According to multiple studies, (CSO Insights, SBI, etc.), the average tenure of a Chief Revenue Officer is about eighteen months. So, if you are a CEO, find your desk, put up some pictures, add another experience to your CV, and make sure to keep close ties with your executive recruiters. It makes no sense, or does it?
Just do a web search for CRO, and you will find no shortage of articles on the importance of having a CRO. Sources like Forbes (Inside The Mind Set Of The Chief Revenue Officer or THE CEO’s NEW WEAPON, THE CRO). If the CRO is so important, why is their tenure so short? I think it can be summed up in one word, ALIGNMENT.
Alignment starts when the CEO and their Private Equity partners decide they need a CRO. They have to agree on the CRO’s responsibilities, the hiring profile, and what success looks like. The CEO needs to insure there is alignment with their executive team, and they need to make sure there is alignment with the candidate on the role and responsibilities. The organization also needs to make sure the infrastructure exists to support the CRO.
Alignment is not only the responsibility of the hiring organization. The candidate has to make sure they are aligned with the role and the responsibilities that come along with it. The CRO needs to make sure the organization, including the PE company, is willing to appropriately invest in the role, and that they are ready for a CRO.
If a company is going to add a CRO to the executive team, they need to understand that all things revenue sits with the CRO, such as sales, marketing, and customer success. Sales and marketing must interlock and be synchronized in their efforts, think “SMarketing.” If the CRO does not have oversite of customer success, this can be a death sentence to the role. Imagine you are growing top-line revenue, but you are losing client advocates, or worse, your churn is outpacing your sales. At the end of the day, the CRO is held to a headline number. If you aren’t making the number, for whatever reason, put an early call into your recruiter. Remember, when private equity buys a portfolio company, they have an investment thesis, a hold period (i.e. 5 years), and growth expectations. The CRO needs to find success early and often to stay in alignment with the investment thesis. The PE company has investors to answer to and if their hold period is 5 years, they likely want the business humming at the three-year mark so that they can take it to market in the fourth year and exit in year number five. It is an all-out sprint, there is no “fixin’-to-get-ready” period.
The role of the CRO is complicated. Often the CRO is looked at as the person that will take the company to the next level of revenue growth, and by the way, if the alignment is there and you have the right candidate, this will happen. If you fail to align, it is going to be a very expensive experiment.
Think about everything a CRO is or should be asked to do such as sales organization design, quota setting, building a performance culture, sales comp, recruiting, training, messaging, digital, web, tech, analytics, sales enablement, G2M strategy, customer success programs, etc. These are just some of the responsibilities and each of them likely has fifteen or twenty subtasks. Expecting the CRO to be successful in their role, without an organization that is CRO-ready, is a recipe for failure. Additionally, if the executive team is not in alignment with the role, the company is going to experience “the game of thrones” where everyone is working to survive vs. working to grow. It will get ugly, it will be distracting to the business, and there is no question, the CRO, who is easily measured every day, is going to fail. Conversely, with the proper alignment and support, the PortCo will reach and often exceed revenue expectations leading to a higher valuation, and a successful exit.
Earlier I mentioned that the CRO candidate needs to be sure they are in alignment with the role and responsibilities of the hiring organization. I mention this because roughly 85% to 90% of the recruiters, CEOs, or hiring PE companies I talk to see the role of a CRO as a VP of sales. I am amazed at some of the questions and comments I am asked about or hear about. If, as a CRO candidate, you are being asked about your Rolodex, run for the hills. Not to say contacts are not important, they are, but the reality is that you could sign every single contact up, (which won’t happen), and still not make your number. Another red flag is if you are not able to meet with the other members of the executive team. The new role is either being hidden from them or there is no alignment. During the CRO evaluation process, you should meet with the PE company as well. Understand what their investment thesis is for the company, and what their big levers are, and then determine if you have enough time and if the PortCo is ready and able to support the role of a CRO. If the company is inwardly focused and not customer-focused (look at the KPIs) the chances of lasting more than 18 months will be difficult.
When you think about what the largest and most successful private equity firms do differently than many others, you will notice that they provide their portfolio companies with access to their operational excellence teams. For example, KKR has its Capstone team, and Silver Lake, Francisco Partners, and Riverside all have operational excellence teams. However, it is not uncommon to hear some PE firms say that their portfolio companies are the experts and that “we are hands-off.” Of course, no PE firm is hands-off, but many don’t have operational excellence teams to help their portfolio companies. This, in my opinion, is a big miss. If, as a PE company, you don’t have the appetite or budget for an internal operational team, you can still develop a playbook and leverage partners like MStreet Growth, SBI, Gosling Media, Corporate Visions, Revenue Vision Partners, or Centrae. Budget these resources into the deal. The PE firm, the PortCo, CRO, customers, and investors will benefit from the alignment and execution that will take place. If you are a PortCo and don’t want the help of your PE partner, it’s not going to end well. If you had all of the answers, to begin with, you wouldn’t have needed their money. The easy solution is to just fire the CRO and deal with the fallout. The best solution is to get aligned and invest in success.