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- [00:00]
Chris Walker
You're listening to Revenue Vitals with Chris Walker. Cool. Let's do it. Everyone else can join as they come in. Welcome everyone. Last week we took the week off because we were attending as a team. We had the Paseto team off site, everyone in town in Austin, Texas and we attended the Pavilion Go to Market 2024 conference which was also in Austin, Tex, Texas. Maybe 500,000 CEOs, revenue leaders, CMOs, rev ops people. I gotta say, from my own personal perspective, I thought that the content was average, maybe a little bit even below average. What I think is a lot of people's sentiment in conferences. Nothing against Pavilion. I think people see this across the board in terms of conference content. But the networking and outside events and hearing people's real life stories and what they're going on, like it was really eye opening. So I'm going to share some reflections on that as well. I gotta say that what we did at that event, we had four people from our company, all senior level people. We didn't buy a trade show booth for $45,000 for a 10 by 10 or whatever it costs. We just went there and traveled. It cost the company $6,000 including T& E and tickets. We opened up like four or six total opportunities. So a significant ROI and pipeline. With more preparation and things like that, we would have been able to generate a lot more. It's just weird because I'm pushing a lot of companies right now in our recommendations to cut and spend less money on these big trade show booths that are built for brand and spend way more time at events in the lower funnel, accelerating deals that are already in pipeline, opening up new pipeline where the ROI is so much more clear. You don't have to buy the booth, you can send people on tne. Therefore the cost of actually attending the trade show is like 10% or even less than that of buying the booth and having all the team fly out. And so the difference in the impact of focusing more on the lower funnel and results in addition to the lower spend drives dramatically improved ROI on the total event spend that happens in the go to market budget. It's just not everyone should do that and take that out across the board. But that is a pattern of what we're recommending for companies that might spend 4 million on trade shows in 2024. And we're trying to adjust the strategy in 25 and 26. So the reflections on the Pavilion conference, and this is from my own market research, my own anecdotal stories and some different things that I learned the number one thing that keeps coming up in the conversations across the board is we have a pipeline problem. So it's actually not exactly what I had expected when I went there. But across the board we have a pipeline problem. Specifically coming from CEOs and chief revenue officers. The undertones of that are that as a CEO or a CRO, they don't know how to diagnose and fix the issue, that they can't run the pipeline creation process in the same methodical, predictable way that they can run their sales team and that they do not have extreme confidence that their CMO can fix the problem. So those are some interesting undertones. My perspective is that while the CMO should be bubbling this up as a key opportunity in the business, that it's not the CMOs responsibility to fix this. That the CEO and the CFO and the board must align that the way that we create pipeline, the way that we measure marketing and SDRs, and that thing is the biggest issue in our company. I'll quantify the impact of how much impact it is to a decent sized company. It is extreme. And that in order to change it, we need to have alignment across the board in how we plan, how we measure, how we report to the board, how we hold people accountable, how we set comp plans. And it needs to fundamentally change. And so that's a key point here. This is not saying that the marketing leader can't do it. I'm saying that the marketing leader is not capable and talented. They're not in a position in the organization where they can have enough influence across the entire set of investments of 50 million or more dollars that go to sales, marketing, account management and everything else. So this really needs to be driven by CEO and CFO and supported by the revenue leaders. And any business savvy CMO should support this change to be more accountable to overall business KPIs and away from influenced revenue, marketing source, revenue leads, even SQLs, all these intermediate metrics where marketing can hit their goal and the company can miss growth and the sales team is laying off people While marketing celebrating 107% a plan that should fundamentally be impossible. And so let's talk through actually quantifying the problem. Let's talk through a 50 million ARR company over the past six quarters, from the middle of 2023 until now, they've in combination of their marketing and SDR investments, they have seen declining ROI from where they used to get around $8 in pipeline for every dollar invested at around a 10% win rate. And now all of a sudden that number is three. So you see this more than 50% decline in total ROI where they put $10 million in, and they used to get 100 million and now they're on track to only get 54 million or whatever the math turns out to be. So they're missing 50 million in pipe a year at a 10% win rate, $5 million more or less in revenue. The additional money that could be invested in sales headcount, the productivity of sales and SDR is increasing. And you can actually quantify the impact on this. If they had this in place, their growth rate would be an additional 10%. Their CAC would go down by at least a year, but maybe close to two years in total. And it would have a more than a $250 million impact on the value of the company if solved within 12 months. Every single quarter that they don't fix it, it costs the company and shareholders more than $50 million. And people are sitting there saying, oh, it's September, I guess we'll just wait to fix it until our fiscal year turns over in February of next year. And in the meantime, it cost them $45 million to sit and wait and not fix that problem. And like I've said many times, if declining ROI on marketing and SDR investments is the core issue, you will not get there without an intentional cross functional plan and new key performance indicators that drive your leaders to fix the actual fucking problem. And so I don't know how I can communicate this more clearly. I mean, all the people that are here know this. And this event was the thing for me that confirmed and showed that this is a massive opportunity for everyone. It's a massive opportunity for my company. Paseto is going to be a big company. There will be other people that fall in the space that build big companies. There will be people that leave as a cmo, become a fractional and build a million dollar fractional business around this. There is massive value to be had. And it is such a particular skill that most people do not have it. And the funny thing is almost nobody inside the company is capable of having it. Because you need to see dozens, fifty, a hundred or more companies to actually know how to solve it predictably. And so this is not saying internal people suck and external people are good. It's saying that external people have a perspective that is impossible to get from an internal W2 employee that companies need to fix this problem. In addition to that, I've been consulting with CEOs. Let's say we're In a meeting, reviewing the data. It's a CEO, CRO and CFO in these companies. Many marketing reports into the CRO, so they're not involved in this meeting. And we have this meeting and midway through the meeting the CEO will say something like, oh my gosh, we're gonna have to like find somebody. This business is a turnaround. At a hundred million dollars in revenue, they'll use the term my business is a turnaround. Another $20 million company I was consulting with, the CEO said if you look through all our data, you're just going to see a team that's failing. The $20 million company where the CEO said their team is failing have grown from 9 million to $18 million this fiscal year, 100% year over year growth rate and they think their team is failing. There's a $50 million company that's growing at 22%, needs to fix one problem and they become a super valuable SaaS company. And the CEO thinks it's a turnaround. The conclusion here is that CEOs do not know how to properly judge the performance of their go to market. That's the insight. And so how in the world can you figure out how to steer your ship to the destination you're trying to go to, exit to private equity, ipo, whatever that is, if you can't figure out where you are right now? CEOs know that they're in North America. They need to know that they're on the corner of 6th and Colorado looking southwest. They need to know where they are so they can properly manage the resources investments and drive the company forward. This whole thing where companies are doing great and because of the unrealistic goals from investors or the pressure they're getting from the board to do unrealistic things, even though company performance based on metrics is absolutely incredible. Top 10% performance and they think they're not doing good puts all this undue pressure on the sales team, the marketing team, to feel like they're losing drives. All of the long term behaviors and your company growth goes from 100, then you do the wrong things, it's 40 and then you do the wrong things and you're at 0. And I'm watching VCs at 10, $20 million make recommendations to totally rip out the go to market strategy and put a new one in at $20 million. And it will destroy the companies that do that. Trying to change from selling a $500,000 deal to a $20,000 deal or vice versa, or trying to go from PLG to 100k deals and make that change in one year, you'll destroy your company. And VCs are pushing that because their funds are about to show that they're way underwater and they need to accelerate. They're either like this thing's going to burn out or it's going to be our $100 million winner. And I need to find out in the next three years. And it is terrible business advice. And so as CEOs we need to know confidently we have a clear, accurate picture of where we are this second so that we can drive our road map of where we're trying to go based on where we're going. And so I'd like to introduce a concept here for people to think about and this became clear to me at the Pavilion conference, is that if you think about, if you have a scaled team of resources, technology and tools and things like that, think 50 million ARR. What is the first thing that you need for a sales organization to run properly? You need a proper methodology, you need a framework, you need a way of thinking which then drives the data that you use, the KPIs that you look at, how you forecast and model, how you hold people accountable, how you compensate them. And companies know this very clearly that they need that. And it's different than gong, it's different than hiring an outsourced SDR firm. They are buying a methodology to run their sales process and their sales resources because process matters when you're at scale. And through that companies can almost repeatably, predictably run a sales team to a target PRP and quota attainment and be able to run that whole thing. And CEOs and CROs get it. And then you should ask the same people what is the methodology they use for their pipeline creation process. Companies don't have one. So what do they default to? The demand waterfall that was published in 2012. Or they try to implement the demand unit waterfall, a ABM from 2018 that has no practical sense of how to actually be implemented in a CRM. And it breaks every time and they fall back on the lead gen waterfall. But now instead of a lead gen waterfall, it's marketing sourced, SDR sourced, sales sourced and partner source, creating four individual low quality assembly lines instead of one unified team that drives pipeline and revenue and appropriate unit economics. And so what companies need is not an attribution tool. It's not going to fix it. Firing your CMO and hiring a new one, not going to fix it. Having a pipeline meeting with your CRO and your CMO on Wednesday is not going to fix it. Hiring an agency or consulting firm not going to fix it unless they give you a methodology to run your pipeline process on that your whole company can adopt and run on. It creates the lack of accountability in the marketing department, which, by the way, deploys probably 80% of the investments to drive pipeline and do not have accountability to a unit economics target. And it's one of the most painful, expensive problems in the entire B2B sales and marketing industry today. And so I'm just calling out what I see. I can clearly see the issue now. If you look at the iceberg, it is so far underneath the iceberg. And everybody tries to fix it with the things that are on top of the iceberg. The meetings, the job titles, putting rev ops in charge of strategy, all of the visible, easy things to change instead of the underlying framework, data architecture, all the things that matter. Why? Because they're fucking hard to fix. But I just framed it up for you. Fifty hundred million dollars company, you fixed this problem. You add a half a billion dollars to your company's value, and if you did it, you could fix it in 18 months. And so is it worth it as a CEO or a CMO that owns 1% in stock options or a CRO that has a couple points, Is it worth it to go out and try and get that $500 million by being more efficient, creating a path of scalability, and delivering faster growth with less spend? That's what we're after here. And what happens that that means we can spend more money and we get more customers in a predictable way. And so I love that that was two weeks of consolidated learnings and knowledge. A lot that's coming directly from the market. And as we consult with executives. So now would love to get into some discussion. There was like five pretty meaty discrete topics there. So happy to go and talk deeper on any of them.
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Sydney
All right, we've got two questions queued up in the chat here, so.
- [13:39]
Chris Walker
Oh, actually, I got one more. I got. I got one more point. I just looked down. Companies are so obsessed with the idea of benchmarks right now. They're like, let me go out and, like, measure how I perform against everybody else. And sure, I think that there is some value in there. And I use some benchmarks. I'm not here saying that, but every company should know clearly what is the unit economic target for each part of the process. And you don't need benchmarks for that. You can literally just do the math and say, in order for us to have a two year CAC payback. We need to create $20 in pipeline for every dollar we spend on marketing at a 10 win rate or $10 in marketing for every dollar we spend on marketing SDRs at a 25% win rate. And you can calculate what you need and then when you're off you can see this. If we perform at this level, our factory will not work. We will not have enough pipeline to fuel the sales team. We're going to grow at 10%, but we're going to spend that like we're growing at 30%. It's going to create financial degradation. And so the funny thing, and I want to go into this and I'm going to make it up on the fly because I haven't prepared, but I'm really trying to hammer home this point. If you have a factory and you need to put together a car and you have three different departments that help put together the car, you have the people that put the wheels on, you have the people that put everything else together and you have the people that buy the supplies, whatever that in a factory, each individual department can succeed without the factory succeeding. And imagine if you run the factory and you're making cars for a hundred thousand dollars and selling them for $20,000. That's what most SAS revenue factories do today with a 500% go to market efficiency. They make something for a hundred thousand and they sell it for 20,000. And it takes them seven to 10 years if they're lucky to make the profit back. And so we need to have departmental level optimizations and then somebody else that looks at the whole thing. Imagine if you went into your factory, there's a thousand people that work there and you look at one person that puts the wheels on and you say what's the ROI of what you do? That's what we say to a performance marketing manager. That's what we say to an SDR sometimes. That's what questions that get asked in the board, in the board meeting or the executive meeting sometimes. What's the ROI of this agency? It's just like saying what's the ROI of the people that put the wheels on? And so I think that there needs to be departmental level accountability and I've totally bought in with that. And I'm not suggesting that people change their org structure. I think that's actually the lowest priority thing to do. But we need a separate set of stuff that looks at the whole thing together so that each individual part cannot succeed while the whole thing fails. And the people that judge the big Factory need to be out of the little factories. It's the same thing that happens in a factory. People that optimize the factory are not the people that work on the line. It's different people, different skill sets, different scope of work, different way of thinking, different way of working. And right now in go to market, most companies rely on the people that work on the lines, that make the cold calls, that run the media, that build the trade show, boost those people to make the optimizations in the factory. Which leads you to micro departmental level optimizations that never get you to where you actually want to go. And you get stuck in this little trap where you're trying to get 1% better on something that is 100% not working. I get that you want to look at benchmarks, and there are valuable benchmarks, but set your own proper unit economics targets regardless of the benchmarks, and then you don't have to look for it. You know exactly where you need to be and you know exactly how far away you are. And if it's a small part away, then you could figure out incremental to get there. And if it's a big part away, you might want to find partners and external people to help you close that gap. Okay, now we're ready to go. Thanks everyone.
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Sydney
That was an important point. So I'm glad you got it in there because I'm sure we'll have questions on that. Okay, bringing on David.
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David
I don't know that I had a question. Did I have a question?
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Sydney
You did have a question, but we can move it on here.
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David
I mean, I just say this, you're on fire. Perhaps, you know, going away for a week and coming back. Or maybe it's just interviewing all those folks over at GTM 2024 gave you a bit more confidence on the things you're already saying, but 15 minutes worth of conversation and you kind of laid.
- [17:52]
Charlie
It on the line.
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David
Thank you.
- [17:53]
Chris Walker
Hell yeah. And it's the clarity around like what the actual problem is, how they discuss it, what they're trying to do to fix it, and knowing clearly that a majority of the market is trying to solve this critical, super expensive business problem in a way that will not work. And so we see a big opportunity there.
- [18:10]
Sydney
One of the questions was where do the CEOs get a misshaped perspective?
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David
Oh, right, sure. And you kind of answered it immediately while I was typing it.
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Lynn
So gotcha.
- [18:21]
Chris Walker
It's just hard when you're in that little bubble to try to have a real understanding about all the other things that are going on outside your bubble. And then where you stack up, it's like running a race by yourself and thinking that you're fast or thinking that you're fat and slow. And then you run with a hundred people and you realize you're in the top five or in the bottom five, you know, but without the perspective around it, you just see, oh, I'm in here. Our VC wanted us to grow 130%. We only grew at 96%. We suck. Right? And companies will do that when they're supposed to grow 40. And they only grew 36% too, in the upper market. Not having the perspective that most companies have slashed their forecast quarter over quarter for the past 3, 4, 5, 6 quarters. And that CAC is going through the roof for a lot of companies. And a company that does not have that happening is growing at 100% is a top 5 or 10% company by far. And it just blows me away that the owners, the CEOs of the company that communicate these stories to the board do not have the right story. The story is we're doing great. And that's the story that you tell to your team that rubs off on how your customers perceive you, how you can control the story to the board. And I don't think there are almost any CEOs that can really figure out where are we and go to market. So they rely on the QBR decks that are filled with tactical data, no executive level conclusions. It's a bunch of data and reporting and no insights. And there's competing data between what the CRO is saying, the CMO and the marketing team and the agencies are saying what the SDR leaders saying. And really the framework is broken because trying to take these are marketing sourced. We give all the credit to marketing. These are SDR source. We give all the credit to SDRs. This is sales source. We give all the credit to sales creates three individual things that have overlapping costs that are not reflected in the model. When an SDR gets an outbound meeting, you still need the sales rep to close the deal. When marketing gets an mql, you still need the SDR to get the meeting. You still need to get sales. And so by looking at this siloed thing, you actually create duplication and triplication of costs that are not reflected in these individual models. So the SDR team thinks they're doing great, they're hitting their outbound meeting target, the marketing team's hitting their MQLs, maybe even their SQL target. But when you put it together, it cost them Twice as much to create pipeline and they're creating half as much pipeline as they actually should. And that is the fundamental issue. And the reason is because you have teams competing with one another for who gets credit for the lead rather than taking the things that marketing does the best. Reach a broad audience, often always on have lightning strikes and product marketing and strategy and take those things and focus your marketing team there and stop focusing them so low on all the money on performance marketing bullshit. Max out the performance marketing. The supply chain. SDRs can go and get meetings from wherever they come from. Look at all the signals together and you can double the productivity of your pipeline creation team. And so this is just because nobody has come up with a pipeline framework. CFOs and other people have made the decision in the modeling that we're going to look at it in this way. And then they try to think about how many demo requests they're going to get from paid ads versus organic versus Google search. And that's not really how it works. And then they're actually, it's from Google Ads, from LinkedIn ads and their demo requests. And they're looking at those three things together as if the LinkedIn ads and the demo requests don't have a ton of overlap. And so anyway, the model is just. When you look at the lead source model, you have a very incomplete picture and you miss all of the value of getting all of your TAM that doesn't know about you to know about you without spending thousands of dollars on outbound and doing sales pitches to people that don't care at the moment. And we just need to be leveraging marketing in the way that it can provide the most value to the business. And right now the marketing KPIs literally disallow it. You cannot do the things that are best for the business based on the marketing KPIs that exist today. I am so fed up with it. I sit in the pavilion marketing breakouts and listen to all of the that gets discussed there. It's literally so frustrating and many people think that I'm here trying to put marketing down and really I'm the only one that's trying to save this profession. It's ironic because I'm coming at it and I'm being aggressive around it because it needs to change. And I'm praying there are, you know, I think 1 out of 20 CMOs that I meet that are on board with these changes and probably driving it with their CEO and cfo. And there are many that just succumb to the old bullshit that Gartner had forced or continue to feed them and just 18 months spin around hire a CMO, get measured on the wrong things, do the wrong things, don't have a story to tell, asked to resign, repeat. Hire a new cmo, get measured on the wrong things, do the wrong things, don't have a story to tell around business results because there isn't one. Ask to resign, repeat. And companies just go in this spin around a circle recycling the revenue leaders when the problem is actually not their fault. And so I'm ready for some CMOs to prove it because almost immediately you shift this and you have a clear story to tell to the board around your impact that you struggle to put together in 120 slide QBR deck today in two metrics. You should be able to know the impact of your marketing on a spectrum with two total metrics, not a 120 slide QBR deck.
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Sydney
All right, we are going to go to Charlie next.
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Lynn
All right, well thanks Chris. Welcome back from the go to market 2024. I had a question but I'm you know, based upon your comments and your opening your cold open, I'm going to change it to a comment with a question. But I was listening yesterday and this morning to David Spitz on with our Pavilion friends Sam Jacob and aj Bruno and Assad and he was talking about go to market efficiency. And one of the things that he mentioned, which was kind of the McFly moment for me, he said growth has changed significantly for the non AI, non vertical SaaS. Growth, growth expectations have changed and we haven't readjusted our go to market organizations to represent a lower growth. And so if you're not growing at 30, 40% or not even growing at 25 and you're growing 12 to 15 or 10 or 8 like Salesforce, you don't need that same organization. And so I'm not sure that we have really acknowledged that. I think there's a structural change in the environment that probably a lot of go to market organizations haven't acknowledged regarding slower growth. I mean we have so many more SaaS applications today than we did just two years ago and people aren't buying as many as they used to and the growth at all cost is dead. So that's just one of the comments which I think leads to, you know, that lower interest or in buying leads to lower pipeline. You know, pipeline seems to be, you know, everyone I talk to that's at the top of the list. Like I can't create enough pipeline and I say get in line and you're in good company. And so you know what I really like here, what you've mentioned was like look at your unit economics and target it to your CAC payback. And then, you know, what I'm assuming is that you would say is calculate what you need on the, you can unit economics by backing into a two year CAC payback. And I think that's really, really healthy. The question I have is that if you have these outsize. I think I know the answer. If you have these outsized expectations of higher growth and we're really in a structurally different time now and so how would you help convince these executive teams that maybe we're in a slower growth environment versus 2022 or 2021 and 2020? And my tactical question was what's your favorite metric or calculation to determine that for every dollar invested you receive a specific dollar of output and pipeline. So anyway, but thank you again and appreciate it.
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Chris Walker
Yeah, I got a bunch of notes here. So it's super easy to put together a spreadsheet and say we're at 300% go to market efficiency. A good public SaaS company is at less than 200. So let's just cut 150 people from our $100 million company and cut these programs and all of a sudden we'll achieve this outcome. It's easy to put together in a spreadsheet. It is really, really hard to pull off. Regardless of the sadness of letting 150 people go, you need to figure out what are the lowest performing investments. How do we mitigate risk so we don't cut all these things and our growth slows down our company tanks. How do we preserve culture? How do we improve this metric over 12 to 24 months instead of a quarter so we don't disrupt our entire company and growth path at the same time? And sure there are instances where you have to, but I think most of that is beyond us at this point for most companies. Most companies fix those issues in 23 and early 24. And so most companies have done this for multiple years, right? So results have been going down. They've been just cutting cost. Usually the easiest ones to cut, not the least effective ones. See what I'm saying there? So they're looking at, oh, these external people, we don't have to do a layoff. Even though these 5 fractionals are providing so much more value than our a hundred fucking person SDR team, they're going to be easier to cut. Let's save 25k and cut these consultants so we don't have to do a layoff. Right. And so they'll pick the easiest things to cut, not the highest value. They're basically trimming their sales team. Companies have been doing this and what has happened? That go to market efficiency metric is still going up, which means that results are declining faster than they're cutting costs, which means that there is no strategy around the cost cutting, which is what I've been saying for more than a year. It's blanket cuts without a framework to make decisions around. This is why these things go and this is why these things stay. If you had a strategy around it, you would see improvements in roi. Customers that have been with us for six months experience that outcome because you have an intentional plan to improve that metric. Rather than just lower cost as a percentage of revenue or percentage of net new ARR. It's actually deciding inside of the investments what things to cut, which is something that David Spitz doesn't look at all that often. No knock on him. It's just like a level that we play at that he doesn't at this point. So it's actually deciding those that make it hard. And then I got to say that I think that it will take three to five years. But the VC model as we know it is fucking gone. It's gone. And if you noticed in 2020 and 2021, in some parts, 22, when interest rates were down, did you notice there was a bunch of people that had never been a CEO before that were raising $100 million fund and deploying capital? It was like the people in real estate making $5 million in real estate in 2007. It was the. It was literally the same thing for anyone that was there. And you see all these people being VCs and raising money and they don't know how to run a company. And then they deployed all those investments in 2021 and 2022 that have now seen a 75% decrease in enterprise value at minimum. For those early stage investments, it's basically impossible for them to return a positive return to investors and it will take seven years for the fund to clear or for them to get off the cap tables. On a recap. But the VC model as we know it today is fucking dead. And what's going to happen, and the reason that it's dead is because the valuation commands at companies in seed and series A have gotten so ridiculous that somebody that's investing at that level for 10% or 5% that's going to get diluted five or six times along the way that they can't make a return on their fund anymore. The math simply doesn't work because you're not getting 20x revenue anymore. You're getting 6 to 10. Like whoever just sold there was a big company that just sold. It was a massive deal. They sold for 4.2 times ARR. It's not 20x revenue anymore. That was a massive public company. And so you got 4.2x ARR instead of 20. And now you're investing and you're getting 10% for the same amount of money as you used to spend for 20%. And the VC model is compressing and most companies just aren't succeeding anymore. And so what's going to happen is that those funds are going to clear out the cream of the crop. VC investors will remain. They will get more disciplined around their investments and they'll drive better financial returns. And then the rest of the market, private equity is going to move down market and private equity investments are going to get involved in the earlier stage because they are much better at evaluating and running businesses at a higher success rate than vc. And they will likely drive many of their companies to deliver positive cash flow to investors along the way. Rather than the VC model where you give someone $100,000 check, you get no money for 10 years and you hope that they hit it big at the end, it's a terrible model for investors in the current state. The GPS don't really know what they're doing except for the good cream of the crop. And 99 out of 100 of these companies fails or does not reach a massive liquidity event. And the math squeezing it just makes it impossible anymore. So mark my words, it'll take people three to five more years to see the tide go out and see that most people don't have their pants on. And that model will never be the same as it is today. And you're just. All you're seeing when you think about the unrealistic growth expectations is you're seeing the pressure on the people that run the funds because they need a couple of winners in three or five years they're going to look like a big loser when they lost 50 million of someone's hundred million dollars with no return, negative 50% return when they're expected to give a 3x return. And so you're seeing that pressure from VCs onto good quality $50 million. Companies that have to clean up a couple of things and we'll exit, but they need that exit to be 5 billion, not a billion now. And it changes everything around how the board runs the company. It's concerning. And then there's another thing happening. I think I'm going to call them zombie companies. Companies that are a hundred million or more in ARR have negative revenue growth. Revenue is declining, they burn $100 million a year and they have more than a four year CAC payback go to market efficiencies infinite because they're going backwards. And how can your revenue be declining while you also burn $100 million a year? And those companies, if you look at how much they've raised compared to the preferred stock that every single person in the company, including the founders and founding shareholders, their stock is worth literally zero. And they have to grow the company by 2, 3, 4 times revenue to be able to get a return that clears the preferred stock. That is a zombie company if I've ever seen it. All of you know the logos. I'm not going to call anybody out but there are many of them. Many of the companies that people glorify, enterprise sales companies, PLG companies, they're out there. This is a big lesson for people that build companies today to not get into that problem. Software is so much less expensive to develop. If you are close with your customers. You can build the right things and you don't have to be the fastest dev shop to build the best product. You can be cash flow positive. You can deliver services that get paid, that provide cash flow, that deliver value to customers, that improve nrr. The way that we build companies today can totally change in a way that is so much better for employees, customers and shareholders. That is not the VC model. I pushing 96% of founders to not consider VC anymore. If it's e com SaaS service is definitely not but like it's just not the move for most founders anymore. And then you're stuck with it. If you do it, you're stuck with you. Sign VC and Cedar Series A maybe you can figure out how to recap, maybe you can convince them that you don't need to raise again. But most likely you're on that fucking train burning money for the next five or ten years. Thank you.
- [33:50]
Lynn
You're I like your definition or recommendation on the strategy for cost cutting. That's helpful. And you've also answered the question on what's going to happen to the zombie SaaS companies and that PE is going to move down market to clean them up. So thank you.
- [34:02]
Chris Walker
Yeah, so the zombie companies are not down market to be clear drift merging with sales loft. That's one of them. So these are big companies, big brands and they'll market it as a win, but it was really a loss for everybody.
- [34:16]
Sydney
All right, we've got two more questions lined up here, so I'm going to go to Lynn next.
- [34:23]
Charlie
Thank you very much, Sydney. So I'm joining a startup and going to be reporting right into the board and everything's being set up. So I'm kind of at ground zero, which is a super exciting opportun to come in and establish the go to market metrics. And they don't know what they're doing. The scenario that you've explained, you know, the CEO doesn't know. And so I've been fortunate to be on these calls and I'm learning and I'm so excited. But I actually have two kind of questions. But the first one is coming in from square one and thinking about three phases. Right. I'm going to be setting up all the infrastructure for the end to end for each of their audiences. So there's going to be setting up the tech stack, all the processes. So I've kind of got the MVP stage and then I've got once the tech stack and the end to end is all like up and running and operational and then the third phase would be okay, now I have it all working and how effective is it? So in that context, what would be the KPI stack that you would apply for each of those three phases? Is the first major question.
- [35:50]
Chris Walker
Is it literally at zero in revenue or like what does startup mean?
- [35:54]
Charlie
Yeah, so they actually have pre sold quite a lot. They are just going public. They're probably like a $20 million company. They're selling a energy product and these are 20 year contracts. So it's not like a traditional SaaS where the revenue they could have churn and it could go away. So they're selling an agreement that's 20 years and it's a high dollar sale.
- [36:24]
Chris Walker
A million a year each contract. Yeah, on a per year basis. Just so we can look at it more apples to apples.
- [36:31]
Charlie
Like SaaS, you talking the revenue or the total deal? Because it's Capex and Opex, let's just.
- [36:37]
Chris Walker
Call it 100k per year. On a 20 year deal, that'd be a $2 million deal just for the sake. You can go and isolate it, but we'll just use that as the example so you don't have to give away confidential information and people can learn. Okay. And so maybe that we've sold five or ten of those. Right. So on an annual basis we're a 1 or 2 million dollars company. You don't get that much bigger than 1 or 2 million in stealth mode. So that's while we have contracts that last a long time on an annual basis, it's not that large. And so at that level, I think from 1 to 10 per year, like this show is really about once you get to 10, 15, 20 million ARR, that your business starts working like a factory. You have 10 sales reps, you have 12 people in marketing, you spend 2 million in marketing programs, things start to get more complicated and you need something at your stage. Right now you might have two or three reps or the founder sells a lot of the deals. And so it's a smaller scale. And at this scale, I think that the CMO or the marketing Leader There are KPIs that we should measure. I don't want to discredit that. But in reality it's how do we get to 10 million ARR, how do we figure out the right message? How do I, as the cmo go into the market like I just did to the Pavilion conference, Confirm the problem, know how to frame it, pitch it, close it so that I know my sales team, close it, build the product, marketing assets, arm the sales team, referral channels, go get 10 million in revenue. You're more like the partner to the CRO to 10 million is my perspective. And things like go to market efficiency and things like that can be misleading at that stage because the net revenue becomes so small. And so depending on the financing structure, if it's trying to be bootstrapped versus vc, then the allowable amount of money you can invest to get a new dollar changes quite considerably. And you can figure out the efficiency when you start to reach some level of scale.
- [38:28]
Charlie
So they have investment. They already had like a 50 million dollar bond and they're putting out another $400 million bond and it's bringing in investors into the installations of this product itself. So funding isn't a real problem and scaling isn't really a big problem. This is a little bit like a big boulder rolling downhill. And so the question is kind of it's going to scale really fast. And so I was hoping to proactively get your thoughts about. You know, I know that we're going to zip through these phases and as that happens, what would be the specific KPIs that you would recommend?
- [39:12]
Chris Walker
Yeah, there's an episode like episode 212 of the podcast. Podcast. The first 10 minutes talk about the go to market KPI stack that starts with growth rate and go to market efficiency and breaks it all the way down between new logo and expansion and then even deeper into the details and then we're developing a data model that goes even lower. And basically you can just the goal is you start at these two metrics, growth rate and go to market efficiency. If one of the metrics is red, you follow that metric to the end and you know what the problem is. And that's, that's basically what we do. Most companies don't have the connection between those. So they basically can see, oh down churn is off or down revenues off. But they can't get any further to figure out why. On the churn side, most finance teams of churn analysis and data analysis at least try to find the root cause there. On the new logo side I found that people just don't know how to diagnose the issues. Yeah, but the KPI stack should guide you. Be cautious of the benchmarks that I provide here and that's for everybody. That's less than 10 million ARR. The benchmarks here provided are for companies that are at scale, that operate like a factory. So trying to bring Those into your 3 million ARR, 5 million ARR company could be misleading. I'm starting to respect the differences in scale so much more. The differences in what the big problems are, how the team should be structured, what are you going to optimize for what should the CMO be focused on? Should you even have a cmo? And that the different stages come with very different sort of what we'll call a revenue break point. Really the thing that's getting in your way. And most companies have one big one and like I mentioned at the beginning, I would say a majority, more than 50% of them. The problem is pipeline. They do not have a predictable, scalable, cost efficient way to create pipelines. So their sales team is starving at the bottom of the funnel, Their cacs going up, growth rates slowing down.
- [40:57]
Charlie
The other part of my question is, and hopefully this is helpful for everybody is we're on board with there's a new way of going about this, this approaching the go to market. What would you say is the boot camp where we can, you know, we're not all strong in every area. So if we were to really tune ourselves up so we were able to be that person going directly to the board and leading this go to market initiative, where do you think the resources where we would plug in and refine those skills, where would that be higher Paseto?
- [41:34]
Chris Walker
I don't think there's any really other available solution at this point. We're one of the few people that are talking about this, pioneering this. People on here might be fractionals that can help you that have learned a bunch from here, but the reality is that I don't think an internal W2 employee will solve this problem for you. And like, reading a book like Revenue Architecture might help, but I found that there's a big gap between one or two executives reading a book and the whole executive team adopting it and buying into it. And that's the gap that we help close. So maybe it's too early, but when you think about a solution, I just don't think there are. You could come here and ask me questions and basically get the answers that you need to drive it. That could be another alternative. And it'll take a couple years and people will catch up to what we're talking about and there'll be more available providers. But this is the same thing as what I was doing in 2019. We were the only game in town. We had no competition in deals because there's nobody else doing what we're doing. And it'll take a couple years for people to figure it out. So we're in that position right now.
- [42:34]
Charlie
Thank you.
- [42:35]
Sydney
All right, I think we're going to end with a great question from Kevin. Bring him on.
- [42:41]
Chris Walker
Thanks, Sydney.
- [42:41]
Kevin
Hey, Chris. Thanks for the time. I completely agree with you that the venture capitalist mindset is pretty dead when it comes to. I think there's a common misconception that growth equals progress. And one of the things that I'm struggling with and have in the industries that I've worked in is if the methodologies are dead or they aren't even there, if the data's too old or the KPIs need to be completely revisited or reworked, whatever that aspect of progress is. The one thing that I always see that doesn't get a limelight shined on it is innovation. Taking risks, trying things that you don't know what the ROI or the KPI or the benchmark is, and even to the point that Lyn just made, because no one's necessarily taken innovation to a new level or taken a risk to a new degree. I think that this VC mindset is. Well, it's always worked this way. So why would we want to change this? Or thinking that they're reinventing a wheel rather than inventing something better than the wheel. So I'm curious, from your perspective, how do you, working with the companies that you've worked with, change from this growth mindset to a progress mindset. And where does the space need to live for innovation to take place when it doesn't necessarily align with a specific ROI or specific metric? Especially if you're trying to find a new version or a better version of that metric or of that measure of success?
- [44:01]
Chris Walker
Yeah, you know, I'll answer this on specific on innovation in a second. But like a lot of people come into my comments and are like, marketing deserves an experimentation budget. Marketing should be out there experimenting. It's bad advice for 90% of marketing teams because they spend $10 million and they don't get the appropriate ROI. Therefore, their whole budget is an experiment. None of it is proven. When we analyze companies in all of their data, all we can trace back to is that organic and direct and branded paid search demo requests drive revenue. The rest of the data is a complete black hole. And so how, when we spend $10 million and our sales team's starving and we're laying off people and we're missing quota and we're missing growth targets, how in the world should we go back to the board and say we need $2 million to run our experiments next year? It's completely ludicrous. And so instead the time for innovation, the time for experimentation in marketing is when your already works and you're playing offense. It is not complicated to get to the target ROI in marketing. It might take you six months to a year, to 18 months because you made bad decisions a year ago and who you hired and how much money you spent and how many salespeople you scaled and how big your SDR team is. And so you don't clean it up overnight, but it's definitely fixable. And then once it's fixed, we go to the board for companies that are high performing. We help the CMO and the CEO put together the plan that says, here's where we are. Our ROI is here. We're going to introduce $500,000 more on this experiment. We're going to introduce this much more on this experiment because we need to grow 30% next year. And these two investments have a potential outsized return. And here's how we're going to measure it. And six months into the year at the half, we're going to measure it at these metrics. And if we hit these metrics, we're putting another million dollars on it for next half. And if we don't make it, those investments get cut. And that's how you run proper experiments for companies, proper roi. And I'm talking About marketing generally, we can talk about innovation. After proper ROI on marketing SDRs, put an additional experiment on it. Monitor against ROI and pipeline growth. Give it enough time, six months minimum. And then if you miss, you spend $500,000 on a bet that didn't make it, that could have made your company $250 million. And CEOs will take that bet all the time. And you have three or four of those bets running per year. One of them pays off, you hit your plan for that year and probably the next year. And so it's just like what I'm trying to get CEOs to look at is you have the machine that's running. Here's what that machine can process and do over the next 12 months. Here are the new things that we're going to introduce. We're going to hire a firm that's going to try and help us get GRR from 87% to 91% in the next 12 months. If we do that, growth will accelerate by 4%. We'll lower go to market efficiency by 50%. We'll add a bunch of value to our company. We need to fix the pipeline problem. We're going to make the bet that hiring this firm to help us fix the pipeline problem and SDR alignment and things like that is going to solve this issue. If we do it, we're growing an extra 12%. Cat goes down by a year. We add hundreds of millions of dollars to the value of the company and we need to improve win rates. And so we're going to hire a firm that's going to come in and they're going to do a whole analysis on our sales process, how we follow our methodology, the data, the segments that we're losing in, they're going to interview customers that we've lost with and we're going to try to figure out a plan to get win rates from 12% to 15% next year. We have three bets. Any one of those bets makes a hundred million dollar impact and gets us to our plan next year. We just need one of them to hit what if all three do? And it's just such a more simple way to think about strategic planning and go to market than right now. Every team doing a bunch of random shit. It's really what it is. The marketing plans are so complicated, so deep, so tactical, so random. And really you need like three or four powerhouse programs across your entire marketing. For a hundred we consult with, I've built a hundred million dollar company marketing machines. You need two or three digital channels need events to work, you need great product marketing and you need SDR sales marketing alignment. There's not that many things that are needed to drive the 100 million in pipeline. At a 20% win rate, that's going to get you 20, 30% growth next year.
- [48:11]
Kevin
I actually had a quick follow up on that. So let's say that you're at that point, you've scaled up enough, you're at a point of success progress, your win rates are good, your cost per acquisition is down, and you want to innovate. But because this VC mindset is everything has to be tied to a metric, to an roi, to this or to that, even if you make up new ones or if you say these are the ones we want to experiment with. One of the problems that I run into, not just with the company that I work at, but with other ones I consult with is, well, all that money needs to go towards this or towards that and it becomes a justification competition of where do you invest versus where do you not or where do you prioritize? So if you're in a spot like I am with one of the companies I consult with is, well, we like the idea or we like the concept of said experimentation, we like the idea of hedging our bet. But we think it's more, more important to do this when even if a majority of the people that aren't on that board think that priority is not the priority that you should be leading with. How or what is the mindset? Or what are the things that you try and focus on to get people that are in the investment growth mindset out of that, into more of a progress mindset to help justify the need for experimentation or the need for doing these things. Knowing that you're not putting all of your eggs into the experimentation basket. Like, how do you switch that mindset? Because I think that that's a hard thing for marketers to do when they're talking with people that live in spreadsheets or finance metrics all day.
- [49:35]
Chris Walker
Yeah, it's tough. I'm going to try and try over time, specifically in this, like, I don't know, sub 30 mil right around, anytime before that. Because just use that logic, decide how to invest, and then two years later they're going to be hiring my company for $1 million to clean up the fucking mess they made. And it costs years to fix. It costs hundreds of millions of dollars to fix. It creates a ton of pain, it costs investors a ton of money, and they create their own problem with this mindset. And so I'm going to try and educate because literally, we just walk in at 40 to 50 million that these problems got created from the 25, $30 million mindset right after they finish raising a series B or a C, and they're just like, let's put our foot on the gas. We just raised 100 mil. Little do they know that 100 million that they just raised puts the target of what they need to sell to so high. And it's a whole game there. The way that you get people educated right this second is that you track both sides of the metric simultaneously. Give them all the stuff that they want to track right now, track it quarter over quarter for as long as you have, and then side by side, put the new metrics and put the new metrics next to them and show both views and then let them decide which ones are more correlated to business metrics. And it won't fix it because most of the companies that do this have good metrics when they do it. So they have good metrics, then they think, oh, if we just put a bunch more money in like our VC says, we're going to get that scalable growth from 30 to 100. And what happens is you spend twice as much and you get the same or less. And then CAC, instead of being two years, is now four years. It takes you 12 to 18 months to realize it's not going to play out. Cut half your sales team, cut marketing programs. It takes you a year to clean up the culture. It's a disaster. And it's just the same thing every time. And, like, I don't know if I have to start doing workshops with VCs or what because they destroy the companies they invest in with their advice from the board. It's troubling. Cool. I think that that was a pretty spicy episode, if I do say so myself. I like it. I've been liking sort of the time to let things simmer and then coming back with some complete thoughts after a couple weeks. Yeah, I do. I see the fire emojis. That one was rocking today. So thanks, y'all, for being here. I hope you feel in my energy like it's not going to happen overnight. In 2019, when I was talking about lead gen, it was not common discussion for another 18 months. So we're at that point right now. It will not be common discussion. The smart 5 or 10% will start to adopt it slowly, and it will become a common discussion sometime probably in late 25, early 26. That doesn't mean that there's not a ton of opportunity. The market is massive. If 5% of the companies move, that's enough for all of us and a trillion more of us to be successful. There is an abundance here. Companies spend so much money so inefficiently. If you can help them, you should be getting your fair share of that. And so with all that, hope you all have a great rest of your week. We'll see you next Tuesday. Bye, everyone.