SBI PRIVATE EQUITY QUARTERLY UPDATE

Transcription

1 Q1 '17 SBI PRIVATE EQUITY QUARTERLY UPDATE

2 SBI PE QUARTERLY UPDATE - Q1 '17 TABLE OF CONTENTS Introduction - Top Trends from Q Top Due Dilligence Misses 4 How Do You Know If You've Hired The Right Sales Leader? 7 Boost Enterprise Value by Targeting Customer Acquisition Costs 9 Your 2020 Revenue Plan: 7 Predictions 10 How Can Your Portfolio Company Avoid an Embarrassing Sales Pipeline 11 The SBI Private Equity Leadership Team 13 2

3 SBI PE QUARTERLY UPDATE - Q1 '17 TOP TRENDS FROM Q1 '17 WELCOME SBI is the management consulting leader in sales and marketing. Every quarter SBI conducts dozens of engagements on behalf of private equity firms. These engagements range from diligence, sign to close, to post close value creation work. This gives us unique insight into the before and after of deals across a wide cross-section of companies. We will aggregate and publish these insights on a quarterly basis. This quarter we spent some time analyzing the top trends in diligence and some key areas of opportunity in post close value creation. 3

4 SBI PE QUARTERLY UPDATE -- Q1 Q1 '17 '17 3 TOP DUE DILIGENCE MISSES BY: MATT SHARRERS This quarter we spent time analyzing top trends from diligence and discovered three areas private equity firms could do a better job to increase their investment hit rate. 1. Leading Indicators 2. Talent 3. New Product Launch #1 - Leading Indicators Three leading indicators you should be observing: MARKETING CONTRIBUTION TO REVENUE This is increasingly important in projecting a companies revenue growth capabilities. Marketing should be able to explain what they did to increase their contribution. Is this contribution going up each quarter. One of the shifts we see is the growing focus on leading indicators vs lagging indicators. Traditionally lagging indicators such as revenue growth, churn, margin are analyzed. However these don t provide insight into a company s future revenue obtainment. By the time you have the lagging indicator in place, it s too late to affect the outcome. Leading indicators give the PE firm and portfolio company time to course correct and avoid a miss. CUSTOMER AQUISITION COST (CAC) Consider the historic cost of acquiring a customer. Is that number going up or down in each key market segment? CUSTOMER LIFETIME VALUE (CLTV) The sales team should have CLTV numbers on-hand and they should be trending up. 4

5 SBI PE QUARTERLY UPDATE - Q1 '17 #2 - Talent Efforts to formally assess the talent level of the sales and marketing organization beyond the VP of Sales and CMO is trending up. The health and effectiveness of the supply chain of people is the lifeblood of the company s success for the long-haul. Sourcing, hiring, training and developing talent are big-impact activities. How long does it take to ramp a new hire to reach full productivity? How are new hires set-up for success (i.e. how are they building skills)? ON THE BACK END, SCOPE OUT: How many employees the company lost in Q1 If exit interviews are conducted, what was learned and what was changed? ON THE FRONT END, START BY UNDERSTANDING: How are new hires performing? What are the turn over trends? How long does it take to fill an open position? Next: New Product Launch 5

6 SBI PE QUARTERLY UPDATE - Q1 '17 #3 - New Product Launch The underlying thesis in many investments is the ability to launch new products and services into current or new markets. However a company s ability to execute on this new Go-To-Market strategy is often not evaluated appropriately. Increasingly firms are paying more attention to a companies historic product launch success/failure and how those lessons have been incorporated into future launches. QUESTIONS TO ASK IN DILIGENCE? How do you communicate buyer value for your product? Do you have a 'Why Change' story to overcome the status quo, and how was it developed? What are your launch goals? How have past launches performed? What are the launch risks? How do you measure progress against your launch objectives? What does your training program include to build the necessary product skills and knowledge? 6

7 SBI PE QUARTERLY UPDATE - - Q1 Q1 '17 '17 HOW DO YOU KNOW IF YOU'VE HIRED THE RIGHT SALES LEADER? BY: TIM FOSTER Hiring leadership talent is incredibly difficult. Sales has become more scientific, yet many worldwide heads of sales are hiring their sales management team based on gut feel. Or even worse, 3rd party recruiters that don t know their sales org. Even with the best process, some silver tongue bad hires still make it through. This post is about spotting leadership hiring mistakes quickly. You have a sales strategy. You have invested in new processes to make the team more effective. Yet, your recently hired regional leaders are struggling to drive execution in the field. You were involved in hiring them, so you are vested in their success. Allowing poor leadership to exist in your organization will have widespread effects. Poor leadership will in turn hire their own wrong talent. They will not set expectations properly. Ultimately, hiring the wrong leader can set back a region for years. Concerned you recently made a leadership hiring mistake? The Mis-hire Sniff Test will provide clarity. The tool will help you pinpoint why the new leader is failing. Use it to determine if you should continue to invest or cut ties. WHAT ARE YOUR OPTIONS? Invest more and hope they turn the corner Cut ties now Give them more time What is the right answer? As the Head of Sales, your time is incredibly valuable. The opportunity cost of keeping the wrong leader in the role is immense. The decision will impact this year and next at a minimum. IS THE LEADER A MIS-HIRE? 1. Expectations The 1st thing you need to do is look in the mirror. Have you provided clear expectations multiple times? Assuming your new leaders know what is expected could be the problem. Use TSWRM to ensure expectations are clear and executed properly. TSWRM Tell them, Show them, Watch them, Retrain, and Manage. If you skip any steps, you can t validate your team understands expectations. Don t stop at Tell them and assume they know how to execute. Deep down you aren t sure you have hired the right leaders. 7

8 SBI PE QUARTERLY UPDATE - Q1 '17 2. Measurement Next, you need to measure the right metrics. Behaviors and leading indicators. Using lagging indicators to measure a new hire s productivity is a mistake. Look at the behaviors the new hire has full control over. Are their behaviors in line with your expectations? Then look at leading indicators. These will help you determine if the behaviors are being performed effectively. Some new hires are just going through the motions to please you. The top leader behaviors and leading metrics are in the Sales VP Mis-hire Sniff Test tool. 3. Capability Running a sales org is incredibly difficult. The difference between success and failure comes down to two things. Talent and performance conditions. Without the right leadership even the best performance conditions will produce average results. If you would like a hand, come see me at The Studio to sit down and review your people plan approach. Assess your talent plan by downloading our 10th annual workbook, How to Make Your Number in Review the latest talent approach in the sales strategy section under People Plan phase on pages of the PDF workbook available at sbi. tips/2017workbook To retain a top performer, pay close attention to the Succession Planning section starting on page 289. Think back to the hiring process and ask yourself these questions: Did you seek them out? Or were they unemployed or running from their current job? Hiring leaders that aren t looking for something new has a better success rate. Did we make the easy hire? Did I hire based on their past experience and gut feel? Did I hire them mainly because I like them or they are similar to me? Were they hired based on the competencies they demonstrated? These questions are a good way to test your current sourcing and hiring process. 4. Time Time management can be a killer in a new role. As a leader, it is your job to provide direction and focus. Do you really know where they are spending their time? Have you observed them? Set a cadence to do coaching and visit them. Have them track their time and review it in weekly meetings. Look for opportunities to make admin time more efficient. Make hiring, training, coaching, and development time more effective. 8

9 SBI PE QUARTERLY UPDATE - - Q1 Q1 '17 '17 BOOST ENTERPRISE VALUE BY TARGETING CUSTOMER ACQUISITION COSTS BY: CHRISTOPHE BODIN Companies create significant value by pulling the Customer Acquisition Cost (CAC) lever. Consider a 1,200 employee mid-market company. In this example scenario, the company s CAC was roughly $100,000 before aligning its sales and marketing strategies. However, the marketing team had been building a lead-generation engine that was in direct conflict with the sales team s big-game hunting strategy. By aligning strategies and resources across the two functions, this company effectively reduced CAC to $75,000 per customer. It achieved this improvement by increasing the number of customers acquired through an inside sales function that could absorb the marketing leads. As a result, the company created an additional $25,000 of contribution margin per customer in year one. TO GO DEEPER, REVIEW THESE RECENT ARTICLES: Below is an example of customer acquisition cost analysis to illustrate the type of impact that is possible for your enterprise. How to Calculate the Impact of Strategic Alignment Why the Sales Leader Needs to Understand CAC. Before Alignment After Alignment Alignment Impact Number of New Customers Customer Aquisition Cost $100,00 $75,000 $25,000 Contribution per Customer $400,000 $425,000 $25,000 EBITDA Impact $825,000 Multiplier 5x Value Created $4,125,00 9

10 SBI PE QUARTERLY UPDATE - - Q1 Q1 '17 '17 YOUR 2020 REVENUE PLAN: 7 PREDICTIONS BY: AARON BARTELS SBI peeked into the future to ask, "What will our 2020 revenue strategy look like"? Here s what we found: 1. Siloed sales strategies will be obsolete. Your revenue plan will be driven by full strategic alignment weaving together product launches, marketing, sales, customer service, HR, and other functions into one integrated plan. 2. Migration of B2C buying trends into B2B environments will accelerate. As consumers expect excellence today from the companies they buy from, business buyers will demand more from the businesses that serve them. 3. Omni-channel buying experiences will be table stakes. When a buyer moves from your website to a social network, to a sales rep, or to a customer service rep, the dialogue must be a single connected conversation. 5. Inside sales will eclipse outside sales as the primary sales channel. Geographically distributed buying-decision teams combined with improved virtual collaboration technologies will make meetings more productive to conduct remotely boosting productivity per salesperson. 6. Infrastructure requirements to sell globally will be reduced. Improved technology and localization will enable smaller and emerging companies to compete from headquarters located anywhere in the world. 7. Switching costs will drop considerably. Migration to licensing products through delivery mechanisms such as software as a service or managed services will quicken disruption, putting more customers in the market each year. 4. Social networks will shift from connections to conversations. The buyer experience will be fully transparent to anyone in the market. Sales differentiation will be impossible without support from product, marketing, customer service, and so forth. 10

11 SBI PE QUARTERLY UPDATE - - Q1 Q1 '17 '17 HOW CAN YOUR PORTFOLIO COMPANY AVOID AN EMBARRASSING SALES PIPELINE BY: ERIC ESTRELLA In this post we will discuss how pipeline reviews can expose a sales leader, and steps to prevent such an event. As a resource, download our 10th annual workbook available at sbi.tips/2017workbook, How to Make Your Number in Turn to the Sales Strategy section on pages of the PDF for a complete resource to make your number. Sales Leader: Sometimes my team enters deals into the CRM once they are ready to propose. PE Firm: You shouldn t allow that. That may be shrinking your early stage pipeline. We need visibility to those deals. Here is an example pipeline review between a Private Equity firm and Sales Leader. This Sales Leader had aggressive goals. The PE firm invested significant resources to ensure aggressive growth goals are achieved. The PE firm wanted to know if he would make the number next quarter. The conversation went like this: PE Firm: Your average sales cycle length is 150 days. Correct? Why have 30% of your opportunities been active for over 250 days? Sales Leader: Ummm. Some of those are bigger deals that take longer. Also, some probably need to be removed from the pipeline. PE Firm: Actually, only 11 out of the 124 deals in that 30% are larger than $500k. Isn t $400k your average deal size? If so, that means you need to do a lot of cleaning up. Sales Leader: Ok PE Firm: Also, 32% of your deals in stage 4 (the last stage before closed) are less than 30 days old. Why? Is that why stage 4 is almost as big as stage 2? 11

12 SBI PE QUARTERLY UPDATE - Q1 '17 You get the idea. Once the PE firm smelled blood, they kept digging. This Sales Leader s credibility was called into question. SBI participates in tons of pipeline reviews across multiple industries. Avoid the common pitfalls we see on a regular basis. Knowing the top metrics will ensure you are prepared for success. Sales Management continues to make a fatal mistake. They look at high level indicators when analyzing the pipeline. They don t understand all the details that feed into those indicators. This approach can lead to uncomfortable conversations with your boss. Only focus on late stage deals late stage deals have the potential to close sooner. It is natural to focus on them first. But sometimes you can t help much because it is too late. The customer has what they need and it is a waiting game. The early stage pipeline could be easier to influence and progress. You need to be intimately involved with all stages. Can t explain why it is in the stage leaving stage assignment to the sales person s discretion is a mistake. There needs to be some science behind the assignment process. They ask their team questions like this: When will this deal close? Do you have enough pipeline to cover next quarter? How do we move the deal forward? Don t understand the anomalies every pipeline has some irregularities. Managers should know what they are and be able to explain them. What is your pipeline to quota ratio? Why did your pipeline shrink? While these questions may be valuable, they can also drive the wrong behavior. They should only be looked at within the right context. To get the necessary context, a deeper dive is required. Here is an example. A sales rep has pipeline to quota ratio as a scorecard item. His ratio may appear positive because he keeps lifeless opportunities active. He looks good. But in reality, he s holding onto dead deals to keep the pipeline looking flush. This inflates the indicator, but doesn t help the result. Sales Management needs to uncover these situations and fix them. Here are a few areas where Sales Management misses the mark in understanding the pipeline: Not understanding the sub-metrics Every major pipeline metric has other smaller metrics that feed into it. For example, your average sales cycle length may be 150 days. But do you know the average time deals stays in each pipeline stage? How about the average progression rate from stage 1 to stage 2? These are the granular metrics which help you manage the pipeline effectively. 12

13 SBI PRIVATE EQUITY LEADERSHIP TEAM MATT SHARRERS MANAGING PARTNER PRIVATE EQUITY (415) AARON BARTELS MANAGING PARTNER PRIVATE EQUITY (404) JOHN STAPLES PARTNER PRIVATE EQUITY (303) TIM FOSTER PRINCIPAL PRIVATE EQUITY (609) CHRISTOPHE BODIN PRINCIPAL PRIVATE EQUITY (408)

14 Sales Benchmark Index 2112 McKinney Ave Dallas, TX Contacts