Modules
Session 2: Lean Revenue Production w/ Sid Kumar
Transcript
Actually, Sid Kumar one more time. Sid Kumar. There you go, my friend.
Alright. Here so this this this talk is all about how we're gonna hit get rid of Jack and stop talking about You said it. Growth at all costs and how to create a sustainable recurring revenue factory. So what I'm gonna take you through is a little bit of a history lesson on lean production and how do we apply that to go to market. So bear with me here, and we're gonna start with, let's talk about the different types of manufacturing. There's craft manufacturing.
This is where the outcomes are very skill dependent, handcrafted, high end goods. All of these, by the way, that I'm going to talk about are still in production today.
Then there's mass manufacturing. You add standardization, you add, to drive predictability, lower costs, increase quality.
And then there's lean manufacturing. You add the data, the automation, then you start to think about where do you want humans, where do you want robots. So these are just three different types of manufacturing. We're not saying one's better than the other, but we're gonna talk about lean manufacturing in the context of how do you apply it to your revenue factory. When you go from craft to MAS, the difference was we added process, process standardization and repeatability.
And we went from mass to lean. It was really about how do you take automation and data and integrate that into into the, the operating model and the manufacturing process.
So if you think about this, this is the Aston Martin DB11, dollars two hundred and seventeen thousand car.
Then you have the BMW three Series, dollars fifty one thousand.
And you have a Toyota Corolla here, which is thirty thousand dollars When you look at these three different cars, Aston Martin, two hundred seventeen thousand dollars they make a thousand per year.
It's fully customized, it's all parts are hand fitted. Lifetime one hundred and fifty thousand miles as that goes.
BMW some parts are hand fitted, but most of it is mass manufactured and goes two hundred thousand miles. Then you go look all the way to the to the other side, the Toyota Corolla dollars thirty thousand, no parts are hand fitted, complete lean manufacturing, dollars three hundred thousand of these are produced a year, and a lifetime of three hundred thousand miles. So just giving you a sense of, you know, this is in production today, and we're gonna talk about what can we learn from Lean manufacturing to drive high quality output and throughput in revenue at scale. That's what this is about.
So So the big question is why are there no parts hand fitted in Lean Manufacturing? I think if you go back to what is Lean Manufacturing, and you know Toyota popularized this, in car production. It circles around these five areas. It's around starts with value.
You produce what customers and prospects will value and nothing else. You align your value streams, align to those areas of value to these value streams need to be doing activities that are directly contributing to that value. There's this concept of flow. You're continually driving that production line, not stopping it.
It's continuing to to go at all times. You have pull from the market, so you're gonna produce as the market pulls, as opposed to create a lot of inventory that stockpiles and doesn't go anywhere. And then the the last but not least is this state of perfection or continuous improvement.
And the notion of you can always keep getting better and keep fine tuning your process, and you're never done. So think about these, just keep these in mind as we go through how do these apply from what we're all trying to do in terms of building a sustainable, and durable revenue model.
So Keith, this is what we talked about. Three hundred so remember this, three hundred thousand, miles per year, three hundred thousand produced per year for a Corolla, three hundred thousand lifetime miles at thirty thousand dollars How do we how do they do that, and how do they maintain that quality and throughput?
So now let's jump to how does this apply to SaaS.
We are really at a, you know, interesting moment in oh, hold on.
You can hopefully see the lines here. Our our growth rates in SaaS have dropped materially over fifty percent over the past twelve quarters, and the cost of acquiring a net new customer two point five four dollars for every dollar. So you have cost going in one direction, you have growth rate going in the other direction, direction. Not sustainable, that's what we've been talking about all day.
When we talk about the state of SaaS, we have standards for server uptime or software uptime, which we talk about as five nines. Right? That means for every hundred thousand minutes, there's one minute of downtime. That's what we've come to accept on the technical side of software.
Any guesses around what success looks like for go to market today?
And I'll give you I'll give you to be a little bit more specific, the way we're defining success is if you've raised three million dollars, at least three million dollars, you have product market fit, arguably there's good product market fit, you're selling your solution, and you've had some type of exit, whether it's an M and A exit or or an IPO exit, what does that look like? Seven percent.
Seven percent?
Keep going lower.
Yeah. It is one point seven percent.
So with all the folks, you know, this is the problem that we have to go solve is go to market is the gap between great product market fit, capturing a value proposition in the market, and actually creating value. And what we're going to talk about is how do we change those odds?
And how do we create a standard around how we think about go to market? And that's what this revenue factory concept is all about. So just like just like in a regular factory, you think about production, you think about efficiency, and you think about quality.
If you think about this in the context of revenue, production is how do we drive growth?
Efficiencies how do we drive growth, but do it in a cost effective efficient manner?
And then quality is all around the impact. So we talk about recurring revenue drives recurring recurring impact drives recurring revenue.
So how do we continually think about impact at every single step of the way when we're engaging with our customers and prospects to drive impact? If we don't do that, the other two or the revenue growth is not going to come.
So if you think about what this is, this is an s curve. Every business goes through a growth curve like this. Like, if you there's some stop at earlier points in the journey, but this is a maturing scaling business. We'll go through an s curve where you're you're first figuring out, you know, your product market fit. You're you're starting to get to, go to market fit, and and then you're starting to get in that, like, steep part of the curve. That's where the the the the math that Sangram talked about earlier today, the compounding math of net revenue retention and upsell cross sell, that is what is driving that steep ascent, is are you bringing, are you keeping your customers, are you expanding them, and on top of it, do you have a new customer acquisition engine that is, firing on top of that?
And at some point every business is gonna start to get to that flat part of the curve. That's when you start to read saturation, you have competitive dynamics, and you gotta go think about, do I enter another geo? Do I potentially, have a a brand extension, or do I do m and a? Like, so there's other ways of continuing to think about those. How do you keep lighting up new s curves?
So if you, what happened during the growth at all costs era is we just skipped a number of steps along this curve, and we want to just go dry growth and not think about how to do it systematically and sustainably.
So we skipped a lot of the the steps that cause you to create a, you know, durable s curve, and now we're sort of retrenching and figuring out where do we have to go retool, rethink our business so that there is, there are foundational elements of, of growth that that are sustainable.
So if you think about let's extend the the factory analogy a little bit more. If you think about your different segments, how many of you are in sales?
Okay. Most of you have multiple segments of your business that address different can you just talk what are what are the segments of your business? Gosh. Trip.
Technology. It got your technology service. I mean, operations as long as I work in HR for small business. Okay.
There's a lot of stuff, a lot of problems. Number of different assembly lines if you want to call it. Right? Anyone else?
What how many segments do you have? What are they? Just don't need is the audience participation part?
Two.
Two?
Two.
Perfect.
So that's exactly what this is. If you think about each of it's it's easy to get caught up in the health of a business when you look at it in aggregate. We talked earlier about LTV to CAC sales and marketing efficiency. If you look at that at the aggregate business, you're gonna you may have a business that's really crushing it, and then you may have a business that is subsidizing everything, that is really, like, hemorrhaging money, right, and is not a profitable sustainable business model. So really untangle and think about what are the different go to market segments you have or go to market motions you have, and think about each of them as a production line.
And double click, and let's, we'll talk about how to analyze those. See are they healthy, are they sustainable, are they durable? Like that's what that's the, the point we're trying to make here.
So think about it as inputs, which are customers, prospects coming into your your funnel.
You're trying to create throughput, which is as high and as effective as you can to create outputs, which are your ARR or revenue. Right?
And what we're going to talk about is a couple of different models. I'm not going to go into all of them. There are six different revenue architecture models. I'm going to show you where to get all these later if you want.
I'm gonna cover a couple of these and how they work together, so you could just start to think about how to frame your, your thinking around analyzing and diagnosing your business as it sits today, and you can go deeper. We're going to talk about a couple of different models. We're going to start with something called the data model, which is how do you analyze and look at each of these different assembly lines and how healthy they are. We'll start there, that's the foundation.
Then we're going to talk about your different go to market motions that make up your go to market, overall go to market model.
And then we're going to talk about how effective they are, and then how do they roll up to the aggregate growth plan that you have for your for your organization. Make sense?
Okay, so data model, is anyone familiar with the bow tie?
Okay. So this is this is the winning by design bow tie. It's just what winning by design uses. It's a customer journey, is what it is.
And it's really thinking, then this can overlay any type of sales methodology or or process on top of it. Winning by Design has one called Spiced. There's others, they all work together in some way shape or form. But the point is, as you think about your customer journey, you're really thinking about the impact at each of these stages.
I know typically you think about impact as in when the customer buys the solution or after they've committed to it. But if you reframe that and say, I had awareness, what is the customer impact that I want? I want to make sure that the customer or prospect deeply understands our company and how we might potentially solve a specific pain point. That is the impact from a customer driven lens that I want to go understand there.
It's not about leads, it's about did I do an effective job at helping these prospects that don't know this company understand this company, and how we may potentially solve their pain points. And similarly as you move across the funnel, if you think about the front end of it, it's really the funnel flipped over. Right? And the context is that where the classic funnel stops is where recurring revenue begins.
There has not been nearly enough focus on the right side of this bow tie.
And, you know, we talked a lot about NRR today, and NRR is really the game on the right side. That compounding math, it's linear math, not to get into details here, but it's linear math on the left. You need more pipeline, you need more leads.
On the right side, small improvements have a compounding effect when it comes to recurring revenue. Right? So we're going to talk about that concept of the first principle of recurring revenue is a result of recurring impact at every step of the customer journey.
So by the way, I'll just caveat with PLG it's a bit different. PLG impact has to happen before somebody will commit, so there are some slight nuances to it, but we're not going to go into PLG here, but the concept is the same. You got to deliver impact and then you have the right to go monetize that. So the the data model, the way to think about the data model is if you think about your visitors or prospects, whatever you call them, traffic, as an input all the way at one end, and your output is arguably ARR or LTV.
Right?
And you're thinking about your process at every one of these phases, and how do you continually fine tune and iterate these processes between each of these phases?
And going back to that continuous improvement, philosophy, how do you continually measure, monitor, and fine tune the process so that you're getting a better yield at each of these steps. So your throughput, the middle is the throughput, How do you get the best throughput you can so you're getting, as much for your visitors in one end and out the other? And there's math behind this where each of these you can measure conversion rates, you can measure the cycle time between these, it goes into a lot more detail if you're interested.
So we started with the go to market data model. That's the underpinning of how you go analyze these different go to market motions. Next is we're going to talk about the go to market motion, And what I mean by go to market motion is you have different assembly lines that potentially solve or address pain points at different segments of the market, right? You could have, a medium touch inbound type of model for something middle of the road.
You could have a high touch outbound process if you're in that hundreds hundreds of thousands. These are these are illustrative, there may be nuances here, but if you have your products are very low cost, again if you think about CAC and efficiency, you want to be thinking about no touch PLG motion. So it's really thinking about, yeah, what segments do you have? What are the appropriate go to market motions that make sense that are sustainable for the long term.
And as you go from left to right, the number of humans increases.
As you go to the left, it's digital and it's self-service. Right? So your cost is increasing, and if you don't have the LTV to be able to support it, you're not going to it's not going to be sustainable over the long term. So this is where you start to say how many go to market models do I have? Ideally you should start with one for that area. Really understand you have that fit, you have that repeatability, do you have that consistency before thinking about adding adding another one.
All right, so now we're going to talk now with data model, you're now going to think about what go to market motion do you want to apply to that specific segment.
This is an eye chart, but this is called a growth formula. Again, all this is on the on the winning by design website. The context of the growth formula, if you see in the middle it says wins equals one. Everyone see that?
What this does is it takes so say you have an enterprise, we have an enterprise motion.
This is going to be a way of back solving into what does it take to get one enterprise customer?
You're gonna solve for one customer.
You're gonna go back solve into what top of funnel activity do you need, What does my retention, what does my upsell, what does my churn need to look like? And you're going to see it very clearly like is this a sustainable model or is this a leaky boat that needs continual fine tuning and hardening before, you know thinking about another go to market motion. It's very distracting to go spin up. I've seen so many examples where you're spinning up another go to market motion and you haven't figured out how to properly get go to market fit, just like there's product market fit, there's go to market fit. Are you on that steep part of the the S curve?
And is it recurring sustainable? Is it durable? Right? So that's what you apply this to to each of these motions, and and then then really what you're doing here is layering all of these together into a growth model for your organization.
So you're stacking up these different growth formulas, and you're seeing what that does in terms of your growth trend. And if you see that you're starting to taper, or you're not getting the the long term sustainable growth, it's time to go look at which of these motions, maybe doesn't make sense, needs to be fine tuned, maybe you're in too many motions. It starts to give you a diagnosis for what are the underlying components of the the the business that are healthy and, that you could bet on for the next, X number of years as you as you grow the business. So the way to think about it, to recap it, it's really the data model underpins everything. It's the data, it's the foundation, it's measuring everything. You then think about what are the go to market motions that are applied to each of your different factory assembly lines.
You apply the growth formula to get a sense of how healthy it is, and then all of that, sort of encapsulates into a growth model for your company.
So you're sort of building up to it as opposed to analyzing or staying at a very high level because you may not see what's truly happening or where you need some work.
So is that, so just coming back to our analogy earlier, are we saying to just produce high volumes of the exact same thing with high quality and then we're all going to be fine?
Not really, that's not exactly what we're saying. I think what we're saying is if you go look at Toyota, let's go back to the Toyota example before, they have the Corolla at thirty ks, they have a lower end model the I think it's a Venta at eighteen eighteen ks.
They have thirty different models all the way up to their brand extension, which is the Lexus at one hundred and seventeen ks.
They figured out how to produce a wide range. So think about these as different, assembly lines. They figured out how to produce low price points and high price points with speed, quality, high throughput, with that continual improvement mindset. So this could really apply to regardless of where it's not about a low end or high end, it's just talking about lean manufacturing principles and how they apply to to revenue growth.
So we talked about the standard for a server efficacy is ISO. For software, it's agile.
Go to market, it has been growth at all costs.
And what we're saying is let's how do we change that into a revenue factory? How do we how do we five x it? Like, right? Like five x ing it is a ten percent success rate for all that money that's being invested to try to get product market fit and then go to market fit. And I think these are just some of the tools to be able to think about diagnosing and creating that repeatable, and maximizing your chances of success if success is is considered a an exit of some form.
So that's it.
These are just some details here. So anyone who is here, there's a revenue architecture class that I've taken. You can get certified on it.
I don't know if I can do a promo here, but I will.
Twenty percent off with the code on there, southbound. And then you could really go into detail on it. I've done it twice, and I think it's like really eye opening because it takes a very scientific, engineering sort of principled way of analyzing your go to market models. Highly recommend it.
And then the other side is a lot of this is change management.
And how do you get your organization to think differently? And kind of building back on what Sangram was saying earlier today, it's a team sport. Go to market's a team sport. This needs to be a change management, transformation, new way of thinking. And, Winning by Design does a lot of these workshops on how do you understand these different personas, how do you leverage data to go drive that, that discussion and, and drive the chains?
So with that, let's, hit the road, Jack. Thanks, everyone.
Uh-huh.