Private equity firms are invested in their portfolio companies’ success. First quarter is an ideal time to check each company’s growth rate, including sales and marketing performance.
But are you primarily focused on evaluating revenue, sales cycle length and compensation? If so, you are focused on lagging indicators. These lagging indicators won’t tell you where the company is going – just where it’s been. Over-focus on lagging indicators won’t get you very far.
A more productive approach is to focus on evaluating leading indicators. Leading indicators will tell you how it’s going before the final results.
Performance conditions and talent play equal parts in sales and marketing performance leading indicators. Evaluating these in Q1 can set expectations for the rest of the year.
Performance Conditions: Validated Assumptions and Go-Forward Decisions
The first thing to consider when evaluating performance conditions are past assumptions.
When the sales strategy was designed, assumptions were made. When performing the Q1 assessment, start with what these assumptions were.
- What was the predicted deal size?
- How many customers did the company assume they would sign?
- What cross-sell and upsell opportunities were assumed?
Then, ask the most important question: Were those assumptions validated by the actual results?
An agile sales and marketing strategy is action-oriented. The Q1 review meeting should be a decision-making meeting. Take the validated assumptions and make new decisions based on them.
Performance Conditions: Costs and Product Performance
Value is accelerated when sales and marketing are enabled to hit their growth milestones.
When assessing Q1 performance, consider the historic cost of acquiring a customer. Is that number going up or down in each key market segment?
Marketing should be able to explain what they did to increase their contribution. And the sales team should have CLV (customer lifetime value) numbers on-hand. Are marketing contribution to revenue and CLV trending upward? These are important leading indicators.
Finally, to accurately assess performance conditions, consider product performance.
- Did the performance of a new product meet the pre-launch assumptions?
- Was the sales force enabled to sell the new product? Were they offered the appropriate training and coaching?
The Second 50%: Talent
If 50% of performance excellence comes from conditions, the other 50% comes from talent. The health and effectiveness of the “supply chain of people” is critical to the company’s success for the long-haul. Sourcing, hiring, training and developing talent are big-impact activities.
On the front end, start by understanding:
- How new hires are performing
- What the turnover trends are
- How many days it takes to hire
- How many territories sales reps have (open territory management is death to sales organizations!)
- How long it takes to ramp up new hires
- How new hires are set up for success, i.e. how they are building sales skills
On the back end, scope out:
- How many employees the company lost in Q1
- If there were exit interviews conducted, and if so, what was learned and what was changed
When conducting the portfolio company performance review, look out for these three red flags.
- The first red flag is lack of win/loss analysis. Win/loss interviews should be conducted after a prospect has made their decision. If these interviews weren’t frequently conducted, you are missing a huge data set. You need market feedback on your portfolio company to accurately assess it. Anecdotal information won’t cut it.
- The second red flag is if the portfolio company isn’t confident in their Q2 forecast. They should be referencing Q1 results and building on the improvements.
- The third red flag to look out for is misalignment between sales and marketing. To uncover misalignment, ask each leader how they enable each other to execute strategy. They should have quick answers for you.
Assessment Should Lead to Action
As a board member, you help accelerate the company’s growth through analysis and action. Lead with validated assumptions and enable sales and marketing. Then help the company prioritize programs for growth.