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Monthly recurring revenue is the holy grail of every business.
Sam Jacobs, the Founder of Revenue Collective, joins George on the Conquer Local Podcast this week to compare notes on monthly recurring revenue and its effectiveness. Sam explains that not only does a product need to have market fit, but the product has to be ready and deliver value beyond a testing environment. He goes on to decode the notion that sales comes first, when in actuality it should start with product, then customer success, moving to marketing and demand generation, and then finally onto sales. Artificial intelligence is coming, but what does that mean for our beloved SDR? George and Sam explore the importance of the human connection when it comes to sales.
Listen to the full episode here.
The Goods on Jacobs
Jacobs founded the Revenue Collective in 2016 and in a few short years it has skyrocketed to over 600 members. The Revenue Collective is an exclusive membership for growth operators dedicated to providing support, assistance, education, and career growth to their members. He helps commercial operators change the trajectory of their careers. The Revenue Collective is a global organization with official chapters in New York, London, Denver, Toronto, Boston, Indianapolis, and Amsterdam, with more chapters coming online in the next few months and years. For the past 15 years, Sam has helped companies scale from just north of $0 in revenue to just shy of $300M. During that time, he's developed deep operational expertise with a particular emphasis on go-to-market strategy and execution, mainly with SaaS and recurring revenue businesses. Jacobs has been a commercial operator at GLG, Livestream/Vimeo, The Muse, and Behavox.
Monthly Recurring Revenue
The SaaS space is all about monthly recurring revenue (MRR), but there are challenges around building an MRR stream. Jacobs says there are two big challenges.
1. Product Fit.
There is a tremendous amount of capital going into companies that are all looking to sell recurring revenue services. Some of these products are not yet ready for prime time. The consequence is that it creates economic challenges for the business as it tries to scale, namely around churn.
There's so many companies that think they have product market fit because they get a bunch of early adopters. They then try to go big. They raise a large amount of money. Or they just invest heavily into their sales and marketing motion. And they don't realize until it's too late, that actually the product isn't quite as delightful as they thought it was initially. And again that manifests itself in low lifetime value.
The consequence is the customers don't stick around. The framework for recurring revenue businesses is beautiful because of its predictability. The difference between single or transactional sales and recurring revenue sales, is you have to continuously deliver value and great experiences to the customer. One reason some of the B2B enterprise software businesses are burning so much capital, is the idea that they are going to spend an enormous amount of money to acquire the customer. Once the customer is acquired, the hope is they will stay for a long time.
The reality is, I don't really need $80 as an organization. Meaning, I, as a proxy for the organization. I need $80 for four years per month. I need $80 in 48 instances of $80. That actually turns out to be quite a lot of money. I can invest against it. But if they don't stick around, then I don't really have very much of anything at all.
2. Customers Attention
The second challenge is largely that people's attention is harder and harder to get. From a sales and marketing perspective the consequence of their attention being harder and harder to get is that it's more and more expensive to acquire them. This means you have to have a product that sticks around. The caveat is you also have to be charging enough money to justify all of the money that you're going to spend to acquire them. Or you need extremely cheap ways to acquire them, such as freemium models like Slack or Dropbox offers.
Who takes care of the upsell? Is it customer success? An account executive?
There is no perfect answer.
If you've got a great product, and you've got a market that wants the product, any one of these approaches can work. If you've got a terrible product, then none of them will work. There is a school of thought that the customer success is a slash, and it's slash account manager. That person is responsible for getting the client to use the product and they're responsible for renewing the customer at the end of the contract. They are also responsible for presenting new products and upselling. That's just one way to do it.
Two different approaches:
1. A customer success persona—the profile of that person you hire— might be closer to a salesperson profile. It's somebody that is motivated by money. Their KPIs are around, not just customer engagement and usage metrics, but revenue, and they're motivated by it.
2. It gets complicated. Stay with me. There's an account executive that sells the business. There's a customer success person that is remunerated and compensated based on non-revenue indicators, like usage or NPS score. Then there's an account management team, as a third team, that inherits the business from the account executive and is the person asking for money. The benefit of that model is the customer success person has no economic interest except to serve the customer.
The Robots are Coming
Will a SDR be a thing in five years? Maybe AI will take that whole thing and we won't even need it. Are salespeople still going to have a job?
There will be a role for salespeople, but they'll have to be more consultative. They'll have to add more value. They'll have to be thought as trusted advisors back to the customer. I think all of the discrete, repeatable actions that many people currently endeavor to undertake, will probably be replaced by automation at some point. I don't know that AI will replace salespeople, I just think it might take fewer salespeople to accomplish the same output because of particular platforms.
Automation initially will not replace one person, but it'll make one person able to do much more, which will reduce the number of people required to get something done. The professional salesperson brings value, continues to learn, expand their skill set, and is valued by the customer.
Advice from Sam
“I'm the salesperson that doesn't believe in sales. Now what do I mean by that? I wrote an article on LinkedIn. It's called "The Order of Operations." It's the order—what departments need to become excellent and in what order—as you think about growing a business. I often say that sales is the last department that you should think about making excellent. The first thing you want to make sure of is that people like the product, that they use the product, and then you can build all of the muscles around.”
- Sam Jacobs, Founder, Revenue Collective
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