Jan 6, 2021

Issue #37: An Incentive Structure That Drives Customer-Centricity

Chris Hicken By Chris Hicken
CEO at 'nuffsaid

 

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The following is Rav’s response to the question, “How would you recommend founders go about creating an incentive structure across the business that drives a customer centric mindset?”

 

Incentives are really interesting. What happens in many companies—and not in just not startups or tech companies—is we tend to organize our companies like a production line. So you have Product, Engineering, then Marketing and Sales. And then right at the end of the production line, we have Customer Success. 

 

Now, I don't think we’re really ever going to get away from that model because as you scale, you do need a structure in which to manage and coordinate everything. But I do think founders should think about how each of those groups are incentivized, because the way these groups are incentivized will drive their behavior. 

 

So if I'm a salesperson and I'm only incentivized on new revenue, I will optimize my whole life for that. I'm not being paid to think about whatever happens after I close the deal. If instead I'm a salesperson and I have a compensation plan that’s 95% on closing new deals and 5% is on making sure each of those new deals gets deployed within 60 days, suddenly I've got an incentive to actually work closely with my colleague in customer success that’s aligned to my territory. 

 

Similarly, if I'm a CS person and I have a compensation plan, and if 90% of that is based on my NRR driving net revenue retention but 5% is helping the sales person close the deal in the first place, we now have some overlapping interest. We have an incentive structure that is designed to keep us aligned, with the net result of that being increased value and faster value for the customer.

 

So rather than thinking about org structure and who reports to, you can leave everyone where they are and then design incentives that make the groups work together to create long-term customer value. 

 

Similarly, in the product team, there's nothing stopping you from getting your teams to have targets that increase the team’s focus on building a product roadmap that accounts for what customers are telling you they actually need. And, it’ll focus the team on tracking whether the features being shipped are driving ROI for the company or more value for customers. 

 

So you can start to expand on this idea. You can define your MQLs based on the attributes of your most successful customers. You can compensate Sales on upsells. You can start to actually weave this concept into part of how everyone in the company is incentivized.

 

Here’s another example of how this could work: I've worked in a company which didn't pay engineers when the feature was shipped. They paid engineers on when the feature reached a certain amount of usage. So, again, a very simple example of how you can use incentive structures to drive behavior that ultimately drives long-term customer value.

 

One area you might get pushback around is with Sales. Let’s use the earlier example where the comp plan is 95% based on closing new deals and 5% is on making sure the product get deployed. Your Head of Sales is typically paid right when a deal closes, and you’re advocating for a move into a model where they get paid after the customer completes onboarding. 

 

The important thing to remember is that you’re not saying that Sales won’t get their commission at all unless X happens. It’s a portion of their commission that’s going to get paid once the customer completes onboarding. The vast bulk of their commission is still getting paid right after the deal because we want Sales to optimize for closing deals. But we also want to find the right percentage (I picked 5% as an example, it could be more or less) that’s meaningful enough where it’s materially worth it for them to think, “well, 5% is actually pretty important,” so they’re interested in what happens after the deal is signed.  

 

If you get the percentage right and you hire the right kind of people, I'd recommend helping your Head of Sales understand that you want them to optimize for closing deals and hitting their number. But we do not want to have short-term thinking or the team to leave a trail of destruction behind them. 

 

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