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BALDERTON The Founders Guide to B2B Sales

FOUNDER’S GUIDE TO B2B SALES Everything a Founder / CEO needs to know about building and managing a B2B sales team. SPRING 2023

FOUNDER’S GUIDE TO B2B SALES PAGE OF CONTENTS 03 SECTION 01 WELCOME 31 SECTION 05 RENEWING / EXPANDING 03 Intended audience 32 The goal of customer success 03 Structure of the guide 32 Should customer success exist 04 About the authors 26 Triangulation forecasts 05 SECTION 02 SELLING as a separate function? 06 Seven things founders need to know 33 Three types of customer success managers 06 Get out there and sell 34 Common sales / customer success 07 Customers buy solutions to problems interaction models 07 Sales is 57% listening 35 Measuring the customer success function 08 The best sellers are curious 35 LTV vs. Net retention rate 08 Ask open-ended questions 37 Should success report into sales? 09 Train yourself to ask open-ended 37 To learn more about renewing / expanding questions 38 SECTION 06 MARKETING 09 The give-to-get sales process 39 The world’s shortest marketing primer 10 Talking about the competition 39 The marketing funnel 10 To learn more about selling 40 Marketing funnel metrics 11 SECTION 03 BUILDING 41 Lead nurturing and recycled MQLs 12 Topics in building a sales 41 Marketing - funnel or popcorn machine? organisation 42 Marketing channel performance 12 Selling in the early days 42 Attribution - the Achilles’ heel of 12 Establishing product-market fit measurement 13 The three core sales roles 43 Four pipeline sources 14 Throwing spaghetti at the wall 43 Pipeline progression 14 Tips on sales recruiting 44 Product-led growth: Trials as the fifth 15 Sample on-target earnings pipeline source 15 What is a sales model? 44 To learn more about marketing 16 Sales model examples 45 SECTION 07 PARTNERING 16 Territories, quotas and comp plans 46 Goals of partnering in B2B sales 17 Additional sales roles 46 Types of partners 18 Thoughts on pods 47 Types of alliances 18 To learn more about building 47 Types of channels 19 SECTION 04 MANAGING 48 The key to partnering: Clarity 20 Cadence 49 Strategic business development 21 Cadence examples 49 To learn more about partnering 21 Pipeline management 50 SECTION 08 PLANNING 21 The four key fields of opportunities 51 Key metrics, company level 22 Example stages and definitions 51 Key company metrics, sales level 23 What is a pipeline scrub? 52 What is a driver-based planning model? 24 How many opportunities can a seller 52 The seller ramp effectively handle? 53 Key metrics: Inputs or outputs? 25 Forecasting and probabilities 54 Example sales booking capacity model 26 The word “commit” 54 Example sales-linked marketing inverted 26 Triangulation forecasts funnel model 27 The weekly forecast sheet 55 The importance of driver-based modelling 27 Forecasting the coming week 55 Thoughts on benchmarks 28 Deal reviews 57 Glideslope planning 28 One meeting or three? 57 To learn more about planning 29 Quarterly business reviews (QBRs) 58 SECTION 09 APPENDIX 29 The quest for repeatability 59 QBR metrics and analyses 30 Proving repeatability 30 To learn more about managing SPRING 2023 .02

FOUNDER’S GUIDE TO B2B SALES SECTION 01 WELCOME Welcome to the Founder’s Guide to B2B Sales INTENDED AUDIENCE This guide is written for founders and CEOs of early- and growth-stage startups. It starts at the beginning — how to do sales yourself and builds from there. We’ll cover everything from how to be your company’s best salesperson to how to manage your VP of sales and align your marketing team. It takes a founder/CEO point of view — i.e. we’ll put more focus on how to manage your VP of sales than on how to manage an individual seller. We think this guide will be of interest to executive team members as well as to anyone with a genuine interest in the B2B sales process. The content of this guide is informed by Dave Kellogg’s broad industry experience as well as the collective experience of the Balderton team. The guide expands on the first Balderton Sales Playbook created in May 2020. STRUCTURE OF THE GUIDE • Selling: what founders need to know about sales • Building: how to build a sales organisation • Managing: how to manage a sales organisation • Renewing / expanding: teaming sales and customer success • Marketing: using marketing to build sales pipeline • Partnering: how to use partners to improve reach and win rate • Planning: planning and the role of key metrics and benchmarks SPRING 2023 .03

FOUNDER’S GUIDE TO B2B SALES ABOUT THE AUTHORS Dave Kellogg Executive in Residence at Balderton Capital Read Kellblog In 2021, Dave joined Balderton as the company’s first Executive in Residence. Dave brings more than a decade’s experience at each of the CEO, CMO, and independent director levels across some of the world’s leading SaaS and enterprise software firms. He was previously CEO of cloud financial planning company Host Analytics (now Planful), SVP/ GM at Salesforce in charge of the Service Cloud business, CEO of MarkLogic and led marketing for nine years at business intelligence leader, Business Objects, working with Balderton’s Managing Partner, Bernard Liautaud. Dave started his career in technical and product marketing positions at Ingres and Versant. During his time at Silicon Valley’s Host Analytics, he grew the company’s ARR six-fold to more than $50M before selling to a private equity sponsor; he oversaw the growth of MarkLogic’s revenues from zero to more than $80M; and during his nine years at Paris- based Business Objects, the company grew from 250 to 4,500 employees and from $30M to over $1B in revenues. Dave has served on the boards of Alation (data intelligence), Aster Data (big data), Granular (AgTech), Nuxeo (content services), and Profisee (MDM), among others. Dave’s blog, Kellblog, covers topics related to starting, leading, and scaling enterprise software startups including corporate strategy, marketing strategy, messaging, positioning, management, go-to-market models, SaaS metrics, operational metrics, and venture capital (VC) financing. As an EIR, Dave advises Balderton portfolio companies on go-to-market strategy, SaaS metrics, marketing, positioning, corporate strategy, and international expansion. Michael Lavner Principal at Balderton Capital Balderton team page Michael joined Balderton’s investment team in 2021 and his primary focus is later-stage investing with Balderton’s Growth I fund. Before joining Balderton, Michael worked at Permira where he focused on large-cap technology and late-stage growth investments. He supported Pemira’s companies, helping them scale, drive sustainable growth and become global champions. He notably participated in the fundraising of Mirakl, the world’s leading marketplace software; Nexthink, Europe’s leading End User Experience monitoring platform; and Safti, one of the leading French digital Real Estate agencies. Michael began his career at L.E.K. Consulting in Paris where he worked on due diligence and corporate strategy projects for fast-growing companies, and co-founded the Data & Analytics practice. Special Thanks The authors would like to give a special thanks to Alice Lankester for her oversight of and vision for the project. SPRING 2023 .04

FOUNDER’S GUIDE TO B2B SALES SECTION 02 SELLING 06 Seven things founders need to know 06 Get out there and sell 07 Customers buy solutions to problems 07 Sales is 57% listening 08 The best sellers are curious 08 Ask open-ended questions 09 Train yourself to ask open-ended questions 09 The give-to-get sales process 10 Talking about the competition 10 To learn more about selling SPRING 2023 .05

FOUNDER’S GUIDE TO B2B SALES The founder/CEO should generally be a company’s best salesperson. In this section, we show you what it takes to do that. SEVEN THINGS FOUNDERS NEED TO KNOW Here are the seven things that you, as founder/CEO, need to know about sales. We’ll drill into each of them in this section: 1. Learn by doing: get out there and sell 2. Customers buy solutions to problems 3. Sales is 57% listening 4. The best sellers are curious about everything 5. Ask open-ended questions 6. Manage the sales process as a quid pro quo 7. Don’t talk about competitors unless directly asked GET OUT THERE AND SELL The first thing to know about sales is that you need to push yourself to go out and sell. It may not come naturally but you need to do it. With practice, you’ll likely end up very good at it. It will keep you close to the market and your customers – and investors will expect it. A few key things to know: • Your comfort zone will expand. Doing something repeatedly makes it feel more natural over time • View each interaction as a learning moment and hone your skills. You will get better and better with practice • See what works for you. Different styles and sales techniques work for different people. Discover what works best for you, your customers and your business • Selling lays the foundation for hiring your first VP of sales: The more you’ve sold yourself, the better you will understand the job you need your VP of sales to do • It helps to improve your fundraising: Investors expect you to start with founder-led sales, and they will want to hear rich, first-hand stories about what you’ve learned about the market by doing it Five reasons why selling is the key skill founders need to learn. Insights from Balderton Partner Suranga Chandratillake, providing his perspective on why selling is one of the key skills founders need to learn. READ THE ARTICLE SPRING 2023 .06

FOUNDER’S GUIDE TO B2B SALES CUSTOMERS BUY SOLUTIONS TO PROBLEMS The traditional way of saying this: • “Customers buy quarter-inch holes, not quarter-inch bits.” – Theodore Levitt The modern way of saying this: • “Customers hire products to do jobs for them.” – Clayton Christensen Either way, the point is clear: • Customers buy products (and services) to solve problems • Your product and services are therefore always a means to an end While marketing emphasis may be on either the end or the means, as a function of the company’s situation and strategy. In sales, it is universally good advice to focus on the customer’s problem. Talk about their problem and how you solve it, not all the wonderful features in your product that may or may not be relevant to them. SALES IS 57% LISTENING The average B2B seller talks too much. Some 65% to 75% of the time. According to Gong research, the golden talk-to-listen ratio is 43/57. This means most sellers are listening as little as 25% of the time when they should be listening 57%. The best sellers are great listeners • They ask clear and purposeful questions • They listen to the answers (and don’t interrupt customer responses) • They ask thoughtful follow-up questions Conversation Intelligence tools like Gong and Chorus can provide talk/listen ratios among many other important features (e.g., coaching, activity, keywords, analytics), meaning you no longer have to guess how often you and your sellers are listening. The average B2B seller talks too much: 65-75% of the time. Per Gong research - the golden talk/listen ratio is 43/57 “You have two ears and one mouth, use them in proportion.” Ancient sales adage (which pushes to 33/66, but a little attempted over-compensation never hurt) SPRING 2023 .07

FOUNDER’S GUIDE TO B2B SALES THE BEST SELLERS ARE CURIOUS The best sellers are curious about everything: the customer, the problem they’re trying to solve, and the processes their customers are following to make their buying decision. Be curious about the customer • At a business level – e.g. their career history, role, duties, relationships, alliances, challenges, and opportunities • At an individual level – e.g. their interests, desires, motivations, and goals Be curious about the problem • What is the problem at hand? • What is the impact of solving it? • How have they previously tried to solve it? Be curious about the process • What other solutions are they considering? • How did they hear about you? • Why are they considering you? • What’s their selection process? • What’s their evaluation criteria? • Where did this criteria come from? • How does their scoring work? • Whose budget is paying for this? • Who needs to sign what documents? • Will they be working on the last day of the quarter? • Have they previously run a purchasing process at this company? With a deal of this size? • Might any recent changes affect the purchase process? • Who might object to signing this order? • What is the business impact of delay? • How is your firm doing in the process? • If they don’t pick you, why would that be? • We’re your top choice, great! Why? ASK OPEN-ENDED QUESTIONS The best sellers ask open-ended questions. Open-ended questions generally reveal far more information than closed-ended ones and produce a conversation as opposed to an interrogation. Close-ended Examples • Are you evaluating other vendors? (Yes) • Have you established evaluation criteria? (Yes) • Does this problem have any downstream impact? (Yes) Open-ended Equivalents • Tell me about the other vendors you’re evaluating? • I’m curious. How did you arrive at these criteria? • Tell me how this problem impacts others in the organisation? SPRING 2023 .08

FOUNDER’S GUIDE TO B2B SALES TRAIN YOURSELF TO ASK OPEN-ENDED QUESTIONS STEP 1 STEP 2 STEP 3 THE GIVE-TO-GET SALES PROCESS Manage the sales process as a quid pro quo At the end of the sales process, the prospect may or may not buy your software. Either way, your company’s investment of time and resources is both real and material. • A sales opportunity typically costs $2K to $4K in enterprise • A typical custom demo can run $5K to $10K of solution consultant (SC) time; a highly customised demo is closer to $20K to $40K As a result, you need to maintain a balance of power in the relationship. Yes, the customer is considering buying your software but you are investing real time and money to support their process. Get in the habit of asking for give-to-gets - i.e. “if I give you x, can I get y?” • If we build the customised demo, will you ensure that the CFO attends? • If we run a two-hour Q&A, will you set up a meeting with the CDO afterwards? • If we get you the draft contract by Tuesday, can you commit to getting it reviewed by Friday? At the right time, this also includes asking for the order: • So, if we do this final step, will we get the order? • Why or why not? SPRING 2023 .09

FOUNDER’S GUIDE TO B2B SALES TALKING ABOUT THE COMPETITION Don’t talk about the competition unless asked Your company may (and usually should) invest a lot of time in understanding competitive offerings. But you need to be careful about how and if you share that knowledge as it comes with risks. You could: • Accidentally introduce a competitor into a deal (“what was that name again?”) • Appear competitor-focused, not customer-focused (“all they talked about was us; all you talked about was them.”) • Seem afraid (“maybe the other company is the real leader?”) • Stop getting invited on sales calls Three rules of speaking about the competition 1. Generally don’t do it – raise a mental yellow flag for every second you spend discussing them 2. Be sure everything you say is true and defensible – credibility is critical 3. Only say the name of a competitor when it’s been said to you first – avoid accidental introductions Talking competition: methinks thou doth protest too much. In this post, Dave Kellogg looks at discussing the competition in investor, partner, and analyst meetings READ THE ARTICLE TO LEARN MORE ABOUT SELLING • The Qualified Sales Leader by John McMahon • MEDDIC & MEDDPIC by the MEDDIC Academy • The Top 18 Sales Blogs by Gong • Selling Through Curiosity by Barry Rhein via SalesHood • The Art of Asking Open-Ended Questions by Hubspot SPRING 2023 .10

FOUNDER’S GUIDE TO B2B SALES SECTION 03 BUILDING 12 Topics in building a sales organisation 12 Selling in the early days 12 Establishing product-market fit 13 The three core sales roles 14 Tips on sales recruiting 14 Throwing spaghetti at the wall 15 Sample on-target earnings 15 What is a sales model? 16 Sales model examples 16 Territories, quotas and comp plans 17 Additional sales roles 18 Thoughts on pods 18 To learn more about building SPRING 2023 .11

FOUNDER’S GUIDE TO B2B SALES To build a sales organisation you need to understand the difference between artisanal and industrial sales, basic sales roles, staffing ratios, and the idea of a sales model. TOPICS IN BUILDING A SALES ORGANISATION • Selling in the early days • Establishing product-market fit • Core sales roles • Throwing spaghetti at walls • Sales model = roles, goals, and ratios • Territories, compensation, and quotas • Additional sales roles SELLING IN THE EARLY DAYS In the early days, selling is artisanal, not industrial, and is often founder-led. You are searching for the right model, which you can industrialise later. You want smart, creative sellers – a small handful to begin with, including: • People who don’t need or want a lot of support • People who are prepared to execute with only a telephone What’s the most common mistake? Hiring big-company people who want to execute or scale an existing model. The purpose of this phase is discovery – not the industrialisation of the model. Think: if we call on people with at companies of <size> in this <industry> around this <problem>, we find that we can often sell them a deal of <ARR> dollars in <timeframe>. ESTABLISHING PRODUCT-MARKET FIT Early selling is also about establishing product-market fit The Sean Ellis test is one popular way to quantify product-market fit (PMF): • Survey your customers and ask: “How would you feel if you could no longer use our product?” • If 40%+ are very disappointed, then PMF has been attained. The Ellis test sets a high bar and may not be as useful in less end-user-driven markets. While it’s a fun test of PMF, the real essence is about identifying the answers to three questions: • Sell what? • To whom? • To solve what problem? Sometimes you will have several different sets of answers to those questions. In that case, your job is to identify the most strategically promising set to focus on in your early selling. Product/market fit means being in a good market with a product that can satisfy the market. Marc Andreessen SPRING 2023 .12

FOUNDER’S GUIDE TO B2B SALES THE THREE CORE SALES ROLES 1. Account Executive (AE) — also known as Seller, Salesrep, or QCR (quota-carrying rep) JOB METRICS LEVELS VARIATIONS SELL NEW ARR New ARR sales Corporate Field sales teams work TO NEW AND performance per period 0-5 years in-territory, typically (OFTEN) EXISTING (typically month or from satellite offices or CUSTOMERS quarter and year) from home. Inside or corporate sales teams work at headquarters or Mid-market in geographic hubs. 5-10 years Enterprise 10-15 years 2. Solution Consultant (SC) — also known as Sales Engineer (SE), Sales Consultant (SC), or Presales Engineer (Presales) JOB METRICS LEVELS PROVIDE New ARR sales Regular TECHNICAL performance 0-10 years SALES SUPPORT of reps supported TO AE’S (E.G., PRESENTATIONS, RFPS, DEMOS) Senior 10+ years 3. Sales Development Rep (SDR) — also known as Business Development Rep (BDR) JOB METRICS LEVELS VARIATIONS GENERATE The number of Inbound Process inbound inquiries, OPPORTUNITIES opportunities which are typically FOR AE’S generated per week marketing-generated Hybrid Perform a mix of inbound and outbound work Outbound Perform outreach to targeted accounts, working closely with sales, often as part of Account-Based Marketing (ABM) program SPRING 2023 .13

FOUNDER’S GUIDE TO B2B SALES TIPS ON SALES RECRUITING Beware of hiring big-company sellers who are used to working at market leaders and winning big deals based on company status, relationships, and “safe choice” logic. • Unless they have previous startup experience, they are unlikely to adapt well to your environment despite potentially deep domain expertise Former customers often make great solution consultants (SCs) but be careful not to damage customer relationships by hiring them. SCs can become great sellers, but when successful, that transformation usually happens fairly early (e.g. 3-5 years) into their SC career. • If SCs complain about seller compensation, remind them that “quotas are available” if they want to try their hand at sales SDR is often an entry-level position where you filter for aggressiveness, ambition, and innate sales skills • Those who succeed often go on to become great sellers • In hiring, try to differentiate between those who truly want a career in sales and the “lost” – who default to sales because they don’t know what else to do “There is a difference between a seller who has five years of sales experience and a seller who has one year of sales experience five times.” Sales management adage THROWING SPAGHETTI AT THE WALL If you’ve built a specific application for a specific buyer to solve a specific problem, then it’s easy to focus your early selling efforts at that target. However, if you have a general-purpose platform that you are selling to several different buyers to solve many different problems, you should: • Make sure your early sales efforts are horizontal and exploratory. This process is often known as “throwing spaghetti at the wall to see what sticks” • Beware of the risks of identifying spurious patterns caused by buyers who are friends of friends, technology enthusiasts, indecisive (‘tire kickers’) and/or poorly informed • Look to identify a “money” problem – one that people will spend material amounts of money to solve • Look for smart buyers who had a good understanding of their alternatives, had no external influences, and who chose to use your product to solve their problem • See Crossing the Chasm for more on this topic Once you’ve found this target you are ready to start building your sales organisation SPRING 2023 .14

FOUNDER’S GUIDE TO B2B SALES SAMPLE ON-TARGET EARNINGS ACV ($K) QUOTAS ($K) OTE ($K) <5 400 100 5-25 500 125 25-50 650 165 50-100 750 185 >100 1000 250 WHAT IS A SALES MODEL? A sales model is an approach to selling your product. At the core, it’s about three things: roles, goals, and ratios. ROLES The roles, and the variations and types within them (e.g. inside vs. field sales). GOALS The goals for key model-defining metrics. For example, quota, on-target earnings, average sales price (ASP), deals/year, average sale cycle (ASC). RATIOS The ratios of supporting resources. For example, a small number of senior sellers with high quotas and heavy support staff vs. a large number of junior sellers with low quotas and light support staff. SPRING 2023 .15

FOUNDER’S GUIDE TO B2B SALES SALES MODEL EXAMPLES As your company grows, you will likely run multiple sales models in parallel, but it’s always best to start with one. INSIDE SALES MODEL ENTERPRISE SALES MODEL QUOTA (ANNUAL) $600K $1,200K ON-TARGET EARNINGS $150K $300K (OTE) ASP (AVERAGE SALES $25K $175K PRICE) DEALS / QUARTER 6 2 AVERAGE SALES CYCLE 60 days 240 days AES PER SC 4 2 ASP PER SDR 4 2 AES PER MANAGER 8 6 TERRITORIES, QUOTAS AND COMP PLANS Key compensation elements • Base/variable weighting: percentage of on-target earnings (OTE) that is base salary vs. bonus • Typically 50/50 for sales, 66/33 for SDRs, and 70/30 for SCs (although it does vary, particularly for SCs) Quota/OTE ratio • Sellers typically have a ratio of quota to OTE of 4:1 • For example, a position with a $1M ARR quota has $250K OTE Quota vs. territory is a philosophical issue • Equal quotas: assign equal quotas and try to carve territories with equal opportunity • Variable quotas: assign variable quotas as a function of the opportunity within them Small deals to a large audience suggests equal quotas while targeted vertical or account-based sales suggests variable quotas. SPRING 2023 .16

FOUNDER’S GUIDE TO B2B SALES ADDITIONAL SALES ROLES ROLE DEFINITION SPAN OF CONTROL COMMENTS SALES Manages AEs Typically manages This can go as high MANAGER 6–8 AEs as 10-12 with inside sales models SDR Manages SDRs Typically manages Typically hired when MANAGER 8–12 SDRs team is round 3–4 SDRs SALESOPS Planning, Typically hired Increasingly compensation when team hits integrated to overall plans, reporting, 6-10 AEs revops function metrics, territories, (e.g. sales, marketing, deal desk success, PS) SC Manages SCs Typically hired In the early days, MANAGER when team hits SCs typically report 6-10 SCs to a sales manager SALES Builds sales Typically hired Also known ENABLEMENT onboarding and when team hits as Sales Productivity ongoing training around 10-20 AEs programs ALLIANCES Builds relationships 10:1 AE to alliances Staffed as a function with ecosystem staff ratio of partner strategy co-sell partners and can vary widely SPRING 2023 .17

FOUNDER’S GUIDE TO B2B SALES THOUGHTS ON PODS The traditional unit of quota is the individual sellers. Sellers then rely on the organisation to staff and allocate supporting resources to ensure their success. Shared supporting resources invariably create conflict as: • Two sellers want the same SC at the same time • Sellers disagree on SDR time split inbound vs. outbound Former customers often make great solution consultants (SCs) but be careful not to damage customer relationships by hiring them. In a pod model, quota is given to, and only to, pod leaders who manage all the resources of the pod. • A pod might consist of one field seller (leader), one inside seller, an SC, two SDRs, and a CSM • Their success is singularly and jointly measured by the success of the pod Pods theoretically maximise collaboration, localise conflict resolution, and lead to improved alignment. • In essence, a pod is a matrix structure that empowers pod over function – the same kind of structure companies often use with geographic regions as they scale However, pods can have several disadvantages, particularly in the early stages of a business. For example, they can: • Inhibit functional leadership and best practices • Impede the recruitment of certain candidates • Under-leverage the individualistic nature of sellers • Reduce accountability beyond the pod leader • Eliminate checks and balances provided by functional leadership Nevertheless, pods are fairly popular these days and worth considering. TO LEARN MORE ABOUT BUILDING • The Sales Learning Curve by Mark Leslie • The Top 5 Mistakes in Scale-ups by Dave Kellogg • Predictable Revenue by Aaron Ross • A Very Simple Compensation Plan For Your First Sales Reps by Jason Lemkin • Simple Math to Set Up a Sales Team by David Sachs • The Ultimate Guide to Sales Compensation by Hubspot • The Startup Owner’s Manual by Steve Blank SPRING 2023 .18

FOUNDER’S GUIDE TO B2B SALES SECTION 04 MANAGING 20 Cadence 21 Cadence examples 21 Pipeline management 21 The four key fields of opportunities 22 Example stages and definitions 23 What is a pipeline scrub? 24 How many opportunities can a seller effectively handle? 25 Forecasting and probabilities 26 The word “commit” 26 Triangulation forecasts 27 The weekly forecast sheet 27 Forecasting the coming week 28 Deal reviews 28 One meeting or three? 29 Quarterly business reviews (QBRs) 29 The quest for repeatability 30 Proving repeatability 30 To learn more about managing SPRING 2023 .19

FOUNDER’S GUIDE TO B2B SALES Managing a sales organisation is about cadence, process, and discipline. CADENCE You are your timing. Cadence is an important topic on which you should make deliberate choices. Forecast frequency Forecast period Contract value How often do you Do you forecast months Do you talk about MRR ask sellers and/or or quarters? or ARR? Does that unit managers to forecast? match the reality of your contracts? Quota period Compensation period Review period Is the quota annual Are compensation plans Do you have monthly or quarterly? annual or quarterly? or quarterly business Do accelerators kick-in reviews? during quarters or only on the year? Celebration period Do you celebrate months, years, or quarters? For the rest of this guide, we will, by default, assume a quarterly cadence, larger deals, with 2-3 quarter sales cycles. Please map to your situation accordingly. SPRING 2023 .20

FOUNDER’S GUIDE TO B2B SALES CADENCE EXAMPLES VELOCITY CADENCE ENTERPRISE CADENCE ASP $2K $250K CONTRACT VALUE MRR ARR (UNITS) AVG SALES CYCLE 35 days 225 days (ASC) FORECAST FREQUENCY Weekly Weekly FORECAST PERIOD Months Quarters PIPELINE SCRUBS 2x/month 3x/quarter COMP PLAN PERIOD Quarterly Annual REVIEW PERIOD MBRs QBRs CELEBRATION PERIOD Annual club Annual club PIPELINE MANAGEMENT Pipeline management is about all about discipline. When it comes to pipeline, think of your CRM as an opportunity management system. THE FOUR KEY FIELDS OF OPPORTUNITIES VALUE How much is it worth? CLOSE DATE When will it close? STAGE How far along is it in our process? FORECAST How likely is it to close by the close date? CATEGORY SPRING 2023 .21

FOUNDER’S GUIDE TO B2B SALES You should have written rules for how to fill in each of these four key fields. Otherwise, you will aggregate data with a wildly inconsistent set of assumptions – and that problem will only get worse as you scale. For example • Value should be entered only after it has been discussed with the customer • Close date should be the date the customer says they want to purchase by • Stages should have defined exit criteria (e.g. solution fit confirmed) • Forecast categories should generally map to probabilities (e.g. commit 90%, forecast 70%, upside 30%, and unlikely 0%) Throughout this process, keep definitions simple – complexity creates confusion and ambiguity. If there are five Stage-3 exit criteria and you have met four of them, what stage is the opportunity? (We’ve seen systems where you can actually win the deal before meeting a ll Stage-3 exit criteria!) EXAMPLE STAGES AND DEFINITIONS STAGE NAME DEFINITION S1 Sales qualified lead (SQL) Based on BANT qualification, an SDR believes this is a valid sales opportunity. S2 Sales accepted lead (SAL) Based on a discovery call, a seller also believes this is a valid sales opportunity. S3 Deep dive completed A deep dive call has been completed, we understand the problem the customer is trying to solve, and we believe we can solve it. S4 Solution fit confirmed The customer has confirmed that they also believe we can solve the problem. We are not the only or preferred solution, but we are a valid one. S5 Vendor of choice The customer has told us that we are their preferred solution. S6 Closed / won We have won the deal and the paperwork is complete. S7 Lost The customer has informed us they are selecting another vendor. S8 Derailed (no decision) The opportunity, after passing S2, did not result in purchasing any vendor’s solution. S9 Rejected Based on a discovery call, a seller does not concur that this is a valid sales opportunity. SPRING 2023 .22

FOUNDER’S GUIDE TO B2B SALES SAL vs SQL To understand the terminology, see this article where Dave Kellogg explains why SAL and SQL appear to be defined backwards. READ WHAT IS A PIPELINE SCRUB? A pipeline scrub is a periodic meeting to review and validate all opportunities in the pipeline Without them, the pipeline quality quickly degenerates. A scrub should proceed rep by rep, reviewing every opportunity in their pipeline, for the current quarter and all future quarters Future periods quickly become dumping grounds if not scrubbed. Delaying deals into the future can hide losses and enable squatting on accounts. Particular attention should be paid to the four key fields Close date, value, stage, and forecast category. Questioning should be direct and customer-in, not seller-out What did the customer say to make you believe you were in stage 5? Who said it? When did the customer say the evaluation process would complete? Who said that? Pipeline scrubs should be exclusively focused on pipeline quality and verification Pipeline scrubs should happen several times (e.g. three) per quarter Meeting at the end of weeks two, five, and eight works well for sales teams on quarterly cadence. Beware of sales managers who are “always” scrubbing the pipeline. In this case, always is likely to mean never. SPRING 2023 .23

FOUNDER’S GUIDE TO B2B SALES About pipeline scrubs Dave Kellogg explains why, in his experience, “always” scrubbing the pipeline often actually means never scrubbing the pipeline. READ HOW MANY OPPORTUNITIES CAN A SELLER EFFECTIVELY HANDLE? OPPORTUNITIES PER SELLER, CURRENT AND FUTURE QUARTERS 30 25 20 15 10 5 0 SELLER 1 SELLER 2 SELLER 3 SELLER 4 SELLER 5 SELLER 6 SELLER 7 SELLER 8 CURRENT QUARTERS FUTURE QUARTERS While much attention is paid to pipeline coverage (value of pipeline compared to targets), it’s often easier and more intuitive to ask: how many opportunities can a seller actually manage? It helps to split that by timeframe – e.g. current-quarter opportunities usually require more focus and attention than future ones. It also helps to split by type of seller – e.g. a velocity seller turning a high volume of small deals can handle more than an enterprise seller working a small number of large transactions. In this fairly typical enterprise example, the goals are indicated by the dashed lines. The company would like sellers to have nine current-quarter and 21 all- quarters opportunities in their pipeline at the start of a quarter. Breaking this out via a bar chart is important because averages can hide very uneven distributions amongst sellers. SPRING 2023 .24

FOUNDER’S GUIDE TO B2B SALES FORECASTING AND PROBABILITIES When it comes to forecasting: • Sellers tend to be optimistic (i.e. have “happy ears”) • Sellers tend towards imprecise language (e.g. “best case” or “if the stars align”) • Sellers tend to resist probabilities (e.g. “we can’t win half a deal”) To combat these tendencies, do the following: • Define the VP-level sales forecast number as a 90% probability – that is, they get to miss it once every 2.5 years • If you also want a best-case, define that as well – 90% chance of beating forecast, 20% chance of beating best-case • Use forecast category as probability of individual deals closing Define the forecast in terms of probabilities, but do not impose rules on how the forecast is made. • Most sales leaders use scenario analysis to arrive at their forecast. You should consider their forecast an independent prediction; use triangulation to see the bigger picture. How to train your VP of Sales to think about the forecast In this article, Dave Kellogg asks you to imagine this conversation in a Board Meeting between a Director and a VP of Sales. READ SPRING 2023 .25

FOUNDER’S GUIDE TO B2B SALES THE WORD “COMMIT” Sales leaders use the word “commit” in different and potentially confusing ways Some use it as contract between seller and manager on a given deal That means, if you “commit a deal,” you are personally guaranteeing it will close. This is often combined with early-quarter pressure to commit certain deals, which is then used to increase pressure on the seller later in the quarter (“you committed that deal, now you have to win it.”). This is a high-pressure sales management technique that is increasingly going out of favour. Others use “commit” as a synonym for “forecast” (or high-confidence forecast) Asking, “Jane, what’s your commitment for this quarter?”. I would suggest using “forecast” with a probabilistic definition (e.g. 90%) instead. Many use “commit” as a forecast category for a given deal Typical forecast categories and associated probabilities include: pipeline*/unlikely 0%, upside 30%, forecast** 70%, commit 90%. *Using “pipeline” as a forecast category is indeed confusing, but is still fairly common. “Unlikely” is an alternative, preferred term. **Using “forecast” as a forecast category is potentially confusing too, so ensure the context is clear. TRIANGULATION FORECASTS You should ask the head of sales for a forecast every week to ensure: • Accountability • Incorporation of new information • Ability to analyse trends You should triangulate that against other indicators, such as: • Pipeline coverage – value of pipeline / target (typically on a to-go basis) • Rep-level forecast – the sum of the individual sellers’ forecasts will be typically larger than the head of sales forecast, but not always • Expected values (also known as weighted pipeline) with the expected value of the pipeline calculated based on weights assigned to stages or forecast categories i.e. If we have $1,000K in stage 5 with a 40% probability of closing, then the stage- weighted expected value of that pipeline is $400K SPRING 2023 .26

FOUNDER’S GUIDE TO B2B SALES THE WEEKLY FORECAST SHEET MICROSOFT EXCEL Tracking the forecast every week should be done via a sheet like this. It’s important to watch how the forecast varies across weeks of the quarter and to hold the CRO accountable for the shape of that curve. It includes a weekly New ARR forecast from Sales, and a weekly Churn forecast from Customer Success. It shows pipeline coverage, the ratio between how much pipeline there is in play and how much more needs to be sold. It shows three different triangulation forecasts that you can compare to the CRO forecast. • Sum of the reps’ forecasts • The pipeline’s stage-weighted expected value (EV) • The pipeline’s forecast-category-weighted EV FORECASTING THE COMING WEEK Always be closing In order to keep a strong focus on closing, some managers ask sellers to forecast on both their quarterly performance and the coming week’s closed deals. This keeps sellers focused on the details of closing transactions and reduces deals stacking up at the end of the quarter. Some managers use this technique only in the final month of each quarter. For large deals, asking for short, written “close plans” can also be useful to ensure sales understands and is managing the process of closing the transaction. SPRING 2023 .27

FOUNDER’S GUIDE TO B2B SALES DEAL REVIEWS Winning deals, particularly in the enterprise, is complex because it involves: • Multiple buyer roles: user, champion, economic buyer, approver, IT/standards, procurement • Multiple competitors: incumbents, hyper-scalers, startups • Defined process: RFI, RFP, demo, presentation, proof of concept, committee, purchasing A deal review is a meeting where sales management and interested peers come together to learn about a deal and focus on generating ideas to win it • Example problems: “We know that competitor X will say Y,” or “we know that buying from a startup is a major concern for the CFO” • Frequent problem: We don’t know what we don’t know – the peer group can help a seller to identify important missing information and generate ideas on how to get it Deal reviews should happen on-demand, called by a seller or their manager when they feel they could benefit from the assistance of the team. Keep deal reviews positive and focused on winning to ensure that sellers will call them when needed. ONE MEETING OR THREE? With the good intention of reducing meetings, some sales managers try to combine pipeline scrubs, forecast calls, and deal reviews into a single meeting. This is almost always a mistake. Pipeline scrubs should be long, disciplined, systematic walk-throughs. Given the length of the meeting, it can be segmented by region so the entire team doesn’t need to sit through the entire scrub. Forecast calls should be used to quickly run through the numbers. • What are you calling? • Where’s it coming from? • How did it change? • What help do you need to keep things moving? Deal reviews should be opt-in meetings where people come together to help. The seller should spend 10 to 30 minutes discussing each deal by outlining the situation. The team, consisting of management and peers, should then work together to find the best path to victory. Keep these meetings and their functions separate and you won’t regret it. SPRING 2023 .28

FOUNDER’S GUIDE TO B2B SALES QUARTERLY BUSINESS REVIEWS (QBRS) What are they? Post-quarter meetings with the executive team, sales management, and sellers to review the previous quarter and plan for the next. As you scale, you’ll run QBRs by region. Key metrics You should review key metrics using a salesops-generated standard template that includes: • New ARR performance (absolute, plan-relative, YTD, YoY) • New ARR by type (new vs. expansion, net new ARR) • New ARR forecast accuracy (week 3 forecast / result) • Churn performance and forecast accuracy • Pipeline conversion (new ARR / week 3 pipeline) • Pipeline opportunity count (opportunities/seller) • Pipeline progression • Marketing funnel analysis • Quarterly employee net promoter score (NPS) Key analyses You should also present the results of key analyses, which should include: • Win/loss analysis (e.g. key deals, quantitative, third-party) • Churn analysis (via some taxonomy) • Quarterly customer satisfaction (CSAT) analysis, including NPS • Segment analysis (if applicable, by use-case, vertical, or sales channel) THE QUEST FOR REPEATABILITY Many people will ask you if you have a repeatable sales model. Few can define what that means. Repeatability is about producing a standard result given a set of standard inputs such as: • Standard hiring profile – background/experience of new hires • Standard training program – onboarding, but also ongoing • Standard support ratios – SCs, SDRs, managers, alliances • Standard territory • Standard kit – messaging, presentations, demonstrations, collateral • Standard sales process – and, as you get bigger, a sales methodology Can you produce a standard result? • For example, an 80% chance of a seller producing at 80%+ of quota in one year. SPRING 2023 .29

FOUNDER’S GUIDE TO B2B SALES PROVING REPEATABILITY Proving repeatability is hard and takes time Many companies can’t define the six standard inputs due to the following: • Ad hoc organisations: roles, goals, and ratios have been created in an ad hoc and/or regional manner • Standards exist, but have been ignored: notionally the company hires people with background X, but few people actually have it • Elements are missing: there is no standard onboarding because no one has built it Step one: standardise the six inputs This often entails hiring sales enablement and salesops, as well as potentially upgrading sales management. Step two: determine the measurement criteria for results • High-level metrics are important but less conclusive: e.g. plan attainment • Micro-metrics are precise, but potentially not relevant: onboarding final exam scores • Results-oriented metrics work best, but take time to accumulate: cohort performance relative to ramp, cohort survival rate, % of reps at 80%+ of annual quota TO LEARN MORE ABOUT MANAGING A ten-point sales management framework The minimum sales management framework for an enterprise SaaS startup by Dave Kellogg. READ Additional resources on managing • Beginner’s Guide to the Sales Process by Zendesk • Why To Creates Opportunities at Zero Value by Dave Kellogg • SaaS Sales Management Tips by Joel York • Cracking the Sales Management Code by Jason Jordan • The Holy Grail of Enterprise Sales: Defining the Repeatable Sales Process by Dave Kellogg SPRING 2023 .30

FOUNDER’S GUIDE TO B2B SALES SECTION 05 RENEWING / EXPANDING 32 The goal of customer success 32 Should customer success exist as a separate function? 33 Three types of customer success managers 34 Common sales / customer success interaction models 35 Measuring the customer success function 35 LTV vs. Net retention rate 37 Should success report into sales? 37 To learn more about renewing / expanding SPRING 2023 .31

FOUNDER’S GUIDE TO B2B SALES The customer success function, its role, and how it collaborates with sales. THE GOAL OF CUSTOMER SUCCESS The point of customer success is to maximise the value of existing customers. I.e. • Keep them happy – Deployment, adoption, engagement, surveys, quarterly reviews • Keep them renewing – Renewal intent, renewal process • Keep them expanding – Incidental “fries with your burger” expansion (e.g. editions, users) – Major expansion (e.g. cross-sell new product or division) SHOULD CUSTOMER SUCCESS EXIST AS A SEPARATE FUNCTION? There are arguments on both sides. For most SaaS companies, in particular, the answer to whether customer success should exist as a separate function to sales is typically ‘yes.’ However, in reality, the answer comes down to how you define your sales model and, once that model is defined, what the CS role is, relative to sales. Yes! No! “For us, of the things that “We don’t believe were important were, companies should have number one, customer a separate customer success. Nothing is success function. The more important to us first thing we did when than making sure every Frank joined Snowflake customer is successful was we blew up what was in our service.” (We even the customer success called our customer function. You are either success organization, going to do support, sales, Customers for Life.) or professional services. Customer success is not accountable for anything.” Marc Benioff, Frank Slootman (via Mike Scarapelli), Snowflake SPRING 2023 .32

FOUNDER’S GUIDE TO B2B SALES THREE TYPES OF CUSTOMER SUCCESS MANAGERS The Best Friend • Think: “I’m here to help you use the product.” • Provides advanced technical support • Technical background • Will ask how it’s going • Won’t ask you for money • Measured on CSAT The Renewals Clerk • Think: “I’m here to collect your renewal next quarter.” • Manages the contract renewals process • Finance background • Will ask you for money • Won’t ask about expansion • Measured on churn reduction The Account Manager • Think: “I’m here to maximise your value from the software.” • Manages an account • SDR/sales background • Sees value as driver of renewal • Will ask* about expansion • Measured on account growth *Looking for expansion opportunities is not the same thing as selling them. Depending on your model, CS managers may find opportunities and hand-off to sales. They may handle the opportunities themselves, or they may work with sales in order to sell the opportunity together. SPRING 2023 .33

FOUNDER’S GUIDE TO B2B SALES COMMON SALES / CUSTOMER SUCCESS INTERACTION MODELS Where there are many different models, here is a breakdown of three popular ones. SALES HANDOFF SALES OWNS FULL (TWO SALES EVERYTHING COLLABORATION TEAMS) (SUCCESS AS (FLUID DUTY RENEWALS) SEPARATION) NEW Sales Sales Sales CUSTOMER ACQUISITION SALES HAND OFF 0-90 days Never Never TO SUCCESS RENEWAL Success Renewals supports Success, with sales sales support EXPANSION, Success Sales Success, but INCIDENTAL both paid EXPANSION, Success Sales Sales, but MAJOR both paid CONCEPT Create two sales Sales owns Sales and success are teams. One, often everything, and incentivised to work transactional team, their success is together and to let that’s set up to win measured on new work flow to the right new customers, and sales, expansions, party. Sales helps a second team built and renewals. A small on hard renewals. to expand the existing renewals team then Success takes customer base. In helps them drive easy expansions. this scenario, the first process. Comp neutrality is team’s deals become the collaboration the second team’s lubricant. leads. SPRING 2023 .34

FOUNDER’S GUIDE TO B2B SALES MEASURING THE CUSTOMER SUCCESS FUNCTION Technical support • Cases/agent and post-case CSAT – ideally increasing cases/agent while maintaining 4.5+ out of 5.0 CSAT rating. • Cases/customer - ideally declining as result of strong deflection and product/ documentation improvements. Professional services • Services gross margins – ideally above 0%. • Post-implementation CSAT of 4+ or 4.5+ depending on difficultly. Customer success management • Churn, gross (before expansion) on either ARR or customer count basis • Churn, net (after expansion) on an ARR basis • Net retention rate (NRR) – expansion or shrinkage of year-ago cohort on an ARR basis To avoid penalising CSMs who take on the most at-risk accounts, measure performance relative to a realistic start-of-year forecast for their accounts. LTV VS. NET RETENTION RATE There are two different ways of trying to value the installed customer base. Lifetime value (LTV) = 1/churn * annual contract value • Average ARR of $50K with 10% churn = $500K LTV • Often compared to customer acquisition cost (CAC) to contextualise it • $500K LTV with $100K CAC = 5.0x LTV/CAC ratio • LTV/CAC benchmarking: good 3.0x, better 5.0x, best 10.0x+ LTV and LTV/CAC analysis have several flaws and increasingly companies are turning to NRR – or as it’s also known, net dollar retention (NDR) – as a superior, cohort-based analysis metric. NRR, also known as net dollar retention (NDR), is a cohort-based analysis. • NRR = value of year-ago cohort today / value of year-ago cohort one year ago • If the year-ago cohort was worth $100K a year ago and is worth $116K today, then NRR is 116% • NRR benchmarking: good 104%, better 110%, best 120%, epic 150%+ (Epic NRRs are typically achieved only by companies using consumption-based pricing such as Twilio or Snowflake.) SPRING 2023 .35

FOUNDER’S GUIDE TO B2B SALES Benchmark: Net Retention Rate AVERAGE TOP QUARTILE BOT QUARTILE 150% 140% 130% 125% 120% 114% 115% 110% 105% 100% 90% 80% ENTERPRISE SMB LTV / CAC for each percentile LTV / CAC PERCENTILE 2-3x 25% / NEEDS IMPROVEMENT 3x 50% / GOOD 3-5x 75% / BETTER 5x+ 90% / BEST SPRING 2023 .36

FOUNDER’S GUIDE TO B2B SALES SHOULD SUCCESS REPORT INTO SALES? Pros and cons If the first controversial customer success question is, “should it exist?” the second one is, “if so, should it report into sales?” Pros of separate customer success organisation • Focus: sales teams are focused on New ARR, while CS teams are focused on adoption and renewals • Checks and balances: VP of Success owns a huge number, customer success can call out sales when overselling Cons of separate customer success organisation • Non-collaborative: In separate CS and sales functions, sales teams can be less inclined or incentivised to help customer success on hard renewals, while the CS teams aren’t on hand to drive easy expansions • Recruiting: top-quality CRO candidates may insist on owning both functions As a result, most, but certainly not all, companies integrate sales and customer success if and when they hire an overall revenue owner e.g. CRO. Titles do not tell all: some CROs are focused only on sales TO LEARN MORE ABOUT RENEWING / EXPANDING • Customer Success by Nick Mehta • Five Organizational Models of Customer Success by GainSight • The Three Types of CSM by Dave Kellogg • Eight Causes of Churn by ProfitWell • Revops Squared SaaS Benchmarks by Ray Rike • Churn is Dead, Long Live NDR by Dave Kellogg SPRING 2023 .37

FOUNDER’S GUIDE TO B2B SALES SECTION 06 MARKETING 39 The world’s shortest marketing primer 39 The marketing funnel 40 Marketing funnel metrics 41 Lead nurturing and recycled MQLs 41 Marketing - funnel or popcorn machine? 42 Marketing channel performance 42 Attribution - the Achilles’ heel of measurement 43 Four pipeline sources 43 Pipeline progression 44 Product-led growth: trials as the fifth pipeline source 44 To learn more about marketing SPRING 2023 .38

FOUNDER’S GUIDE TO B2B SALES Marketing is a complex field which could have its own playbook. This section focuses on the part of marketing closest to sales: demand generation. THE WORLD’S SHORTEST MARKETING PRIMER Marketing lives at the intersection of three things: Business benefits – why buy a product or service? It provides a solution to business problems, it’s better/cheaper/faster and there are customer testimonials as proof Product differentiation – why buy your product or service? This comes down to your high-level product positioning, agenda-setting your differentiating features and mapping unique features to customer problems Buyer priorities – why give my product the time of day? The best marketing talks to customers about what’s important to them. Successful marketers research the areas which top their customers’ pain point list and they map these problems to their company’s solutions THE MARKETING FUNNEL Like sales, marketing has a funnel. It starts with names (or contacts) and finishes with opportunities, which are passed to sales to hopefully become won deals. Below is an example of a marketing funnel. NAME A person we found to potentially add to the database. RESPONSE A person who responded to a campaign (“hand raiser”). NET NEW LEAD Not duplicate. Not garbage (e.g. [email protected]), within a target market. MARKETING Meets the agreed tests to be passed to SDR. Often some combination of QUALIFIED LEAD demographic (e.g. CFO title at 500+ person company) and behavioural (MQL) scoring (e.g. downloaded evaluation guide, attended weekly demo). STAGE 1 SDR-qualified, usually via some form of BANT qualification. OPPTY STAGE 2 Sales-accepted lead (SAL), indicating that a seller concurs OPPTY it is a valid opportunity. DEAL Closed / won opportunities. (For the definition of BANT qualification, see here.) SPRING 2023 .39

FOUNDER’S GUIDE TO B2B SALES MARKETING FUNNEL METRICS MICROSOFT EXCEL It’s easy to get lost in numbers when looking at marketing funnel metrics so it’s best to focus on cost-per rows, particularly cost per Stage-2 (S2) opportunity. It’s also best to look first at three high-level conversation rates: MQL to S1, S1 to S2, and S2 to close. These rates effectively measure both the quality of the inputs and the ability of the organisation to convert them. Marketing owns MQL to S1, SDRs own S1 to S2, and sales own S2 to close. Note this is a milestone-based analysis, meaning we are counting how many things (e.g. leads, opportunities) pass milestones (e.g. stage-1, stage-2) within a given time period. Cohort-analysis is typically more meaningful but requires the passage of time and is thus a more lagging indicator. How to build a marketing machine Video of a webinar for Balderton portfolio companies on how to build a marketing machine WATCH THE WEBINAR SPRING 2023 .40

FOUNDER’S GUIDE TO B2B SALES LEAD NURTURING AND RECYCLED MQLS Sometimes a lead may qualify as an MQL, get passed to SDR, but then be disqualified You have probably found the right person at the right company at the wrong time. This suggests you should nurture them until they are ready. Nurture programmes typically have one or both of two specific goals The first is to remain top-of-mind with a customer so they think of your company when they are ready to buy. The second, more ambitious goal of nurture, is to accelerate a customer’s buying time frame, typically achieved by emphasising the benefits of acting now and/or the risks of waiting until later. Competitive nurture programmes are designed to win back customers A special type of nurture track is dedicated to nurturing customers who, in the end, didn’t select your company. In such situations, smart sellers recommend the buyer “try and buy” the competition via a short-term contract and then place them on a dedicated nurture track, designed to win them back. Many companies wait too long to formalise nurture programs Too many companies just throw leads back into the database, send them a monthly newsletter, and invite them to local events. While better than nothing, this is simply database marketing, not nurture marketing. The ‘recycled’ MQL When a lead emerges from a nurture programme it is typically called a recycled MQL. When good nurture programmes are in place, 20-50% of MQLs may be recycled. This is ultimately why you shouldn’t wait too long to set one up and measure it on recycled MQLs. Nurture programmes often take one of two forms They can be SDR-led, for high-value leads automated by tools such as Outreach. Alternatively, they are marketing-led, for normal leads automated by tools such as Hubspot. MARKETING - FUNNEL OR POPCORN MACHINE? Most people think of marketing as a linear funnel where leads flow from top to bottom. This is a particularly good way to think about it where simple sales models apply (e.g. basic ecommerce). With more complex models, it’s better to think of marketing as a popcorn machine. Marketing and SDRs keep working on them until they pop! Example complex models include: • Multiple buyers • Each with multiple touches • Engaging marketing, sales, and partners • Over a long period of time • Cycling and recycling as MQLs SPRING 2023 .41

FOUNDER’S GUIDE TO B2B SALES MARKETING CHANNEL PERFORMANCE MICROSOFT EXCEL Marketers think of campaigns as happening within and across various channels. Charts like those above are often used to determine channel effectiveness - i.e. to find which half of your marketing budget is wasted. While this is a useful exercise, it is important to understand how credit is attributed to a channel, especially when multiple people are engaging in multiple marketing, sales, and partner touches over time. These charts can backfire when the audience doesn’t understand the data that’s being presented. For example, measuring field marketing programmes such as executive dinners via first-touch attribution is likely to result in a poor showing as these are are designed to advance existing deals and rarely, if ever, generate new leads. This is why it’s important marketers clearly explain what’s being presented ahead of time. They should then complement this with a quarterly analysis of closed deals to show everyone the reality of their average sales cycle in terms of contacts, time, and touches. ATTRIBUTION - THE ACHILLES’ HEEL OF MEASUREMENT Imagine a situation where a person has multiple marketing touches before becoming an opportunity. e.g. • They clicked on a search ad • They replied yes to a follow-up email webinar invite • They saw a demonstration at a tradeshow booth Attribution is about how you credit these marketing campaigns. There is no good answer to the attribution problem, but in general, people use one of three approaches: • First-touch attribution – gives all credit to the search ad • Last-touch attribution – gives all credit to the trade show • Points-based attribution – accumulates points for each activity and credits back on a pro rata basis Founders need to understand what they’re looking at and act accordingly. Don’t automatically cancel the trade show booth if sales loved the show. For instance, trade shows can help build on first-touch attribution and help move an audience of already-identified buyers towards a deal, instead of just finding new buyers. SPRING 2023 .42

FOUNDER’S GUIDE TO B2B SALES FOUR PIPELINE SOURCES There are generally four sources of pipeline. You should set opportunity generation targets for each of them. MARKETING SDR OUTBOUND ALLIANCES SALES OUTBOUND STAGE 1 OPPTY STAGE 2 OPPTY As SaaS companies, marketing usually generates between 50% and 90% of the sales pipeline. With account-based sales and marketing, outbound SDRs typically generate between and 10% and 30%. Alliances can generate highly-qualified opportunities, usually accounting for between 10% and 30%. Most sales managers want sellers, particularly in enterprise models, generating between and 10% and 20%. Note that while it’s fine for executives to think in terms of percentages, it’s important to assign quarterly OKRs based on actual targets (i.e. generate 225 Stage-1 opportunities). This focuses people on a more tangible goal (opportunity count) rather than percent mix or pipeline dollars and avoids corner cases (e.g. when the target is missed but the mix is correct). PIPELINE PROGRESSION MICROSOFT EXCEL SPRING 2023 .43

FOUNDER’S GUIDE TO B2B SALES The above pipeline tracking chart avoids the problem of simply tracking total or rolling four-quarter pipeline (e.g. a back-loaded pipeline looks fine on overall coverage, but leaves you with a short-term struggle). This chart shows a pipeline snapshot every quarter, its distribution over time (by close date), and shows the coverage ratio to the sales target (i.e. pipeline/target). This chart is best read by first looking at this– and next–quarter coverage to spot any urgent problems. Then it should be read diagonally: the 1/1/21 N+2 quarter pipeline becomes the 4/1/21 next- quarter pipeline which becomes the 7/1/21 this-quarter pipeline. PRODUCT-LED GROWTH: TRIALS AS THE FIFTH PIPELINE SOURCE Product-led growth (PLG) companies generate large bases of users using trial, free, or discounted product. Open-source companies do the same thing via free or community editions. In these models, the default marketing call-to-action switches from “get demo” to “start trial.” Cross-functional growth teams (e.g. product, product marketing, design, sales) work together to continually improve trial conversion efficiency - from defining gates in the product to user monitoring to drive SDR outreach. People who use the product frequently, or in a certain way, become product-qualified leads (PQLs). Marketing thus has a dual role in PLG companies: 1. Driving people to trials 2. Working with the growth team to drive trial conversion into customers or PQLs In PLG companies, trials become the fifth (and typically primary) pipeline source Kellblog on Marketing The section of Dave Kellogg’s popular blog dedicated to the topic of marketing VISIT TO LEARN MORE ABOUT MARKETING • The Hubspot Marketing Blog by Hubspot • Digital Marketing Blog by Neil Patel • The Content Marketing Institute blog by the CMI • The Buffer Social Media blog by Buffer • Kellblog on marketing by Dave Kellogg • Product-Led Growth by OpenView Partners • The B2B Marketing Handbook by Robert Bly SPRING 2023 .44

FOUNDER’S GUIDE TO B2B SALES SECTION 07 PARTNERING 46 Goals of partnering in b2b sales 46 Types of partners 47 Types of alliances 47 Types of channels 48 The key to partnering: clarity 49 Strategic business development 49 To learn more about partnering SPRING 2023 .45

FOUNDER’S GUIDE TO B2B SALES Partnering is a complex but essential activity sometimes seen as a “dark art” in B2B sales. In this section, we will try to demystify it with a clear introduction to the basics. GOALS OF PARTNERING IN B2B SALES GOALS RESULT IMPROVE REACH Get access to customers your direct sales force can’t reach (e.g. international distribution). REDUCE COST Sell more efficiency by enabling others to sell your product OF SALES or service. GENERATE Get referrals into deals (e.g. get your expense management PIPELINE software included as part of a larger finance transformation initiative being led by a systems integrator). IMPROVE Share the cost of marketing campaigns with partners (e.g. joint webinars) MARKETING or mitigate costs of major events (e.g. selling sponsorships). EFFICIENCY EASE The ability to hire and onboard salespeople quickly becomes SCALING a limiting factor in B2B growth. DIVERSIFY REVENUE Make overall results more predictable by spreading risk across SOURCES channels. For example, embedded resale (OEM) agreements can provide a stable keel on your new sales. TYPES OF PARTNERS Many people try to classify companies as partners but it’s preferable to classify relationships. This is because, as you scale, you will often find you have multiple relationships with a single, partner company. Take Deloitte as an example. You might have a worldwide SI implementation partner relationship, an embedded OEM relationship in Europe (where they embed your product in a financial solution), and channel sales relationship in Asia where they sell your software outside of packaged solutions. Partner relationships tend to fall into one of two types: Alliances – these are partners who collaborate with you, but do not sell your software They work with you on deals, and may do joint marketing but they do not “take the paper” on customer orders. Example • A regional system integrator who refers you into deals in exchange for the right to perform the associated implementation services SPRING 2023 .46

FOUNDER’S GUIDE TO B2B SALES Channels – these are partners who sell your software They sell your software either standalone or as an embedded component in their software. They also “take the paper” on customer orders. Example • An international distributor in Japan • A software vendor who embeds your reporting solution TYPES OF ALLIANCES Technology Alliances These are ecosystem partners who build complementary products that customers use in conjunction with yours. Example • A data catalogue vendor’s relationship with Snowflake These typically involve co-marketing, salesforce education, and potentially, referral agreements. System Integrators These are services firms that vary from small, focused boutiques to large regional or global system integrators (SIs). Regardless of size, they make money in the same way — by selling services to implement software or transformation initiatives. Example • CFO Solutions (boutique), Slalom (mid-size), Deloitte (Big Four) These alliances typically co-sell relationships by joint bidding on projects with co- marketing. TYPES OF CHANNELS Geographic distributors Geographic distributors sell your software in a given region or geography, often on an exclusive or de facto exclusive basis. They are typically used to help you get started in a region where you cannot yet afford to build a direct operation. Original Equipment Manufacturers (OEMs) While the term dates back to physical manufacturing (e.g. putting my company’s compressors in your refrigerators), the term OEM is still used today in software, with the same conceptual definition: OEMs embed your software in their offering. These are long-term supplier relationships with a long sales cycle that hopefully result in a “design win.” The OEM then develops their product, ships it, and pays your company royalties which are usually a mix of prepaid and ongoing. These are called “white label” relationships when your product is rebranded. For example, NetSuite Planning for many years was a white label version of Adaptive Planning. SPRING 2023 .47

FOUNDER’S GUIDE TO B2B SALES System Integrators (as channels) System integrators can embed your offering in their packaged solutions. By default, systems integrators tend to form co-marketing alliances, but over time those relationships may evolve into cases where the SI builds their own packaged solutions and “bakes in” several partner products to them. These are effectively OEM relationship but in the context of solutions, not products. They are rarely white-label. Two-tier Distributors Two-tier distributors = master distributors who distribute your software through their own network of resellers. Typically used to reach small/medium businesses with easy-to-sell products that have pull in the marketplace. Example • Ingram Cloud THE KEY TO PARTNERING: CLARITY The best partner programmes have clear expectation management This should cover areas including: • How and when referral fees are earned (e.g. deal registration systems). • How the company will manage tricky situations (e.g. multiple integrators each bidding their solution on the same project). The best channel programmes have clear territories that minimise overlap Typically, if channel partners don’t have their own territories, distinct from direct sales, the end result is cherry-picking (i.e. the best leads are taken by direct sales and only the bad ones are passed onto partners). Geographic boundaries work well for separating direct and indirect sales (e.g. geographic distributors). Size floors work well within geographies (e.g. direct sales only to companies about $500M in revenue). SPRING 2023 .48

FOUNDER’S GUIDE TO B2B SALES STRATEGIC BUSINESS DEVELOPMENT At some point, in addition to normal sales-driven partnering activity, many companies decide to invest in potentially game-changing partnerships, such as: • OEM white label relationships (e.g. NetSuite selling Adaptive Planning) • Strategic investments In certain cases, strategic partners can pave the way for the eventual acquisition of the company by the strategic partner. This so-called “elephant hunting” typically gives access to C-level executives and requires large investments in time and resources, meaning it’s usually best done by a separate team. This avoids priority conflicts between long- and short-term activities that would develop in a single team, and allows the day-to-day partner function to remain highly sales-aligned and accountable. This function is typically run by a direct report to the CEO with a title such as VP of Strategic Alliances, VP of Business Development, or VP of Corporate Development. TO LEARN MORE ABOUT PARTNERING • The Ultimate Guide to Channel Sales by Hubspot • 10 Things Technology Partnerships Do Well by Hubspot • Partnerships 101 by Crossbeam • The Top 12 SaaS Channel Partner Programs by Partnerhub SPRING 2023 .49

FOUNDER’S GUIDE TO B2B SALES SECTION 08 PLANNING 51 Key metrics, company level 51 Key company metrics, sales level 52 The seller ramp 52 What is a driver-based planning model? 53 Key metrics: inputs or outputs? 54 Example sales booking capacity model 54 Example sales-linked marketing inverted funnel model 55 The importance of driver-based modelling 55 Thoughts on benchmarks 57 Glideslope planning 57 To learn more about planning SPRING 2023 .50

FOUNDER’S GUIDE TO B2B SALES You plan a sales model to converge towards targets for key metrics over time. In this section, we’ll discuss those metrics and then show how a driver-based model can be an invaluable tool for planning the evolution of your sales model. KEY METRICS, COMPANY LEVEL ARR growth rate: how fast are you growing ARR? Public companies often do not release ARR and ergo calculate growth on revenue or implied ARR (last quarter subscription revenue * 4) Customer acquisition cost (CAC) ratio: how much do you spend to acquire $1 of new ARR? • Net New ARR (inclusive of churn) is a higher bar than New ARR • New ARR is better measure of sales performance • Net New ARR is a better measure of company performance • Public companies often calculate based on revenue or implied ARR and this is almost always calculated on a net basis (as they often release neither ARR nor churn numbers) CAC payback period = how many months of gross margin are needed to pay back the cost of customer acquisition? • CAC Payback Period = CAC Ratio / Subscription Gross Margin x 12 • How long is your customer acquisition “money on the table” before you are paid back? Net revenue retention (NRR): how fast does ARR expand within existing customers? • ARR of year-ago cohort today / ARR of year-ago cohort a year ago • Also known as net dollar retention (NDR) Rule of 40 score = how do you balance growth and profit? • Rule of 40 score = ARR growth rate + free cash flow (FCF) margin • Public companies will define growth using revenue; others use EBITDA or operating margin instead of FCF • This metrics is less meaningful (and less examined) for early-stage companies KEY COMPANY METRICS, SALES LEVEL Sales productivity: ARR/ramped-seller • Most companies model productivity (expected result) and then uplift to quota (seller targets) • Quota is typically set about 20% higher than expected productivity • To simplify calculations and ease interpretation, this usually excludes ramping sellers • Varies by seller type (e.g. enterprise vs. corporate sales) Quota attainment: Percent of ramped sellers at 80%+ of quota • Warning: this is a function of cadence • Example: if you have annual compensation plans, then 80% at 80% is a high but achievable bar on annual basis, but virtually impossible on a quarterly basis • Some people base this metric on 80% attainment (which typically equals expected productivity) whereas others base it on 100% SPRING 2023 .51

FOUNDER’S GUIDE TO B2B SALES THE SELLER RAMP LINK TO MICROSOFT EXCEL • This Seller Ramp chart tracks the historical productivity of every seller • It can be used to determine steady-state seller productivity (average 4Q+ productivity) • It can also be used to determine seller ramp: imagine the company models sellers doing 0%, 25%, 75% and 100% of their target in their first four quarters. Here you can see the reality is slightly better in the first three quarters (at 10%, 31%, 75%) and slightly worse in the fourth at 91%. WHAT IS A DRIVER-BASED PLANNING MODEL? A high-level model that lets you vary key parameters (i.e. the drivers) and see resulting impacts (e.g. key metrics) This is not a budget. It’s a high-level model, meaning it factors in things such as coarse time granularity (quarters, not months), some imprecision (it is approximate), intent (scenario planning, not budgeting – i.e. it does not map to general ledger accounts!), and abstraction (total number of sellers hired vs. one row per seller). The more a driver-based planning model resembles a budget, the harder it is to use for scenario planning. A good model should include: • Sales bookings capacity – given sales hiring, productivity, ramping, and attrition, how much can we sell? • The ARR leaky bucket – give our sales and churn assumptions what happens to our bucket of ARR? • High-level P&L – given the ARR bucket and assumptions about S&M, R&D, G&A, and COGS what does the income statement look like? • Cash – given existing cash, new bookings, renewals, and cash expenses, what does cash look like? SPRING 2023 .52

FOUNDER’S GUIDE TO B2B SALES If the columns are months, if it has one row per seller, if you need to copy and paste rows to add new sellers, and to map expenses to general ledger accounts, it’s a budget – not a driver-based model Such budgets are too detailed and cumbersome to meet your planning needs. FP&A people tend towards driver-based models, while accountants/controllers tend towards budgets. Read more on the merits of driver-based models. KEY METRICS: INPUTS OR OUTPUTS? Sometimes, people get this backwards so let’s make it clear: the outputs of the model are key metrics, and the inputs are operational drivers. The model shows you the impact of varying different drivers and their impact on key metrics. Example Outputs • New ARR bookings • Ending ARR and ARR growth • CAC ratio • CAC payback period • Net retention • Rule of 40 score • FCF margin Example Inputs • Sales productivity • Sales hiring plan • Sales attrition • Expansion % • Churn % • Services attach rate • Subscription and services margins • Sales staffing, OTEs, and ratios • Marketing funnel conversion rates and costs • R&D and G&A % SPRING 2023 .53

FOUNDER’S GUIDE TO B2B SALES EXAMPLE SALES BOOKING CAPACITY MODEL MICROSOFT EXCEL Above is an example of a simple sales bookings capacity model. A few things to note: • If you have different types of sellers (e.g. inside, enterprise), you’ll need one block like this per type of seller • This model lets you see the bookings impact of varying drivers like productivity, attrition, ramping, and hiring • Sometimes companies end up with model wars, where the director of sales ops has one model and the head of finance has another. Compel them to compromise on a single model to end these wars • The art of building these models is identifying which drivers to use and where and how to approximate - e.g. expansion ARR could be a single top-down number (e.g. % of new ARR from expansion) or it could be an attach-rate to a new product offering EXAMPLE SALES-LINKED MARKETING INVERTED FUNNEL MODEL MICROSOFT EXCEL SPRING 2023 .54

FOUNDER’S GUIDE TO B2B SALES The above model links a sales booking capacity model to a marketing inverted funnel model. • It phase-shifts opportunity generation by two quarters for the sales cycle and lags opportunity creation by one quarter from MQL creation. • Calculating opportunities needed along with cost/opportunity enables reverse- engineering the demand-gen portion of the marketing budget. • It also helps ensure that sufficient pipeline is being generated early enough to support the needs of sales. Timing matters. THE IMPORTANCE OF DRIVER-BASED MODELLING Driver-based models are key planning tools that keep you out of the budgeting weeds and help you to understand how the key levers of your business drive your core performance metrics. Identifying key levers – your choice of model determines your drivers There is an art to driver-based modelling. For example, consider these different approaches to modelling expansion and sales. Modelling expansion: annual price increase, usage-expansion assumptions, consumption assumptions, edition upgrades, top-down %. Modelling sales: seller productivity model, a marketing-to-sales funnel, or a trial conversion rate. See how they interact With driver-based modelling, you can easily see the effect on ARR growth of changing sales ramping, turnover, ASP, or sales productivity. Isolate drivers for operational focus Example: we can hit our CAC goal if we increase sales productivity from $225K/quarter - now, let’s make a plan to do that. Enable scenario analysis You can define scenarios by picking logically consistent sets of driver values. For example, mid-market push vs. enterprise expansion. Establish a three-year trajectory The top planning mistake is to make an optimistic P&L for Year 1 that under-invests to support growth in year 2. With a three-year model, you are always looking at a longer trajectory to avoid this problem. Don’t drive looking at the hood ornament! THOUGHTS ON BENCHMARKS Benchmarks are a necessary evil in B2B sales • They’re necessary because they help with comparison to industry norms and can inspire improvement • Evil because they are easily misinterpreted and/or cherry-picked SPRING 2023 .55

FOUNDER’S GUIDE TO B2B SALES To use benchmarks correctly: • Ensure relevant comparison set (e.g. by size, sales model, ARR size, capital raised) • Use benchmarks from multiple sources (to help find differences, deepen understanding) • Don’t just focus on the median, look at the distribution • Remember that metrics are a function of strategy and sales model • Variances can be offset (e.g. a high CAC could be justified by an exceptional NRR) Remember that many key metrics are hard to change • You are unlikely to drop your CAC ratio from 2.2x to 1.1x in a year • Think about convergence over time *Estimates, Benchmarks and Analysis based on our experience with leading European SaaS companies SPRING 2023 .56

FOUNDER’S GUIDE TO B2B SALES GLIDESLOPE PLANNING The below model does glideslope planning, where we create a long-term model and show our glideslope to converge to key targets over time. MICROSOFT EXCEL In this model we use multiple benchmarks, past actuals, the current-year plan and the next two year’s models to drive a discussion about key metrics, benchmarks, long-term targets, and our convergence to them over time. TO LEARN MORE ABOUT PLANNING • KeyBanc SaaS metrics survey by KeyBank • RevOps Squared SaaS benchmarks by RevOps Squared • Scale Up by the Numbers by Insight Partners • OpenView SaaS metrics by OpenView Partners • Scaling to 100M playbook, by Bessemer Venture Partners • Opex Engine benchmarking by Bain Capital • Sirius Decisions (now owned by Forrester) • Topo (now owned by Gartner) SPRING 2023 .57

FOUNDER’S GUIDE TO B2B SALES SECTION 09 APPENDIX 59 QBR metrics and analyses SPRING 2023 .58

FOUNDER’S GUIDE TO B2B SALES QBR METRICS AND ANALYSES Examples of key metrics tables not already presented in the previous sections. QBR Metrics, ARR Post-quarter meetings with exec team, sales management, and sellers to review the last quarter and plan for the next. As you scale, review by territory and/or region. QBR Metrics, Pipeline MICROSOFT EXCEL See video: Dave Kellogg, Executive in Residence at Balderton Capital, on how to build a marketing machine SPRING 2023 .59

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