About the speaker

Jeremey Donovan, EVP of RevOps and Strategy at Insight Partners, is an accomplished executive, author, and podcast host, bringing a wealth of experience to Insight Partners, where he focuses on supporting portfolio companies’ growth.

Mark Lerner:

Everybody, welcome back to the RevAmp podcast. Really excited to have today’s guest, Jeremy Donovan, with us. I had the opportunity to meet Jeremy in person recently at the Rev Ops Alliance Summit in New York. And just a fascinating background. I’m really excited to dive into some topics with you, Jeremy, but before we get things started, why don’t you tell the audience a little bit about yourself, your background, kind of how you came to where you’re at today?

Jeremey Donovan:

Yeah, grateful to be on, and I’ll keep it brief. So I have a sort of eclectic history for maybe as common for people that are 50 and above my background started in engineering and then into product, into marketing, and then ultimately into sales and revenue operations. So, definitely, the end is the best here. The revenue operations have been a lot of fun, a lot of learning. I love how analytical it is. So these days I met Insight Partners. We’re a VC with 80 billion of assets under management and about 500 portfolio companies, all in B2B SaaS. And the cool thing about that, and maybe hopefully the relevant thing for your listeners, is I get to see every kind of B2B SaaS business model people selling, from thousand-dollar transactional business to $10 million mega sales in every country. So every motion I get to see a lot of things. So I’m a little bit of a kid in the candy store on that, and I get a decent amount of data from those 500 companies as well.

Mark Lerner:

Yeah, that’s super exciting. I mean, I know we’re going to dive into some of the conceptual and metrics and what a rev ops org looks like at a scaled company, but I’m interested, given your perch and your view of those companies, what have you kind of observed in terms of changes over the last few years? I mean, it’s a topic I’ve talked to a lot of people about; obviously, we’ve had the pace of change has been wild, but have you kind of seen leading indicators before big changes have happened, and are you seeing anything in the tea leaves yet right now about what’s to come in the future of revenue operations? 

Jeremey Donovan:

Yeah, I mean, obviously, there’s been the retitling of sales operations and the potential broadening; I say the potential broadening because the truth is a lot of revenue operations still are sales operations, and I’d love to see some data on what those responsibility splits are, but I would assume the vast majority is pure sales ops increasingly absorbing customer success operations in as well. And then, at least from where I sit, it’s rather rare to see truly consolidated rev ops, which would be sales, cs, and marketing. I just don’t see a lot of that, and I thought a lot about what that reporting structure should look like and why, what’s best contextually. I’ve come to the conclusion that being on the operating side, being on the venture side, it makes sense for the right-hand person to be with the relevant leader.

So for instance, if you have peers who are a chief customer officer, a chief revenue or sales officer, and a chief marketing officer, they probably each have their distributed rev ops. They probably each have their own people. As you start to combine those leaders together, if someone’s increasingly head of revenue and customer success like the head of commercial/chief commercial officer or something like that, you pull those together and so on. So I think to me, that’s the logical thing. There is obviously an alternative, and we do see some of that sometimes, which is you take the rev ops function even when you have those peer leaders and you put that underneath some other leader, usually A COO or a CFO, some neutral third party. And that makes sense when the coordination, especially between sales and marketing, is kind of broken, and the only way to fix it is to consolidate that data flow and process flow. So we do see that sometimes, but it’s still very rare amongst, at least, the companies I deal with. We invest in companies of all sizes, but I generally deal with companies in the 10 to a hundred million dollars range. So, in that range, the truly consolidated head of revenue operations that spans all three functions is quite rare.

Mark Lerner:

Yeah, so it’s interesting. Do you think that some of these moves where a company will have someone with a title that’s revenue operations, but it’s, in fact, sales operations in a different form? Do you think that’s more about going with the flow of everybody’s talking about ops, so they have to have a rev ops function, but it’s not fully embracing conceptually what it’s supposed to be?

Jeremey Donovan:

Yeah, I mean, the other word for that is title inflation. So yeah, I do think that there’s title inflation, and I’m guilty of it, too. When I was in my prior employer, we separated sales, customer success, and marketing. And really, I was in charge of sales operations and strategy, but I styled myself revenue operations; although I did work on an increasing number of customer success operations projects and a handful of marketing, I was cooperating right with my peers inside of the other organizations. And you’re also asking about what’s changed in dividing the tea leaves. I think I can forecast revenue pretty well, but I wouldn’t be able to forecast the future of revenue strategy and operations all that effectively beyond what all of us can see off the tip of our noses. The biggest change, though, that we’ve all seen happening is as organizations have shifted from growth at all costs to efficient growth, that ethos and the actual strategy and operations behind that have shifted has pushed its way down right into the rev ops organization.

So I think RevOps leaders, or I know Rev ops leaders are paying a whole heck of a lot more attention to things that I think were more conventionally in FP and finance to understand what is the actual return or cost of various channels. So before it was enough to know, the SDR team is contributing X dollars of bookings, AEs are self-sourcing, X dollars of bookings, inbound is generating the same thing, X dollars of bookings. Now I think it’s falling upon Rev OS people to think really more about optimizing and tuning across those channels. Am I spending too much, let’s say on outbound SDRs and in terms of what they’re generating? And if that’s the case, then should I shift? How do I shift those dollars? It becomes a much more strategic decision about shifting those dollars over to either more AEs or more inbound or investing in a partner channel. So that’s just an example of an efficiency mindset that I think that has absolutely changed within the RevOps world.

Mark Lerner:

And so you have this opportunity, I guess from where you sit to, you’ve probably seen the good, the bad, the ugly, and everything in between in terms of what an organization, especially rev ops organization, looks like. So when we’re talking about a company that has scaled in a healthy manner, it has now embraced this shed the growth at all costs mantra and has embraced efficient growth from a rev ops perspective; what does that organization look like? If someone is listening to this podcast or watching us right now at a company that is looking to scale and they want to build out the rev ops organization for success, what is the North Star? What does good look like?

Jeremey Donovan:

There are probably more than three. I’m just kind of coming up with this on the fly based on observation, but there are three-ish phases, I suppose. Phase one super early is the jack of all trades and very heavy tilt towards CRM development, administration, and reporting. I think that’s like phase, phase one. Phase two is now you’ve got ahead of the function, you’re able to focus a lot more on strategy. You still have the tools and systems piece, and now you’re starting to handle more complex things around compensation and territory and so on. But you’re still a pretty small team.

I’ll give it four phases. Phase three is, okay, now you’ve built out, you’ve got a head of revenue strategy and operations, and then you’ve built out some of the functional areas. You’ve got on the sales side, someone doing comp and quota, someone probably doing account and territory management. You’ve got deal desk, and you’ve got analytics and forecasting. You’ve got all the major, major pieces that are, and systems and tools. Obviously, you’ve got all those major pieces. And then probably the head of rev ops is doing more of the strategy, strategy, and planning work in partnership with fp and a., Right? And then, if it’s true to rev ops, you’ve got some marketing ops people in there, and you’ve got some CS ops people who tend to be more like systems and analytics focused. The phase that a lot of people don’t see that’s really the bigger company thing.

And I’ll call this, I guess phase four if I’m tracking my numbers correctly, is the next phase is to start to, as companies get bigger, you need to align to functional heads of businesses. So here’s an example. Let’s say you’ve got a big, big, big revenue organization that’s segmented. I mean, it could be many ways, but we see more segmentation around size. So maybe you’ve got an SMB org, a mid-market org, and an enterprise org. At that point, the rev ops org should operate with the same principle that an HR or finance org operates with where they have business unit partners. So you are probably, at least on the analytics and forecasting cluster of the team, now assigning revenue operations partners to the SMB leader, the mid-market leader, and the enterprise leader. So that’s a part I think that people don’t, who are in smaller companies, don’t necessarily see is that business partner concept. That’s really the next big thing. And then, otherwise the functions just scale. I guess if there was one other change, independent of the scale thing the increase, again, no surprise, the increasing availability of tools to help with revenue operations. As you get bigger and bigger, you probably don’t need a territory planning tool when you’re even a hundred reps, but when you’re a thousand reps, you need a territory planning tool; otherwise, you’re going to have an army of humans trying to figure things out and it’s just a mess.

Mark Lerner:

Yeah. You mentioned early on this shift that’s taking place that we all have seen, which is the mantra of growth at all costs. It really doesn’t matter what your cost of acquisition is or how much you’re burning as long as you’re getting new customers. And there was a hard U-turn sometime in the last year-year a half or so. 

Jeremey Donovan:

Yeah

Mark Lerner:

If we had to pinpoint it, maybe that weekend that Silicon Valley Bank happened, it may have been a turning point, at least in my bubble, it seemed like it was. So, given that shift that has been pretty stark, have the metrics that are important that rev ops should be following that companies should be optimizing for? Have they changed, and if so, how have they changed?

Jeremey Donovan:

Yeah, it’s hard for me to say broadly. I mean, I think the number one metric that rev ops people may not have been paying as close attention to is that they are now as CAC payback. That’s probably the big one. So that’s sales and marketing expense over new bookings inclusive of new logos and expansion growth. And if you double-click on that, you’ve got sales expense; we’ll come back to that in a second. You’ve got marketing expense, you’ve got new logo growth, you’ve got expansion growth. So you sort of have to optimize every one of those four pieces. And on the sales expense, it’s mostly people and, to a lesser and to extent, tools. I mean, there’s obviously tools spending consolidation happening. On the people side though, that’s where there’s just so much more of the expense. So I think that then merits much, much deeper.

Look at who you hire and how you hire and how you onboard and train reps, how you coach and get them to productivity, and then how you assess and manage their performance to make sure that you have the right reps on board becomes especially important in enterprise selling where, I mean, it can easily take a year to figure out whether a rep is a good egg or a bad egg, and that’s a really expensive year, not just in what you outlay into an enterprise rep, right? Because the typical enterprise rep is a 300 KOTE, so one 50 base, even if they were to only hit 50% of quota, you’re paying them a tremendous amount in terms of not just dollars, but it’s always in a cost of sales percentage. And then you’ve got the opportunity cost of not having hired somebody who is more suitable for the job.

I mean, I think people are suitable in different environments, but critical to get someone suitable for the job. So yeah, CAC payback, I think, is probably the big one that people can and should be paying attention to from a rev ops perspective. A level up, it’s LTV to CAC; LTV is so mystical to calculate. And then the other big one, maybe the biggest one of all from the CFO and CEO perspective, is Rule of 40. That’s harder for the rev ops person to really optimize because that includes so many elements that are in the free cash flow margin that is out of the rev ops person’s control.

Mark Lerner:

Yeah, it’s so fascinating. My expectation of what your answer would be was going to be net revenue retention or net dollar retention would, however, you define it. But I found it super interesting that you went to the CAC payback period, the rule of 40. Is that because NRR, from your perspective, was already an important metric, or is it

Jeremey Donovan:

I mean, NRR is embedded for me within CAC payback, right? In that denominator are your new logo and your expansion bookings. So in your expansion bookings, if you were to double click on that, that’s where NRR and yeah, that’s where NRR is. So yes, absolutely one of the critical SaaS metrics. But yeah, to me, it’s embedded in the CAC payback piece.

Mark Lerner:

And for the folks at home. And also to jostle my memory, do you have a kind of quick and easy definition of the rule of 40?

Jeremey Donovan:

Yeah, yeah. By the way, when I came, I’d been doing this for two years. I moved over from head of revenue strategy and operations at one of our portfolio companies. And when I came in, I had no idea what Rule of 40 was. I had heard of it, but I didn’t know whether it was important or not. And I have an engineering background originally and a stats background. So I had to figure out what this thing is and why is it important or is it important actually? So what it is is it’s just the sum of two numbers. It’s the sum of your free cash flow margin and your A RR growth. ARR growth, I think pretty straightforward, free cashflow margin, not as straightforward for people who don’t have finance backgrounds, but that’s basically all your opex. OPEX is sales and marketing r and d and general administrative costs.

And then it’s got some other more financial numbers in there, like your CapEx and so forth. So, you add free cash flow margin and ARR growth. And the Rule of 40 means you want that sum to be over 40. So, if you had 50% growth and a negative 10% free cash flow margin, you’d be at 40. So that’s what the definition is. But I went and pulled valuations of public SaaS companies and what their rule 40 rules of 40, I guess it would be. Were at various times in history, and there’s a very high correlation between valuation and rule of 40, and it’s actually not linear. If that sum of ARR growth in free cash flow margin is under 40, the multiple that you get is relatively low and doesn’t increase very much as you improve. But once you pass 40, there’s a nonlinear increase in the multiple that you get on the value of your company relative to your next 12 months’ projected revenue.

So it really does matter. What does change over time is the weighting in the regression between free cash flow, margin efficiency, and ARR growth. So you can’t define the tea leaves and predict that we will shift into a world where the weighting used to be way more on growth and very little on efficiency. And we’ve been operating in a world where the efficiency side got much more important. I feel as though, and I have to rerun the data, but I think the correlations are probably swinging a little more strongly over the back towards the growth side now that companies have spent a year and a year and a half getting efficient in whatever ways. Sometimes, that’s a euphemism, right, for riffs, unfortunately. But it’s also there were other ways to get efficient besides ripping, riffing folks. So yeah, now that things are cleaned up, I think folks are looking for growth, but I’d have to verify that with another repeat of that old analysis.

Mark Lerner:

Yeah, I mean that was actually going to be my next question, which is, do you foresee us in this time of focus on efficiency rather and not kind of shifting back towards the growth mindset that we had or if there’s, let’s say a light towards the end of the tunnel for some folks it sounds like hard numbers, but you’re seeing.

Jeremey Donovan:

Yeah, it’s an and, right? I think humans be humans. We swing back and forth between extremes, and I do feel as though the pendulum is swinging in that balance a little more towards back towards growth because, again, we just clean the efficiency piece up, so we’re always worried about the thing we don’t have. So now that we have efficiency, generally we’re swinging back towards trying to figure out how we drive more growth from new logos or from expansion.

Mark Lerner:

So looking forward, assuming we start swinging away from some of the more severe efficiency, see things that companies had done to get that efficiency, like reductions in force and things of that nature. And we hit some sort of steady state where we take efficiency into account. Still, we’re also having that focus on growth and how does that look for a revenue organization in general about where their focus should be and how to optimize for that new reality.

Jeremey Donovan:

On that note, at least in the work that I’ve done in the past or with the portfolio companies I’m working with now, I’m always on the lookout for what things people have done in order to make a substantial change in the business, whether that’s to make the business more efficient or to help it grow. So yeah, on the growth side, if I reflect on personal experiences, some of the most needle-moving things I’ve done, I would probably put it in maybe the biggest needle thing I ever did was probably account scoring and territory management, especially when we were growing super fast, is we knew the total universe of accounts that we were going to sell to and we had assigned all those accounts out, but the reps almost had too many accounts and were struggling to figure out which ones were which. So we put a ton of effort into really sophisticated algorithmic account scoring these days.

There are more off-the-shelf tools to help you do that. But even with off the shelf tools, there’s a lot of work that needs to go into that. And then once you’ve scored the accounts, you really need to verify with your reps that scoring and that ranking makes sense. On one of the things that we had done, we came up with a pretty wicked, what we thought was a wicked score showed it to a pilot group of reps, and they rejected it, and we said, what’s wrong? And it turned out that there were two additional things that those reps were looking at, two additional signals if you will. So we put those signals into the algorithm also, and then bingo, the ranking matched their expectations and that was like step one. And then step two was then assigning those territories out in an appropriate way, generally equal potential.

But we could probably have a whole podcast discussion on whether territories have equal potential or should you be giving the best reps the best accounts? That’s a tricky question. And who’s to say that someone’s the best rep? Are they just the best rep because they have a great territory? Sometimes, that’s the case too. So yeah, there are arguments to be had on both sides of that. So that was one. And then I’ve also looked to try to see instances of where maybe A CEO replaced their CRO inside of our portfolio and then has that move really when has that move accelerated whatever efficient growth within companies. And I’ve definitely seen that a bunch of times. I’ve seen times when it hasn’t made a difference, but the times when I’ve seen it make a difference, usually it’s because someone comes in with way more rigor. I think I read or heard on another podcast, I heard A CRO say, you need to come in with a playbook written in pencil, not in pen.

So there’s the come in with a playbook, but the pencil is you’re probably going to have to adjust a little bit right to the context of the organization. But when those great new CROs come in, it’s really, we all know what everyone knows what to do. So a good example of this is deal inspection great new CROs are maniacal about deal inspection and the old CRO, it wasn’t that they weren’t doing deal inspection, but they just didn’t have the discipline in their rigor around it or pipeline generation. They didn’t have the discipline and rigor. And I’ll credit, I’m not inventing, I don’t invent anything. I’m like a curator. So that pattern is the pattern from PTC, blade Logic, people all around pipe gen deal inspection, the use of medic and enterprise selling or suitable methodologies in SMB and lower mid market selling, we know what to do. The success and failure, assuming that the product market fit is there within reason is all about discipline execution.

Mark Lerner:

Wow, there are so many things for me to double-click on, but we are down to about four minutes left here. But I do have a question about the scoring. I find this fascinating, and it’s something I’m actually seeing across the board. So I was at a dinner recently, and across the room, the one thing that was the same for every single person was the company was shifting from inbound to outbound. It was universal and different companies altogether. I thought that was fascinating also seeing some of that, and we’re not completely shifting, but obviously we’re putting much more on account-based stuff, and scoring is really important there. I’m sure you had that your algorithm was sophisticated and all this, but was the focus mostly on the characteristics of the account, or was it on behavior from external signals, or was it both? Was there recency?

Jeremey Donovan:

Yeah, there’s no secret. Again, I’m not secretive about it. The devil’s in the execution. So we used by Nomi logistic regression, which gives you a probability that an account is a good account. And we were measuring whether or not we were able to generate opportunities in the past with lookalike accounts. So it’s like the probability of generating an off with an account. And then the independent factors that went into that were firmer graphics, right? Industry size, geo funding, whatever. And we found that they were both technologies that were predictive of being more likely or less likely to win an opportunity and then intent. So that was your part about behavioral stuff, both first-party intent and third-party intent signals. And then the fourth category was a little bit of the secret sauce, but it’s stuff that’s really specific to your firm. So, in that instance, we were selling to salespeople, so it mattered how many salespeople you had, sort of duh, right? It mattered. And so to be able to figure out what their hiring patterns were and how many different types of roles they had within their organization, those things were all fed into the model with appropriate scoring and waiting factors.

Mark Lerner:

Love that stuff. Jeremy, it’s been super fascinating. Thank you so much for taking the time to chat today. Before we say goodbye, is there anything you want to tell the folks at home about how they can learn more about what you’re doing, what Insight Partners is doing, and connect with you anywhere?

Jeremey Donovan:

Yeah, I mean, I would say it’s more about trying to give back at this point in my career. So my big giveback these days is I put up a site called Revenue playbook, revenue playbook.com. So, everything there is what I’ve been learning in this job over the last two years. So it’s just a totally free resource, and hopefully, people find that valuable because a ton of stuff on rev ops there. And otherwise, yeah, I would say connect with me on LinkedIn, but I’m out of connection, so if you guys want, I do try to post something every day, just follow me on LinkedIn would be another way I can give back some value.

Mark Lerner:

Awesome. Jeremy, thank you so much for taking the time and hopefully we’ll get to see each other again soon at another event.

Jeremey Donovan:

Cool. Thanks Mark.

Mark Lerner:

Bye-Bye.