The SaaS marketing and sales landscape is changing. Startups are becoming far more capital-efficient than they used to be. At a presentation for The Wharton School, Tom Tunguz discussed how recent SaaS IPOs have been 2 times more VC-dollar-efficient than their predecessors. This change, as Tunguz noted, is due in large part to the shifting dynamics of the marketing and sales organizations as channels of customer acquisition have become substantially more efficient.
Customer acquisition is changing
Tunguz gives three examples of how customer acquisition is changing. The first is Concur, which uses a traditional outside sales team of reps with a quota of $1 million–$2 million and a CAC of $50,000–$100,000. He notes that this cost structure isn’t possible in the small and middle part of the market because deal sizes aren’t big enough, hence the shift to more-efficient inside sales teams and freemium structures seen in the next examples. The second example is Expensify, which uses an inside sales organization and a freemium model for its app. The company utilizes both to cost-effectively generate a large user base where it can assess usage patterns across its population and understand when a company is likely to update to the paid model. The final example he gives is Veeva, which has roughly 100 potential customers globally and took only $4 million of VC funding over its entire lifetime. Because it was able to grow on the back of Salesforce, it is now a public company with a market cap of $3.77 billion.
What I would argue these changes present is that inside sales teams must now be more aligned and efficient than ever before to enable startups to cross the chasm and realize the gains that this new structure has to offer. And I don’t just mean that they have put a service-level-agreement in place and called it a day. I mean that these teams become the Batman and Robin or the Butch and Sundance of sourcing leads and closing deals.
The rise of the chief revenue officer
Looking at data from Google Trends, which show the volume of search queries for a given term, we can see the rise of the chief revenue officer bursting onto the marketing and sales landscape in 2011:
A former CRO of Interact, Jim Herbold, has observed the rise of the CRO role taking shape, “especially at hyper-growth startups like AdRoll, Mixpanel and New Relic.” In most companies, the CRO will be responsible for a combination of these three core pieces of the growth equation:
1. Sales deals and issues
2. Marketing and the demand funnel
3. Customer success and renewals
Though, as Herbold notes, companies do tend to define this role in different ways, the CRO essentially has a management role over the sales team and sometimes extends into customer success, while others also have a management stake in the marketing team.
The HubSpot success story
HubSpot is a great example of this ultra-efficient inside sales model, which it adopted at an early stage. This system was created by Mark Roberge—then a VP of sales and now a CRO—and CMO Mike Volpe. HubSpot has built a revenue engine with a sales efficiency of $0.47, or essentially that $2 of sales and marketing investment is needed to generate $1 in gross profit and an 88 percent compound annual growth rate between 2009 and 2013. In his book, the Sales Acceleration Formula Roberge discusses the relationship that he and Mike Volpe built when they created the HubSpot revenue machine.
“The dysfunctional relationship between Sales and Marketing is the kiss of death in a buyer-driven world.” – Mark Roberge
Using what they describe as a “quant-oriented lens,” HubSpot was able to implement a system where both marketing and sales teams were focused on the dollar value of a lead at any stage of the funnel as it was handed to sales. This way their SLA appeared on the marketing side as pipeline value in dollars based on historical close rates, not just a marketing-qualified lead count. Sales was held accountable for closed-won opportunities. Essentially both teams had a dollar quota and were accountable for each other. From this quintessential pipeline marketing foundation, the teams were aligned toward the broader company goals with clear ownership and responsibility delineated between the two.
The results of this system of course speak for themselves, with HubSpot having one of the most successful SaaS IPOs of the past year and a market cap of $1.71 billion.
Enter the SaaS revenue team
The next logical progression of this trend is the revenue team. As the rise of the CRO continues, and marketing and sales departments become increasingly intertwined, CROs will need to move fluidly across these historically separate departments. Of course B2B marketing today is no longer about brand and buzz, and growth marketers should be held accountable for fueling revenue growth. While the role of inside sales remains to close deals, it can do so with more efficiency than ever before.
Of course, this level of unification requires an integrated technology stack, clear processes and well-established training. For organizations that can implement this, the revenue-focused structure can enable visibility throughout the funnel, faster time to value from marketing and sales and the agility to use this data to drive investment decisions across the funnel.
With this in mind, wouldn’t it make sense to make the decision to do things differently, to unify these two departments with the chief revenue officer sitting above a VP of marketing or VP of sales and having sole accountability over these departments to ensure that they are working as one?
by Matthew Buckley @mmbuckley