Mike Burnett: Hello and welcome. This is Mike Burnett, partner and co-leader of the business and financial services practice at the Alexander Group. Today, I’m joined by my colleague Jeff Wood, principal and leader of our FinTech practice. Jeff, thanks for joining me.
Jeff Wood: Thank you. Mike.
Mike Burnett: Jeff, today we’re going to be talking through the FinTech space, which is we know is constantly evolving, very fast-paced, lots of innovation, lots of changes in regulation that make for an interesting landscape for folks in this space to be contending with as well as in the broader financial services space. To start, I think it would be great if you talk us through what are some of the main challenges you’re hearing from your clients in the FinTech space?
Jeff Wood: Mike, I’d say there are really three key themes that we consistently see across the client base and the market. The first is, as you said, this is a really fast-moving market. There’s a lot of change happening at hyper speed and all the firms are core services where they started and they really started expanding. That’s getting pressure is becoming commoditized and as it gets commoditized the margins get squeezed. It’s really forcing these companies to try to accelerate value-added services so they can help protect their margins. There are a couple of things that we see every day in the market in the FinTech space. How are companies adding value added services so they can really address this?
One is acquisitions. There’s a lot of acquisition activity. They’re bringing in new products to the portfolio. They’re creating brand new partnerships out there. Or they’re just building a new product development pipeline, where they’re adding new modules or creating a platform play to try to make sure that they don’t get commoditized. And they’re able to drive the most value to their clients. Now there’s two other key points that I call out. Once you think about kind of the platform play that a lot of these are doing. The other trend we see, Mike, is the forecasted revenue when they sell a deal just fails to materialize. In the FinTech space, there are a lot of products and offerings that are very consumption and usage driven. So they’ll spend a lot of time selling these large deals with a lot of resources. They spend a lot of time cost, marketing, comp expense. And when the results don’t come in, we frequently see this tension between kind of the CFO level or finance leadership and sales saying “Wait, we just put all this time and effort in and spent this money. We’re not really getting the results.” And the third piece and this begins to dovetail a little bit in that same point, is firms are failing to balance a revenue and margin. So the old days of drive revenue growth at any cost. And that’s how you’re going to get your valuation has shifted over the years and it’s very firmly entrenched.
You’ve got to have the right balance with revenue and margin, rule of 40 and the right product portfolio balance out there to help you get to that goal so you can realize your stakeholder values and your entire valuation.
Mike Burnett: Great. So you mentioned three challenges, three pretty big challenges. So pretty far reaching in terms of how do you go about trying to solve or address those. I’m curious. Just walk us through each of those. What are the main things you’re seeing folks do, especially from a sales coverage or from a customer coverage and from a sales compensation perspective, because we know that’s a letter that folks oftentimes like to pull in order to address or drive change in the organization.
So, when you think about that first challenge that we see all the time, the value-added services platform selling, cross-selling. There’s a couple of really quick building blocks that firms consistently need to get right before they move into the comp and coverage piece. And the first I would say is that they need that executive alignment around where did this value-added service fit organizationally in terms of the priority? you may have different executives that have different points of view. Your product stakeholders may feel like their product is the most important product that’s got to be out there. And that needs to be the top comp pay, if you will.
Jeff Wood: But if you can get all the executive sales, finance, product, marketing to align on the value prop and understand where value-added services fit and how to prioritize it, that will make it easier to solve the coverage and comp question. The second piece, which kind of tags with that is this product sales ready for the teams, meaning do you have the right enablement? Do you have the right sales tools? Is sales ready and capable with the right skill set to go sell the product? Now once you check those boxes, the comp stuff gets a little more specific. What’s the right solution given our evolution? Where we are in the journey? We’ll see a range of comp solutions that are frequently used when companies are promoting their value-added services. And so that could range from on a spectrum. You could do spiffs on one end right where it’s going to be very entry level, like, let’s get mindshare and get the rep thinking about this and trying to sell it so we can learn. And then on the far side where it’s much more advanced. You may have totally separate measures like different quotas. You’re more experienced at setting goals. That’s how to think about kind of the range. And you can figure out the right commissions and bonus structure that you want to use.
Mike Burnett: Great. So in terms of some of the challenges around getting revenue to materialize or forecasted revenue to be pulled through, what are some of the things you’re seeing organizations do to not only get that pull through, but also optimize from a profitability standpoint, as you were mentioning before.
Jeff Wood: Yeah, there’s a couple of things when we see companies and the revenues just not coming through. The first thing is really make sure that you kind of take a look at all the possible root causes of what’s taking place, but I’ll highlight a couple of the key ones that we see frequently. It’s not an all inclusive list. We do have a more in-depth view of that that we can walk folks through to make sure they’re uncovering some things that may not be expected in some cases. And the first thing that frequently comes up is the coverage model is failing, or it fails to clearly identify ownership and adoption and consumption owners to drive that revenue and pull it through. And so by that, I mean, the company’s really got to make sure they’re crisp and clear on the rules of engagement and the receipt from the time where they’re selling a new logo and passing it through implementation and then launching. If those roles are not clear and you’ve got the right KPIs and metrics to reinforce what’s needed, you’ll frequently see the revenue sub-optimised. Now, in the fintech space today, what I frequently see is about 80% of the market has a bifurcated coverage model, meaning most of the companies have dedicated hunters. And then they’ll sell the deal and they’ll pass it over to dedicated farmers. Now, that’s not going to be the same for every company, and it certainly doesn’t need to be same for every segment.
So companies can have different models within each segment depending on that buyer journey and what’s required. But when you outline your coverage model, you’ve got to make sure that the rules of engagement, a handoff is going to work really smoothly, and then you can begin to link your compensation plans to drive the right behaviors to support that coverage model. The other piece that I would say, Mike, on the sales incentive side, if you’re not pulling through the revenue is you don’t have the right balance between land and expand. And this is going to vary depending on what your job role may be and how the coverage model is set up. For example, if you’re a farmer, you may not have the right balance on your compensation plans to sell those new value-added services or the new products, versus spending your time driving usage and volume. So, if you’re not spending the right time to drive the volume and scale a client, maybe you’re not going to hit the types of goals that the company is expecting, right? You might sell a few more new products, but the revenues are not going through. So it’s a very delicate balance to make sure that your strategy is very closely aligned to both your coverage model as well as your sales compensation.
Mike Burnett: That’s great and really resonates. Jeff, I guess I’m curious, are there other things outside of coverage and sales Compensation that you would encourage folks to think about, especially if they’re dealing with the same challenge in terms of pulling through and securing revenue.
Jeff Wood: Yeah. Great question, Mike. There are probably two other areas I’d say to focus on, again, not an all-inclusive list, but the things that we’ll see more often than not is it’s just a broken handoff process. So the experience from landing the new logo, going through implementation, onboarding, and then ultimately to account management and or customer success is not well defined. So when that happens you’re not going to be able to optimize that revenue. And quite frankly get your clients to ramp quickly. So much in this business in the fintech space is, can I sign a new deal and ramp my client up quickly on my solutions and start driving the volume we need? And so you need a very clear process there. The second piece might be that you just don’t have a very sophisticated forecasting model yet. That hasn’t been refined. You’re not getting the right data or the input in, or you don’t have the right data science or sales modeling for some of your prospects to begin to quantify what do you think a deal is worth? There’s been tremendous strides made in the last couple of years with clients that we’ve worked with to really leverage data science and model what the expectation should be and what that opportunity model would look like for the market.
Mike Burnett: Jeff, great insights. Thank you so much for the time today. To those listening, if you’re interested in having a conversation with Jeff or myself or getting a briefing on topics such as data science, sales compensation, trends in fintech, as well as just industry trends at large that we’re seeing from a global market standpoint. Please make sure to check out the research tab at AlexanderGroup.com. Thanks so much for joining and talk to you soon.
