When asked whether he saw any pattern in the recently listed software co’s wrt sales efficiencies Tomasz Tunguz found one –
“All of these businesses sell bottom up with small initial ACVs that grow dramatically. Atlassian, Zoom, Twilio, Slack, New Relic, Elastic. All of them target small groups of users within larger organization who introduce the vendor. Over time, usage grows, accounts expand. Some acquire through open source, others through virality (Zoom).”
4 key questions arise in the process :
- In order to generate great NDR, does the business require a small ACV?
- If a business has a very good NDR, is sales efficiency the right way to analyze a business?
- To have a great sales efficiency number, do you need a great NDR?
- Do companies with great NDR spend materially less on sales and marketing (and is the theory proposed in the second question validated in practice)?
Simple explanations and analysis to each of the questions provided by Tomasz Tunguz will help you think through your approach to software sales. Can you go bottoms up with a ACV between 4.0k to 7k? Can these expand to the rest of the organisation to provide 100K+ ACV in due course? (Ref Slack has an ACV of 4.5K but 40% of its revenue comes from accounts generating 100K+ in annual revenues.) Also keep in mind the relation between growth and Net Dollar Retention (NDR) which essentially dictates how much of your revenue growth will come from expanding existing customers vis-a-vis new ones. A lower NDR will mean a significantly larger sales team and lower sales efficiency.
The conclusion : To build a business with top of the chart sales efficiencies “develop a product that is adopted bottoms up but that grow to $100k+ ACVs in a large market.”
Great read as always. And lots to reflect upon.
Read his article here:
HOW TO DEVELOP BEST IN CLASS SALES EFFICIENCY https://bit.ly/2wP5hkZ
Also read my earlier post on Jay Simons, President Atlassian.
The Low Touch Sales Model of Atlassian https://bit.ly/2WEDva1