mean I hope for most organizations and this is not always the case, but you have some sense of what works in marketing, not what works in your go to market. But we have some sense that there are certain investments we make that are good at sourcing ops, we have some investments we make that are good at accelerating ops. So over time we've been shifting more. It depends on where the growth areas of your business are. So if you're growing expansion, for example, as you get bigger, expansion tends to be a bigger piece of the pie. So we will put more into things that we think are going to help us with expansion. If we have growth in some region, if we think we're going to grow in Japan faster, we're going to put more acquisition budget into those regions. So those things generally define it, but this is where FP&A helps. Like they have the models.

[Tom Wentworth]

How does that get decided? Because I see a lot of companies think about that stuff, but almost always run into alignment problems. Like you got five people vying for their own ideas. You can't get alignment. Eventually someone either makes a decision. Like what?

[Chris Walker]

Yeah, by that point I'm empowered. Once we get to the point where I sort of know what the marketing budget's going to be and I know what the growth vectors of the business are, we're going to grow expansion, we're going to take new logo down as a percent a little bit, we're going to grow this region and shrink this region. Then essentially I can go back and just start to allocate. And if anyone complains, I just say, look, you know, we're scaling back this region. It's why you saw your headcount not get approved or whatever. But it's based on the fact that we have exact level agreement on the things we're going to scale up and scale down. I'm trusted to within that boundary to do what I've got to do.

[Tom Wentworth]

That is. And it's so powerful to have exact alignment on these are the factors of the business and then be able to use that directly into your marketing plan. And the million that's so powerful and.

[Chris Walker]

We have those by like July. This is a little bit unique to recorded future, but to have that in July. So you spend the second half of your year not being surprised about what the next year is going to look like is incredible. Like the earlier you can make those sorts of fundamental decisions super valuable.

[Tom Wentworth]

Most companies are still trying to figure out how to hit Q4. They like haven't even thought about 25, which to be clear, you know, we're doing too. We want to hit, we want to.

[Chris Walker]

Hit Q4, but we do those things in parallel.

[Tom Wentworth]

Yeah. As the companies get bigger and more mature, these processes really get a lot more refined and smart for sure.

[Chris Walker]

We had the same process, honestly, when I started at 90 million in ARR. So we've had this process. It doesn't have to be a big company process, just always been that we start strategy early and I think it's a huge win if you can do it.

[Tom Wentworth]

Yep. Cool. Let's squeeze a few more questions in.

[C]

Awesome. I'm going to go to Doug next.

[E]

Hi Chris. Thanks for joining. Tom. Hey everyone. My question has to do with looking at the bowtie model. I'm kind of intrigued by the notion of how marketers can support the CRO and the Revox folks that are looking at the whole sales cycle and with respect to partners, how that gets rolled in on the FY25 planning, what I did, I put a little graphic in there because the question may not be short enough. The sales cycle has these stages with a partner ecosystem that needs to be supporting each stage. And why not come up with a marketing playbook or some kind of framework that aligns with this architecture. For example, affiliate partners being able to support the marketing and the CRO needs. And the Playbook for marketing support is different with affiliate partners than with strategic partners or reseller partners or integrator partners. In other words, it has to be like four partner books, playbooks for four different partner types.

[Chris Walker]

Yep.

[E]

Have you seen this or are you working on this? Or can you make any referrals to marketing leaders that are putting together FY25 plans that support this architecture?

[Chris Walker]

Yeah, this is literally what we do at Recorded Future. So as a cybersecurity company, our primary partners are technology partners like Splunk, who we feel pretty good if an organization is using Splunk, they're going to be a good fit for Recorded Future. There are OEM partners who use our data and their products, and then where we spend maybe the most of our time is with the value added resellers or VAR channel organizations like GuidePoint and Optiv who are trusted partners to security buyers. So for each of those channels. So for protect partners, for resellers and for oem, we have different marketing plays to different content that we create. We have different enablement programs that we run. So that is very much the part of every cybersecurity marketer's playbook. And I think in general, a high functioning channel can be one of the best levers you have, because when your tech partners or VAR partners bring you a deal, you're going to see win rates double. At least that's kind of what we see. And we're going to be selling Higher in the organization, sales cycles are going to be much shorter and deal sizes kind of the same. So I think that's the right model.

[E]

Yeah. And I see that supporting the new CAC LTV ratio expectations, et cetera.

[Chris Walker]

100%. No, it's one. I mean it's very low. I mean the cost for channel business is generally the margin you give your partner. So how many points you give them on a deal. And that can be expensive but you know, you have key. It's not nearly as budget dependent as other marketing channels tend to be. It's much more relationship dependent. It's people dependent in my experience. But yeah, I mean a high functioning channel is a very good LTV to CAC investment.

[E]

Yeah, it's cool.

[C]

Oh, I go ahead and unmute yourself real quick.

[Chris Walker]

I mean my response was so genius. You just decided to, you know, there's nothing else we could add to.

[Tom Wentworth]

It's all good. We'll go to the next one. That was a great answer, Tom.

[C]

Okay, sounds good. So this one was a comment about headcount and you mentioned prioritizing smaller teams. So when do you actually think about bringing on a headcount and what requirements do you think about to justify that headcount investment? Specifically on the marketing side, there's what.

[Chris Walker]

I've done historically and what I want to do going forward. I've not always been great at this, but I sort of feel like you should hire someone when you've done the job or someone on your team has done the job you're trying to hire for. You feel the pain of that job very vividly and you sort of. You hit a breaking point where you no longer can do that job again. That's when you hire somebody. So you take something like social media. At recorded future, we didn't have anybody who sort of owned social media. We spread the responsibility across a bunch of different people on the team. It became miserable. No one made it a big part of their job, but we learned kind of what worked and what didn't work. So by the time we actually did prioritize that headcount, we knew exactly what to write in the job description. We knew exactly what the role was going to be. We knew exactly what the outcomes we would look for would be. And it was super easy to hire. I think the problem comes when you hire because you just think that, oh, I just raised 30 million in my series B. A series B company should have these roles, therefore I'm going to go hire these roles. No, either the CMO or someone else on the team should feel that problem at a very meaningful level, then get out there and hire somebody.

[Tom Wentworth]

Said another way, simply, you need to figure it out and know how it works before you hire someone else to do it.

[Chris Walker]

Yes, indeed.

[Tom Wentworth]

Hiring someone to figure it out. Then you don't know, does this person suck or does this idea not work? And then you don't know 100%.

[Chris Walker]

And that's where a lot of hiring happens is. It is hiring at the expectation of what marketing is supposed to do, not the real problems that we're currently facing at our current size and scale.

[C]

Okay, a couple more questions. Maybe one or two. We've got Neil.

[D]

Yeah. Thanks for being here today, Tom, and congratulations on the acquisition. So I've been in cybersecurity for 15 years, and everywhere I go, every company seems to struggle with referenceable customers, marketing partners. I'm curious what you have found to be strategies that work well with getting your customers comfortable, particularly in cybersecurity, to have their logo on the website to be named in a testimonial or otherwise, like a named case study.

[Chris Walker]

Neil, you just gave me the goosebumps here. I swear to goodness, these are goosebumps because you described the bane of my existence in my five years at recorded future. It is incredibly difficult. So the problem that we have as cybersecurity marketers is no one wants to broadcast their attack surface. So by saying I use this vendor, you're telling every potential adversary, oh, they're using this. If I know how to break into this, I can break into this company. And no CISO wants to ever support that. So it is not easy. And there are some companies, Sentinel One and CrowdStrike and a few others who have figured it out. And there's a part to it. Money talks. So a big part of where some of the bigger companies can have success is they negotiate it into the transaction upfront. And for a 50% discount, we will give you, you know, the ability to use a few of these things in your contracts. You should have language that says that, you know, you're able to use their logo. If you don't have it, it'll get negotiated out nine times out of 10. But you should have contract language in there. But the best way to do it, and the only way to do it, is building a relationship with the customer success team or the people that talk to your clients constantly. Be asking them, who are your happiest clients? Give me an introduction to them. I'd love to talk to them. And you won't have a high Hit rate. But if you do this over months, quarters and years, you can get there. If you go [e-mail], you'll see some scrolling logos on our homepage. Every single one of those was blood, sweat and tears to fight to get permission to use that. But if you keep at it, if you talk to customer success people who work with the clients, you'll find a few that you'll be able to get it through. But it is brutally difficult. And I get so jealous of every Martech company that dumps all these incredible logos out. And I'm like, why can't we do that?

[D]

Yeah, no, I appreciate that.

[Chris Walker]

Keep the good fight there. You got this, Neil. You can do it hand to hand combat.

[C]

Love it. All right, last question here, this is submitted. Can you give an example of when you justified an investment that got delivered from marketing instead of sales? Basically time when you worked with the CRO and the CRO agreed on maybe moving investment into a marketing channel?

[Chris Walker]

Yeah. So I can say that happened. I can't comment on our current budgeting cycle. We're not quite far enough along. That happened in our last budgeting cycle. I don't think it was a huge shift, but our CRO was in partnership with FP&A, so we have one FP&A person who sort of oversees the sales and marketing line item. And between myself, CRO and this person in FP&A, we decided to shift a little bit of sales budget. I think ultimately it was headcount budget, which is what most of sales budget is over to programs budget to support the growth of a region where we didn't have any sellers in that region anyway that we were going to hire sellers in the region. Why not bootstrap the region with marketing in advance of the sellers getting hired? Therefore we can move some of the expected sales costs over into marketing to sort of warm up the region. So we essentially delayed some hiring to give marketing a six month chance to go and do some stuff in that region. Some small things like that happen, which I think is a win.

[Tom Wentworth]

Honestly, I just think clearly isolating. Do we have a sales capacity problem or a sales performance problem or do we have a pipeline problem? Hint, most companies know how to sell if they have enough pipeline. It really almost always is a pipeline problem. Sales is pretty straightforward, especially once you get to scale. Like you have a ton of data, you have a bunch of proven sellers, you have a process, you have people that want it, you have customers, it's usually a pipeline problem. And then if you can identify that it's a pipeline problem. You know that instead of hiring sales reps that are going to have to go out and self source 50% of pipeline. A super inefficient way to use a quarter million dollar a year salesperson. The investments need to go into marketing and SDRs. Or it's just an ROI. No additional investments. We need to just make everything that we already spend better. Giving more money to somebody that doesn't know how to take care of money or has a poor roi. Like I wish more marketing leaders would think about it like it was their own portfolio of investments. Yeah, if you kept spending money on this event and it was $500,000 a year and you couldn't feel very good about the impact on that 500,000 on your portfolio, then you would cut it if it was your money. And I just feel like we need to be thinking a lot more like that from the marketing angle.

[Chris Walker]

Hallelujah.

[Tom Wentworth]

Amazing. Great way to end. Tom, thanks so much for being here. We got into some like, cybersecurity. It was meant for FP and A and finance. But I love, especially with all of your wisdom and experience, being able to help people in a bunch of different ways. That's why people come on live. So appreciate you all being here. We don't know who our next guest will be, so that'll be a mystery on me to start to figure out. But we'll be back again next week, Tuesday 12pm Central for another event. So thanks y'all for being here and we'll see you again soon. Thanks Tom. Good to see you.

[Chris Walker]

Thanks everybody.

[Tom Wentworth]

It.