EP176: Growth, Profitability, and Pivoting in Economic Turmoil
In this episode Corey Frank and Chris Beall discuss the impact of recent market shifts on businesses and the advice they would give to CEOs and CROs to adapt to these changes. With tightening debt and equity markets, businesses must focus on efficiency and go-to-market strategies to maintain profitability. Chris emphasizes the importance of go-to-market efficiency and being disciplined in investing resources wisely. Their guest, Ryan Edwards, Managing Partner at Prospeq, shares his thoughts on the investment side, highlighting that businesses should prioritize investments that drive revenue growth, instead of focusing solely on product improvements. In the face of uncertainty, Chris advises companies to aim for profitability and avoid making hasty decisions.
They also cover key metrics that businesses should track to stay on top of their performance. Chris suggests focusing on meetings per rep hour, net meetings attended per hour, and the net show rate as essential indicators of a company's go-to-market efficiency. Ryan emphasizes the importance of understanding client acquisition cost and lifetime value, especially for businesses with mixed revenue sources.
As businesses navigate these uncertain times, focusing on efficiency, profitability, and key metrics will help them maintain a strong footing and continue to grow. Join us for this episode, "Growth, Profitability, and Pivoting in Economic Turmoil."
In this episode, Corey Frank and Chris Beall discussed the impact of recent market shifts on businesses and the advice they would give to CEOs and CROs to adapt these changes. With tightening debt in equity markets, businesses must focus on efficiency and go-to-market strategies to maintain profitability. They are joined by Ryan Edwards, managing partner at Prospeq. He shares his thoughts on the investment side, highlighting the businesses should prioritize investments that drive revenue growth instead of focusing solely on product improvements.
In the face of uncertainty, Chris advises companies to aim for profitability and avoid making hasty decisions. They also cover key metrics that businesses should track to stay on top of their performance. Chris suggests focusing on meetings per rep hour, net meetings attended per hour, and the net show rate as essential indicators of a company's go-to-market efficiency. Ryan emphasizes the importance of understanding client acquisition cost and lifetime value, especially for businesses with mixed revenue sources. As businesses navigate these uncertain times, join us for this episode, growth, profitability, and pivoting in economic turmoil.
Corey Frank (01:41):
Welcome to another episode of the Market Dominance Guys, with Corey Frank and the sage of sales, the profit of profit, the Tom Cruise of sales, that's the new one, and the Hawking of Hawking, Chris Beall. Chris, how are you today?
Chris Beall (01:55):
If I were any better I wouldn't have bothered to come on with you, I'd just do something else.
Corey Frank (01:59):
Well, the lighting is just perfect today. Very, very soft. Barbara Walters like lighting today. We have a special guest on his way. Welcome, Ryan Edwards. Ryan, good to have you. I'm going to edify you a little bit, Ryan, and embarrass you. In addition to Ryan being co-founder and the managing partner on the tech and venture side over at Prospeq, which is a venture lending bank, he spent almost 15 years at Silicon Valley Bank in the latter half dozen or so plus years in charge of the Southwest. And of course he's very active in the community here in Arizona with his chairmanship and support for Invest Southwest. So welcome, Ryan, to the Market Dominance Guys.
Ryan Edwards (02:39):
Thank you. Appreciate it. I'm glad to be on here, Cory.
Corey Frank (02:42):
By the way, I see the swag on your left sleeve there, if I'm not mistaken, in the camera. So you are representing your former peers at the bank?
Ryan Edwards (02:50):
Corey Frank (02:51):
So I figured we could start. Chris, what do you think if we just a review of the basics of what happened at SVB because obviously you have some your colleagues over there, you have some folks that have been affected, and you have a lot of investments active in prior investments here in the Valley and across the US that still use SVB. So right from the horse's mouth, what's happened in as a tech investor and as a CEO or as a CRO for an organization? How should I take this series of events?
Ryan Edwards (03:21):
Well, I think that there's a lot to unpack with that. How should you take that as a tech investor in this ecosystem is one thing like what happened over there is kind of whole other story. I obviously was not at Silicon Valley Bank for the past close to a year now, so I'm not necessarily in the weeds of all the things there, but I certainly felt like the dominoes that kind of fell as that thing transpired with the way that SVB communicated was pretty poorly on their investment strategy that I think was a bit flawed and problematic with the market, but I think that it was not necessarily a reason that they would've gone out of business or gone to the point at least where they are.
I know they're not technically out yet, but I think that the more important point there, I think, is around how this is going to impact things because SVB is the largest lender in the venture space, they're also the largest company working with venture capital as well as venture funded companies. So the biggest impact and the biggest concern I have as kind of someone who's involved in that ecosystem is around, does that get replaced and who comes in to replace that? And at this point I would say if SVB completely goes away at this point, which we're still not sure if a buyer comes in or something else changes. If they were to completely disappear, I don't think there's anyone currently in the market that will come in and replace that capital when you talk about half of the deals in venture being done out of that location. So I think that creates a significant void right now over the next probably year, but I would say likely multiple years before even some of that can be replaced.
The banks that are kind of stepping in right now and taking the deposits, I would say almost none of them want to fill much of that void, if any of it. And so at this point you sort of end up in a situation where a lot of companies that were reliant on capital and follow on financing and things through debt has just gone by the wayside. Not to mention SVB did also do a lot of direct equity within venture funds in the market too, where they had fund to funds, investments and other things where they were directly involved with a lot of funds and capital going on that side too, which I don't think that's going to hinder the overall venture capital market, but I do think it's notable that they were making a lot of those investments as well.
So to me, the biggest concern is around how many companies that are reliant on continuing to be funded, continuing to rely on some of the debt that they were getting through SVB, and if that disappears, I think that we see a shrinking of the market in the near term because of that lack of capital.
Corey Frank (06:00):
Before we went on, Chris, you were chatting about how... And Ryan, I think you can buttress this is that funded tech companies tend to sell to other funded tech companies, Chris. And so with that, what do you see as this reciprocal effect with sales cycles and impacting other business functions, et cetera, from your perspective?
Chris Beall (06:22):
Well, it's interesting. I mean one of the phenomena I've seen, and I've been at this, I don't know, the first tech company I did was in '84. So I go back a little ways working with Kleiner Perkins, I don't know who we were banking with, can't even remember back then, but been with SVB a couple of times. Looking back, I've always been nervous with any of these companies when I felt like we were selling not just other tech companies but other kind of go-go companies. I've never been in one of these, put the pedal down sort of things except maybe requisite technology where we did it a different way anyway. We did this 120 million deal with SAP for a source code license that replaced a couple of rounds of financing and let us do what we wanted.
But even then, here's an example, the B2B marketplaces went crazy as a concept in 1998, 1999, 2000, Ariba was suddenly worth 64 billion as the first of the companies to go out and go public to ascribe for 64 billion of value to Ariba when SAP was worth something like 10 billion was absurd. When you come right down to it, it was craziness. And the idea is, "Hey, this particular thing," in this case marketplaces, but we have these over and over and over, "is going to take over the world. It's going to be everything." Those companies tend to get heavily funded, and as a result, the popular concept ones and as a result they become attractive to sell to. And the lesser tech companies that are making, I'll call it the sort of tools, the tooling, the things that are more service like maybe they're looking to get pulled up into these companies, they tend to sell to those heavily funded companies because it's easier, they're funded, they're run by people who quite frankly have never done cash management in their life.
I mean if you were to ask me what's the weirdest part about venture capital, the weirdest part is that we actually write checks to these companies. It's like flipping the car keys to an 11-year-old having shown them... You keep them up three nights and you show them how hangover and hangover part two, and then if that doesn't work, you show them fast and furious, then you flip them the car keys and you make a bet that they can get to New York them back from San Francisco before the other battle. That's kind of what it's like in a 28-year-old who's founded a company, the odds of them being a great cash manager exactly zero. There's no chance they're even thinking cash management. Cash management starts and ends with, I put it in SVB, I'm done.
Ryan Edwards (08:53):
That it's interesting you... I'm sorry to interrupt there, but I mean I think a lot of... if you look at the data on founders, that perception of the majority of founders being 20 something is kind of still out there, but I think if you look at the data, most founders now at this point are a lot older honestly, that are especially the ones getting funded. So the ones that are getting that capital and being told like, "Hey, let's see if you can do it." Most of them are kind of more in the late 30s and 40s age now if you start to look at some of the data, so that 20-year-old in a garage mentality where they just rate got $20 million from Sequoia just because they had a cool idea, I think is definitely a rarity compared to where it was when you looked back in the late 90s or early 2000s timeframe.
Chris Beall (09:42):
I mean there's always been changes in this. I mean LJ went over at Google. Pete called me one day to say, "Hey, we're Google, right?" And I said, "Yeah, LJ, I get it." And says, "So we know everything." And you know that I said, "God, what is... like some disclosure statement?" He's such a good friend. It's like I'm still listening. He says, "I just want to let you know that ConnectAndSell over at Google. We've assessed every company in Silicon Valley and you're the most interesting company in Silicon Valley." I said, "That's most ridiculous thing I've ever heard. We're not even funded by an EVCs." And he says, "Well, that's not what's so interesting. What's so interesting is that you're old." And I said, "The company not that old. It's like 14 years old." And he said, "No, no, not the company. You human beings are really, really old and therefore unfundable, nobody in the Valley would fund you because you're like..." At the time I was like 64.
We'll be back in a moment after a quick break.
ConnectAndSell. Welcome to the end of dialing as you know it. ConnectAndSell patented technology loads your best sales folks up with eight to 10 times more live qualified conversations every day. And when we say qualified, we're talking about really qualified like knowing what kind of cheese they like on their impossible whopper kind of qualified. Learn more at connectandsell.com. And we're back with Corey and Chris.
Chris Beall (11:16):
Great. This is of no value whatsoever, but it's amusing. I'll try to remember it. My age, it's a little hard because memory goes... well, I wish I could remember where it goes. So I guess my point is though, it's interesting when you look at Silicon Valley and you think about how it works, it's much more of a highly correlated system than we tend to think when we're creating investment portfolios that are robust against change.
So they're selling and buying to each other. There is banking of all sorts, including a bank actually like Silicon Valley Bank investing directly in companies indirectly fund to fund through lending, doing wealth management for founders, all sorts of things. LOCs, we had our LOC there, all that kind of good stuff. And when you think about it, it's like did anybody really know how correlated it all is for real? Really, how correlated it is? And then in doing that analysis, and I'm thinking regulators should do this kind of correlation analysis because it could be important with banks. Did they look ahead and say three years ago and say, "So, what's the situation like if interest rates go from zero to some other number? What would happen?" I'm sure somebody was doing that, right? I mean they had to be, weren't they?
Ryan Edwards (12:38):
You would think that most of the banks would look at that sort of thing that most of the banks were having those decisions of, "Okay, let's run sensitivity on all these different types of scenarios, especially where rates were." I know being at SUV for as long as I had been there that there was discussion constantly about when rates go back up. So it feels like that was certainly within the sector I was in, which is more focused around loans and how that impacts loan portfolio and everything, but that's obviously the revenue generator for the bank in a lot of ways.
So how did that impact them on the other side and the balance sheet side and the deposits? So obviously you have to start paying more for deposits and the adjustments on that side. I think that... I know that discussion and that thought process is happening there and I'm sure it's happening in all the banks, but I don't know that clearly at SVB they were not doing a good job of, well, how do we manage the deposit book in investment side because they went out real long on some investments, and T-bills, and things that just didn't make sense compared to what would happen in the market.
I mean I think it would've been understandable if they had done that with a small percentage of their assets that they were investing, but clearly they had 90 billion of investments into some T-bills that were not probably the smartest things to put in for the timeframes that they had them set up to. So I'm certainly confused at how that went through and I'd love to get the story as we continue forward over the next several months, or maybe it's a year or longer before we get all the details. But I really want to understand how that decision making's happening. And then I think why you're seeing all the other bank stocks dropping is because people are realizing that nobody's really involved in these banks right now. So all of them could be doing that.
And I'm guessing it's similar to VC whereas you mentioned, VC sort of its groupthink, right? Where they go, "Oh, well, I like this sector, and well, I do too now." And everybody sort of goes, "Well, that's the cool sector, now, lets all invest in ChatGPT because that's what's out there." And then you kind of go into with the banking side, I'm sure you have all the banks talking to each other about, "Well, what do you invest in and what should we be in? We're in this T-bill thing and you have all those investment advisors having discussions with each other around a lot of the large banks too." And so they end up going to similar assets as well.
So I think that's why we're seeing the fear-based stuff in the stock market now is because I would guess that a lot of them are having those similar conversations with each other because they want to feel like I'm doing what everybody else is doing. So how much of that was done that way and when are we going to find out about other banks that were also copycatting each other because of this mentality that, "Hey, rates are probably going to be going for a while, let's get some money invested."
Corey Frank (15:26):
What do you think as a CEO, Chris and Ryan, especially your perspective Ryan on investments, what should a founder CEO, CRO, what type of pivot should I be adjusting to? Should I double down on my tech stack investment to try to get more with less? Do you see additional headcount right sizing? Do you see, "Listen, we've got to diversified and we got to penetrate new markets"? What is some of the advice that you would give? Because I got the debt and I got the equity markets pretty locked down and tight and restricted for now. So all I have besides debt and equity is I have revenues. So what type of advice would, Chris, you and Ryan, give to these CEOs and CROs to pivot and adjust?
Chris Beall (16:10):
Wow. I mean I've always given the same advice to them, which is efficiency has unusually high yields over time and especially go-to-market efficiency. I mean it's always shocking if you really work the numbers and you know me, I'm an old math guy, you work the numbers on go-to-market efficiency and you work them over four or five years. It's generally you could avoid an entire round of financing just by paying attention to your go-to-market efficiency, which is not normally done in venture finance situations. There's go-to- market speed, can we scale? I hear a lot of talk about scaling even before there's traction. There's pseudo traction that people get into. So pre chasm traction, which they think that means something. Every pre chasm dollar you get is a delightful ruse. It's making you think you have a market that you don't have and gulling you into investing in that market, you need to, I think, be very disciplined around those kinds of things.
But most of the money that goes into these companies is for go-to-market, and most of that go-to-market money in my opinion is wasted just because it's go-to-market's incredibly inefficient. And I think there's also a question of speed with the company that I don't want to name, but I chant that I ended up with at one point we didn't have any money. The previous folks since had the spending rate up to a couple million a month and we had nothing. And it was considered by some people to be an impossible intractable problem. It's actually a simple problem. We describe it in one of the episodes. It's like figure out what's coming in on a flow rate basis, figure out what your gross profit is from that and cut your company to that expense level.
Now you have infinite runway. Okay, take a deep breath and figure out what you're going to do from there. But the dream that somehow you're going to round that corner while your tires have lost traction. And if I just hang in there, I'm going to make it. I wouldn't advise that, especially right now where your next funding of any kind is highly uncertain, both in terms of size and in terms of timing. I mean, my advice is get profitable now. Which by the way, pretty much any company can choose to do. It's just a choice.
Corey Frank (18:24):
Ryan, what do you think?
Ryan Edwards (18:26):
I always think that, I mean, the investment side and what you're going to push forwards is what's going to drive the revenue piece the best, right? So you mentioned kind of basically product improvements, engineering stuff, things like that, proficiency. Of course there's a desire to get more efficient, but is that going to drive more revenue and better revenue or things like that, what you're doing? I think a lot of times people invest a lot in engineering and product changes and things that they're not certain on what the improvement is going to be.
And that's where I think the problem is. That's an easy decision when you're early and you have almost no revenue that people are like, "Oh, I want to improve the product or make it. I got to get your product ready to sell, of course." But I think as people are growing and scaling, I think there is a lot of times that too much capital is spent within that pivot, changing the product, adding a new feature and things like that, and not enough in how do you be efficient in your sales, your ad spend, your what you're going after to actually acquire the user and your customer base. So that's I think where customers are not there.
And then to your point, Chris, as you kind of said, I think there's been a significant shift to that profitability focus because capital is not feeling like they can just throw money everywhere and it won't matter. So the growth rates are not as big of a focus as they were. I think people now want to see, "Well, I still want you to grow, but I want you to grow efficiently and prove to me that you can grow with less money and without having as big of a burn." And I think that's where the challenge is, is nobody's done that for so long because we've been in this 10 plus year cycle of faster growth and grow because the outcome is going to be a higher, if you can worry about the growth and who cares how much you're losing because as long as you're growing fast, I'm going to pay you a 10, 12, 20 X multiple on that growth rate versus paying you on profitability.
There's just so many businesses that are not built that way anymore where profitability is the focus because they've been taught that if you want the biggest outcome, nobody in that space cares about the profitability. They care about the growth rate and the size of revenue you've gotten to.
Corey Frank (20:33):
Well, I know you have to run here, Ryan, I'm sure your phone's ringing off the hook with you and Philip over at Prospeq with a q.co, if you want to get ahold of Ryan and his team. But last question, are there any key metrics in this new world, in this new era that I should be tracking from my business, especially as you and Philip and the team are looking that maybe CEOs, CROs aren't tracking today?
Ryan Edwards (20:57):
I don't know about that they're not tracking today, but I think that a lot of the stuff on the acquisition cost side is becoming even more important. Where I think the client acquisition cost has always been something people are focused on lifetime value, client acquisition cost, especially within SaaS companies. But I think that I run into a lot of companies that don't have a great grasp on that, especially companies that don't have 100% of their business in SaaS where they're selling something else, or maybe they're selling a product, or they're have a service component, or other things. And I don't think they always have a great grasp on what it's actually costing them to bring on their clients.
So without that information, you really can't determine what you should be selling for. Are you ever going to be able to be profitable? Are you able to scale with what you have? So those really digging into where you're getting your clients and how much it's costing you to bring them on, no matter the business that you have and what product or service or software that you're selling, I think is really important that I've seen a lot of businesses that don't have, I think, the best understanding that.
Corey Frank (22:03):
Well, when the dust settles, we'd love to have you back on again. We're going to cut you loose. And, Chris, we're going to continue the conversation here if we will. So thanks for joining the Market Dominance Guys, Ryan.
Ryan Edwards (22:14):
Chris Beall (22:14):
Yeah, thanks so much, Ryan. I think all that business is going to come to you actually.
Ryan Edwards (22:20):
Hopefully we'll be able to scale quite a bit. It'd be nice.
Corey Frank (22:23):
That's all right. Okay, we'll let you go. Chris, same question for you. When you look, especially your very metric driven organization, certainly at ConnectAndSell, one of the new gold standards that we've adopted here that we got from you a few months ago was average demos, average meetings per hour per rep work, which is a good one. In this kind of a new potential tectonic shift that's happening. What are some of those other metrics or keys that I should be tracking that I have the residue, I just don't have the visibility or the KPI created that I should be watching this, my odometer, my speedometer, my oil pressure, my gas tank. What are some of those that you see?
Chris Beall (23:07):
Well, I mean I think meetings per rep hour is actually... Let's dig into that one a little bit because I think almost nobody looks at it. I think it's number one, maybe two and three when you're really trying to figure out are you in control of your go-to market. And by the way, there's two ways to look at it, there's meetings per rep hour on a per rep basis, which is a rep performance indicator, and generally is determined by conversations per hour times conversion rate. And then you've got to net that out, so it's actually net meetings attended per hour. And so now you've got to bring in what are you doing about your rescheduling? We have podcast episodes on this subject. Cheryl Turner was on saying, I Heart No Shows. Well, you only heart no shows because you think it's a great opportunity to get back ahold of somebody that you've spoken with before, having advantages you didn't have the first time when they accepted the meeting and now they didn't attend.
So I would put that under the general heading of, are you processing your exhaust in a way that maximizes the return on all the hard work you did to get the exhaust? And I think a lot of times we look at exhaust like its exhaust, it's gone. People who design cars with turbos in them, they don't know it's not. I remember as a kid, I might have mentioned this on an episode once, maybe I didn't, but as a kid I read Harvey McKay Swim with the Sharks. And I still remember reading that and I was probably, I don't know... Do you have it around somewhere?
Corey Frank (24:35):
I probably have it around here somewhere. Yeah.
Chris Beall (24:37):
Yeah. So it's a very engaging book. Harvey's incredible leader, and writer, communicator. And I remember reading as a kid, something that really shocked me and I thought about it a lot, which is the money to be made in the envelope, business is not in the envelopes, it's in the non square or non-rectangular cuts that you have to make to make an envelope. It's in the scrap paper. You're going to have an immense amount of scrap paper in the envelope business because envelopes are not... they don't come off a roll, right? You got to actually cut these funny shapes and fold them up and then you have scraps. So how much money do you make on the scrap paper? That was his point is that's the differentiator in that business. Whoever sets that up the best makes a business out of their scrap paper, paper does really well.
Well, in the world of B2B, our scrap paper is what happens to the, let's say 93% or 94% if you're running a pretty good shop of conversations that did not lead to meetings. And the simplest metric to get off of that, the number one is, well, how about the ones that did lead to meetings that weren't held? Okay, so what's your processing rate on that? What's your success rate? How many of those are being spoken with every day? And there's a metric out there that is very rarely tracked, which is your net show rate. So almost everybody looks at growth show rate. I scheduled a meeting with Corey, did Corey show up to that meeting. This is all part of the wonderful shortsightedness of sales.
I mean, in the world of sales, we look at this quarter and then we look shorter than that. Now we're down to this meeting and they didn't show up and now I'm offended. Screw that. And they're out of here. They're disqualified. So that's number one, because the value is so high. One of our guys, John T McLaren, when he calls personally, he makes the company about $240,000 an hour.
Corey Frank (26:34):
On his no show list?
Chris Beall (26:36):
His no show list.
Corey Frank (26:37):
On his net no-show list?
Chris Beall (26:39):
At his no-show list. So that exhaust is processed to the point where it's actually very high value or, and it tends to be discarded by most organizations. I have actually never, in all the time I've been a ConnectAndSell, run into a company that already had a defined, and executed, and measured process for calling no shows. It was catches catch can. If the meetings with Corey, Corey takes care of it. If meetings with me, I take care of it.
Corey Frank (27:11):
Because we already know they picked up once. And so why wouldn't you have yet another serendipitously powered conversation? Because they're probably going to pick up again and you can have a deeper conversation because you already have the moral authority in that, as word from the-
Chris Beall (27:28):
The deeper conversation you can have is, "Hey, I see we had something on the calendar for yesterday at 9:00. Something important must have come up for you, when would be a better time to talk?" It's like the ultimate sales conversation you cannot need. It has every dimension you're looking for, including the call to action built right in because, well, there was already a decision to act together. You're in a collaborative mindset at that point and you're not offended, you're just moving forward. Same thing with everything that happens other than an appointment set, are you reprocessing it?
So for instance, everybody who says simply no or hangs up, say one of your people calls somebody, it's a two second non-conversation. The prospect hangs up or the prospect yells, "Don't ever call me again." And hangs up, but they didn't really say, don't ever call me again like don't ever call this number again. They were pissed. What do you do? Well, it cost me a lobster dinner two, one night to convince one of our reps what you do, which is its just a conversation. You put them in your list, you put them out, I don't know, two, three weeks, and then you talk to them and you say, "Hey, when we spoke on this date and we spoke back on the yards of March, you didn't have time for a conversation, is now a better time?" It's a very simple script. It gives them the benefit of the doubt. You're not backing them into a corner. You're not saying anything bad about them. They've forgotten you already. They forgot you a long time ago. And what's going to happen as a result? You'd be surprised. I mean, you wouldn't, but most people would be.
So fact of the matter is you can't be efficient if you throw away most of your input on the first attempt to process it in sales because if you're processing through ambushes, you have a pretty serious problem, which is most of what you're going to get back is an ambush response, not a response to the potential value that you could provide. So you kind of have to keep going and work through that. So those are two things. The third thing that I would pay attention to is here's your investment in sales or in sales and marketing. Stuff you are doing, proactive spending. So it's all speculative by the way, anybody who thinks the spending on sales and spending on marketing is not speculative, doesn't know what the word speculative means.
So you are speculating that this spend is going to turn into future business. You have some notion of what the cycle time is from any given sort of outbound motion, attempting to call somebody, or whatever it is, to finally getting some sort of a deal. Fact of the matter is all of those cycle times will be different. So what you end up with is what we call a flow rate. At some point you have a flow rate of meetings that are happening, so that's an interesting thing that's going on. Well, take that flow rate of meetings, which is just it's a flow rate. I like it as meetings per day that are attended and then say, "Hey, am I measuring that flow rate?"
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