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How investors use the “Rule of 40” equation to evaluate companies.

30 XaaS companies joined Alexander Group in late January to discuss how to improve their company’s market valuations. The group revisited how the “the Rule of 40” equation (revenue growth plus company margin) is used to evaluate companies. AGI’s research findings indicate that most companies are achieving the Rule of 40+ index through a combination of both growth and margin. The group also reviewed the following LAER leading practices from our recent XaaS study:

  • Land: Drive efficient new logo acquisition using more scientific methods, new/evolving roles and focus on quality
  • Adopt: Maximize customer adoption by organizing core AEs and CSMs to collaborate in driving customer value realization
  • Expand: Expand existing accounts via effective upsell and cross-sell by identifying use-case “value chains” and running the right sales plays
  • Renew: Grow Net Revenue Retention via renewals by leveraging the right roles, processes and predictive tools

The group discussed Land and Adopt topics in more detail.

Landing New Logos

Some of the key discussion points focusing on Landing New Logos included:

Customer Interaction AI–A few companies are using GONG and others are considering using GONG to improve messaging, coaching and capturing the voice of the customer for product teams.

Account Targeting AI–One company confided that using AI to derive propensity to buy identifications requires ongoing care and feeding (i.e., can’t just do it once and walk away).

New Logo Comp Solution–Companies shared various sales compensation solutions to drive new logo focus:

  1. New Logo SPIFF (quantity focus)
  2. New Logo Sales (focus on quantity and size)
  3. High Propensity Account Focus
  4. >$1M Companies Focus
  5. Separate Hunter Role

Driving Adoption

Some of the key discussion points focusing on Driving Adoption included:

Distinguish Value from Adoption–Companies shared that it is critical to separate value realization from usage/adoption and it must be done across LAER.

Customer Success Plan–Sellers must be able to capture their customer’s success metrics/goals, include them in a Customer Success plan that all resources can view, and then track those metrics (e.g., a success goal may be fewer helpdesk tickets).

Value Realizer Tool–One company shared that they built a tool that creates common value-based use cases for their customers, leveraging a decision lake of collected use cases. Phase 2 will be to leverage CSMs to track results and enter them into the tool.

Value Realization AI–One company uses Watson to help assess value realization.

Tool Linkages–Companies expressed challenges associated with so many disparate tools and how best to connect them (e.g., Salesforce for sales and Gainsight for CSMs). Large software companies have healthy tool investment budgets focused on data integration and tool execution.

Questions & Next Steps

If you have any questions about these insights or others, please reach out and schedule a call with one of our technology practice leaders. In addition, we look forward to having you join us at our next virtual roundtable event.

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