The Corporate Organizational Structure of SaaS

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Recently, I had someone ask me how they might think about the organizational structure of their SaaS startup.

Here are some lessons I learned over my 25 years working on the operating side in what started out as small, private start ups (Oracle and Siebel Systems ) but turned into large companies – along with my experience working with many early and mid stage SaaS companies as an investor.

  1. Who the CEO elects to have as direct reports tells customers, employees, business partners, and shareholders what matters to her/him and what she/he believes is critical to the company to succeed. So, choose your reports carefully as you are signaling to a lot of people what is important to you.
  2. More layers between the CEO and the people who execute the business model can slow down decision making and reduce the speed of execution of the company. I have found that lackluster execution is what usually kills most start ups. CEOs are usually CEOs because they have excellent intuition and the ability to analyze data and make good decisions quickly. Relying upon others to “interpret” data and report on it may slow down and introduce sub-optimal decision-making (subjective decisions by lower level staff that may not be as experienced as the CEO or have ‘political’ agendas).
  3. The people who are responsible for executing the business model should be direct reports to the CEO. For a SaaS business model, this means the following:
    1. VP Marketing – responsible for the initial creation of revenue through demand generation (top of the funnel) and “future” revenue; revenue from future sales periods.
    2. VP Sales – responsible for delivering “in period” revenue via direct sales – inside and field sales
    3. VP Support – responsible for ensuring the product works as marketed/sold
    4. VP Service – responsible for implementations – if critical to the success of converting “contracted” MRR to “realized” MRR as projects are delivered
    5. VP Products – responsible for specifying a complete product that meets market requirements
    6. VP Engineering – responsible for building and delivering a complete product
    7. VP Customer Success – a “new” exec position critical to the SaaS model responsible for the bottom of the business model funnel – I wrote about this role previously in my blog . This role is responsible for making sure customers are happy and using the product every day (1 customer success rep for every $1M ARR is best practice). New products such as Totango are this function’s new “system of record” and the CEO’s window on usage metrics which is critical for renewals and reduced churn. You spend a lot of $ to acquire customers (CAC ratio), you need to make sure they stay as customers or the SaaS model falls apart.
    8. VP Finance – among many things, responsible for the accounting and collection of revenue
    9. Optional – VP Alliances/BD – if you need to interface with many different ISVs to deliver a complete solution
    10. Optional – VP Channels – if indirect sales is a key part of your business model

In my experience, a CEO and/or a GM,  should be able to handle 7-10 direct reports if each of those reports are A players and run their organization effectively.

In terms of process, what worked best for me as a divisional GM – modeled after successful executive staff meetings I was a part of – was a weekly meeting where each of my direct reports was required to cover what was accomplished the prior week and what was expected to be accomplished the following week — along with the usual review of revenue forecasts and financials.

Typically, for the forecast, we covered key deals for the quarter, and a WEB (Worst, Expect, and Best) revenue number and the critical elements required to achieve the forecast. By having all the functional leads in the room, we could quickly surface issues – product, deal terms, support issues, etc. – and collectively put together a plan of action to resolve them.

During each weekly meeting, as issues materialized, we generated a “resolution plan”, assigned owners and due dates and then reviewed the issues captured in the plan each week until they were resolved.

Each week at the overall Exec Staff meeting I attended, I covered the major metrics generated from my division’s weekly staff meeting.

These things worked for me so perhaps they will be helpful to you as you think through the optimal structure for your organization and its decision-making.

Why “Organizational Behavior” Was My Most Important Collegiate Course

I didn’t know it at the time. In fact, when I took it, I thought it was a complete farce.

Maslow’s “Hierarchy of Needs”? Are you kidding me?

I was majoring in Engineering and taking calculus, physics, chemistry…you know, the serious stuff meant for serious students. But, to graduate within some reasonable amount of time (where “reasonable” was defined by my parents), I needed some additional elective units. So, I decided to take one of the only classes that wasn’t already filled and would satisfy the requirements for me to graduate; this turned out to be a class called,  “Organizational Behavior”.

I looked up the description of Organizational Behavior which read something like this:

“The study of the way people interact within groups. Normally this study is applied in an attempt to create more efficient business organizations. The central idea of the study of organizational behavior is that a scientific approach can be applied to the management of workers. Organizational behavior theories are used for human resource purposes to maximize the output from individual group members.” Source: Investopedia.com

“Oh my god!”, I thought. “Is there any way I can get out of this boring, irrelevant class? Is this a legitimate/real subject?”.

Fusing Collaboration Into Enterprise Applications – Enabling the “Real” Social Enterprise

I, along with many of you, have been watching the evolution of enterprise internal collaboration products/companies such as Yammer, Chatter, Jive, and Cubetree over the years.

I was an early investor in Cubetree which was acquired by SuccessFactors and then became part of SAP when SAP acquired SuccessFactors a short time later. SAP has since renamed Cubetree to SAP Jam and it now serves as the backbone to SAPs collaboration strategy.

These products are supposed to mitigate – eliminate ? – the need for email within the enterprise and dramatically improve internal collaboration offering far easier and superior ways to capture and share information v. email/spreadsheets, etc.

However, if you can get the product managers and/or CEOs of these product/companies to speak candidly off the record, with rare exception, the adoption level of these products has been far less than the creators and the companies that purchased these solutions had hoped for.

Why? I have a simple thesis.

The Affordable Care Act – A Potential Solution to Assist Enrollment

Let me start off by stating that I find the Affordable Care Act (ACA) — known more commonly as Obamacare — to be objectionable.

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Not because I disagree with some of its intentions; I am actually in favor of eliminating discrimination for pre-existing health conditions and the ability to keep children on the parent’s health plan until 25.

The problem I have with it is that healthcare isn’t currently a right granted by the Constitution. And, the ACA approaches healthcare from the standpoint that it is something we are all entitled to.

Testing the Big Bend Theory: And the Winners Are….

Last November, I wrote an article posted in PandoDaily titled, “A VC wants startups to move to Bend, OR so he can incubate them.”

I have been traveling to Bend on summer vacations for many years. It is a fantastic outdoor community located in Central Oregon with around 100,000 people in the town and surrounding area. If you like to hike, bike, camp, fish, raft, ski, or drink incredible microbrew beer, Bend is your kind of place.

Over the past 10 years, however, Bend has been quietly transforming from its sleepy recreational roots into a burgeoning high-tech community with senior executive Silicon Valley transplants, a tech accelerator an annual venture conference, data centers from Facebook and Apple located nearby, and more than 40 software companies in and around town.

Dino Vendetti is a transplanted Silicon Valley VC who now lives in Bend fulltime. He and I were connected through some mutual acquaintances and began to strategize on how we might get even more startups interested in moving to Bend.

Why? Because Dino saw an ecosystem for tech startups starting to form, and he believed that with some help it could flourish, bringing more stable jobs to a community where people value education, family and a healthy lifestyle. Thus began his mission to develop and nurture this ecosystem in Bend, recruiting people like me to a play a part.

So, Dino and I came up with an idea for a contest. We called it “The Big Bend Theory.” Our objective: to introduce and recruit top tech talent into the area.

We opened the contest to anyone with a high-growth startup, or an idea for a startup. We asked entrants to send us their pitches and tell us what they are doing and why Bend is where they should be doing it.

We offered to treat a few entrepreneurs from the winning companies to an all-expense-paid weekend in Bend, giving them the opportunity to experience Bend for themselves and to see if this might be a place to locate their company, employees, and even families.

If they should choose to relocate their businesses to Bend, we offered to provide temporary tech space (at no cost), assistance with getting their team and families settled, and help in their funding efforts.

After reviewing 30 qualified applications from entrepreneurs around the nation, we made some difficult decisions and whittled it down to four winners. Originally we’d planned to select three, but with so many good candidates we couldn’t resist awarding a weekend in Bend to four entrepreneurs we think have the vision to contribute to the community – and a company worth investing in.

Today, I’m pleased to announce our four winners!

Company: TheSphere – www.thesphere.comCEO: Charles Armstrong
What they do: The leading platform for 360º content. Its technology is backed by 20 pending patents and is reaching the market through partnerships with companies like HomeAway, Sony and Samsung.
Why we chose them: “Insanely great” 360º video technology.

Company: AdStage – www.adstage.comCEO: Sahil Jain
What they do: All-in-one advertising platform for Facebook, Google, Bing, and LinkedIn. Why we chose them: Leading edge LinkedIn advertising platform.

Company: Aria Systems – www.ariasystems.comCEO: Tom Dibble
What they do: Help companies around the globe using its cloud-based, enterprise-class platform for subscription and usage-based billing.
Why we chose them: Part of the InterWest portfolio. Interested in moving an entire function inside the company to Bend, reducing ability for others to recruit key talent away from the company.

Company: Stealth
CEO: Eric Bahn
What they do: We can’t tell you but trust us, Eric is a pretty cool guy with some great ideas.
Why we chose them: We could tell you, but then we would have to kill you, which would ruin the whole thing for everyone.

On March 13th these winning entrepreneurs and their significant others will fly up on a direct 50-minute flight from SFO to the Redmond, OR airport that is just a 20-minute drive from downtown Bend.

Everyone will stay at Bend’s suave Oxford Hotel, and we will kick off the excitement with a networking event on Thursday evening at The Loft, a private social club in the heart of Bend.

On Friday, our guests will have the opportunity to meet with some of the talented software entrepreneurs headquartered in Bend along with key business leaders, educational leaders, Silicon Valley transplants, and real estate professionals. This should give everyone a better idea of what Bend has to offer beyond clean air and uncongested roads.

On Saturday, the visiting entrepreneurs and their guests will enjoy some of the fun outdoor activities that have put Bend on the map (and drew me here in the first place), followed by another exclusive networking event that evening.

On Sunday, we will wrap it up, everyone will fly back to SFO, and our hope is that some of these entrepreneurs will be inspired by what they experienced in Bend.

Dino and I are very excited to host this event. We believe we have some great people representing some great companies that would make great new additions to the thriving tech culture that is heating up in Bend.

The Big Bend Theory started as an experiment to see what would happen if you introduced really smart people to a growing tech community. I’ll let you know how our experiment goes after we meet with a few of the companies next month.