Episode 9: Matt Gallagher of Hg Capital
On How to Increase Sales Efficiency with Data and Strategy
On this episode
Shiv Narayanan interviews Matt Gallagher, Portfolio CRO at Hg Capital.
Matt and Shiv discuss how the Hg portfolio team prioritize revenue growth strategies that will move the needle most in the first months after an investment.
Learn about the importance of marketing due diligence as a foundation for scale and the metrics you should review to assess performance and potential, plus common areas of inefficiency in portfolio companies and how to address them.
The information contained in this podcast is not intended to constitute, and should not be construed as, investment advice.
- Hg’s investment philosophy and Matt’s role - 4.14
- Prioritizing between growth initiatives in the first months post-investment - 6.06
- Key metrics to assess go-to-market maturity - 7.40
- How to increase efficiency in portfolio companies - 11.13
- How Hg gets involved with annual planning to increase pipeline - 15.24
- Getting the right data to make growth decisions during the due diligence phase - 19.01
- Critical product marketing and messaging for sales success - 24.00
- The importance of having sales and marketing strategies in place - 26.37
- Finding the right hires to support portco growth - 35.29
- Matt’s book recommendations - 37.33
- For the latest information and data on Hg please visit: https://quarterly-update.hgcapital.com/2023/
- Learn more about Hg Capital
- Connect with Matt Gallagher - LinkedIn
- Mastering the 7 Essentials of High-Growth Companies, by David G. Thomson
- Fanatical Prospecting, by Jeb Blount
- The Challenger Sale, by Matthew Dixon and Brent Adamson
- The Challenger Customer, by Brent Adamson, Matthew Dixon, Pat Spenner and Nick Toman
- Tech-Powered Sales, by Justin Michael and Tony Hughes
- Who, by Geoff Smart and Randy Street
Click to view transcript
Shiv: Hey Matt, how's it going? Welcome to the show.
Matt: Hey Shiv, thank you for having me.
Shiv: Excited to have you on. Obviously, we've done work with HG companies, and HG is one of the biggest investors in the world. So, excited for the audience to learn from you and all the things that the firm and you yourself and your role are up to.
Matt: Of course, thank you for having me. Happy to share.
Shiv: Yeah, and so why don't we start with your specific mandate and a background about HG for the audience and then we'll go from there.
Matt: Sure. So HG - just real high level, we're one of the most active software and technology investors in the world. We're the third biggest PE firm overall in Europe. And overall we've got about 300 employees across five offices - London, Munich, Paris, New York, and San Fran. We're managing funds around $40 billion, and our funds have been oversubscribed since 2012. That's usually pension funds, insurance companies, endowments, and foundations.
We've got 48 companies. I might be off by a company or two. We're always buying and selling. Aggregate value across those of 102 billion. The valuations range. The small one - we've got the Mercury Fund. Those companies might be around 100 million to maybe 500 million in enterprise value. There's a Genesis, which is the middle, and then the top is Saturn, which is anything over 1.7 billion in enterprise value. And obviously the Genesis would be anything in between.
Shiv: And then, your role - is the objective to work with all of these companies across the board to help them create more enterprise value? Why don't we touch a little bit on that?
Matt: Yeah, so my role is within the portfolio team within HG. And then we've got a team - a growth team - as part of that, which is about 10 folks that are across functions like sales, marketing, revenue operations, and pricing. Now, given that we've got 10 folks, we've got 48 companies, we can't go deep into all 48. So we try to prioritize our time for where we spend, but a lot of our time is disproportionately spent on the newer companies in the first 18 months, you know.
Shiv: Right. And so that's a good area to dive deeper into a little bit. So when you're prioritizing, obviously, you know, first 100 days or the first 12 to 18 months is when the table is set for that company to drive value over the whole period for the firm. So I totally get that. But when you're thinking about the different avenues available, how are you prioritizing between those different initiatives? And is a lot of that figured out during the investment phase when you're figuring out your investment thesis for a particular investment?
Matt: Yeah, the portfolio team - not just growth, but a number of key functions in the portfolio team - are going to partner with the deal team during that due diligence phase. And we're trying to, one, be a lens, an expertise lens, a functional lens into the company. So we've got a cyber team, for example, that always wants to make sure before we buy a company that they're not at risk for some kind of cyber attack. We've got an ESG team that will need to make sure that the company is in line, and we've got a legal team, so on and so forth. The growth team that I'm a part of, we're really looking for both risks and upside. And the ideal situation is where we find a company where we've got great product market fit, but when we look at the growth motion, which again might be sales, marketing, partner, customer success, et cetera, is suboptimized. If you've had good success and you're not using all the best practices, experience has taught me and taught our firm that when you layer on those best practices, you can really supercharge a company.
Shiv: And so which metrics or areas do you look to to figure out the maturity in all these different domains when you're trying to evaluate the particular go-to-market? And a lot of the companies that you're investing in are also larger businesses, right? So they may have more than one product line or more than one business unit, oftentimes multiple business units. And so even between those, you might have one business unit that's more enterprise go-to-market and one maybe that's more transactional in the product that they're selling.
So, in that type of a complex environment, how are you looking at all the different areas in which you could focus on? And, obviously, you mentioned there's only 10 of you and there's 48 companies and the sizes are so large. And then each of those domains - whether it's marketing, sales, pricing, segmentation - is an enterprise in itself, right? So how are you prioritizing between those?
Matt: Yes, so you asked a couple of good questions there. One, naturally, when you've got a company that has either different segments or different sales motions or maybe different regions, you may need to break those apart and analyze them in isolation, because there may be a different story there. Also, possibly, you might have - might be the same segment, but maybe very different products you want to analyze separately. But when we're looking at those at a very high level, one, you want to look at the bookings, right? What's the new business coming in that's different than revenue, right? This is either a new logo, cross-sell, or upsell. Then you want to look at efficiency. Okay, so they're booking, but then what cost does it take to get there? Usually, that's sales and marketing, but maybe also partner costs that go in to drive that. You want to see a good ratio there. You know, 0.75 to 1 is a pretty efficient company. Believe it or not, if that efficiency gets too high, that's not necessarily - higher isn't necessarily better, because at some point you're probably leaving growth on the ground. You're probably leaving money on the table by not investing more if it's too efficient.
Shiv: When you say 0.75 to 1, which metric was that in reference to? I missed that part.
Matt: Yeah, you might call that the magic number sometimes online or a sales efficiency number. It's just bookings divided by all the costs that go into it, sales, marketing, and partner. We also like to look at, if you look at all of the direct salespeople, you just want to look at what their performance has been. How many of those sellers are at 80% to quota or higher? Assuming the goals are set right, the ideal is 80% of the sellers are at 80% or higher. I'll have to admit over the years, I've looked at a lot of companies, a lot that had very good exits and performed very well. I've never seen anybody get to that number. But if you're approaching that, if you've got more than half of your sellers at 80%, you're doing pretty well. You also want to make sure, are you paying your reps the right amount? Usually you're looking for - and that's you're taking their on-target earnings. That's what would they take home, the base end variable if they hit their goal at 100%. So you might call that on-target earnings. And you want to see what is that as a multiple of their quota. I'm sorry, the quota is a multiple of the on-target earnings. And that's just over SaaS businesses over the years. They've learned you want to see something around 4 to 5x there. Again, if it's too high, you may not be paying something competitively. You may not have the right goals, et cetera, et cetera. If it's too low, it's the other extreme.
So those are just an example of some of the core metrics that we like to look at. But really to get a picture of a sales team, you've got to go a layer deeper, and it just varies by company which ones you want to.
Shiv: So let's start with the efficiency piece because in a way that's looking at your payback period and all your acquisition costs, sales, marketing and everything else in between. So when you find a company that's inefficient on that - let's say they're either overspending or they're taking too long to break even or maybe they're too efficient - what steps do you take to get them to that efficient frontier that an organization should be at?
Matt: Yeah, so let's maybe use two different examples. Let's say we've got one where they're growing and then you see that it's inefficient growth. One thing I'm gonna look at is the role definitions that they have. Who are the different people that are touching the customer? In the old days, you used to have - I know I used to work at Vista years ago, they used a phrase called ‘one riot, one ranger’, which just meant the same individual of the company prospected into the company, sold them the first thing, owned cross sell, upsell, basically owned that customer until somebody died, or they left you. That tends to be inefficient. Whereas if you break that job up into different functions - one, because that's a really expensive asset doing all these different jobs. If you break that up into, you know, SDRs maybe doing the outbound prospecting and filling the funnel, maybe a closer who might be a hunter farmer, or maybe you split those two up, is doing the selling, as you'd say. And then maybe customer success, playing defense and focus on retention - usually those folks are lower cost and by specializing are actually better at the job. You can actually tend to get both more bookings and lower cost. That's like one example. Two, as you know, the hack that you find all the time in business is technology. There's - you know, I've seen companies before where salespeople are responsible for creating a lot of their own pipeline. Well, you know, do they have the right tools today? Do they have sequencing tools like an Outreach or a Salesloft? That tool - both of those and their competitors - there's a ton of efficiency. I used to do my own prospecting, I had to track it all in Excel. It was a major headache keeping track of what I had sent to whom, when, and timing it. I mean, I didn't worry about time, I should have. A tool like that is just almost like a personal trainer, making sure that someone's hitting the right activity at the right times with the right people and helping you get customization and scale. So that's just like one example. So technology and specialization can help with those costs. And then, second, you know, I always like to try to figure out how did you end up with the structure you have today anyway? What does the annual planning look like? I'd say the simple but less efficient approach is people just - how do we finish last year? Okay, we've got 15 sellers. Seems like there's enough market out there. Maybe let's add three more heads and see how it goes. There's a lot of companies that do that. What's much smarter is to take an outside-in approach, try to size the market, how many customers and prospects are out there, segment appropriately - again, to your end, to your point before, there might be big whales, medium-sized tuna, small guppies out there that in terms of customers and prospects you can go chase. Line up the team appropriately, make sure you've got the right pipeline sources going into each of those, and then figure out your role definition.
I find a lot of times there's a lot of efficiency there. And then sometimes companies maybe don't have strategies, tools and techniques lined up for cross-sell. Cross-sell in general tends to just be more efficient. It's easier. I think civilization has been built on farming, right? Not hunting, because hunting's hard. Farming - I'm not saying farming's easy, but it's easier than hunting for sustenance. Same thing in business, right? Calling the same person up, your win rate, I think, is two and a half - I think, on average across all companies - two and a half times as good going to an existing customer. You might already have the paperwork, MSA is in place, it's easy to get them on the phone. So, just - those would just be a couple examples of things you can do to unlock some efficiency.
Shiv: Yeah, let's dive a little bit into the annual planning, especially when there are complex environments with multiple business units and different sales targets. How actively are you connected to that piece of the business and the planning that goes behind that on the sales side, on the marketing side? And then how deeply do you look at the support required for the sales team, whether it's from a hunting standpoint or a farming standpoint, to be able to hit those projections? Like some of the things that we like to talk to our clients about is, well, you have your revenue quota, but as you start working backwards from that, it cascades into how many SQLs you need, how many MQLs you need, and ultimately how much budget you need to fund the programs that actually drive that pipeline in the first place. So how much work are you guys doing in that area?
Matt: Yeah, I mean, it can be - I mean, sometimes you go to a company and you check the metrics and you look at historic performance and you realize, hey, we've got a leadership team that's pretty good at handling this. We're not going to force ourselves on anybody on that front. Sometimes you find a team where they've got the horsepower, but maybe didn't have all the toolkits. And, you know, having nice Excel templates where somebody can really model out everything they're thinking of and do some scenario analysis, that connects to those efficiency metrics. So they can say, ‘hey, if we took one seller off the field and replaced them with two BDRs, like what might that look like? How's that gonna play out in terms of, you know, LTV to CAC or magic number, et cetera?’ Like we can provide the tools and some ideas. Sometimes they do that. And sometimes, you know, you've got a team, especially if you've got a change in leadership or maybe a vacant CRO or just a newer CRO, CMO, where we wanna develop them, we can actually go hand in hand with them. And you're absolutely right. One, you want to figure out buyer - you want to figure out, first of all, the size of your market. So you start with some commercial due diligence. You want to segment it - and that's always usually by, how differently do these groups buy? People tend to buy the same, you want to put them in a bucket; if they buy differently, or for different reasons, you put them in a separate segment. Each of those segments, you want to be leveraging, one, the amount of white space, greenfield there is out there, how much is there to go get? What's been our historic performance there? How often do we win? What's our right to win? Some of that's subjective, and some of that hopefully is evidence-based. Then you can - with some good tools - you can model out what's the right number of sellers. You want to sanity check that in terms of, based on the win rate that you've seen, how many opportunities are they gonna need to run it and have enough time? Again, do the right level of specialization.
And then to your end, where's the pipeline coming? And I've seen a lot of companies where that's an afterthought. And when it is an afterthought, it lands on the seller, right? If I'm a sales rep and you drop me in a territory and I don't get anything from marketing, I don't get anything from partner, I don't get anything from the BDRs, I still have a goal. Like my goal probably doesn't adjust accordingly. So sales teams and companies are doing themselves and sellers a disservice if they haven't thought carefully and aren't continually tracking how much pipeline they're giving to these salespeople. So those people are gonna have to get some of their own, right, and that's fine. But if you put some salesperson out, it's like you're sending a soldier out all on their own with a rifle with no support, it's probably not gonna go well. And I've seen at big companies, big multi-hundred million dollar revenue companies that don't have that figured out, and salespeople churn and that's expensive.
Shiv: How much of this work are you guys doing in commercial due diligence versus post-close, especially at the deal sizes that HG looks at? We know, just from experience that the larger the deal is, the faster the deal almost needs to close because of the amount of competition that's out there. So how much work are you doing during the diligence phase versus like actually once the company's in the portfolio?
Matt: Yeah, I mean, there's different phases to it, right? And I'm not an investment professional, so I don't know as much about that early part. But long story short, they always have a very big funnel. They're looking at hundreds, thousands of companies, which they whittle out for different reasons, and some of that's proprietary. But once you've got that, once you're now starting to dance, shall we say, with a company, maybe early on there might be some interaction that we're doing with the investment professionals. Can we figure this out? We might hand out a handful of questions that they might ask in early stages. But as soon as you get to a level where you're in the same ballpark in terms of what the enterprise value is gonna be, there's usually a period of either exclusivity or they're opening up a level of data. And then at that point, you wanna ask for the right things and maybe the company tracks all the things you want, maybe they don't. Usually they don't track everything that you want, but you're able to go analyze that data, build some hypotheses out, and then usually you get a session where you can ask questions to quantify that. But it's like the, you know, there's an old Colin Powell quote, which is you're never gonna get to 100% certainty in terms of evidence. If you do your homework, you're gonna get to like 60 to 80%, and then you can flesh out everything you can, you model out everything you can, but then at some point you gotta make a few judgments.
Shiv: And then from there, you start to make your decisions. Yeah, so and when you're looking at as you get access to more and more data, one of the things that we found is that B2B companies, even if they're sophisticated, they might be doing 100 million in revenue, but as complexity increases, getting great data about all the different areas that you want to get information on is sometimes even more challenging. And so how much of an effort are you putting into getting the right information out or setting up that baseline from a data standpoint, so that some of the other pillars of the business like sales and marketing can be focused on the right activities?
Matt: Yeah, I want to make sure that I'm answering the question. So some of it's during due diligence, you know, we do outsource and most private equity companies do outsource some commercial due diligence. And that's usually some, you know, 28-year-old McKinsey ninjas that are, you know, they're crunching tons of data. They're doing a bunch of interviews. They're taking assumptions and doing a top-down to size of market. And that usually helps you figure out how much is left to go get. I don't think any of that's proprietary. That's pretty standard. But then also once you've got it. Yeah.
Shiv: Yeah, that's more like this. Sorry, I was gonna say that's more like the TAM, SAM and SOM type of stuff, but in segmentation, but I guess more on the revenue operations side, customer insight side, the customer base and the segmentation, the upsell cross-sell opportunity, how much emphasis is there on data to get the right information out so that you're prioritizing the right activities and initiatives.
Matt: Yeah, I have found that some companies that are over $100 million don't have a good data set to work off of. You do see it. And so that's why companies like Dun & Bradstreet have done very well. Sometimes there's industry-focused data sets that can give you a nice foundation. All of that said though, the data set may not be the signals that you need.
Fortunately, there's - now when I used to work at Vista, they used to have the best practice where they would sometimes bring a bunch of interns in for the summer and just have them dial in for dollars, literally going down the list of companies calling in and asking key questions: ‘Hey, what ERP system do you use? How many folks do you have doing this? How many different bank accounts do you work with?’ And that's a hard way to go there. Nowadays, there's some more AI tools and we've got some proprietary tools at HG that our data team, which is - they're pretty incredible - where they're very good at scraping content sources online and able to get us some answers that, at scale, that are pretty incredible. Then the key is, how do you action it? It's one thing to hand a salesperson a CRM that has an account object they can log into that maybe has 50 different data points, but does a sales rep or even more so like a 24, 23-year-old BDR know how to action that data? So it's really wise to, at scale, distil that down to what's really important. And I would say that's how likely are they to buy and how big is the - what's the size of the prize if you get them. And that really helps you prioritize a lot of things.
Shiv: Yeah, and doesn't product marketing or messaging and positioning and things like that play a big role? Because enabling a rep like that at the front lines, they may have the data in terms of who they're going after, but what is the right messaging that they're putting out in front of the target customer? And is that aligned with what we want to say to those folks? So how much work is being done there to make sure it's a uniform experience for the end customer?
Matt: Yeah, I mean, there's a lot of software companies - and I'm going to generalize here. You have a charismatic founder who can go out and can sell. A lot of times, selling themselves. They go out, they've got all this industry experience, they got this vision for the company. It's like the book Crossing the Chasm. And you can win those visionary customers that way, but it's really hard to scale, and the majority of customers are not going to buy that way. With the majority of customers, they, one, need to see how this is going to be connected to their business objectives. You know, it's not just going to be the person who's hands-on-keyboard with the - you know, we work in software, but you know, hands on whatever tool it is that you're selling. They're not there to connect to some kind of business need and business objective. They're going to want some proof that it works. You're going to need some kind of a demo. You're going to have objection handlers. You're going to have competitors. All of those things. Very few salespeople are going to be able to come in without being given that and figure that out on the fly, right? That's a very low hit rate. So companies that don't enable their sales team with messaging, with training, with tools, will tend to have a really high churn rate for salespeople and they'll be frustrated and whatnot. Usually, companies get to a certain scale and they say, you know what would be much more efficient than having one in 20 salespeople work is, let's capture this information, let's have the tools, let's have a sales process, let's have the right systems in place. And then now you just need somebody who can, you know, can learn those stories, use those tools, and just is more responsible and hustles and good on their feet, you're gonna have a much higher hit rate on salespeople. You're gonna have a lower sales churn. You're gonna see way more sellers get to 80%, get to 100% that way. So you are right. Some of that is, what's the story? And you need a 10-second version of it, a 30-second version, a two-minute version, a 10-minute version, like a 30-minute version of your story for the different sales interactions you're going to have. And you're going to need an early version, which is to get them excited about the problem, not really talk about the product. You can need a middle where you really talk about the product. You need an end where you mitigate any kind of risks or hesitations that they have.
Shiv: Yeah, you said something really interesting that we've experienced too. A lot of companies that we run into, we find that like, let's say they have a symptom of a missed quota or missed revenue projections. Well, one way to diagnose that is that, well, we just didn't have a good enough sales strategy. But it could be that you had a great strategy, but you didn't have enough marketing support. That's one possible answer. Another could be that you just didn't focus enough on readiness and readiness could mean so many different things, including training for the sales team, having the right content for different stages of the journey, educating and training those reps to have the right conversations with the right segments of customers. And so we see that as a major gap that's often missed, and then either projections get adjusted or there's churn on the sales team. And before you know it, you're now doing a reset altogether and the company's behind the eight ball in terms of projections for the next year. So what's your take on that? And have you seen that story play out as well in the portfolio?
Matt: Yeah, I mean, I've seen - not necessarily at HG, you know, HG is my third private equity company that I've worked at, but doing a similar role. But I've seen all the above, right? So sometimes you can have salespeople that have a good story, know how to sell, know how to run a sales process, but if you just don't get them enough pipeline, they're, you know, they're not gonna hit their goal. Like at some point pipeline becomes your destiny in the short term. You know, if you've got a team that wins one in four deals, by dollar, you need 4x pipeline to hit. Secondly, you said you might be able to get in front of the right customers, but if you don't have your messaging right. And your messaging has to appeal to everybody who needs to say yes, and has to at least mitigate everybody who can say no in a deal. So those complex deals, those bigger opportunities, they're gonna land in front of a CFO or some finance person who's not a technical person, who's not using the tool, who does not care about UX UI. They're going to need to understand what the business rationale is and then they're going to prioritize it against the other places they're trying to spend money because money is finite. Bandwidth is finite. So that's - sometimes it's pipeline, sometimes it's the story. Sometimes it's execution. You may have salespeople that nobody ever taught them how to sell. They were hired, they were brought in - maybe somebody just gave them a pitch deck or they said, ‘listen to Gary, pitch, do like him.’ You need to tell people and teach people how to sell. And you need good manager coaching. So it can fall apart any one of those places. Or you can have a change in the product market dynamic. There could be another player has come in with a me-too product and is undercutting you on price. You could have another paradigm shift in the market. Could be that you need different integrations or different features are important to customers today. Whatever that. So you always want to take a holistic view. It's very easy to fire a sales leader. And a lot of people do. I think the average tenure for VP of sales or chief revenue officer is 18 months. And I think part of it is when sales fall, people hope that's the problem. Because it's a quick fix. If it's something else - but what I would recommend is if you've missed numbers, do a full diagnostic from product-market fit to pipeline, through to closing, to look at your install base, your references, to make sure that's the problem before you just throw somebody over.
Shiv: Totally. We've seen this on the marketing side too. The tenure of a VP of marketing is, or CMO is like 17 months. So if you look at those two critical roles on the go-to-market side, and they're churning in less than two years in most B2B companies, well, how much continuity can you have? How much institutional memory can you have? How much progress can you really make if that role keeps changing and you keep resetting the strategy? So fully agree. And then on the diagnostic side, everything that you said resonated. We've seen that on the marketing side as well where, yeah, you may have an aggressive target and it may turn out that you just don't have enough budget for your go-to-market plan to be able to hit those numbers. And oftentimes we find that firms are doing like a bottom or top-down forecast where it's a financial model. You look at it on a spreadsheet, you look at new bookings or new logos, cross-sell, up-sell, expansion, et cetera, and through that you get to kind of where you want to grow to, but we don't see it enough that there's a bottom-up forecast where you're really looking at all the different dials that go into driving the numbers in each of those different growth areas, and marketing's a part of that, sales is a part of that, customer success is a part of that, and it could be product and pricing and other things that are part of that as well that affect our ability to hit those numbers, so I definitely agree on the full diagnostic. In terms of HG, like how much do you factor in some of those bottom-up dials and levers before you decide what a realistic target would be?
Matt: Yeah, I mean, on the marketing side, let's say you're looking at a company and let's say that pipeline is insufficient, yeah, you're going to want to do a couple of things. One, you're going to want to do a ROMI analysis. Just say, okay, based on the budget that we have today, what are the different tactics that are used? What are the different segments, et cetera? What's been the return? Ideally, you find some kind of opportunity to rebalance because, you know, that would be budget neutral, maybe budget beneficial.
If you talk about adding additional budget, you're right, but in marketing, it's harder to just assume, hey, if we spend 50% more budget in this channel, are we going to get 50% more leads and are those leads going to keep converting at the same rate? So there is some science to it and some math to it, but then a good CMO is going to be able to size up the situation, apply the correct tactics, they're going to be able to give you an estimate of what it's going to take to get there, and then you're going to want to work in concert with leadership strategy and finance to figure out, is that worth it?
And sometimes it requires a rethink, right? I've seen before where a lead is not just a lead. Sometimes there's certain businesses where you need to win in a window of time, and you might actually need to catch customers, not just the right profile, but the right time. That's like that intent data that you'd see from like a 6sense or like a trigger.ai. So you just want to make sure that the tactics that you use fit, and there's other times where, hey, maybe there's like a partner we need that is going to know when the customers in a place where they want to buy especially if you're part of a - you're selling, say, some software that tends to happen during a broader tech refresh like an ERP refresh where you're gonna need to know when these ERP refreshes are happening, so you need some kind of data that you might be able to get from a trigger online, or maybe you're gonna need to be working with an SAP or maybe a consultant that handles those transformations, etc. So you've got to figure out what the tactic is and make sure that it makes sense given the business.
Shiv: Totally, and then ultimately it kind of comes to like an investment committee decision, right? You're looking at potentially more of an investment in marketing or sales or you maybe need more territory coverage or you need more farmers on the upsell cross-sell side and then you're kind of making a decision across the portfolio to decide if that's an area where you want to invest or where it's something else that's going to give you a higher ROI at the board level.
Matt: Yeah, I think one thing that's great about working with HG is, unlike some other PE companies, we don't force best practices down on the companies. So it's a collaborative approach. You're bringing the functional experts in, we eyeball and size up and do diligence on the company and come back and say, okay, based on our experience, this is what we've seen work elsewhere. But, you know, any given company, we might come back with 12 levers that we could pull. Now a good CEO that will partner with is probably going to look at those 12 and maybe say, ‘out of those, maybe three I don't want to do right now, let's maybe wait a year. These other three, I think I've got folks in-house that can handle this, maybe with a little guidance, maybe they've got the tools today, they just need the time, okay? But those, these final six, we could really use your help for. Let's do them in this order.’ And we'll work with leaders to do that. Because again, they work in that business every day. I've been on the operator side. You know, when you're.. it's great to get best practice and leverage from the outside, but somebody who's popping in from time to time isn't living in the business every day. So we definitely respect the expertise and the knowledge people have from going to battle.
Shiv: From living and breathing it every day, totally. And so to that end, like how much time is spent on getting the right leaders and the right seats in the business? And how do you go about that? And which areas do you normally focus on when you're looking at bringing in executive-level talent into these companies?
Matt: Yeah, I mean, our bias is towards the existing team, right? Because again, they've got the knowledge, but sometimes it's not the right leader. Sometimes the person that gets you from zero to 10 million in revenue is a very different profile from the person to get you from 10 to 100. Mark Benioff's don't grow on trees. I think he might be the only founder who's taken a company to the size that Salesforce is.
Shiv: One of the only few ones, yeah.
Matt: Yeah, there's not many. I'm probably missing a couple, but there's not many of them. So when you have to make that change, one, we always want to work with the CEO, with the board. And then we've got a talent team in-house that's very good at this. And I don't want to speak for them too much. But I know a lot of the process is figuring out, what is the job that needs to be done? Because sometimes you bring it in later, and you realize, hey, look, we've made a bunch of acquisitions before, for example, but we really haven't integrated them. So we need somebody who's really good at integrating different businesses and distilling that and harmonizing that. On the other hand, you might have to say, hey, look, we've gone direct and gotten to $60 million. If we're gonna get to 200 million, we're really gonna need a partner motion. Let's bring in a CEO who either has some of the relationships we need or has the experience building out a partner-led business. Those are just two examples. But, the point being, working backwards from the job that needs to be done and then using that to get the profile, get some good candidates, and then making sure that they mesh. And you always have to watch out for the talented a-hole problem, right? They've got to work with the other leaders. So they're always very careful to screen for any kind of personality issues.
Shiv: And culture fit, totally. That's great. Okay, well, I think that's a good place to end the episode, but before we wrap up, just what were a couple of books that you recommend either to your portfolio CEOs or for the audience that you would recommend as people are looking at sales readiness or trying to scale their companies or their respective portfolio companies, what would you recommend for them to read?
Matt: Sure. Yes, so for broader business, I love - I think it's called Seven Secrets of High Growth Companies. And it just - it was this long longitudinal study of companies that outperform their peers for multiple decades. A lot of great lessons in there, like, you know, at the top of the company, have an inside leader and outside leader as separate roles. That's one example. I really like that business. In sales and marketing, which is more my domain. Obviously a big fan of the Challenger books - Challenger Sale, Challenger Customer - I think very useful books. I think if you're trying to prospect for business, Jeb Blount's books are fantastic. I've got two sisters that are in sales, they both have copies of that on their desk. And right now I'm reading High Tech Sales, which is a great book to kind of, yeah, it frames up what your tech stack should look like and helps you prioritize and budget accordingly. So I'd say those are three of them. There's so many they love. And then on the talent front, you said, the book Who I think is fantastic, that's one thing that I was citing in terms of hire for the job that needs to be done.
Shiv: Those are all great. Yeah, those are great book recommendations. I fully support all of those. So yeah, we'll be sure to put those in the show notes. And if people want to learn more, we'll be sure to link out to the HG website and ways to connect with you as well. But thanks for doing this, Matt. This was a phenomenal interview. So thanks for taking the time.
Matt: Thank you. Thanks for the time, Shiv.
Ep.6: AJ Gandhi
6 Needle Movers for Organic Growth
How Marlin Equity Partners’ team of operating professionals create value in portcos with a hands-on approach to scaling revenue.
Ep.7: Vinny Prajka
How to Use ICPs and Segmentation as a Foundation for Scale
How portfolio companies can increase efficiency and grow sustainably with a more focused approach to sales.