Winning in the BizOps Era, Part 1: The LTV BizOps Connection: Why Ignoring BizOps Could Sink Your Business

Winning in the BizOps Era, Part 1: The LTV BizOps Connection: Why Ignoring BizOps Could Sink Your Business

Hi everyone. Since starting the company, we've been talking with old and new BizOps friends in the Strategic BizOps Community about the emerging powerhouse that is the BizOps function. It’s been wonderful to hear your ideas and share a few of our own. Several of you asked us to write it all down, so we did. Heads up: It’s a bit lengthy (wicked long, actually), so we split it into three parts.You can read part 2 and part 3 here on the blog. If you prefer PDFs, here are links to download part 1part 2 and part 3.
– Steph

In This Post

The BizOps Era is Here
The Important SaaS-y Background
Winning, Defined
Lots of Data, Few Answers
1. The Nonlinear Buying Process is Here
2. The Shift to Account-Based Strategies
3. The Proliferation of Data Stovepipes and the report_loop_trap
New Approaches are Emerging
TL;DR
What’s Next?

The BizOps Era is Here

The BizOps Era has arrived. We aren’t the first to say so. Credit goes to Usermind for coining the term in early 2016. That’s when businesses began to recognize the power of breaking down walls between functions, elevating the management of prospect and customer data streams from the tactical to the strategic, and supporting continuous experimentation of go-to-market efforts with a focus on customer lifetime value (LTV).

At Rekener, we contend that the BizOps Era is actually the next important stage of the SaaS Era[1], and we believe that executives who fail to develop business operations, or BizOps,[2] expertise are putting their businesses at risk. In the BizOps Era, extreme competence in BizOps is as critical to success as traditional sales and marketing skills.

The Important SaaS-y Background

SaaS businesses emerged in the first decade of this century when cloud computing services such as Amazon Web Services made it easier to separate application software from the underlying infrastructure and, in some cases, the platform software, such as application
servers.[3]

Because of this and other factors, the recurring revenue model has become the norm in the SaaS Era, facilitating the creation – and in some cases, the success – of thousands of SaaS-based software businesses. Four factors support this shift:

  1. The recurring revenue model offers a lower upfront cost to the end customer. This has made it easier for businesses to engage with prospects and win deals from customers, who can easily compare incremental recurring revenue models to traditional packaged software with its perpetual license model and high upfront costs.
  2. Because the software is continually updated in the cloud without the need for users to be concerned about buying a particular release, prospects and customers perceive greater value for the annual payments. This removes a potential obstacle from closing the renewal sale.
  3. Recurring costs of delivering software with the SaaS model scale with the growth in the number of customers as well as the increase in usage or consumption, which also contributes to the perception of ongoing value. By tying pricing increases to usage and/or number of seats, there is a direct connection between increased annual license fees and value received.
  4. Sales costs are lower. The rise in content marketing or inbound marketing drives those prospective customers actively seeking a solution directly to the SaaS provider’s website, enabling a self-service model. In many cases, a sales person is never involved.

With the recurring revenue model, SaaS business leaders have seen that the LTV of each customer account is far more important than the upfront price paid. The need to renew and grow revenue accounts has led to the creation of the customer success function as a critical competency for SaaS businesses.

But LTV is only half the story. Because of the lower upfront cash flow in the recurring revenue model, it’s critical to manage customer acquisition costs (CAC). Two factors have been essential to lowering CAC for SaaS businesses:

  1. The search economy drives volumes of potential buyers to content and products. The discipline of inbound marketing is almost entirely based on the concept of creating content that will be the most relevant result to a customer search query.
  2. Social engagement allows for the creation of communities of informed and vocal users and influencers that are connected to brands. Community marketing with social tools such as LinkedIn, Twitter and Facebook enables the most efficient form of customer acquisition, word of mouth, to happen at massive scale and unprecedented pace.

Winning, Defined

It was not until 2008 when Philippe Botteri (now Accel, then Bessemer) published the
5 Cs of SaaS Finance, that the community of SaaS business leaders (Rekener founders included) began to understand the key metrics for success. And when David Skok (Matrix Partners) published SaaS Metrics in early 2010, and updated in 2012, we gained an even more clear and straightforward definition of winning. Winning in the BizOps Era boils down to understanding two key ratios:

  1. Annual Contract Value / Customer Acquisition Cost (abbreviated as ACV/CAC)
  2. Lifetime Value / Customer Acquisition Cost (abbreviated as LTV/CAC)

In hindsight, it seems remarkable that the learnings in these articles were not published earlier, especially considering that Salesforce.com, the poster child for SaaS businesses, was formed in 1999. More about that later.

Lots of Data, Few Answers

Botteri and Skok deserve our thanks for pointing us in the right direction. To win, we must continually drive LTV of customer accounts while simultaneously reducing CAC. Since these articles were published, every chief executive of a business with a recurring revenue model has been challenged by her or his board and investors to deliver a winning business per Skok’s definition. Yet CEOs almost universally bear the same battle scars from the considerable challenge of delivering these high-level metrics. It turns out this is tough stuff: it’s not as simple as walking out of the board meeting, gathering the senior team, and demanding they deliver a plan to drive improved LTV while reducing CAC. If only it were that easy.

The first challenge leaders face is to translate LTV and CAC goals into activities their sales, marketing, support and customer success teams can actually execute. This challenge has three parts:

  1. Breaking the business goals down into activities that the team can control;
  2. Measuring the relevant activities; and
  3. Analyzing the results to determine which activities drive LTV and reduce CAC.

Breaking the goals down into activities the team can control is more difficult than it sounds. The high-level goals of increasing LTV while reducing CAC are two steps removed from the individual activities that we can control. In his book, Cracking the Sales Management Code, Jason Jordan provides a simple three-tiered framework comprised of business goals, team objectives and individual activities.

The business goals are the high-level goals that drive the business. Improving LTV and reducing CAC are business goals. But business goals can’t be achieved unless they’re broken down into team objectives.

Examples of team objectives that improve LTV and reduce CAC include efforts related to marketing qualified leads (MQLs), sales qualified leads (SQLs), demos, net new opportunities, net new bookings, net new ASP, churn rate, upsell percentage, upsell ASP and so on. However, many team objectives depend on factors outside of the team’s control, usually the willing participation by prospects or customers to take specific action under a timeline imposed by the vendor.

According to Jordan, team objectives are more likely to be achieved when broken down further into individual activities that the team can control because they do not depend on the agreement of the prospect or customer. Examples of individual activities that drive team objectives include the number of sales calls made, sales emails sent, ad campaigns produced, events organized, content items created, responses to customer support tickets made, follow up actions from net promoter score surveys and so on.

Jordan and his team surveyed companies to understand what metrics they use to drive sales results and discovered over 306 different metrics. Disturbingly, only 17 percent of these metrics fell into the category of individual activities that the sales team can control. Jordan’s study clearly shows that breaking down the high-level business goals into manageable activities that support team objectives is not easy.

This may be why businesses have invested heavily in tools and technology to measure the impact of marketing, sales, customer service and customer success teams. The question is whether this investment has resulted in a corresponding increase in our understanding of which activities really matter when it comes to driving LTV and reducing CAC. Without that understanding, measurement cannot produce improvement.

In fact, there’s been an explosion in our ability to measure things. Technology companies have invested in customer relationship management (CRM) systems in huge numbers. The emergence of software as a service has made CRM software accessible to even small businesses. Small and medium businesses now face BizOps challenges similar to those faced by large enterprises. Salesforce.com is at the center of this move to technology, with over 150,000 customers and revenues that are expected to exceed $8 billion for fiscal year 2016. Eighty-five percent of Salesforce.com’s customers report less than $100 million in annual revenues.[4]

In addition to SaaS-based CRM tools, we also have SaaS-based tools for web analytics, marketing automation, e-commerce, billing, support systems and, most recently, customer success. A new generation of business operations analysts have emerged to operate this software and measure the business, with roles encompassing and/or reporting to sales operations, marketing operations, financial planning & analysis, support and customer success.  With so many SaaS companies running different parts of the business on these tools, we’ve entered the BizOps Era, when BizOps staff are finally being seen as strategically important to the growth of our businesses.

The primary role of the BizOps professional is to manage the processes and systems (tech stack) that enable the company to go to market. The number and type of tools in that tech stack is expanding rapidly, often without the support or active involvement of IT resources. We’ve shared our BizOps Pipeline – a visual model, shown below, that depicts the typical suite of tools managed by the BizOps team – with dozens of SaaS businesses, and it’s usually been received with a knowing nod and a weary sigh. It’s clear that these companies share many common headaches.

Rekener BizOps Pipeline

Fig 1, The BizOps Pipeline

With all the data generated by all these powerful tools, why don’t we have the answers that we need to the most important questions? We’ve gained tremendous capacity to measure every step of every prospect and customer moving through the BizOps pipeline, but we still struggle to break down our business goals and team objectives into manageable individual activities, and we aren’t easily able to leverage data from these tools to determine which activities have the greatest impact on driving LTV and reducing CAC. Despite making all the right investments in tools and teams, LTV goals and activity metrics are still seriously out of whack. We see three main reasons for this misalignment, described below.

1. The Nonlinear Buying Process Is Here

The BizOps Pipeline wasn’t built for a nonlinear recurring revenue model and a process dictated by the modern buyer. The entire pipeline is centered on a linear selling model that’s showing its age. It’s organized around a core concept: Marketing generates leads and Sales closes deals.

The CRM, the center of gravity of the BizOps Pipeline, is mapped to this increasingly outdated selling process. A core assumption is that the salesperson plays the critical role, educating the prospective customer about the product’s value and positioning the product as a solution to the customer’s needs. In today’s SaaS reality, this is rarely the case. In The Challenger Customer, published by Brent Adamson and Matthew Dixon of consultancy CEB, the authors assert that most enterprise customers are 57% of the way through the buying process before they even contact a vendor.

Further, the CRM emerged as a critical sales enabler in the 1990s at a time when most software businesses were selling perpetual licenses. Salesforce.com, the 600-pound gorilla of cloud-based CRM, was also founded at a time when the perpetual license revenue model was dominant. The problem is that CRM systems are architected around net new business, leaving renewal and upsell to be handled with workarounds, making it more difficult to understand the contribution of renewals and upsells to account LTV. With the prevalence of the recurring revenue model, two critical capabilities are absent from the CRM: 1) the ability to measure not only the conversion of prospects to net new customers but also the subsequent renewal and upsell of those customers, and 2) the ability to easily assess this data over multiple timelines and multiple products.

2. The Shift to Account-based Strategies

The central idea of account-based strategies is to focus marketing and sales efforts on prospects and customers with the greatest potential to become high LTV accounts over time. The key word here is “accounts” yet many of the tools in the BizOps Pipeline were never built to handle accounts.

In particular, the CRM is designed to manage and track the conversion of leads to closed deals. It’s possible to establish an account hierarchy in Salesforce.com, but many SaaS businesses experience the problem where they close multiple deals from the same company but which are classified by individual sales reps. By consequence, these deals appear in the CRM as different and often unrelated accounts, contributing to inaccuracy in dashboards and information used in decision-making. Worse, in Salesforce.com, leads are not automatically connected with an account. This means that an account executive might not be immediately aware of new leads for her accounts.

Marketing automation tools contribute to this problem, as most are lead-driven, with no inherent concept of account relationships. The integration between Salesforce.com and Hubspot or Marketo is typically at the level of leads identified by shared email addresses. Important marketing-driven activity, such as website visits and email opens, are of critical importance to account executives, but visibility to these actions is limited and sometimes invisible, as the data is not tied to accounts. SaaS businesses must measure activities on an account basis to drive LTV and reduce CAC, which requires the ability to tie account activity information from multiple systems. Because these tools were designed around an outmoded linear way of viewing the customer buying process, the tools themselves aren’t up for the challenge.

3. The Proliferation of Data Stovepipes and the report_loop_trap

Finally, data stovepipes, which mirror organizational stovepipes, paralyze the flow of data within SaaS businesses. For example, the left side of the BizOps Pipeline is typically managed by the marketing team, and marketing operations people use web analytics and marketing automation tools to measure the performance of activity in that part of the pipeline. As stated previously, the center of gravity of the pipeline is owned by the sales team, and sales operations people use the CRM to measure the efficiency of efforts to convert leads to deals. Similarly, customer support tools, which come into play once customers are up-and-running, are managed by the support operations team. Because of the prevalence of the recurring revenue model, an entirely new stovepipe called customer success has emerged. Customer success tools are typically used in the post-implementation phase, but unlike customer service tools, they’re designed to track engagement with the platform and thereby increase the likelihood of renewal and upsell.

Here’s the kicker: In this world of stovepiped teams and tools, each team has a very different view of the health and status of a given account. While business metrics, as Jordan notes, are typically communicated to all teams, team objectives and the data that drives them are typically team-centric. Consider the familiar end-of-quarter contradiction: Marketing is celebrating because they exceeded their lead generation goals while the sales team is hanging their heads because they failed to hit the bookings number.

Stovepiped, misaligned teams get caught in what we’re calling the report_loop_trap, where they spend considerable time and energy generating reports that track the performance of their own segment of the pipeline – often defensively. When disagreements occur at the boundaries, teams enter the report_loop, producing endless reports to show how they are achieving their stovepipe-specific goals. When the reports show conflicting versions of reality, dysfunction is the inevitable result. The perennial disagreement between sales and marketing teams regarding the number and quality of leads generated is a classic example of this conflict.

Outmoded tools in the BizOps Pipeline reduce the ability of teams to work cross-functionally toward common business goals, leaving them continually striving to defend their own version of the truth. In a favorite quote from The Challenger Sale, Dixon and Adamson write, “Your organization is designed for efficiency at a time when effectiveness is going to win the day.” Departments are getting the job done, but businesses are running in quicksand. How many times have you heard, “It’s not getting any easier!” from your peers? To win in the new BizOps era, a new approach is needed.

New Approaches Are Emerging

To adapt to the way customers are buying today and prepare for account-based strategies, you need to make a choice: whether to continue to design for efficiency and drive the numbers within each segment of the pipeline, or to design for the business-wide effectiveness gains that come from an account-based approach.

In the BizOps Era, businesses tend to design for efficiency when they need to design for effectiveness.

In the BizOps Era, businesses tend to design for efficiency when they need to design for effectiveness.

Why is this so difficult? Much of the growth over the last 10 years has come from the efficient approach on the left. However, as the buyer has changed and competition has intensified, it has become increasingly expensive to acquire and retain customers. The emerging account-based approach has the promise to cultivate accounts with higher LTV. The problem is that it’s impractical (in terms of both money and time) to provide all accounts with the necessary level of attention from marketing, sales, support and customer success.

A transformation as significant as this feels both overwhelming and expensive. That reaction makes sense: most SaaS businesses are already investing significant money and time on a combination of marketing, sales, support and customer success tools. Many are also spending money on business intelligence and predictive modeling tools. Though marketing, sales and support teams may suffer from a certain level of dysfunction, they are still responsible for delivering the number every month, quarter and year.

BizOps people acknowledge the potential benefits of account-based strategies while expressing concern about putting revenue numbers at risk when changing the sales approach. It makes sense to prioritize sales and marketing activities and align with account buying signals, but it takes a leap of faith to make the switch from an “always be closing” to “always be helping” approach. After all, what if no accounts seem to need or want help? What if the sales team has “trained” accounts to go elsewhere for help?

This dynamic is why a culture of experimentation, measurement, understanding and improvement is critical in the BizOps Era. How else can an organization determine whether they’re simply being efficient or whether they’re truly becoming effective? Moving to an account-based approach, where teams prioritize efforts based on account buying signals, is best managed after a carefully considered experiment on a subset of accounts. Once the results of that experiment have been measured and understood, then and only then does it make sense to roll out improvements at scale.

Where does this leave today’s SaaS businesses? Executives know that driving toward that LTV/CAC number is critical, but there’s a disconnect between business objectives, team objectives and individual activities. Tools in the BizOps Pipeline are supposed to help, but they are insufficient because:

  • They’re architected to support an outmoded business model and a sales process that is becoming less efficient;
  • They’re unable to integrate data at the account level with a unified view that addresses the need for cross discipline collaboration from your go-to-market team;
  • They’re optimized for department-level tactical efficiency over business-level strategic effectiveness, reinforcing outdated ways of operating, and sharpening divisions between teams; and
  • Their rigidity makes it difficult to support experimentation, measurement, understanding and improvement, forcing BizOps managers to protect and defend tried-and-true approaches at the risk of missing out on the potential benefits of new approaches to marketing and selling.

TL;DR

In the BizOps Era, we believe that upping the competence level of your BizOps team and tools is the only way to achieve effectiveness at scale. This is when the magic happens. What we all really want is an approach that provides all the LTV benefits of a design for effectiveness with all the scale of a design for efficiency. By adapting your go-to-market approach to map business goals to measurable and trackable team objectives and individual activities, and by creating greater account-level visibility within the company, SaaS businesses can dramatically transform business outcomes. Beyond the primary objectives of driving LTV and reducing CAC, SaaS leaders who make extreme competence in BizOps a top priority can strengthen relationships with top accounts, deliver greater value to customers, and improve their competitive standing. Who doesn’t want that?

What’s Next?

Here are some things that you can do right now to start down the path to extreme competence in BizOps:

  • Join and participate in the growing community of strategic BizOps professionals. Whether you're in sales operations, marketing operations, FP&A, support or customer success, you have stories to share about lessons learned and best practices developed. The stuff you know can be a critical answer to someone’s question, and someone in the community can save you hours by pointing you in the right direction.
  • Come to a Strategic BizOps Community meetup. We’re all human and it’s really motivating to be in a room with other like-minded BizOps-y people who have shared experiences.
  • Request a demo of Rekener. 
  • Read Part 2 of Winning in the BizOps Era.
  • Read Part 3 of Winning in the BizOps Era.
  • Share the Part1 PDF and Part 2 PDF and Part 3 PDF with your colleagues.
  • Add your voice and comment below this post.

[1] In this post, we’re focusing on the recurring subscription model for B2B businesses, as opposed to simply cloud-based delivery of software. The recurring subscription model was innovated by SaaS businesses, which is why we believe that the SaaS Era is still an appropriate name. Plus, “Recurring Subscription Business Model Era” is a mouthful. ; )

[2] We agree with the smart people at Usermind and others that BizOps is a memorable great term to describe this function. A casual search of LinkedIn will generate a growing number of job titles including the words “Business Operations” or “BizOps.”

[3] See https://en.wikipedia.org/wiki/Software_as_a_service

[4] See Mintigo research.

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Alex Laats

Alex is CEO and Founder of Rekener. Previously, he served as President and COO at ZeroTurnaround and as President of the Delta Division of BBN Technologies. At ZeroTurnaround, he grew high velocity inside sales by 6x in 3 years. At BBN, Alex co-founded RAMP and AVOKE, both recurring SaaS businesses based on BBN's world class speech recognition and natural language processing tech. Alex started his entrepreneurial career as founder and COO of NBX Corporation, which led the transformation of business telephone systems to Voice over IP. Alex’s companies have generated $500M in liquidity events and more than $1B in sales.

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