How Zuora Drives 60% – plus of its Growth by outbound, even when accounts need nurturing for years
Aaron Ross, Co-CEO & Author
12 August 2019
The following is an excerpt from the 2nd edition of ‘From Impossible To Inevitable‘ by Aaron Ross.
More often than not, revenue leaders are impatient for results now. Everyone feels the pressure, but how do you handle it? No joke, we’ve spoken to CEOs who want to make money on outbound prospecting in 90 days, but when asked how long their sales cycle is, answer “four to six months.” Well if someone could make that math work, they’d be billionaires! Zuora is a hypergrowth company bucking this impatience trend. Zuora was founded in 2007 by K.V. Rao, Cheng Zou, and CEO Tien Tzuo, an ex-Salesforce.com executive. Ten years later, Zuora did more than $150 million and was valued at $1 billion-plus. Zuora sees an epic shift of businesses to the “Subscription Economy.” Customers love getting to avoid a big upfront purchase and/or simplify renting or servicing. Businesses love the recurring revenue. Zuora enables businesses of all industries and sizes to price, package, and sell their products on a recurring basis. Zuora’s Account-Based Outbound system (integrating Outbound Marketing + Outbound Prospecting) defies that impatience and generates massive revenue (60%–70% of it) in a market where accounts can take years to consider, decide, and buy. Let’s break it down.
You Can’t Target the World: Three Ideal Customer Profiles
As we talked about in Part I: Nail a Niche, a company needs to focus on the customers where you’re a Need-to-Have, not where you’re a Nice-to Have (they’ll “ooh and ah” at your demo but never buy). Zuora has three customer types that need them:
- Software-as-a-Service (SaaS): These companies are obviously “born into subscription.” SaaS companies don’t need Zuora from day 1, but only after they’re growing and hit the Spreadsheet Wall. Examples: Box and Symantec.
- B2C Subscription and Membership Companies: Zuora excels at complex situations when a company is managing hundreds of thousands or millions of consumer subscribers. Examples: the Financial Times and Zillow.
- Business Transformation Companies: This category covers Fortune 1000 companies, whether manufacturing, legacy, hardware, or automobile, which are used to selling products, but now are layering on Services. What defines the need isn’t the industry but whether a company’s contemplating one of eight Growth Initiatives (see next section) and is likely to change or launch a subscription business. Examples: General Electric and Caterpillar.
The companies creating a new business may or may not realize the need for Zuora’s product at launch. But there’s an inevitable path a subscription business follows . . . adding more products, usage-based components or pricing rules . . . that creates a need for Zuora at some point. Avoiding Companies That Will Never Buy: Eight Growth Initiatives
For the companies that aren’t subscription already, but could or should be, how does Zuora flag companies unlikely ever to change versus ones who could make the leap to subscription?
Zuora looks to see if a prospect is pursuing one of the “Eight Growth Initiatives”
More than finding a business pain, Zuora’s outbound prospecting and sales teams take a step back to understand the target account, its industry, and how market trends are affecting it. For example, if their market is commoditizing, what’s the company’s plan to adapt? Zuora looks to see if they fall into one of the “Eight Growth Initiatives,” signaling they are serious about considering a major shift to subscription:
- Launching a new product or service
- Going international
- Move into new segment (Up- or Downmarket, Launch Self-Service or Sales Assisted, Multichannel)
- Pricing and packaging model change
- Cross-sell/upsell additional products
- Massive sales team growth
- Reduce churn
- Acquisition/spin off of business line
When Customers Take Years to Decide: A “T-Shaped Model”
For companies thinking about creating a subscription service or changing an existing product to subscription, they can’t just “free trial” Zuora. It’s not like testing a new marketing app. The customer may not know yet even how its subscription will work. They can be educated on the pros and cons of subscription and what success requires, but not pushed into a decision . . . which, for the “Business Transformation Companies” segment earlier, can take years.
Prospects can’t just “free trial” Zuora.
At the top of the “T” are customers who fit their Ideal Customer Profiles. Zuora’s wants ongoing engagement with them, mostly through outreach by the ZBRs (“Zuora Business Representatives,” their version of Sales Development Reps) and the salespeople they support. They keep the outreach plates spinning for 6 months, 18 months, even two or three years. They build awareness and educate the customer with a mix of “Three Rooms” content until the customer makes a subscription initiative decision. When that happens, deals materialize quickly, dropping from the top of the “T” into the sales funnel.
The “Three Rooms”
Zuora’s Founder and CEO Tien Tzuo encourages companies to picture a three-room environment—sort of an art gallery, where you from walk room-to-room seeing different things, but all the rooms share a common theme.
In this metaphor, “Room 3” houses your product or service. It shows off all its features and functions. “Room 2” is the home of your customer’s feelings, needs, pains, both business and personal. Usually, CEOs and revenue leaders spend most of their time in Room 3, and the rest in Room 2.
“Room 1” is the biggest missed opportunity in marketing and sales. Tien estimates 99% of company leaders and salespeople ignore this room. This room deals with evolving trends in the world, and how businesses need to adapt. CEOs need to connect the Room 1 topics to what’s in Rooms 2 and 3 in a way that makes sense to prospects.
“Room 1” is the biggest missed opportunity in marketing and sales.
The narrative goes like this: “Here’s the pressure going on outside because of a market trend. Here’s how your business is challenged by that trend and how it needs to adapt. By the way, this is what our product does to help you adapt.”
Zuora’s Three Rooms
Room 1: “Subscription Economy Message” (Evangelism)
- Any Zuora content (books, webinars, articles, events) on why and how the world is shifting toward a Subscription Economy, and why you don’t want to get left behind.
- Example signals: Attendees to Room 1 speeches or webinars, articles or interviews, book sales.
Room 2: “Designing a Subscription Business Model” (Business Planning)
- For customers who have bought into the idea of going subscription, how do you actually make it work?
- They struggle with deciding on pricing, architecting a sales model, the right metrics, and how to tier products or segment customers.
- Example signals: White papers, webinars, and discovery calls related to educating customers on what success with subscription requires.
Room 3: “Implementation” (Product and Differentiation)
- Tools and content that answer customers’ questions such as “What does Zuora do, how does it work, how does it compare to alternatives?”
- Example signals: Buying Guides, Demos, Request for Proposal Templates.
Outbound Marketing + Outbound Prospecting = Account Based Outbound
VP Marketing Kyle Christensen and VP Sales Development Frank Ernst worked hard to create a Revenue Team approach, removing the silos around “did ZBRs do this, or marketing or sales didn’t do that” and “who gets credit for what.” They want everyone across marketing, sales development, and sales to work together on outbound campaigns, without finger-pointing.
Marketing creates content for the ZBR team to use and works closely with them to decide which activities get campaign credit. Marketing’s measured on the number of qualified opportunities that sales accepts, which is what sales cares about—not the number of raw leads or MQLs created.
A Typical ZBR Funnel
- Monthly Accounts Goals:
◦ Each ZBR has to prepare a set of Account Plans monthly.
◦ Each ZBR targets and builds account plans for 10 accounts from their target account list per month. Each one is researched carefully.
◦ This is in addition to their prior list of accounts already researched.
- Daily Activities:
◦ 30 dials a day.
◦ 60 new cold emails a day.
◦ 50–100 new contacts added per week.
◦ LinkedIn outreach as needed, when it makes sense.
◦ Have 16 meaningful conversations or meetings (whether via email or the phone) per month.
- Monthly Enterprise ZBR Pipeline Goals:
◦ 16 First Calls: A ZBR is expected to conduct 16 meetings independently, on behalf of the salespeople they support.
◦ 8 S1s: They want at least eight of those first calls to be classified as “S1”s: The ZBR confirms one of the eight Growth Initiatives with the prospect and schedules a call with the salesperson.
◦ 4 S2s: Out of the eight S1s, they want at least four to convert into “S2”s, or Sales Accepted Opportunities. This means a salesperson reconfirmed the Growth Initiative with the prospect after conducting an initial discovery call, and better understands the customer’s decision process.
◦ Zuora expects to see a 20% win rate on S2s, which is an industry-standard win rate on qualified outbound-sourced opportunities.
◦ 2 S3s: Once the decision process is confirmed and the prospect agrees to a technical demonstration, it’s classified as “S3.”
The ZBR team looks for bigger opportunities that tend to be $100,000 or more per year in recurring revenue. They have many customers who spend less than this, but they’ve found that when doing outbound prospecting, it’s more effective and profitable targeting larger opportunities. (We’ll talk more about this in Part IV: Double Your Deal Size.)
- One ZBR supports two salespeople (called Account Executives).
- Salespeople get approximately 100 “Named Accounts” to focus on.
- Do lots of territory planning, and a lot of planning per account.
- Salespeople at least quarterly reprioritize their 100 top accounts into three buckets:
- Top 10: They work hand in hand with their ZBR on this list, reading 10ks, public records, organization charts, and crafting specific messaging by key person and department. These “Top 10” are rotated monthly to focus the ZBR and salesperson more deeply on fewer accounts at one time.
- The Next 40 that deserve attention and follow up next, and
- The Remaining 50, which are the lowest priority.
A Franchise Model for Account-Based Outreach
Does your company get tripped up when you expect different departments to work together seamlessly . . . but they don’t? Following the Revenue Team model, Zuora mixes different functions into what they call a Franchise Team. These teams may be focused by industry or geography, but the mix usually looks like this:
- A Regional Director overseeing the Franchise.
- Up to 10 salespeople + one sales manager.
- Five ZBR prospectors + one ZBR Manager (because ZBR messaging is so tailored, one ZBR Manager manages 5–6 ZBRs)
- Three Sales Engineers
- One Global Services representative
- 0.5 Marketing Managers (one manager supports two Franchises), who acts as a “mini-CMO” for the franchise, tailoring centralized content for their teams.
Having sales, sales development, and marketing people in one team smooths out how they run and measure Outbound Marketing and Outbound Prospecting campaigns.
Learn From Zuora’s Lesson
Don’t miss the forest for the trees. Push for, and expect, outbound results soon . . .. maybe not revenue, but at least meetings and pipeline. If you’re not seeing qualified pipeline increase within six to eight weeks, something’s wrong. If you’re building an outbound prospecting program from scratch, you’ll see revenue in year one, but not exponential revenue until years two and beyond. Eighteen months from now, your future self will thank you for having the foresight to have begun investing for those long-term deals now.
The book From Impossible To Inevitable, “the growth bible of Silicon Valley”, was co-authored by Aaron Ross and Jason Lemkin (SaaStr).
Excerpted with permission of the publisher, Wiley, from From Impossible to Inevitable, Second Edition by Aaron Ross and Jason Lemkin. Copyright (c) 2019 by Pebblestorm, Inc. All rights reserved. This book is available wherever books and ebooks are sold.