Young visionaries and aspiring founder teams strive for winning big markets, disrupting entire industries, creating new digital business models, building competitive moats and essentially changing the way business is done today. In today’s highly competitive markets, founders are very often required to lead their teams to high growth and to generate predictable revenues. But entering a high growth phase comes with a lot of challenges and generating predictable revenues is often easier said than done. But with the right organisational set-up, founders can overcome such challenges.
Structuring a High Growth ORGANISATION
What Do We Have to Change?
When thinking about whether or not to accelerate growth and how to achieve predictable revenues, founders could immediately jump to the question what to do or change. But this is in my view the wrong starting point. Instead of asking “What”, founders may start with “Who” and may double-check whether they have got the right team. Let me refer to Jim Collins who, in his book “Good to Great”, compared a business with a bus and the business leader with a bus driver:
“You are a bus driver. The bus, your company, is at a standstill, and it’s your job to get it going. You have to decide where you’re going, how you’re going to get there, and who’s going with you. Most people assume that great bus drivers immediately start the journey by announcing to the people on the bus where they’re going - by setting a new direction or by articulating a fresh corporate vision. In fact, leaders of companies that go from good to great start not with “where” but with “who.” They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline - first the people, then the direction - no matter how dire the circumstances.”
Therefore, before thinking about what to do or change, founders may first assess whether they have the right people on the bus and the right people in the right seats.
Who Should Be on the Bus?
So, who should be on the bus? Unfortunately, the answer is: “It depends”. It certainly depends on the company. If it is a rather early stage company with a team consisting of 10 to 20 employees and a flat hierarchy the organizational requirements probably differ from those of a later stage company with 150 to 200 employees and several management layers. It certainly also depends on the Go-to-market strategy (which may also change over time). If the company pursues an inbound marketing and inside sales approach the hiring needs will not resemble those of a later stage company that may supplement inbound marketing and inside sales activities with outbound activities and potentially a channel partner approach. But there are some overarching principles that may be considered, irrespective of the company specifics:
- Structuring the organisation will require the founders and the CEO to be agile. If they manage to enter a hyper growth phase, the organisation will constantly grow fast and the CEO will have to lead a different company every 12 to 24 months. CEOs should thus acknowledge that the people they need on the bus today may not be the people they need on the bus tomorrow.
- The power has essentially shifted from the seller to the buyer: The times are over in which salespeople could push products into markets and in which additional salespeople meant additional revenues. Now, customers, both consumers and enterprises, have multiple sources they can access in order to screen, evaluate and compare potential solutions. It is lasting customer success that generates positive product reviews and customer referrals, reduces churn and eventually drives revenues. Therefore, the whole organization needs to be structured around delighting customers and ensuring customer success. Hence, the core executive team needs to embrace customer success and lead the product, engineering, marketing, sales and customer success teams with a strong focus on ensuring customer success at every touchpoint of the customer journey.
- Predictable revenues derive from predictable high-quality lead generation and predictable conversion rates, a topic I will pick up in the article focusing on the Marketing team.
- When hiring executives, founders may be well-advised to concentrate on hiring people that fit the organization today and that can assist the founders in bringing the company to the next stage. Someone who has worked for a large organization and is used to navigating a big ship may not be well-suited to join a speedboat. But someone who can steer a speedboat may very well develop into someone who can also navigate a bigger vessel.
Should We Hire a Chief Revenues Officer'?
A Chief Revenue Officer usually takes the responsibility not only of the Sales team, but of managing all revenue-generating activities, especially Marketing, Sales and Customer Success. She or he is supposed to guide these departments - in close collaboration with the Product & Tech teams - towards the common goals of predictable high-quality lead generation, predictable conversion rates and - most importantly - customer success at every touchpoint along the customer journey. More important than in-depth knowledge and experience as to leading a certain customer-facing function, a Chief Revenue Officer should have a brilliant general understanding of all revenue-generating activities coupled with strong leadership qualities. Founders may consider hiring a Chief Revenue Officer if they encounter situations similar to the following:
Month after month, the company misses its new customer and revenues targets. There is no predictability as to high-quality leads generated and conversion rates. When investigating the root cause, the Marketing team claims that the lead conversion rate is low because the Sales team is not converting supposedly high-quality leads. The Sales team claims that it misses its new customer and revenues targets because the Marketing team provides the Sales team with too many unqualified leads or because customers request product features the Product team does not deliver. The Product team points at the Engineering team that supposedly does not develop respective features. Or all teams blame the Customer Success team for poor customer onboarding and correspondingly high (early) churn or for missing out on upsell opportunities.
This example shows a dysfunctional team where all departments may be led by strong talents, but where such talents do not work as a strong team. As Michael Jordan once put it: “Talent wins games, but teams and intelligence win championships.”
If founders face such situations and have difficulties hiring a Chief Revenue Officer, they need to take on the respective interim responsibility themselves. Creating a strong team that jointly strives for customer success is a leadership challenge. Strong and compelling communication plays a vital role in this regard. Founders need to break down silos and to convincingly convey why the company will not achieve its goals if each department strives only for achieving the respective department’s goals. In this regard, founders may also reflect on the company’s compensation plan and ask themselves if the system is structured in a way that all departments are incentivised to work as a team towards customer success.
Do We Have To Adjust Our Compensation Plan?
If the compensation plan has been established department-specific so that Product, Engineering, Marketing, Sales and Customer Success teams only have separate goals and are not additionally incentivized to achieve cross-department and company-wide goals the likelihood is rather high that departments work in silos and that the company misses its growth and predictable revenues targets.
Given that companies are very different and that goals within one company may change over time depending on the growth phase the company is in, there is certainly no one-fits-all compensation plan. Depending on the company-specific situation, founders need to decide what the goals for the next period of time are. Goals may e.g. encompass number of customers, number of new customers, revenues, gross profit, EBITDA, market share, market share in new markets, new products being developed and distributed or customer success. However, as founders should, as a general rule, only accelerate growth and ignite hyper growth if the company has product-market fit and can scale on the basis of good unit economics, the hunting phase, in which the main goal is to get traction and to acquire new customers, has probably passed. If founders can instead focus on achieving predictable revenues and hyper growth while maintaining appealing unit economics, they may consider the following when designing the compensation plan:
- Supplementing department-specific goals with team and company goals.
- What are our yearly goals and what does this mean for the respective employees? Given the company’s yearly growth and revenue goals and in light of the company’s conversion rates, how many leads and how much in revenues pipeline need to be generated and guided through the conversion funnel on a monthly, weekly and daily basis?
- Looking for counterintuitive gaps in the conversion funnel. If the Marketing team is incentivized to generate marketing qualified leads (MQLs) you might see a significant gap between marketing qualified leads (MQLs) and sales qualified leads (SQLs), i.e. Marketing presumably passes to Sales leads that in fact do not meet the target customer and persona criteria. If Sales is incentivized in light of the sales qualified leads (SQLs) conversion rate, you may encounter a situation in which many marketing qualified leads are disqualified by Sales and in which customers churn early after having been onboarded or where customers do not actually engage and use the product. This could be a sign that Sales disqualifies marketing qualified leads with reasonable quality and that Sales pushes products into the market and converts leads into customers where such customers actually do not need the product because the product does not solve the customer’s problem. Founders may solve this by incentivizing Marketing to generate sales qualified leads (SQL) and by linking the Sales performance bonus to the conversion rate from marketing qualified lead to customer and to customer success metrics. But certainly, the solution needs to be company-specific and found on a case by case basis.
- Adding goals linked to customer success. For instance, linking product, engineering, marketing, sales and customer success bonuses to customer success metrics like engagement, churn and retention rates, renewals, NPS, referrals, support and service metrics. Remember: customer success ultimately drives revenues. If customers stay with the company and do not churn the company can constantly add new customers to its customer base. If the company can successfully up- and cross-sell and if the existing customers refer the company’s products, the flywheel starts spinning faster and faster (see the Hubspot image below).
- Measuring achievements daily, weekly and monthly in order to track if the goals the company has set for the respective year will be achieved and in order to check whether the incentive plan leads to the desired outcomes.
- Certainly, a compensation plan needs to be easy to understand and each employee needs to be able to significantly control her or his destiny.
- Involving the team: Founders may also involve the respective teams when designing the compensation plan. But eventually the founders need to call the shots and come up with a compensation plan that incentivizes all departments to work closely aligned as a team towards the common goals of customer success, predictable revenues and hyper growth.
Should We Consider Using OKRs?
In my view, the short answer is Yes. OKRs stands for Objectives and Key Results. While it is quite easy to come up with ideas and goals that find their ways into the company strategy and compensation plan, what eventually matters only is relentless focus and execution. OKRs can help teams achieve their goals by not only forcing them to clearly define the overall objectives, but to also break down the objectives into key results that need to be achieved on the way to the top of the mountain. It is a collaborative approach around four so-called superpowers: focus, alignment, tracking and stretching. It requires teams to focus and commit to priorities, align and connect for teamwork, track accountability and stretch for doing more than the teams think is possible.
Like goal setting and adjusting the compensation plan, working with OKRs does not guarantee that goals are in fact achieved. Business acumen, sound judgment and strong decision-making skills, great leadership and a good culture cannot be substituted. But I have experienced that teams that work with OKRs are more likely to achieve their goals in a structured manner.
The OKR concept is described in detail in John Doerr’s book “Measure What Matters”.
Do We Need a Chief Operating Officer?
Leading a company in a hyper growth phase means overcoming ever new and often unexpected obstacles over and over again. While overcoming these obstacles, business operations need to continue, processes need to be improved and adjusted, the recruiting infrastructure needs to be aligned to the new hyper growth pace, corporate governance needs to be complied with, the culture in the executive team and the whole organization must be retained and shaped, KPIs need to be tracked and potentially improved etc. etc.
While strong executive team members that work as a team should be able to cope with the challenges that come with hyper growth, hiring a COO as a second in command can make sense in order to free the CEO from tasks he or she is not well-suited for (e.g. if founders have strong product or tech backgrounds, but lack advanced general business administration skills), has no time for or just does not want to focus on anymore.
Do We Need a Chief People Officer?
Once the company starts deploying venture capital funds in order to accelerate growth, the recruitment pace will accelerate too. The organization will be growing faster and more and more people obstacles will have to be overcome. The company will turn from a company where everybody knows each other into a company where the founders meet employees they do not even know the name and role of.
Entering the hyper growth phase may also entail switching from being very frugal as to spending money to spending a lot of cash, still hopefully efficiently, but nevertheless in a different way. The level of risk the executive team is taking on is often a lot different to the risk it has been taking on before. The offices may look differently too. The company may have to move offices frequently and teams may be spread across many floors and offices and maybe also geographies and time zones. Investors will assist but also monitor that cash is deployed in a shareholder value-increasing manner. Hence, hyper growth can and will most likely put significant pressure on the management team.
Unfortunately, HR functions are very often the last functions founders think about. But it is dangerous to enter the hyper growth phase without having someone in charge of sustaining the company culture, ensuring that recruitment is done in a proactive and predictable manner, onboarding and training new hires effectively. The opportunity costs are high and it is not unlikely that the team will have a hard time getting to the mountain top. I therefore believe that adding a VP of People or a Chief People Officer to the executive team early on is a very smart move and will usually lead to a great return on investment.
How Can I Constantly Hire Great Talent?
At early stage companies, founders are usually unable to spend a lot of money on retaining external recruitment agencies. In contrast, at later stage companies I often see management teams paying external recruitment agencies huge amounts of money. While a Chief People Officer will also have to take on the responsibility for ensuring that the company can constantly and predictably hire great talent, founders are well-advised to ensure a balanced approach to working with external recruitment agencies.
It can make tremendous sense to use external reputable search firms for finding suitable C-level executives or specific hires. But for repeatedly hiring second-tier management and filling positions across the company, a great advice comes from Mark Roberge who, in his book “The Sales Acceleration Formula”, suggests to build a recruiting agency within the company.
By building an internal recruitment agency, founders can get the best of both worlds, external agencies and traditional in-house recruiters. The difference between traditional in-house recruiters and internal recruitment agents is that the latter are paid like external agencies. They get rather moderate base salaries combined with meaningful performance bonuses. The performance bonuses are e.g. based on the fill rates, timing and long-term success of the hires they make. They operate like external agencies. They source most of the candidates passively. They do a lot of cold outreach and networking. They are prohibited from using outside agencies and measure outbound candidates touched and conversion from candidates touched, connections, calls and interviews conducted to hires. The benefit compared to outside agencies is that the internal agents know the company-specifics and candidate requirements by heart. They know the long-term hiring plans, can plan accordingly long-term and can focus solely on the hiring needs of the respective company, i.e. they cannot get into a situations in which a candidate meets the requirements of one company, but where the external recruitment agency connects the candidate with another company that may have agreed to pay a higher commission.
Do We Have Buy-in from Our Board and Investors?
Hopefully needless to say, but worth stressing: Spending a lot of cash in order to accelerate growth comes with increased risk the company’s investors should be willing to take. Founders need to take their investors with them on the journey.
Certainly, startups usually face cash limitations. And even well-funded grownups should not spend cash without aiming for a good return on investment and having a sharp eye on cash burn. Many startups will be unable to implement all desired actions at a time.
However, thinking about the questions discussed in this article hopefully helps setting priorities. Focusing first on the people and creating a strong team is of paramount importance for successfully dealing with the challenges ahead. Great talents that work as a team will find a way to generate predictable revenues and to overcome the hyper growth phase obstacles.
In a high growth environment, there usually is no right way to structure the organization. Rather, the organization will look differently every 12-24 months. But building the organization around customer success, creating the compensation plan accordingly and working with OKRs can help. The same applies to hiring a great VP of People or Chief People Officer. Whether a Chief Revenue Officer or a Chief Operating Officer should complement the team needs to be decided on a case by case basis.
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