Latest / What's Broken in GTM and How to Fix It / Quick Fire Series: Closed Won Is Where Value Creation Begins

Transcript

Quick Fire Series: Closed Won Is Where Value Creation Begins · What's Broken in GTM and How to Fix It

• 0:00
  Simon: Louis, every SaaS company rings a bell, literally or figuratively, the moment a deal closes, and that's exactly the wrong moment to celebrate.
• 0:09
  Simon: What's the TL;DL("Too Long; Didn't Listen") for anyone who doesn't have time for the whole episode?
• 0:14
  Louis: Closed won records a transaction.
• 0:17
  Louis: It does not prove value.
• 0:19
  Louis: In a recurring revenue business, the commercial job runs from awareness through onboarding, impact, retention, and expansion.
• 0:27
  Louis: Recurring impact creates recurring revenue, so retention is a verdict on the whole system, and that system needs visible architecture, connected economics, and operating governance.
• 0:40
  Simon: Stay with us for around 15 minutes or so to learn more.
• 0:44
  Simon: Hello, and welcome to episode 64 of the What's Broken in GTM and How to Fix It podcast.
• 0:49
  Simon: I'm Simon Daniels…
• 0:51
  Louis: …and I'm Louis Fernandes.
• 0:52
  Simon: We are exploring the challenges facing SaaS GTM leaders that Louis has been discussing in his newsletter, drilling into the topics a little further to provide some solid practical guidance for SaaS GTM success.
• 1:03
  Simon: Now, just before we get into the final installment of our What B2B Forgot series, a quick word about what's coming up next in the What's Broken in GTM and How to Fix It podcast.
• 1:15
  Simon: Without missing a beat, next week we will be back with a full-length episode marking one hundred editions of the What's Broken in GTM newsletter.
• 1:23
  Simon: Following that, and returning to our biweekly cadence, we will be reprising the Christmas Cognoscenti series, and I'm delighted to say that this will be an all-female lineup as we speak to three leading women in the GTM space.
• 1:38
  Simon: It's going to be a strong finish to the year!
• 1:40
  Louis: It is indeed.
• 1:41
  Louis: And I, I have to say, actually, I think we've learnt a lot this year, so it fee- feels like the right time to be reflecting back on a lot of the content that we've covered and seeing what it all actually means.
• 1:51
  Louis: And actually, I'm really delighted to have three absolutely fantastic female leaders in the GTM space joining us for our Christmas Cognoscenti series.
• 2:04
  Simon: Absolutely.
• 2:04
  Simon: So keep an eye out for those.
• 2:06
  Simon: All right, bringing it back to this episode then, and as I say, we've arrived at the conclusion of our five-part run through Louis' What Be To Be Forgot newsletter arc.
• 2:16
  Simon: We've covered revenue as a system, ICP versus segmentation, route to market and brand, and why the customer doesn't experience your org chart.
• 2:25
  Simon: Today, it all comes together, starting with the moment at which most companies think the job is done, namely when the deal closes.
• 2:34
  Simon: Let's get to it, shall we?
• 2:35
  Louis: Let's do it!
• 2:38
  Simon: Let's start with the transaction bias.
• 2:41
  Simon: Why do we still treat signature, whether physically with a pen or a piece of paper, or more likely a DocuSign, why do we still treat that as the go-live when really that's just not the case at all?
• 2:55
  Louis: I think it's because of the way that we've built our organizations and also the reporting within them.
• 3:01
  Louis: You know, everyone obsesses about closed/won because pipeline culminates in it, forecasting culminates in it, sales compensation crystallizes around it, and board reporting obsesses over bookings, ARRs, and new logo performance.
• 3:20
  Louis: So when we think about those kind of things, any wonder closed/won becomes such an important thing.
• 3:27
  Louis: And going back to something you said a couple of weeks ago, Simon, we were discussing the Goodhart work.
• 3:35
  Louis: You know, when a measure becomes the target, that's a pretty shitty target.
• 3:40
  Simon: Yeah.
• 3:41
  Simon: It, it's a tough one, isn't it?
• 3:43
  Simon: Because closing the deal would seem to be the target, and yet even then it, it exactly makes the point that if we agree that revenue is the target, then just closing the deal isn't even really revenue, and, and certainly it's not recurring revenue, and that's, that's what everybody needs to keep in mind, right?
• 4:04
  Louis: Right.
• 4:04
  Louis: And, and the point at which they sign a contract, we're celebrating because it's like,"Way, that's downstream revenue." But the reality is you haven't even implemented anything else.
• 4:15
  Louis: And I'll give you a clue.
• 4:16
  Louis: The customer hasn't bought a contract.
• 4:17
  Louis: They've bought an expectation of future value, we're paying money out at that point in time without having actually lifted a finger.
• 4:27
  Louis: uh, and it's madness.
• 4:28
  Simon: And that's where we ended the last episode on that point of the outcome of the deal and, and that's obviously value realization, which as you say, for the customer, value realization is not signing a contract.
• 4:41
  Simon: It's what they're actually getting from the software or whatever else that they're purchasing.
• 4:46
  Louis: Yeah.
• 4:47
  Louis: And I, and don't get me wrong, I mean, winning somebody, the contract is, is super important, right?
• 4:53
  Louis: I'm not trying to take anything away from that.
• 4:55
  Louis: But it's when they get- when you get them to come back again and again and again, that's where it becomes interesting, and that's where you realize lifetime value.
• 5:02
  Louis: Um, I, I'll maybe demonstrate this a little bit with an e- an example.
• 5:06
  Louis: I mean, this is a, a B2C example that I worked on, you know, f- nearly 20 years ago, and I was working on the ECRM strategy for Odeon Cinemas and the idea was that, you know, we, we're trying to increase lifetime value.
• 5:21
  Louis: So it wasn't just about selling more tickets today, it was about understanding customer behavior.
• 5:28
  Louis: It was about understanding motivations.
• 5:31
  Louis: It was about understanding frequency of visit.
• 5:34
  Louis: It was understanding how they thought about not just the initial activation, but coming back again, reactivation, as we might describe it.
• 5:45
  Louis: And w- what did we need to design interventions wise to make them aware of things that were going on in the cinema to bring them back in?
• 5:54
  Louis: This is no different.
• 5:55
  Louis: People aren't necessarily going to an Odeon Cinema because they love the Odeon brand.
• 6:02
  Louis: Newsflash, they couldn't care less.
• 6:05
  Louis: It's,"Is it showing the film I want to see at a time that's convenient for me?" and do, do they have some maybe decent, um, seats,'cause that's kind of important.
• 6:14
  Louis: Is the sound quite good?
• 6:15
  Louis: 'Cause I wanna have a good experience.
• 6:16
  Louis: I don't want to be sat behind a post or something.
• 6:19
  Louis: And, who knows?
• 6:20
  Louis: Rather than maybe just doing that, can I get a glass of wine while I'm sitting there with the kids?
• 6:25
  Louis: 'Cause that could be quite an interesting proposition, especially if I'm having to watch Bambi for the 27th time.
• 6:30
  Simon: Exactly.
• 6:31
  Simon: Exactly.
• 6:32
  Simon: And again, building on what we've, what we were discussing last time particularly retention is, is very much the, the kind of verdict on the whole revenue system, not just customer success or, or an individual department.
• 6:49
  Simon: And, and that delivery of that value is, is therefore really the responsibility of, of the entire kind of, you know, revenue ecosystem.
• 6:58
  Simon: So it's, it's important to think of it at that level, isn't it?
• 7:02
  Simon: Kind of expanding out across, across everybody, not, not just leaving it to the kind of last link in the chain.
• 7:07
  Louis: It is, but the challenge is we're selling recurring revenue using a transaction era operating system.
• 7:15
  Louis: Because again, a lot of the mentality that I still see, it still harks back to almost the on-prem days where you, you It was like,"We've done the sale, great everybody you know, congratulations.
• 7:29
  Louis: We've offloaded that one.
• 7:30
  Louis: Next." And it's almost that conveyor belt mentality.
• 7:33
  Louis: Now, you ask any revenue leader whether that's the case, they'll go,"No, no, no, no, no, that's absolutely not what we do.
• 7:39
  Louis: We, we, we're fully committed to you know, making sure that it's about recurring revenue.
• 7:44
  Louis: We really track net retention rates, um, and it's a really important metric that we look at," blah, blah, blah, blah, blah.
• 7:51
  Louis: I've got one question.
• 7:53
  Louis: If I take your marketing budget for your entire organization, what percentage of that marketing budget do you point at anything else other than acquisition?
• 8:04
  Louis: When you look at that metric, you suddenly realize that no, we don't actually care anything at all about anything other than closed won and what happens with net new business.
• 8:15
  Louis: We were looking at some of the numbers, and it's, in some organizations it's as high as 95% of marketing budgets get thrown at net new name acquisition.
• 8:25
  Louis: Thankfully, sometimes it can be as low as about 75%, it's still nowhere near what Binett and Field talk about, the 60/40 split.
• 8:33
  Louis: But anyway, that's a different conversation.
• 8:35
  Simon: Well, yes, I guess it is, and, and I'm, I'm sure we've touched on it in the past, and maybe we should, we should focus on it, uh, at some point in the future.
• 8:42
  Simon: And I'm sure I've said that I've been in those kinds of situations.
• 8:46
  Simon: The crucial thing in some respects is just recognition of the situation and, and what it is you're trying to achieve.
• 8:52
  Simon: I mean, you know, 60/40, that might be the, the, the right rule of thumb.
• 8:56
  Simon: At the same time, it, it could be that marketing have less of a role to play if it's a very relationship-driven business.
• 9:02
  Simon: But it's just a matter of making sure that the business is clear who is actually, you know, responsible for this and what role, you know, can everyone play.
• 9:11
  Simon: I mean, I would almost certainly say that marketing can play a, a huge role in, uh, retention and, and expansion and so on if, if you let it.
• 9:21
  Simon: And, and like you say, the, the risk is that it just drifts to being net new name acquisition and then the full value of what marketing can deliver is, is lost, to the downstream aspects of the business.
• 9:33
  Louis: Yeah, absolutely.
• 9:34
  Louis: And this is one of the things that when we look, go back to revenue architecture and we look at what does it actually mean, we- we're aiming to a- create a closed loop system, and that closed loop system is that the customer becomes an advocate and brings on new customers.
• 9:48
  Louis: You know, it's that whole word- word of mouth thing.
• 9:50
  Louis: It's I'm not talking about suddenly we have a great customer and we a- get them to act as a reference whereby they'll get on a reference call.
• 9:56
  Louis: No, this is what I'm talking about.
• 9:58
  Louis: They're proactively talking to other people and saying,"Actually, you guys, you know, you should be thinking about using X, Y, Z company because they're just bloody fantastic.
• 10:08
  Simon: Yeah.
• 10:09
  Louis: …and this is what they've done for us.
• 10:10
  Simon: Which is the kind of the holy grail, and it, and that's when the flywheel really starts kicking in and and driving the business forwards.
• 10:18
  Simon: Now, one other thing that you've written about that I wanna make sure we, we just kinda get into the conversation here is, again, thinking about, I think, the handoffs and, and the way that, that the customer experience moves through the organization.
• 10:32
  Simon: There's something about those handoffs and those interfaces where small gains or I guess conversely small weaknesses can compound positively or negatively.
• 10:44
  Simon: It's almost going back to, uh, you know, the eighth wonder of the modern world compounding and what that results in.
• 10:52
  Simon: And, and if it is a negative experience each time, then it, then you, you know, you end up substantially in, in deficit, I suppose.
• 10:59
  Simon: And if it's a positive experience, then it, it can maybe even be greater than the sum of its parts.
• 11:04
  Louis: Yeah, absolutely.
• 11:05
  Louis: And th- this is why, I mean, you know, when we think about things like customer success and we think about retention, we obsess about retention and we focus on the number.
• 11:15
  Louis: It would be much better that for us to focus on the outcome we're trying to drive for the customer rather than the outcome we're trying to drive for ourselves.
• 11:24
  Louis: Because ultimately, net revenue retention, it's a verdict not just on customer success, it's a re- verdict on the whole revenue system.
• 11:33
  Louis: it's the sa- the same's true on expansion, right?
• 11:35
  Louis: Uh, when we see customers expanding, that, that's how we know that we're getting things right, because otherwise why would they take e- even more from us than, than they w- than they have done in the past?
• 11:44
  Simon: It's a, it's a vote of confidence and, and certainly it's, it's tough to even broker the conversation clearly if things aren't, aren't going in the right direction.
• 11:54
  Simon: And so finally, you, you touched on it, um, revenue architecture, growth architecture, revenue operating governance, which obviously we've spoken about in, in quite detail in, in the past.
• 12:07
  Simon: How does that fit into all of this?
• 12:10
  Simon: What, what is the role that's being played there?
• 12:12
  Louis: Yeah.
• 12:13
  Louis: I think rather than thinking about individual metrics for a, a function and how we are performing against those, if we look at it through the lens of revenue architecture as a starting point within our revenue system, it effectively establishes the blueprint for what we're doing.
• 12:31
  Louis: It makes the end-to-end system visible, designs the flow from market selection to recurring impact without internal boundaries.
• 12:39
  Louis: So that's a really important starting point.
• 12:41
  Louis: If we then get onto growth architecture, it's then starting to talk more about the economics.
• 12:47
  Louis: It starts explaining, the economics around pricing, around margin, around cost to serve, to the point you were just making around the compounding maths across the entire life cycle.
• 12:59
  Louis: If we are bringing on board the wrong people to start off with, and this goes all the way back to what we started talking about between ICP and, and segmentation a few weeks ago.
• 13:09
  Louis: If we're targeting the wrong people and we're bringing them on in the wrong way, and we're having to discount massively just to get them into our ecosystem, they're not a great fit, they're more likely to churn, it's costing us to serve.
• 13:21
  Louis: Ultimately, what we see is that actually it's compounding downwards.
• 13:25
  Louis: Whereas if we're getting the right people in at the beginning of the experience, we're not having to discount massively, they see continual value from what it is that we've sold them, then that's compounding upwards because, again, our cost to serve is down and our lifetime value extends.
• 13:39
  Louis: And we see that again, we've used the term before, annually recurring impact.
• 13:43
  Louis: So important.
• 13:45
  Louis: And then the last pillar really on our revenue system behind revenue architecture and growth architecture, is revenue operating governance.
• 13:54
  Louis: That's the rule book, if you like.
• 13:56
  Louis: It preserves that coherence as ownership becomes distributed.
• 14:00
  Louis: So we're still saying that people are accountable, but it's aligning decisions, it's aligning measures, it's aligning incentives cross-functional trade-offs, which is the things that are really, really important within our revenue system because without it, everybody's in it for themselves.
• 14:16
  Louis: And if we get the things like the incentives wrong, which we've discussed before, actually we could end up with department A actively working against department B simply because we've got the, um, incentives wrong and we're driving the wrong behaviors internally.
• 14:32
  Simon: Well, I think that's a good place to bring the series to a conclusion, so let's leave it there.
• 14:40
  Simon: So Louis, as we close out the series, how would you bring everything we've been discussing over the last few episodes together?
• 14:48
  Louis: Yeah.
• 14:49
  Louis: So I think the things that we've really talked about in terms of what B2B has potentially forgotten and it can relearn from B2C, and it's not, it's not about saying B2C does things better than B2B.
• 15:04
  Louis: It doesn't.
• 15:05
  Louis: Uh, it's about saying there are things that maybe we need to just go back and remember that we could do.
• 15:11
  Louis: And this is The main- my main takeaway from this is that the disciplines aren't missing, the coherence is.
• 15:18
  Louis: Nobody's saying for one instant that B2B has forgotten how to do marketing, has forgotten how to do sales or customer success.
• 15:26
  Louis: What it's forgotten is that they belong together.
• 15:29
  Louis: Now specialization is necessary, but making the customer integrate the specialists is the ultimate design failure.
• 15:36
  Louis: So what our responsibility is, need to build a commercial system and not a collection of functions.
• 15:43
  Simon: And that is our takeaway for the What B2B Forgot Quickfire Series.
• 15:48
  Simon: Thank you so much for listening to episode 64 of the What's Broken in GTM and How to Fix It podcast.
• 15:54
  Simon: Check out our LinkedIn page where you can find show notes relating to the episode.
• 15:58
  Simon: You can also get in touch with us via LinkedIn and follow us for regular updates.
• 16:02
  Simon: And don't forget to subscribe in your preferred podcast app to make sure you don't miss an episode.
• 16:07
  Simon: Next time, we'll be looking back on 100 editions of Louis' newsletter and asking what we've learnt about why GTM breaks, so please join us.
• 16:15
  Simon: Until then, it's goodbye from me, Simon Daniels…
• 16:18
  Louis: and it's goodbye from me, Louis Fernandes.
• 16:20
  Louis: Have a fantastic day!