InsightaaS: As followers of technology know (and as I've highlighted in a recent ATN), tech has entered a private investment/venture-fueled bubble. This causes entrepreneurs of all descriptions to look for ways to attract the attention of funding sources: edgy names and slogans, ginormous target market predictions, indicators of massive pent-up demand...
Most young businesses try to persuade VCs that they are worthy of funding (initial and ongoing) by demonstrating high growth rates. Is this really the right strategy? In today's featured post, venture capitalist Scott Maxwell of SaaS-focused VC OpenView Venture Partners argues that sound management practices, especially solid forecasts and accurate, consistent metrics, are actually the most important factors in a VC's evaluation of a portfolio company.
It should be pointed out that Maxwell's POV reflects his company's differentiator: OpenView advertises its success in helping portfolio companies to build sales processes on the home page of its website, and has published a guidebook to effective sales forecasting. The fact that he's reflecting a bias towards sales process doesn't invalidate his commentary, though - the goals he endorses are important to building a solid foundation that will enable a business to scale profitably and predictably, and in the end, that's what both entrepreneurs and their funders are hoping to achieve!
Hat tip to Mark Evans for highlighting this post via LinkedIn.
A few years ago, I interviewed a candidate for a VP of Sales position at one of OpenView’s portfolio companies. Truthfully, I wasn’t expecting to be overwhelmed by him (he didn’t have the best resume of the candidates the company was considering), but I walked out of the conversation thinking the portfolio company should immediately make him an offer.
Why the excitement?
When this person walked into my office, one of the first things he did was pull out his personal operating report, show me exactly how deals move through his pipeline, and explain how each salesperson on his team was performing against their benchmarks. Just as importantly, he explained how his system was incredibly effective at:
- Creating predictable sales forecasts
- Determining when to ramp-up resources at various stages of the sales process
- Enabling the recruiting and onboarding of top sales talent
I was sold.
When an executive can accurately predict results in each operating unit, it means less risk and a greater opportunity to scale a company without unnecessarily blowing through (or “burning”) capital. And this guy wasn’t full of hot air, either. Every reference check I performed only validated what this executive had claimed in our interview.
Really Want to Impress a VC? Show Us Accurate Predictions, Not Just Growth
As a business scales, missed quarters get more and more expensive. This is where growth can be deceptive.
Yes, growth is important. But to scale efficiently and intelligently, CEOs and boards of directors need accurate information from each operating unit...