I made my first stock investment in 1987 before black Monday; I was an Enterprise rep in March 2000; and I was running an enterprise team for Salesforce in 2008 – And here we are. None of them are the same context, but I have been speaking with private equity firms, VCs and venture backed execs and thought I would share some principles in the hope that you can make the right decision for your business.
Whatever you do, have a bias for action. I have spent a lot of time around current and former Navy Seals and one principle of war-time (which feels analogous right now) is that you must be ‘default aggressive’ – According to Jocko Willink’s book, ‘Extreme ownership’ this means overcome obstacles, capitalize on immediate opportunities, accomplish the mission, and win without needing every decision explicitly approved and without turning down an opportunity.
NB. I don’t believe any to be necessarily a good answer for you – I do think you will find something here you will agree with and be able to execute on.
#1 priority = Communicate
Communicate with everyone and be completely transparent about the known unknowns. I am writing this as at March 18, 2020 and we are about 2 weeks into generalized work from home and the beginnings of SMB layoffs – We don’t have enough data to understand how this will affect our businesses. It’s times like this when we need really good instrumentation with real-time insights from tools like www.insightsquared.com (I have used it 3 times and I don’t know how you run a sales org without a comparable solution)
The CEO who is afraid of their board and tries to obfuscate the fact that they have no idea what is coming next is going to be in a world of hurt. Get on the phone 1:1 with your board members and collaborate on at least the following items. When you have private opinions and perspectives you will be far better prepared to get consensus at the next board meeting – If you have a non-executive chair, start with them. At a minimum, discuss:
- Our MRR position worst case: Assess the potential loss of MRR based on the profile of your revenue base. Enterprise companies are less exposed because they sell to more stable, sticky customers on longer term contracts, but monthly contracts or SMB customer bases (High default risk) could lead to some drastic MRR reduction assumptions through churn. In 2000 I was holding a life changing chunk of stock in a company that sold ‘Business in a box’ infrastructure to 2nd tier internet service providers – In March of that year was the start of 95% of their customers going bust. Suffice to say my life didn’t change in the way I had hoped.
- Our cash position: The decisions you make will be based on where you are in your funding cycle, but a universal truth is that you should grab ALL available credit you may have. In 2008 I remember that assumptions of available credit turned out to be false due to balance sheet covenants not being met, so that $500K line of credit you had just evaporated – Draw it down now.
- Our people: Let them know the state of the nation – Don’t hold any punches.
Have at least weekly communication with your whole company – A personal video sent via Slack or email telling them what you do and don’t know, what priorities are and letting them know who/what is available to support them at this time. Your managers should be doing daily virtual stand-ups.
Ben Horowitz from A16Z said it well (albeit in a nerdy way):
High quality company cultures get their cue from data networking routing protocols: bad news travels fast and good news travels slowly. Low quality company cultures take on the personality of the Wicked Witch of the East in The Wiz: “Don’t nobody bring me no bad news.https://a16z.com/2012/10/17/making-yourself-a-ceo/
#2 What do we do about the operating plan?
No-one has any idea what the next 6 months will bring and therefore a re-plan at this very early stage makes no sense. What does make sense is to stop any bleeding (Stop hiring NOW) and to figure out what the key assumptions in the plan were (Sales velocity being core) – Look at the delta between plan and the new reality. Take a breath and then we re-plan in April.
One thing the best operators are doing is getting insights from their customers as a data point. Get ahead of any bad news and ring your customers to find out what their intentions are. You’ll find out if 5%, 20% or 50% of your customers/prospects are hitting the brakes. Do not let your people put their heads in the sand (Asses will be kicked).
A core principle is that you will want 18 months of cash runway – This seems to be the common wisdom from investors and survivors of 2008. You may get funding now, but it will be at a SERIOUS discount because no-one believes your projections (not even you).
AE and manager quotas
I have seen all sorts of behaviors here – In 2008 Salesforce kept our quotas the same – It is great to be the king. Having said that, every context is different. If you are Zoom, or a firm that can cut the need for headcount through automation, then I wouldn’t be touching quotas. Here are some approaches I have seen – You decide if any are relevant for your context:
Reduce quotas for a quarter or two
Intuitively it makes sense and often it is done in sync with letting go anyone who is not hitting quota (Yesterday was the time to cut your C players) so as to reduce the CAC. Remember, your flat salaried employees are not going to take a hit, so why should variable comp employees carry the full burden? Here are considerations:
- Why only a quarter or two?
- You will likely get the new number wrong – Let’s assume you go from $750k to $500K and the rep is on track for $600k (overachievement)? What if it should have been $450k? We need to be able to right-size it when we have enough data.
- We shouldn’t be paying accelerators on over-achievement. We are essentially taking the pain for them (depending on how you look at it), so the quid pro quo (Yes, it is ok to do that here) is getting them to OTE at a higher CAC and they don’t get rich while the company blows out on costs.
- This anchors the rep to a lower quota psychologically.
- Psychology of negotiation teaches us that people anchor on the last data point. This is why the exit price of a multi-year contract is so important to us in SaaS. When we come out of this we don’t want the rep anchored on a lower quota and fighting about going back to $750K
- It impacts the career story – Are you a true mid-market rep on $750k or are you SMB on $450k? Not a biggie, but people think about this.
A recoverable draw in the form of higher commission rates
This is less common, but I like it a lot for the right context – You keep the quota the same, but pay a higher commission, such that if they hit quota, they would earn over OTE. The recovery is a contractual commitment that the value of the higher commission is recoverable in future periods unless they stay with the company for some agreed period of time. IE. We will support you through this period and you repay us with loyalty for a period beyond (A bit like Mckinsey paying for MBAs so long as you do your 2 years post course tour of duty)
What about SDR quotas?
Again, if you are Zoom, carry on soldier. If however, you are in the event management business then context dictates change. Some of you will need to cut heads along with marketing spend to give you the runway you need, but for your remaining people, get them ready to unleash the floodgates when we all come back on line. Set activity targets/MBOs that are creating value for the company. Some ideas I am seeing:
- Setting free consulting meetings (Build goodwill)
- Building lists and researching companies/people (Esp. enterprise)
- Use this time for asset building – Having SDRs build competitive battlecards; building playbooks and onboarding assets for new hires.
The key thing is to PAY them. SDRs don’t have cash reserves to get through a month on 50% pay.
One of the best SDR leaders out there made this point to me today: If you think the quotas should stay the same, then your SDR managers should prove all is well by getting on the phones and showing the SDRs the art of the possible. He created a competition where he set as many meetings as he could and the next highets meeting setter was given credit for the manager set meetings…. Productivity blew up![Leader’s name is protected because I don’t want you poaching him – He knows who he is]
#3 Get creative with prospects and customers
Again, context dependent – If your cost to serve is low, then you can build goodwill and create pent-up demand by:
- Providing extended trials/Opt-out clauses (Get reference/PR/Case study commitments in the event of a contract)
- Ramped price deals (IE Activate 100 users now and instead of charging $50/user for the year, do a quarterly deal where they pay
- $20 Q1,
- $30 Q2,
- $45 Q3
- $55 Q4
This allows them to slowly on-ramp and preserve cash while paying a premium at the end for the privilege. If they can’t afford $50/user now, ramp them.
Good luck out there and please be kind to one another – Your best relationships are formed during adversity.
Matt Cameron is the CEO and founder of SaaSy