A special repor t from Heidrick & Struggles in par tnership with the Alexander Group
How you can improve your cloud sales performance
Soft wAre PrActice
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As the software industry’s shift to
subscription models and the cloud
continues to accelerate, businesses have
been grappling with severe disruption to
their traditional sales models. In our special
report, we examine the wider business
implications of selling Software as a
Service:
• the trend towards “as a Service” in the software
industry places the buyer in the driving seat
• Hybrid software companies that sell through
traditional licence-based models are faced with the
daunting task of transitioning to “as a Service”
• “As a Service” sales models are shifting
the emphasis of sales activities more
towards pre- and post-sales roles
• Hybrids typically follow four phases in the
transition: Dabble, Adapt, Scale, and optimise
this report has been compiled from discussion
at the “transitioning to cloud Sales” roundtable
organised by Heidrick & Struggles in conjunction
with the Alexander Group. the main speakers at
this october 2016 event in London were: Kevin
tumulty, chief revenue officer at Nexthink and
former VP, eMeA at ServiceNow; Paul Vinogradov,
Vice President, Alexander Group; and Mark Zablan,
President, eMeA for Adobe at the time of the event.
Selling Software “as a Service” when a serious customer steps into a sports-car
showroom they have already done their homework.
they know the model they want to test drive. they have
researched their options on the internet, read up on
performance and specification in motoring magazines,
and talked to trusted friends and colleagues who will
have voiced their approval and offered recommendations.
consequently, the salesperson may need to spend little
time on the specific merits of the vehicle. instead they
promote the benefits of the ownership “programme”
and do all they can to ensure an overall positive
buying experience. increasingly, car dealers operate
their businesses by focusing on the lifetime value of a
customer, counting on add-on sales, service contracts,
and repeat purchases to meet their revenue and
margin goals. Most global software companies today
are no different; the move to “as a Service” has taken
hold in the software industry. whether the service is
delivered in the cloud or simply via a subscription sales
model, this shift is highly disruptive to the traditional
software sales model. Potential buyers are far
more engaged with the products they want
before the point of sale. Like the sports-car
enthusiast, they self-educate by accessing
company data, reading third-party research,
and seeking peer validation via social
media. they are much better
informed and in control of their
purchase decision; they are
in the driver’s seat. this
is the new “try-and-buy”
environment that software
sales leaders and their
teams find themselves in.
2 How you can improve your cloud sales performance
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Adapting your sales model to embrace the cloudBy every account, cloud sales are set to boom in the
coming years. According to forrester research, the cloud
software market is estimated to grow by 137% for the next
four years—some believe this is a conservative estimate.
to capture this growth, leading software companies are
completely redrawing their sales models; indeed, they
are examining and reconfiguring every aspect of their
sales operations to align to this new market reality.
Paul Vinogradov, Vice President, Alexander Group (AGi),
international consultants in sales management, presented
an overview of the findings from the company’s recent
2016 cloud Sales index. the study examines three
categories of software companies: 1) hybrid software
businesses that have traditionally sold using licence-
based models, most of which are in the process of shifting
to subscription and/or cloud-based solutions with various
degrees of success; 2) pure play, “born-in-the-cloud”
companies, which offer pure cloud-based Software as a
Service; and 3) platform and infrastructure companies.
2016 cloud Sales index Participants
Hybrid companies
Aspentech, Autodesk, Blackbaud, Bomgar, Broadridge
financial Solutions, citrix Systems, D2L, epicor Software,
eSignLive (formerly Silanis), Genband, Hobsons, intapp,
intuit, Ncr, Nice Systems, SAP, Symantec, t-Systems,
VASco Data Security, Veritas technologies, wind river.
Infrastructure/platform companies
cisco Systems, cloudera, Dell eMc, fastly, Google,
Hewlett Packard enterprise, Mapr, Micro focus,
Microsoft, opentext, ServiceNow, talend, VMware.
Pure play companies
Adobe Systems, ADP, Avalara, BlackLine, Box,
Brandwatch, ceridian, DocuSign, DoubleDutch, Dropbox,
financialforce, Linkedin, Lithium technologies, New
relic, optimizely, Salesforce, SAVo Group, workday.
the Alexander Group cloud Sales index for 2016—the
survey is now in its seventh year—sees many companies
searching for the best way to make a rapid jump to cloud
sales; meanwhile, the “pure plays” are nipping at the heels
of the hybrid/traditional licence software sales businesses.
Buying patterns are shifting away from the traditional
enterprise software sales pattern of landing a multiyear
deal to a landscape comprised of many smaller deals. “You
are seeing the number of deals almost doubling from
traditional models but the value of these smaller deals
goes way down. there is a new reality of how to grow
the business through a much faster velocity of selling,’’
noted Vinogradov. “Hybrids are losing market share due
to legacy sales models where reps are paid based on
large on-premises licence deals, when customers can
choose cloud-based ‘freemium’ trials, or subscription
pricing.’’ Hybrids are hoping to double the amount of
revenue from the cloud, and quadruple it in four years’
time, while the pure plays want to grow by 60% each year.
Vinogradov suggested that a land-grab is underway, and
not everyone will be able to expand at such “aggressive”
levels of sales growth. “it’s a really interesting time.’’
the disconnect between the c-Suite’s reporting
requirements and the evolving cloud-sales model
remains a critical issue; this issue requires the
attention of many software boards. the problem
is most acute with hybrid software companies
transitioning to the cloud since revenue recognition
practices for subscription revenues are very different
from traditional perpetual or term licence deals.
Sales leaders are now faced with this massive shift into
cloud sales over the next few years. this requires company
leaders to adopt radically different sales strategies. All
three categories of hybrid, pure plays, and platform
services need to build robust sales strategies that can
deliver high levels of revenue and also meet discerning
customers’ increasingly high levels of expectation.
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Sales investments shifting to pre- and post-sales rolesA key finding from the Alexander Group research is that
the salesperson is often excluded from entire segments
of the buying process, which has been expanded so that
it begins before and extends beyond the time when
the traditional field salesperson was usually involved.
today, buyers can more easily start the evaluation
process without the seller thanks to the rich abundance
of information online, including third-party research
and peer reviews. wherever possible, buyers want to
see and touch the product before making a decision.
free trials, case studies, customer journeys, and virtual
experiences enable buyers to range much further
along their buying journey without ever needing to
speak to a salesperson. consequently, companies are
investing more in pre-sales marketing and lead-nurturing
strategies to identify and influence buyers earlier in the
sales process. As part of these initiatives, companies
are deploying roles such as web Program Manager,
technically adept Lead Development representatives
(LDrs), and try-and-buy Program Managers.
A similar dynamic is happening post sale. As-a-Service
financial models typically call for high customer retention
rates, as well as significant upsell and cross-sell expansion,
so there is increasing focus on post-sale initiatives. the
Alexander Group study asked participants to forecast
their cloud business “out year” revenue: i.e., for every
$1 up front, how much should they expect in additional
revenue in the subsequent four years? Hybrids are
expecting $6.25 over this time frame, while the pure plays
are predicting $7—these figures do not include churn.
However, Vinogradov indicated leading companies
are achieving $9–10 or more. these expectations
have caused a significant shift in sales investments
toward post-sale efforts: customer success/experience/
advocacy teams, post-sales product specialists, and in
some cases, dedicated account management teams.
Traditional SW Sales Model
Emerging Cloud-Driven Sales Model
Done by Field Marketing
and Lead GenerationIT-Focused Field Hunter
Sales Manager
Done by Customer
Service and Partners
Renewal Rep
Prospect Engagement Close Post-Sales
5% 5%90%
15% 25%55%
Self-Learning / Web
Program Manager
Technically Adept
Lead Generation Rep
Try and Buy
Program Manager
Inside Sales
LOB-Focused Rep
IT-Focused Field Rep
Customer Success Roles
Account Manager – Upsell
Product Specialist
– Cross-sell
Legend: X% = % of Total Headcount Costs
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Transitioning to “as a Service” is a challengefor hybrids, the transition to “as a Service” subscription models is a major challenge. “it is a monumental task and the
cost of sales is challenging when it is a subscription model. it is absolutely brutal for the hybrids,’’ said Vinogradov.
consider the following cost and productivity benchmarks:
Cloud Transformation ProcessHybrids often lose market share when their strategy is based on asking their reps to simply close more deals to offset the
cloud-driven drop in annual contract value (AcV) per deal and thus in-year bookings.
Dabble Adapt OptimiseScale
“Toe in the water” “Learn and validate” “Put the pieces together” “Step on the gas”
Break EvenCloud Sales
Expense / Revenue
= 100%
ROI8 to 1 out-year
Customer Lifetime Value
(CLV) ratio over 5 years
E�ciencyLarge Pure Play Sales
Expense / Revenue < 20%
Per R
ep Sales Investment
Per Rep Licence Revenue
for the hybrids, the total fully loaded and allocated
cost per field sales rep averages between $600,000 and
$700,000 on an annualised basis. this figure includes sales
rep compensation, management, training, and some
marketing costs. this is acceptable within a traditional,
on-premises licence sales environment for the enterprise
segment, where rep productivity can be $2.5 million to
$3.0 million or more per year. cloud productivity, however,
is a different matter. while sales costs are lower, average
productivity per sales rep is significantly less, typically
between $800,000 and $1 million a year. this is a key
reason why hybrids remain reluctant to make the switch
to a subscription model: they face a significant dip in up-
front bookings while still carrying similar costs per sale.
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consequently, hybrids typically progress through four phases of transition as they migrate towards a fully subscription-
based model:
• Dabble, or “toe in the water”. cloud is talked about
in the c-suite, but the company is not ready to push
the subscription model—the strategic imperative
is not in place. Sales personnel are typically
paid pound for pound for both subscription/
cloud and traditional licence bookings.
• Adapt, or “learn and validate”. the company decides to
begin removing barriers to selling cloud/subscription
offerings, usually by providing sales credits on
cloud bookings, to attempt to achieve pay parity.
• Scale, or “put the pieces together”. this is the point
at which companies decide to emphasise cloud/
subscription sales; the organisation is comfortable
the model is sustainable and will grow. this approach
could involve deploying dedicated cloud sales teams.
• optimise, or “step on the gas”. the company is firing
on all cylinders: sales, delivery, and operational
capabilities are tuned in to grow and manage
the cloud/subscription business. Sales personnel
have separate performance metrics for cloud
business or are fully dedicated to cloud sales.
Hybrid Cloud Ramp Up PhasesHybrid companies move through the following change management phases as they ramp up their cloud sales models.
Dabble Adapt OptimiseScale
“Toe in the water” “Learn and validate” “Put the pieces together” “Step on the gas”
Characteristics
Strategy
Structure
Performance Management
● Increased solution revenue per account improves E/R
● Learning to consistently cross-sell / upsell
● Bigger Sales Ops role in sales optimisation
● Separate solution measures and quotas
● Learning to communicate and deliver solution ROI
● New specialist / support roles, but fuzzy rules of engagement
● New focus on building partner ecosystem
● Solution multipliers / accelerators
● New solution- oriented o�er messaging
● Fear of overinvesting (high E / R), creates vicious circle
● Product-centric training
● No solution focus in compensation plan or performance metrics
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Lessons from a hybrid sales leader
Mark Zablan
Mark Zablan is currently the chief revenue officer at
Sitecore, but in his previous role as President of Adobe
eMeA, he explained the company’s shift to cloud sales
at Adobe during the crucial transformational period in
their history (2012–2016). Adobe Systems started in 1982
when chuck Geschke and John warnock, two Xerox
PArc executives, took the print business and moved it
onto desktop publishing with PostScript, adding Acrobat
and Photoshop, thereby creating an industry segment.
After this came the digital marketing business. Adobe
was an industry-leading, high-flying company from
2001 until 2008, when it was still selling its software
cDs in boxes; selling perpetual licences with new
releases every 18 to 24 months had customers buying
new licences periodically and this kept profitability
ticking over. then, in 2008–2009 during the global
market meltdown, Adobe lost around 20% of its
revenue—the company was not winning new users.
in response, management decided to change the
business model in order to rekindle growth. the aim
was to reboot the recurring revenue model and reclaim
investor confidence in the business. Adobe piloted a new
business model in Australia, where a compact yet mature
market operates like europe and America. increasingly,
consumers were using credit cards to buy, so Adobe also
introduced this payment capability in the United Kingdom
and the United States. while renewals were vital, 38%
of clients in Australia were new users. the strategy was
modified so that any innovations, updates, or acquisitions
(such as Behance and fotolia) were immediately available
for download via the cloud for subscribers, who had
immediate access to new features and extra functionality.
“from our test model in Australia, we saw that the move
to a subscription model was going to work and we also
started buying [companies with successful] recurring
revenue models in the digital marketing space,” said
Zablan. “omniture was the first one, and this started
moving the business from the old cD model to delivery
in the cloud. there are only a few products that you
can still buy perpetual licences for, and we charge
premium pricing. if a customer really needs something
in a certain specialist industry there are exceptions that
can be made, but we turned everything off. there was
a burn-the-boats mentality that started from the top.
from the ceo down into every functional unit, across
every region, we were moving off perpetual licence to
subscription, and it was all to be delivered via the cloud.’’
in 2012, the move to subscriptions represented a major
business decision for Adobe Systems. “we made the
big shift. the ceo made the decision to turn everything
off. then the ceo and cfo did a good job going
out to major investors, telling them about the new
strategy, and preparing them for a drop in revenues.’’
Adobe started selling three-year enterprise term
Licence Agreement (etLA) subscriptions delivered
via the cloud, and revenues began creeping up.
in 2015, the company surpassed its 2012 revenue
figures. in 2014, 60% of the business was recurring;
by 2016 this had jumped to over 90%.
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Lessons from a pure play sales leader
Kevin tumulty
Like most SaaS companies, the Sales personnel focused
on three goals. Kevin tumulty, chief revenue officer
at Nexthink and former VP, eMeA at ServiceNow,
highlighted how the company grew sales as a SaaS
pure-play company during his four-year period.
ServiceNow has 3,200 enterprise customers and 4,200
staff globally; the firm went for an iPo in 2012.
when tumulty joined the company in September 2011,
sales were $110 million; by 2016 they had risen ten-fold
to $1.1 billion. However, as is common in subscription
models, clients typically sign for a three or more multi-
year term. for this reason, whilst needing to report
revenues quarterly, many cloud companies will measure
their teams on Arr (Annually recurring revenues) or
AcV (Annual contract Value), metrics that describe the
amount of committed subscription at any point in time.
However, it wasn’t all plain sailing: “the biggest challenge
we faced was that, for many customers, ServiceNow was
their first SaaS solution. once we had buyers interested
in our value proposition, we had many on their it side
who were worried about losing control because the
applications were on the cloud,’’ he noted. “when i
joined, i found a sales organisation who understood
how to position the value of the applications but really
couldn’t handle the objections to cloud around security,
scalability, resistance, loss of control,’’ he explained.
tumulty suggested it is also important to educate
investors about why a SaaS business is unlikely to be
profitable in the short-term. As an example, Salesforce—
the world’s leading crM SaaS business, founded in
1999—has only recently turned in profits after 15 years
of running a deficit on its march to acquire and grow
customers. ServiceNow was cash rich but took its many
costs up-front, which had a negative impact on profit.
equally, sales leaders need to be able to explain the
implications of the recurring revenue model and the
upfront investment often required to grow the business
so that customers feel comfortable. “it is important to
educate the sales leadership about this,’’ he emphasised.
in addition, he said it was critical to educate the sales
and pre-sales people, not just about the positioning
of the apps and the cloud infrastructure, but also the
issue of cloud security. in many cases, objections to
cloud were sent back to technical people who were
not in the best position to reassure clients about the
value, security, and scalability of the cloud. in other
instances, customers appreciated the services but
wanted the platform to be part of their own server and
internal data centres. Sales teams, frequently sought
to discuss how the company might accommodate this,
when really it was a case of explaining that SaaS was
cloud based. “we should have been saying: ‘Here is our
model. if it doesn’t fit with your business, it doesn’t fit.’
we spent a lot of time re-educating sales, pre-sales,
and customer support on how secure, scalable, and
resilient our system was market by market,” he said.
from a customer perspective, if they sign up for a
three-year term, they are expecting value from day one.
However, in some cases, it was taking up to 15 months
to get the system running at the optimal level. it was
a matter of explaining to the customer that they were
getting the service from the start, and this included the
cost of the infrastructure and data centres. it was then
up to the customer to decide when they would “go
live” with a new system. “our sales and service teams
needed to aid the customer to adopt our solutions
more quickly in order to realise value,” tumulty noted.
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the sales personnel had a commission plan based on
three goals: landing the targeted number of new business
customers; the percentage of business transacted with
existing customers; and the percentage of renewals. this
provided for sales personnel to both land new accounts
and expand the business within existing customers.
However, as is common in subscription models, there is
often a mismatch between the cfo’s requirements to
book quarterly revenues and out-of-quarter or out-of-
year subscriptions, which might last three to five years.
for this reason, many cloud companies track annual
recurring revenue, a metric that describes the amount
of committed subscription revenue at any point in
time. this is another example of how companies have
evolved business practices for the cloud and also how
they measure sales teams compared with older licence-
based models. “we have been going through this exact
transition at Nexthink where today all new clients engage
with us on a subscription-only basis,” tumulty said.
the Adobe and ServiceNow experiences indicate that, as
with any major business transformation, the transition
to the cloud requires strong leadership from the very
top. Additionally, they offer us three key takeaways:
there will be an inevitable lag in revenue and profitability
when switching from an on-premises model to a
cloudbased subscription model or during the customer
acquisition phase for pure-play start-ups. it is essential to
educate the market about this to maintain confidence.
the sales organisation needs to be in a position to
explain the implications and benefits of a cloud-based
subscription model to existing customers and new
prospects; at the same time, the sales organisation may
require education around addressing customer concerns
in relation to the cloud and to be re-oriented towards
upselling and cross-selling in order to maximise revenues.
Performance metrics and compensation plans
should reflect the switch to the cloud to maximise
sales force engagement, while financial reporting
metrics should ideally recognise the realities of the
switch to the new cloud-based business model.
About the authors
Chris Bray ([email protected]) is a partner in
Heidrick & Struggles’ London office; he leads the
firm’s software group in europe and Africa.
Kelly O. Kay ([email protected]) is a global
managing partner in the firm’s San francisco office;
he is the global leader of the firm’s software group.
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The Alexander GroupThe Alexander Group provides sales management consulting services to the world’s
leading sales organisations.
when clients need to drive sales roi and improve revenue, they look to the Alexander Group for data-driven insights,
actionable recommendations, and most importantly, results. founded in 1985, the firm has served more than 1,000
companies around the world and across all industries. this experience affords the firm not only a highly sophisticated
set of best practices to grow sales but also a rich repository of industry data that informs our recommendations.
the Alexander Group applies proven methodologies for evaluating sales organisations and delivering
insights and execution plans. Across all practice areas, every recommendation made is supported by rigorous
analysis of the relevant data, ranging from historical results to sales force attitudes and behaviours. the
sales and marketing solutions we recommend are specific, detailed, ready to implement. we help our clients
grow revenue and deliver roi by providing them a roadmap and support at a cost they can afford. n
Key contactPaul Vinogradov ([email protected])
is a vice president of the Alexander Group and a leader of
the firm’s international consulting Practice and
technology consulting Practice.
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