Before we begin
I know this isn’t a conversation anyone wants to have, but it’s one that many companies right now have no choice but to. I was considering not writing something like this, I’m not a fan of adding on to the seemingly endless amounts of negativity, but sometimes, you have to face the brutal facts, and this is the time when we need to help each other more than ever.
Some companies are faced with the need to downsize their sales, marketing, and customer success orgs. We all made bets during times of major tailwinds, and some of the bets need to be right sized to align with the current economic climate. Here are a few things to consider and think about as you tackle this exceptionally tough problem. If you do this correctly, you may ensure the survival of your business and set up for success in the future, if you do this wrong, you could cause a ripple effect that the company may never come back from.
As a RevOps professional, I’m usually the first call for this kind of discussion and tasked to begin preparing scenarios and plans for leadership to sift through. You’ll likely be working against the clock to make a decision quickly, however, pause and take the time to get data to support your decisions. The last thing you want to do in a scenario like this is cut a part of the growth engine that is working well and exacerbate the problem.
What to do
Start with kindness
Understand that we’re not simply talking about numbers on a spreadsheet, we’re talking about human beings who have dedicated their professional abilities to your mission. These people have families to support, goals to achieve, and had a belief that your business was worthwhile enough to dedicate their talents to. Not to mention, these people likely left good opportunities to join your company. Often, it’s the failure of management and leadership that leads to this type of scenario, and as a leader you should take responsibility and action for the overinvestment.
Before thinking of anything else, start with an ideal plan that you would like to provide to anyone impacted to support them on their next journey. Here are a couple of things to consider.
- Ample severance and health care / benefits coverage to provide them time to find their next opportunity with financial and health security
- Support as a reference or write a letter of recommendation
- If you know of other opportunities make an introduction personally
- Continuation of options vesting if near a cliff or major vesting milestone
- Finish any professional certifications they are enrolled in
- Anything else you think can help give them a foundation to succeed or is deserved for their service
Work quickly, delaying action will magnify the problem and increase your risk and the risk of others
Just like waiting to go to a doctor when you are sick, the longer you wait, the worse the problem can get. If it’s clear that the GTM engine of the business is not sustaining the growth needed to support the team, you need to react quickly. Days, weeks, and months will be continually compounding the losses and if you don’t make adjustments you will be risking even more team members in the near future. You are also holding people back from finding their future opportunities and may not be in a position to support their transition.
- If you wait, losses compound – a 5% monthly loss can almost be an annual 50% loss
- If you wait, you will risk being able to offer ample severance to those who are let go
- If you wait, you will risk needing to make even larger layoffs in the future
Gather as much data as you have available, it won’t be perfect, but work with what you have.
Below are a few data points that will be helpful.
Data for Sales rep performance
- Pull performance and activity data on reps, take a look at closed business and created pipeline in particular.
- Look at the pipeline source per rep, is one getting more leads than another? Is one in a better territory? Any tailwinds or headwinds individuals are facing?
- Pull ramp metrics if you have newer reps. Who’s completed enablement programs? Who’s building pipeline in their territory?
- Pull the churn history of deals closed by each rep. Does one rep bring healthier deals than another? Lifetime value of a customer may be more important than just initial bookings values
- Compare performance against cost and efficiency. A rep with a $200k OTE closing $900k of business may be better than a rep with a $500k OTE closing $1.1M.
Data for marketing performance
- Pull performance data by channel, closed won by lead source, sales qualified leads (SQLs) by lead source, and marketing qualified leads (MQLs) by lead source.
- Focus on sales qualified leads because it trims out the noise of MQLs and doesn’t depend on potential long sales cycles when looking at closed won only
- Look at the conversion from MQL to SQL by channel, usually strong investment can drive high MQLs, but the efficiency of that investment shows up in the SQL performance
- One of the most telling metrics is cost per SQL, it doesn’t tell the whole story, some lead sources are more elastic than others, but this gives you a good idea of what dollars are working well. To calculate, take total SQLs divided by cost of channel, including headcount. I like to offset by a month to provide a buffer for spend to have an impact.
- Understand the team that is behind your most reliable and highest performing channels
Data for CS performance
- Pull revenue and growth metrics first: NRR, upsells, cross sells, gross churn, etc.
- Review customer health and customer sentiment – quality of CSM may not be causal to revenue performance
- Pull NPS and CSAT data per CSM
- Cost to carry – what is the total OTE of a CSM and how much revenue can that CSM manage? Are there any efficiencies you can find in the data?
- Review ramped individuals and level of product knowledge
Revenue Operations (we’re not immune from a tough evaluation)
- Understand the needs you will have after changes, will you also scale back systems and tools? Any processes that will be simpler i.e. deal desk?
- Look for utility players – you may need to operate with
Again, this data won’t tell the whole story, but it may help confirm or deny some assumptions you have and give you more evidence in your decision making process.
Look for intangibles in your talent
The total body of work cannot always be represented in the numbers. It’s a good place to start but it never tells the whole story. People are complex, organizations are complex, and there are intangible factors you have to consider in your overall assessment.
- Is the person additive to the culture and inspires others to do their best work?
- Is the person a utility player who may be able to take on diverse tasks when there are missing team members?
- Does this person have great external relationships that are valuable to the company?
- Is the person a leader and someone who can help the company get through tough times?
These factors and more should play a major role in your decision making process.
Have a clear plan of roles and responsibilities and expectations following
There are many aspects of the business that will need to be reorganized and operationalized once you downsize the team. Here are a few things you will need to consider.
- Territory design and account ownership
- Transfer of active opportunities and accounts
- Messaging for introducing new team members
- Quotas and capacity plan adjustments
- Create commission plan that incentivizes overperformance
- Ownership of lead channel performance and activities
- Realign the budget per channel
- MQL/SQL expectations and targets that are aligned with new sales targets
- Vendor transitions
- Partnership transitions
- Bring in fractional resources as needed to fill in specific technical/knowledge gaps
- Account distribution and segmentation
- Renewal/upsell quotas and targets
- Account transitions and ownership
- Carry expectations
- Bring in tools/processes to help manage more accounts with less people
- Reassign tasks and operational cadences
- Bring in fractional resources as needed to fill in specific technical/knowledge gaps
Instrument the business to monitor if the decisions you made are working
Just like when you bet on growth, if you bet on cost cuts working, monitor your assumptions and see if you need to make adjustments. Continue to track efficiency metrics as a highest priority and see if you are able to increase the overall efficiency of the GTM engine. Growth and performance to plan will be important, however, if you made cuts without increasing efficiency, you haven’t solved the problem. Here are a few examples of things to track.
- Customer Acquisition Cost & Payback period
- Return on Advertising Spend
- Cost to carry ratio for CSMs
- OTE to Bookings ratio for sales reps
- RevOps headcount to total headcount ratio
What NOT to do
Use simple rules like last in first out, removing highest paid team members, or over index on one part of the business you think is the “problem”
The nuances of the decision making process are endless. Some companies jump to a system like this first because it’s easy and takes some of the emotion out of the process. Or, people will point the finger to one division only and blame that part of the business for the overall poor performance.
Not only is this not considerate of the people you’re making decisions for, it’s guaranteed to remove people who are good fits for the future of the business and potentially keep people who are not as good of a fit in. Don’t be lazy by not using these methods as an excuse to justify a decision, give it the brain power it deserves to make the right decision.
Keep the rose colored shades on
I’m generally a positive person and like to look for opportunities even in the most challenging times, but sometimes, you have to face the brutal facts and see what you have to see. You can blind yourself with optimism and make poor decisions. Take a sober look at what’s happening, dive deep on the root cause, and make the adjustments you need to make.
Rely on data ONLY
Don’t pull a report of closed won opportunities, sort descending by amount and cut the bottom half of reps. Jack Welch might think this is a good enough approach, but in our complex environments that doesn’t tell the whole story. Was your top rep supported by a better territory? Or paired with a sales engineer who has the highest close rate with all of the reps they support? The data can lie to you, and it’s your responsibility to use your business judgement and acumen to make decisions based on what you see in the data. This is why businesses aren’t run by ChatGPT…yet.
Lose sight of your mission
Most of us are working for companies that solve serious problems and truly believe in that mission. These types of events can create a massive disruption to the team left to complete the mission you’ve set out to accomplish. Setbacks happen, challenges are guaranteed, but if your mission is worthwhile, keep moving forward.
This is going to be hard, it’s not going to feel good, but many of you reading this will be faced with needing to make these decisions and you’ll need a framework and thought process to work through it. Pull the data you can, remember the data can lie to you and you’ll need to use your judgement to sift through what it is actually saying, and be swift before the problem gets worse. Take care of those who dedicated their professional time to your mission and take care of those who will still be on your journey.
If you want to discuss this topic more, feel free to reach out to me directly