Paul Stansik, ParkerGale Capital | The Sales Metric Playbook: A Private Equity Guide to Measuring Sales Growth

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Paul, great to have you here today on the Karma School of Business podcast, and maybe as a little bit of background for everyone here. We know Paul and we know his firm, Parkergale, really well, and I think we and others very much appreciate your firm's approach to a private equity. But b How you all, in a pretty unique way, put things out there that you know and that you've learned for others benefit. In very much the same way. We also try to. And that's kind of the reason behind this Karma School of Business moniker that I named years ago. Because it's just like, do good things with and for good people, and life tends to go in the right direction.

Amen, and that's probably for me chasing my tail way too much as a young kind of punk and eager to achieve medals and ribbons. So one, I'd encourage all of our listeners they should be checking out Parkergale's private equity fund cast. And also Paul in what he writes. He prolifically puts content out there, so follow him on LinkedIn. We'll put that in the episode notes to see some of the things that he's sharing.

But maybe before we jump too deeply into some of the thoughts and perspective and insights on sales that you have. I'd love to get just a little bit more of your origin story, and so can you share that with the group here?

Our investing team handles all the classic PE stuff finding, executing, monitoring the companies. From a financial perspective, they're the ex-bankers, the ex-consultants. They spend most of their time looking at 100 companies for every one that we decide we're going to partner with. And then there's me and the operating team, so we're the in-house value creation team for the portfolio.

And we like to say we're here to help our companies finish the work that the founders started. So I run the growth practice. I spend most of my time working with our CEOS, CMOS, CROS to do things like train their teams, position their products, monitor their performance, build campaigns and plan of attack. And basically figure out how to find our next 100 customers. And in terms of the origin story, I've had a lot of different jobs, I mean, I started in the retail world.

I played professional sports for a minute, I ran a couple sales teams, somehow snuck my way into Bain Company for a five-year apprenticeship. And what it actually means to be strategic. And yeah, I think the two experiences that I draw on the most as I approach this gig, which is the weirdest job that I've ever loved, is running a sales team. In an era where there wasn't a lot of technology enablement and wasn't a lot of process, it was very much. Hey, here's a phone and a machete. Now. Figure out how to go make money, come out of it. And stepping in as the first BDR for what turned out to be a pretty successful research business. So I think from that experience, I learned how to connect with customers.

I learned about product positioning, I learned how to take advantage of those precious opportunities that you have when you actually get in front of somebody who just might buy. And then my experience at Bain taught me structure. That was really the first time in my career that I had to open, excel or crunch numbers. Or convince a skeptical executive that, yeah, there's something wrong with your business. And yes, there's value in fixing it. So when I look back, I'm not sure I would change much.

And when I think about the combination of learning how to connect with people and wake them up to a better way of doing things inside their business. And structuring that story and structuring and engagement to actually make that value creation happen, those are the two experiences that I draw on the most.

But it's not just like in many ways, in some ways, the deal team is kind of like this linear path, and operations is much different.

And, more importantly, what should you be looking for if you're looking to grow your team? So I've done some writing, which is more of a attempt to make sense of. Like I said before, the weirdest job that I've ever loved. And I think one of the reasons that I enjoy it so much. But it is very unique is that it's really four jobs in one, right? Like, if you're an effective operating partner, you are the keeper of the standard. Like, you have to have an opinion of what good looks like and an ability to convey that opinion.

You are kind of a strategic diplomat. It's not enough to know the answer, you have to create agreements that move the business forward. You're there to keep score. Because one of the things that we help our companies the most with which I think we'll talk about today is metrics, reporting. And just having a really objective view if you're winning or losing. And you're also there to create a unique environment that just nudges people towards value creation and improving things.

And I think that environment is equal parts supportive and demanding. And I think the fun part of being an investment partner, maybe a founding partner who's thinking about what does my operating team need to look like? And what should we be asking people to prove to us that they can do is? Each of those four jobs is important in a different proportion, depending on what you invest in, what the culture of your firm in, and what your personality is as a founder. So I just think it's going to be really fun to watch and even more fun to be a part of these next few years. As we all collectively figure out, hey, this operations thing is a thing. What is the best way to make it work in general? But also in the set and setting that every PE fund provides?

And one thing I think it's been ingrained in most people in private equity now, and even in traditional PE. Outside of tech, is that growth is the number one correlate to creating value and enterprise value at exit. And so one of the things I really like about what you've done here is you've put out this sales metrics playbook that I think is extremely insightful. And by the way, at Blue Wave, we're already incorporating elements into our own business process.

They know the information is there, they just aren't using it, and I like to say, they're kind of using the data like a defense attorney uses evidence. It's only there to get them out of a jam, right? So my take is being data driven. It's not about ignoring your instincts, it's about bolstering them with a more objective lens into what's actually going on.

And my approach is it starts with picking good questions and then selecting easy to get sources of information that objectively answer those questions and help you make better decisions. That's it that's all being data driven is about, so if you buy all that, what really sets up the ability to be data driven is the believability of the data. Like, is it actually reflective of what's going on inside the business?

Is it clean? Because without that, essentially what you're doing is creating an unreliable narrator. I think data is only as good as the conversation it creates, but the converse is also true a conversation is only as good as the data that underlies it. Hence, it should be clean. And so, in my world of growth and go to market, this is mostly about three things.

It's customers, prospects and pipeline. And if we have to dig in and actually kind of scratch and figure out and sort through invoices and figure out who's actually a customer, what they're paying for, what the terms are, what's going on with that customer, what's the context? That's not great, and if we don't have a defined list of who we're going after. And the pond that we're planning on fishing in to catch our next hundred customers, that's not great. And if our pipeline data, the stuff that we believe might turn into customers in the next quarter or two? If that's old or stale, or sloppy, it's difficult to help the sales and marketing team decide where they should be focusing. So they kind of work together like a data driven manager isn't just living in a spreadsheet.

They are supplementing their natural business instincts with a more objective lens into what's going on, and it's important to keep that lens clean. Hence, making sure the information is believable and clean, and reflective of what the business is actually performing like.

Are we creating enough new opportunities? How's the sales team performing? What does our top of funnel look like? What are the deals that matter most? Like, you're already answering those questions.

You're demanding to answer those questions, otherwise you wouldn't be a PE backed executive. But it's choosing the metric that answers that question. And the art of being a little bit closer to objective versus subjective. And getting in the rhythm of consuming that information every week, that's how you become data driven, but that's what most people miss, I think, is that it starts with a good question.

I love that Clayton Christensen quote. I think it's without a good question, a good answer has no place to go. And I think too many teams start with just putting their arms around a lot of information and building the dashboard and loading up on KPIS. And they kind of lose their North Star, which is. There's an important question here that, if we answer it well, is going to tell us something really important about the business. And allow us to take a stance on what to fix next. I think part of my role is just helping our teams remember to not forget that question.

It's just kind of what do you have to believe as well? And the data tells a story and does that story make sense, and so our data, people here, it's like, look at that data.

Does that make sense? Is that a story, does it answer the story that you think? And in two things, one is either the data has lost calibration, or two. Where you know, there's something that we got to peel an onion back on multiple layers. And so I think this using data to answer questions, to tell stories and saying, does that story make sense with what you're believing? Which will lead you either to data quality or further, like further exploration.

Right, but I think the data-driven management team out there recognizes that their KPIS, their metrics, they're reporting their data. It's only useful insofar as it helps them take stances, and those stances might be, hey, timeout. Let's pick this back up in a couple of weeks because there's something else that's more important. But the important thing to me is the explicitness with which they take the stance.

It's either, let's go run to this fire, because it's the most important thing. Hey, let's deploy resources against it. But it's somewhere lower on the priority list, or for some reason, let's wait and see.

What do you mean by this and why is it important?

And that's a little bit of a rah-rah speech, but it's also something we believe in deeply here. And we think great businesses and great investments are built block by block, a week at a time. So really, the only question that matters for us as investors and for our management teams is, did you have a good week or a bad one? And here's the problem with that most founder-owned businesses don't have a way to answer that question, not objectively, at least, right?

They've got a CRM, they've got dashboards, they've got regular updates from the sales team. But they don't have an easy way to tell and to know and to take a stance on if they're on track or off track, they can't tell if they had a good week or a bad week. So, as a result, what happens? Conversations about sales performance devolves. The management team spends hours listening to anecdotes about the stuff we all see. Because, you know, I'm a recovering salesperson. I love to tell stories, too. Prospect meetings details about the proposal in the weeds discussion about how excited someone is about this thing in the pipeline.

It's very hard to tell if you're improving things overall, and it's very hard to tell if you're on track to hit the quarter. If the conversation stays at this storytelling level, right? And we like to say, you can't fix a secret. So how do you help these things bubble up? I think it's a two-part test, and the first part of the test is the question that you're asking about.

So how can you tell if you're having a good week? If you're giving yourself a chance to hit the plan for this quarter, meaning you're converting enough of your pipeline to revenue, you're having a good week. So this is about abundance, right? It's about having the right amount of pipeline coverage, which we'll get into the weeds on in a second. That's test number one if you're giving yourself a chance to hit this quarter.

Test number two is about the future. If you're creating enough new opportunities that you can close later on, you're also having a good week. So that's what we built our playbook around, the simple reports that answered those two questions. Not with stories and not with anecdotes, and not with details about individual deals, but data. That tells you in a very Julius Caesar thumbs up, thumbs down way, whether you're on track or not.

So how do you tell if you're on track for this quarter? Well, how much pipeline do you have? what quality is that pipeline? how is it moving, and how does that compare versus your bookings target for the quarter?

So we like to use a metric called to go pipeline coverage, which is basically, I'll probably screw up the math. And this is bad radio, just talking through it. But it's your bookings target, minus what you've already booked, and then you divide that by your overall pipeline. And it's helpful to have a rule of thumb, because every business is different.

And some businesses need one times pipeline coverage, and some businesses need eight times. But the rule of thumb that we use in our portfolio just for the purpose of taking stances is if you're below three times, to go pipeline coverage at any time in the quarter. That's kind of a oh, crap, what are we going to do about that? To catch up? And if we're above three times, you know, three, four or five times coverage. That's where we can start to say, hey. We have an opportunity to get out ahead of the target and make up for the, you know, the shortfall that we know we're going to have at some point in the five year investment.

Right, so, rather than the classic, Hey, we got it, we got it, we got it, we're going to hit the target. Oops in week 12 of the quarter. This will tell you objectively and with a picture of how the pipeline is changing. Whether you should feel good or bad about hitting your target and allow you to take a stance on what to do about it next.

Because if you typically convert a 5 of your pipeline in this quarter or the first quarter. Like, well, you kind of just got to bear down and deal with it. But if you have a chance to catch up, then it's time to look for things like pipeline that closes fast, pipeline that you can reheat, expansion opportunities in the existing customer set, things like that. So there's far more technical things you can get into about how a pipeline goes to booking, goes to revenue. Those are more accounting questions that I try to stay away from. I think the most interesting lens to look at it through is you create pipeline.

Your average sales cycle is not the cycle that every deal closes. Like everything in life, it's a distribution, and understanding that distribution can help you do a lot of useful stuff. Not least of all, predicting what you're going to actually close this quarter before the quarter starts, and setting really useful, really specific pipeline creation targets. That, again, give you a really helpful rule of thumb on whether you had a good week or a bad week.

I think the piece that we missed when we first started doing this a few years ago is we weren't thinking about the inception. Problem of good reporting and making this digestible and easy to talk about. And something that the team uses in their weekly management team meeting every week. This is part of the reason that I start with that data diet question is it just tees up the conversation in a different way? Especially for a team that's just getting into a rhythm with using numbers to track what's going on. It's like, Hey guys, we'll talk plenty about KPIS and metrics and all that soon enough. But let's just talk about what questions are most important for you to answer every week in your team meeting, and how you're answering those questions today.

And then we'll have a conversation about how we nudge that a little bit more, on the spectrum of objective versus subjective. But in the early days, it's just getting into a rhythm and kind of doing the conversation every month. And as we do that, sliding them into not only being more comfortable interpreting the numbers, but more comfortable using those numbers when we're not there. I would contrast that with our best teams, our most data driven teams. We're having the same conversation in a monthly commercial review that they have every week as a management team.

So what are they doing? They're pulling up? Hey, how do we feel about this quarter? How do we feel about next quarter? How's the sales team doing? Are we creating enough new opportunities?

What are the new campaigns that we're rolling out, how are those working? What should the sales team expect, and what stances should we take about whether those things are red, yellow or green? And what I notice is that when we start having the same conversation that the team is having when we're not there. Everyone is way more comfortable being more vulnerable and using those forums for what they should be for, which is not a pass fail test.

It's a problem solving session, so the best ones of these. The team will send the report in advance and say, Hey, all the numbers are there. Tell us if you see any hot spots you want to discuss. But there's a big, gnarly strategic topic that we want to talk about, so let's speed through the metrics as fast as we can.

So you guys can help us solve this thing that we think we have an answer for. We just want to make sure that we're not missing anything. And I'll also add that as a way more fun conversation than just doing the death march through the slides. And not really getting to the heart of the matter. Because I like solving problems way more than I like reviewing KPIS, but the crux of this job is that the KPIS lead you to the most important problems to solve.

So going right back to the first idea we talked about, are we having a good week or a bad week? Like, what is that number of opportunities where we're giving each other high fives and saying, Hey, we did it? versus that number of opportunities where we say, Hey, we're a 10 handicapper in golf? But we just went out and shot 95 like we got to go tune something up in the old swing, right?

So, yeah, I think it comes down to, are you creating enough? and then the operational question, whether you're getting better at creating new opportunities. It's just what does that trend look like? And this is one of those areas where you just have to accept that life isn't linear, and neither is your sales funnel. So new opportunity creation it's not a smooth thing, right? It happens in fits and starts, and no single week in isolation matters all that much.

What matters is whether you're getting consistently better at creating those new Opti's over time. And so we like to use a moving average for that. Because when you have that nice, smooth line, if it's going up, you're getting better. You are becoming more skillful at finding new customers who might buy from you, and if it's going down, you're in a little bit of a lull. And you got to go figure out, hey, where should we? Some people like to say, putting the boat over the fish, right? Like, we got to go figure out where to move the boats.

We can go find more prospects and more chances to help people.

And you know, you look at that and it can be daunting, and it can be something where it also, you know, depending on how you're doing it. It's morale building, and it's morale crushing, and from a day to day, week to week, month to month. So how do you think about within your playbook? I like about how you're saying, let's play this week's game and maybe think about the next week's, but not think about the playoffs or whatever. So how do you kind of manage that tension within your portfolio, companies of?

Ultimately, they're trying to achieve a goal. But you're going to play kind of the week to week, the month to month, the quarter to quarter to get there.

When things get crazy, you kind of just focus on the quarter in front of you and in my world of growth and go to market, what does that sound like? Well, it sounds like, oh, if we can just close these a couple of deals, or if we can just get this big customer in the boat. Or if we can just get this giant million dollar thing in the door. That's been in the pipeline for a year, we'll be fine, and I don't know, maybe it's the opposite of the dynamic that you're bringing up. But I find that I have to pull people out of that mode and into the kind of capability building or muscle building mode a little bit more often. And saying, yes, let's win what we can win. But let's also establish the rhythm and the process and the way that we do this. That's going to lead to more One deals and more opportunities created.

And most of the time, it's more of an unlock than a build. I think the best quote ever about doing this job well is from Dolly Parton. And I'm pretty sure she wasn't talking about private equity operations, but she may be, you know, she's a pretty savvy business person. Yeah, she was thinking about a second career here, but her quote is you should find out who you are and then do it on purpose.

And most of what I'm doing related to sales and marketing is just figuring out. Hey, when we're helping customers and when we're going out and attracting new people and getting them to check us out, we're already doing that well. Maybe it's not happening that often or often enough, but there are fits and starts where we're at our best. How do we establish a process where we're just at our best a little more often? And so that idea of short term and long term, and how do you keep people focused on the right kind of time horizon? I find I have to pull people out of short termism more than I have to get them focused on the quarter.

And I think that's because we design our incentives for the most part in the right way. But most of that long term operational improvement, it just comes down to creating the process and creating the muscle memory. So we're just at our best a little more often.

And so I always say, like, you know, you know, the road to Rome isn't straight, but there are more certain paths and less certain paths. And it's a wandering deal. But over time, you'll see yourself getting there. So how do you think about this kind of concept and how you can gauge momentum and progress?

And if you only concentrate on your performance for that day, you're going to drive yourself nuts. Because on the day that you have a really good week, you're going to think you're the best player in the world. And on the day that you strike out three times, you're going to be so depressed. You can't get out of bed in the morning. So some of this is just helping you keep a center of gravity and not get so emotionally caught up or whipsawed in the inevitable variance in performance. That's true of people, it's true of athletes, it's true of business. So I think the easiest way to do that is track things with a moving average.

And so when we do opportunity creation tracking, it just takes the noise out. Like, if you're four week or 12 week or 16 week rolling average. Pick one is sloping up. That means you're getting better at creating new opportunities, and if the line is sloping down, you're getting worse. And when you make that visual, and when you make it obvious, it's almost impossible not to take a useful stance on what's going on.

Because if you say, Hey, you're getting better and your batting average is going up, it's like, Well, what am I doing? How do I make sure that I use that swing thought or coaching point, or that process on the opportunity creation side to keep that trend going in the right direction? And if things are sloping down, we've got to change something. And we should talk about what we need to change, or what we need to restart, or whatever it is. So I think some of this is biological human beings, we are built a certain way.

We have these big, front facing eyes that are designed to notice things that are big and moving. And we all know that data is important. But if you don't design the way that you consume your data to complement how your body is set up, and you don't design your data. To point out. Really, obviously, when a trend is going positively or negatively, kind of shame on you, right? So my coaching is make your performance visual and make your performance obvious. Because it leads to better conversations about where you should double down and what needs fixing next.

And then the world tends to slow down and you can see the trends easier. So I think it's a great point. And so one of the other things that I think I'd love to get your thoughts on is, you know, you think about this kind of these socratic conversations that you're having with your portfolio, company leadership teams, and so what kind of benefits? Do? Some of the key questions you're asking create when you have these kind of really thoughtful, question based conversations with your teams?

Right, I think the underrated piece of choosing good questions and kind of having that socratic structure that you mentioned is. It sends a signal of, hey, this is a place where it's safe to kind of figure things out out in the open. You don't have to show up with all the answers and we're going to build the answers and kind of embark on this search for truth together, so we can go fix what needs fixing. So Google would tell you from the project Oxygen stuff that. The number one predictor of a high performing team is psychological safety, which is basically, it's safe to be vulnerable, it's safe to take risks.

It's safe to screw stuff up, it's safe to not be 100 percent certain on what's going on. And when you structure those conversations, less as a one way readout or sort of private equity tribunal, and more as a question based dialogue or search for the truth. You're sending that important signal to our team and the management team that this stuff is hard, this stuff is complex. And if we don't peel the onion and kind of get curious about what's going on together, we're never going to get to the answer. We need to get to to figure it out. So I don't know.

That's a little bit more of a philosophical bent, but performance matters, having confidence in your management team matters. You want those people to have really strong instincts, so they're piloting the business in the right direction when you're not there. But there's a lot of uncertainty in figuring out how to take a founder owned B2B software company and help it get to the next level and help finish the work that the founder started. And if you don't acknowledge that uncertainty, then you're kind of kidding yourself.

And I think asking good questions is a great way to acknowledge that there's a bunch of right answers here. And we're all here together to figure out what the best one is that we can actually go get behind and do something about.

And you're like, what? No, I never kick my neighbor's dog. Yeah, they're kind of like painting them in a corner. And people learn that there's a method to kind of like true knowledge and discovery in a productive way. So what are some of the questions that you like to ask or hear from your portfolio company leadership teams?

Some teams will talk about the path to the quarter, or having multiple paths. That's just a fancy way of saying, like, what are the list of opportunities that matter the most? Either because they're big, or they're certain, or they're going to swing us one way or the other. How's the sales team performing? And the answer to that question is not. Everyone's working really hard and I'm really proud of them.

Like, it should be a question of pipeline coverage by person, the amount of opportunities they're creating. if you do expect your AES to be creating opportunities. I think everybody should. I'm biased because I had to in my past life. And then just how the pipeline is balanced across the team. One of the things that I'll ask our teams to do is create a simple histogram of OK. You have 30 opportunities that are you say, are going to close or have a chance to close this quarter.

And you have five sales reps. does that mean there's six opportunities per sales rep or one person managing 20? Like, is that too many? Like, forcing yourself to look at those numbers? And just the distribution of the pipeline is a useful exercise. Doesn't mean you have to do anything about it, but it will tell you something interesting and useful.

And then there's always the question of, OK, and what about marketing? I think marketing kind of gets the shaft in a lot of these conversations. But deciding in advance what you want your marketing team to be striving for. And if you were to build a moving average of what they're doing, what do you think matters the most to get better at, and for most of our businesses? I have a belief that that's some combination of traffic to your website because a lot of people are still doing research and just discovering that you exist from your website. Marketing sourced opportunities.

So especially people that are. It's really easy to track if someone filled out a form and then bought stuff from you, like, Hey, how are we doing on that? And then content produced, like, I still think we're in an age where if you produce content that people actually want to read. And answers customer questions. And doesn't just bar features all over people, good things will happen. And if you get better at increasing the velocity of high quality content, you're going to wake up six months from now and be very happy. You're going to have a very happy sales team because they're going to have to do a lot less work.

So there's a lot more questions than that, but the ones I usually start with on my data diet menu are, Hey, let's talk about this quarter pipeline coverage, let's talk about this quarter, the deals that matter, let's talk about next quarter, which is new opportunities created. Is that enough? Let's talk about the sales team.

How are people set up, who's going to hit quota? how is the pipeline distributed, how is marketing performing? Are we building a better butterfly net on our website?

Are we creating more opportunities from what we're doing, and are we creating and pumping more good content out there? And then, if you have a BDR, SDR team, ask about those guys too. And that was where I started my career, and that job is a function of activity, and it is a function of getting meetings.

And that's also your pipeline for growing another sales team. So it's also a great way to have a sneaky view into your talent. And say, who's the next AE that we want to promote to the big leagues? Because they're crushing it for us on the BDR team. So that's a lot, but that's where I'd start, and there's obviously more. The art of this is also keeping the list from getting too long. Because private equity people. We love the if you give a mouse a cookie approach to KPIS. Like, if you give us one good metric, we want three more.

And part of this is just limiting yourself to keep it simple and useful.

And then there's always that constant battle on attribution, and the trick is to make it, so there isn't that battle. Knowing that they're working together, and I think that's probably a whole nother conversation in itself. Oh my gosh.

And the approach that I take there is. What are the questions that you wish customers had answered before your first sales meeting? And how do we go out there and answer those? In a way that people actually want to consume it? And if you're proud of what you're doing in those two disciplines. Keeping those questions updated. Which means, by the way, actually talking to customers and answering the questions in a way that people actually want to read your stuff. You're going to be fine. But most people, if they looked in the mirror, they would say, Hey, we're either going to, oh for two or one for two on those.

And that's a great place to start if you're looking for improvement on the marketing side of the house.

Thank you so much for spending the time here, sharing your thoughts, insights and perspectives. For those of you who would like to learn more, we'll put it in. The episode. Notes links to Parker Gale, their podcast and some of the writings of Paul, so you can find deeper insights yourselves on these.

Special thanks to Paul for joining. If you'd like to learn more about Parker Gale Paul's Salesmetric Playbook, or further related topics, please see the episode notes for links. Please continue to look for us anywhere you find your favorite podcasts, including Apple, Google and Spotify. We truly appreciate your support. If you like what you hear, please like, review, share, follow.

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