The ROI from being able to move from a Sales to Revenue function
In our last article, we detailed how coaching has moved from being a niche area of a business executive to a mainstream norm, as well as the possibility of it being ubiquitous for all company executives. In this article we are going to look at the ROI (return on investment) of a coach and to understand why once people have started to use an effective coach they will often continue to use coaching in one form or another throughout their business life.
It is firstly important to distinguish that there are two types of value that coaching normally bestows on the coachee and the coachees business. The first is the economic or financial value and the second is the social and/or emotional value that is developed.
In our company, we often talk about the double bottom line. The first bottom line is the one that is normally talked about which is the financial returns and the build-up of the capital evaluation of a business. The second bottom line is the social capital or social value that is built up in the company. So just like, if there are more ongoing contracts that a company has, the more valuable the company would be valued at. So too, the more social value a company has the more valuable that company would be on a social level. For example, if the SMT has created a healthy and robust way of questioning each other during team meetings that can be taught to any new SMT members that would be a build-up of social value. So too if the company has a well thought out group of value statements that are not just written on a document somewhere but lived and practised in the company on an ongoing basis that would also increase the social value of the company.
One of the ongoing discussions is how can you measure and judge is how important the social value within a company is. This is far more difficult to do than judging the first bottom line concerning the financial value of the company.
ROI of Coaching
So, for a moment, leaving that discussion, of exactly how you can measure the SV (social value) of a company, what is the ROI of coaching? Let’s first start by taking the example of a CEO of a SaaS (Software as a Service) company that has just closed a funding round A of £5million. Often CEOs, although remaining with the same job title, have an equivalent of a promotion every 18 months to 2 years based on the fact that their company will expand and thus they will need an appropriate level of expansion of their skills and ability. Many CEO’s hit their Peter Principle (people tend to get promoted to their level of incompetence) when they move from one funding round to another as it is generally the case that after the successful completion of any funding round, one tends to use the monies to expand the size of the team, the quality of the Senior hires and have a larger degree of options relating to resource allocations.
One of the most effective returns on investments of a coach is to allow the CEO time to talk through and reflect on the various decisions that are facing them. In particular to talk through with somebody who has no other desire than to help the CEO make the right decision. As Warren Buffet has famously said ‘the CEO has two major goals, resource allocation and developing their SMT.’ Making the best decision in both these areas will significantly speed up the growth of any company.
In terms of the ROI putting the right amount of money in the right areas of the business at the right time is essential. So one of the key developmental processes for almost all SaaS companies moving from Round A to Round B is growing from having a Sales function to a Revenue function. In other words, in the early years of a SaaS company the goal is to produce a product that is useful and prove that they can sell it. As one moves from Round A to Round B, one needs not only to sell it, but also to have it renewed regularly and as one moves towards and past Round B then CES (customer success) needs to prove that a product can be upsold, and thus have a goal to keep the churn rate above 100% and if possible from 105 – 120%. The ability for the CEO to recognise this hire or train up the sales leader to become a revenue leader is an essential task and thus with guidance and conversation will be able to make this change at the right time.
Thus, not only will it only produce a better ROI in terms of the company achieving its goals as early as possible many companies fail for the single reason that they have not understood the necessity for creating an integrated revenue function.
Moving from Sales to Revenue Function
The second significant ROI of the coaching in relation to moving from sales to revenue is in the social value growth of the company i.e., many companies get frustrated when they see their bottom-line financial growth not accelerating and this has an impact on the culture and the social value of the company. By the CEO showing leadership explaining what needs to be done allows people to feel comfortable and confident within particular one of the most essential learning curves of CEOs is when to hire and when to fire. Frank Slootman (often suggested to be one of the world’s best CEOs) has suggested that he has never fired anyone too soon. This ability to recognise when somebody needs to go or hire above them is very difficult. As the decision to fire is filled with emotional unpleasantness especially if the individual has not done anything that wrong just is not able to perform at the highest level.
When the CEO can talk this through with their coach and thus recognise that it is right for the business and learn how to deal with the situation maturely and compassionately this creates greater stability and development for the company as a whole as people feel confident in their CEO and thus helps develops social capital.
In conclusion, we have seen in this article that when a coach helps a CEO move from a sales to revenue function they help to develop the double bottom line firstly to increase the overall revenue of the company and secondly to increase its overall social value. If you are interested in discussing how we could assist in developing the double bottom line please get in touch.