Building teams can be a major headache, especially when you own a revenue target - Striking the right balance between planning and actually forging ahead building out your team structure is one of the most important yet difficult tasks for leadership,
On one hand, you need to have enough human resource to build and manage your pipeline, hit your targets and ultimately grow your book of business. On the other hand, additional headcount brings with it risk in the form of increased overheads, bigger targets and potential inefficiency. With the tech bubble bursting in 2022, the consequences of failing to balance this equation are quite obvious, especially to the 250,000 plus people impacted by layoffs last year.
With the age of ‘Growth at all costs’ seemingly ended (or at least on pause), the prevailing wisdom (for now at least) is that companies must focus on more profitable (read: efficient) GTM motions rather than the old ‘build it and they will come’ approach.
In practice, there is a certain stigma associated with ‘efficient and profitable’ operations; they’re too small and they grow too slowly. Caught between the voracious appetite for returns on invested capital and the need to grow profitably, revenue leaders can be excused for questioning themselves and their approach to growth. But how did we end up here?
The Land of Limited Opportunities
The holy grail for any B2B SaaS/Tech business is to achieve efficient scaling - The reality, at least in recent years, for most has been far removed from that.
In the boom times, when it came to building sales teams, it was easy to focus solely on capacity. There was a certain logic to it and it felt good to hire people, it felt like progress.
Alas, it was not.
It comes down to one crucial factor, dilution of opportunity per rep.
The cycle plays out differently in every company but the story remains the same - After experiencing what feels like decent traction (early-stage PMF) and growing out an AE team plus a handful of SDRs, targets increase and in response further hiring ensues.
As everything proliferates so does the complexity of the situation: The VP of Sales, spread thinly between managing their burgeoning team, dealing with founders and trying to oversee recruitment fails to identify what is happening.
With diaries of AEs largely empty, there just simply isn’t enough opportunity to go around to support the number the team is carrying. With no-one remotely near target, the prospect of even getting out of decelerators seems an impossible task, and so people give up.
It's self perpetuating, and the focus at leadership level switches back efficiency, that realisation that there is simply not enough opportunity flow through the pipeline.
Targets missed, layoffs follow, with company culture and reputation irreparably damaged.
If you play the entire scenario back, you can chalk this failure down to bad planning, choosing the wrong team structure early-on, making the wrong hires at the wrong times and making the job of the VP of Sales nigh on impossible.
For many experienced heads, the whole affair might seem familiar or even inevitable. So what alternative do we have? If we grow too slow, we die. If we grow too fast, we die.
Two words. Revenue throughput.
Revenue Throughput → Pipeline Coverage (seriously)
Revenue Throughput (RT) refers to the volume of opportunity that flows through your business and the velocity at which you convert said volume into revenue. The benefit of building your GTM plans with RT as a cornerstone are numerous. In theory, building a team that focuses on driving throughput means that your efforts will be geared towards generating (at least) enough opportunities to satisfy your sales team whilst also ensuring they consistently hit their numbers.
Sounds great. But capturing and modelling the data to accurately follow revenue throughput is tricky and most attempts by companies to do so are inherently flawed and oftentimes, oversimplified to the extent that they fall short of being useful. Hence why it’s traditionally not been something companies look to incorporate as a foundational element of their planning.
Crafting a revenue throughput focussed plan hinges on understanding the nature of how RT functions. At its core, it’s quite simple. In order to close enough revenue, you need to open enough opportunities. This may seem obvious but a great many companies fall foul of this when they hire scores of AEs ahead of SDRs further to initial PMF. By flipping that norm on its head, you can start to prioritise the development of your sales-led demand generation function over your revenue acquisition function i.e. hiring more openers than closers. In this scenario, you open yourself up to the possibility of closing target-matching revenue that is in turn reassuringly supported by actual pipeline coverage as opposed to the imagined pipeline coverage most forecasts suggest.
Real Growth > Vanity Metrics
Ultimately, it comes down to accepting that having a smaller team of happier, high-performing reps is preferable to the headache of having a larger team hitting the same exact revenue number but missing their much larger target all the same, at a significantly higher cost.
The challenge comes in developing the right kind of visibility across the myriad performance data points that go into understanding revenue throughput. Further to that, companies need sufficient insight into their own hiring processes so as to bring the right people into the business at the right time as per your plan. All this whilst also accounting for ramps, experience and other external factors so as to still be able to generate sufficient opportunity to hit your goal.
Previously, doing this intelligently would require a considerably technical spreadsheet and a lot of time. At best, it’s something a company could analyse once a year with a concerted team effort. We are entering into an era now though, where the software to do this kind of advanced, multi-faceted modelling exists and makes the entire process more valuable and more accessible to commercial leaders of all skill levels.
If you’re interested in building your own revenue throughput engine, sign up to be amongst the first people to try out Clevenue by joining our pilot programme today.
At Clevenue, we believe there to a smarter way of understanding the dynamics of growth & the formula behind revenue, and are helping leaders build it into a plan that works. By taking a cleverer approach to planning we can create a more stable & sustainable path to growth, for the benefit of everyone involved.
Q: What is the difference between hiring for capacity and hiring for revenue throughput?
A: Hiring for capacity refers to hiring based on the need to fill a specific role or number of positions within a company. Hiring for revenue throughput, on the other hand, focuses on finding individuals who can contribute to the overall revenue growth of the company.
Q: Why does hiring for capacity fail companies?
A: Hiring for capacity can lead to a lack of alignment between the goals of individual employees and the overall goals of the company. It can also result in over-hiring and a lack of focus on the most important revenue-generating activities.
Q: How can companies optimize for revenue throughput when hiring?
A: Companies can optimize for revenue throughput by clearly defining the revenue-generating activities that are most important to the business and then hiring individuals who have the skills and experience to excel in those areas. Additionally, it’s important to create an environment that supports experimentation and learning so that employees can continue to develop their skills and contribute to the company's revenue growth.
Q: What are the benefits of optimizing for revenue throughput when hiring?
A: Optimizing for revenue throughput can lead to a more motivated and productive workforce, higher revenue growth, and a stronger alignment between the goals of individual employees and the overall goals of the company.
Q: How can companies implement a hiring process that optimizes for revenue throughput?
A: Companies can implement a hiring process that optimizes for revenue throughput by clearly defining the revenue-generating activities that are most important to the business, creating job descriptions that reflect those activities, and using interview questions that assess candidates' ability to excel in those areas. Additionally, it’s important to create an environment that supports experimentation and learning so that employees can continue to develop their skills and contribute to the company's revenue growth.