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A special repor t from Heidrick & Struggles in par tnership with the Alexander Group

How you can improve your cloud sales performance

Soft wAre PrActice

17020532-hs-00205-Cloud Sales Article.indd 1 16/02/2017 18:31

As the software industry’s shift to

subscription models and the cloud

continues to accelerate, businesses have

been grappling with severe disruption to

their traditional sales models. In our special

report, we examine the wider business

implications of selling Software as a

Service:

• the trend towards “as a Service” in the software

industry places the buyer in the driving seat

• Hybrid software companies that sell through

traditional licence-based models are faced with the

daunting task of transitioning to “as a Service”

• “As a Service” sales models are shifting

the emphasis of sales activities more

towards pre- and post-sales roles

• Hybrids typically follow four phases in the

transition: Dabble, Adapt, Scale, and optimise

this report has been compiled from discussion

at the “transitioning to cloud Sales” roundtable

organised by Heidrick & Struggles in conjunction

with the Alexander Group. the main speakers at

this october 2016 event in London were: Kevin

tumulty, chief revenue officer at Nexthink and

former VP, eMeA at ServiceNow; Paul Vinogradov,

Vice President, Alexander Group; and Mark Zablan,

President, eMeA for Adobe at the time of the event.

Selling Software “as a Service” when a serious customer steps into a sports-car

showroom they have already done their homework.

they know the model they want to test drive. they have

researched their options on the internet, read up on

performance and specification in motoring magazines,

and talked to trusted friends and colleagues who will

have voiced their approval and offered recommendations.

consequently, the salesperson may need to spend little

time on the specific merits of the vehicle. instead they

promote the benefits of the ownership “programme”

and do all they can to ensure an overall positive

buying experience. increasingly, car dealers operate

their businesses by focusing on the lifetime value of a

customer, counting on add-on sales, service contracts,

and repeat purchases to meet their revenue and

margin goals. Most global software companies today

are no different; the move to “as a Service” has taken

hold in the software industry. whether the service is

delivered in the cloud or simply via a subscription sales

model, this shift is highly disruptive to the traditional

software sales model. Potential buyers are far

more engaged with the products they want

before the point of sale. Like the sports-car

enthusiast, they self-educate by accessing

company data, reading third-party research,

and seeking peer validation via social

media. they are much better

informed and in control of their

purchase decision; they are

in the driver’s seat. this

is the new “try-and-buy”

environment that software

sales leaders and their

teams find themselves in.

2 How you can improve your cloud sales performance


Adapting your sales model to embrace the cloudBy every account, cloud sales are set to boom in the

coming years. According to forrester research, the cloud

software market is estimated to grow by 137% for the next

four years—some believe this is a conservative estimate.

to capture this growth, leading software companies are

completely redrawing their sales models; indeed, they

are examining and reconfiguring every aspect of their

sales operations to align to this new market reality.

Paul Vinogradov, Vice President, Alexander Group (AGi),

international consultants in sales management, presented

an overview of the findings from the company’s recent

2016 cloud Sales index. the study examines three

categories of software companies: 1) hybrid software

businesses that have traditionally sold using licence-

based models, most of which are in the process of shifting

to subscription and/or cloud-based solutions with various

degrees of success; 2) pure play, “born-in-the-cloud”

companies, which offer pure cloud-based Software as a

Service; and 3) platform and infrastructure companies.

2016 cloud Sales index Participants

Hybrid companies

Aspentech, Autodesk, Blackbaud, Bomgar, Broadridge

financial Solutions, citrix Systems, D2L, epicor Software,

eSignLive (formerly Silanis), Genband, Hobsons, intapp,

intuit, Ncr, Nice Systems, SAP, Symantec, t-Systems,

VASco Data Security, Veritas technologies, wind river.

Infrastructure/platform companies

cisco Systems, cloudera, Dell eMc, fastly, Google,

Hewlett Packard enterprise, Mapr, Micro focus,

Microsoft, opentext, ServiceNow, talend, VMware.

Pure play companies

Adobe Systems, ADP, Avalara, BlackLine, Box,

Brandwatch, ceridian, DocuSign, DoubleDutch, Dropbox,

financialforce, Linkedin, Lithium technologies, New

relic, optimizely, Salesforce, SAVo Group, workday.

the Alexander Group cloud Sales index for 2016—the

survey is now in its seventh year—sees many companies

searching for the best way to make a rapid jump to cloud

sales; meanwhile, the “pure plays” are nipping at the heels

of the hybrid/traditional licence software sales businesses.

Buying patterns are shifting away from the traditional

enterprise software sales pattern of landing a multiyear

deal to a landscape comprised of many smaller deals. “You

are seeing the number of deals almost doubling from

traditional models but the value of these smaller deals

goes way down. there is a new reality of how to grow

the business through a much faster velocity of selling,’’

noted Vinogradov. “Hybrids are losing market share due

to legacy sales models where reps are paid based on

large on-premises licence deals, when customers can

choose cloud-based ‘freemium’ trials, or subscription

pricing.’’ Hybrids are hoping to double the amount of

revenue from the cloud, and quadruple it in four years’

time, while the pure plays want to grow by 60% each year.

Vinogradov suggested that a land-grab is underway, and

not everyone will be able to expand at such “aggressive”

levels of sales growth. “it’s a really interesting time.’’

the disconnect between the c-Suite’s reporting

requirements and the evolving cloud-sales model

remains a critical issue; this issue requires the

attention of many software boards. the problem

is most acute with hybrid software companies

transitioning to the cloud since revenue recognition

practices for subscription revenues are very different

from traditional perpetual or term licence deals.

Sales leaders are now faced with this massive shift into

cloud sales over the next few years. this requires company

leaders to adopt radically different sales strategies. All

three categories of hybrid, pure plays, and platform

services need to build robust sales strategies that can

deliver high levels of revenue and also meet discerning

customers’ increasingly high levels of expectation.

Heidrick & Struggles 3


Sales investments shifting to pre- and post-sales rolesA key finding from the Alexander Group research is that

the salesperson is often excluded from entire segments

of the buying process, which has been expanded so that

it begins before and extends beyond the time when

the traditional field salesperson was usually involved.

today, buyers can more easily start the evaluation

process without the seller thanks to the rich abundance

of information online, including third-party research

and peer reviews. wherever possible, buyers want to

see and touch the product before making a decision.

free trials, case studies, customer journeys, and virtual

experiences enable buyers to range much further

along their buying journey without ever needing to

speak to a salesperson. consequently, companies are

investing more in pre-sales marketing and lead-nurturing

strategies to identify and influence buyers earlier in the

sales process. As part of these initiatives, companies

are deploying roles such as web Program Manager,

technically adept Lead Development representatives

(LDrs), and try-and-buy Program Managers.

A similar dynamic is happening post sale. As-a-Service

financial models typically call for high customer retention

rates, as well as significant upsell and cross-sell expansion,

so there is increasing focus on post-sale initiatives. the

Alexander Group study asked participants to forecast

their cloud business “out year” revenue: i.e., for every

$1 up front, how much should they expect in additional

revenue in the subsequent four years? Hybrids are

expecting $6.25 over this time frame, while the pure plays

are predicting $7—these figures do not include churn.

However, Vinogradov indicated leading companies

are achieving $9–10 or more. these expectations

have caused a significant shift in sales investments

toward post-sale efforts: customer success/experience/

advocacy teams, post-sales product specialists, and in

some cases, dedicated account management teams.

Traditional SW Sales Model

Emerging Cloud-Driven Sales Model

Done by Field Marketing

and Lead GenerationIT-Focused Field Hunter

Sales Manager

Done by Customer

Service and Partners

Renewal Rep

Prospect Engagement Close Post-Sales

5% 5%90%

15% 25%55%

Self-Learning / Web

Program Manager

Technically Adept

Lead Generation Rep

Try and Buy

Program Manager

Inside Sales

LOB-Focused Rep

IT-Focused Field Rep

Customer Success Roles

Account Manager – Upsell

Product Specialist

– Cross-sell

Legend: X% = % of Total Headcount Costs



Transitioning to “as a Service” is a challengefor hybrids, the transition to “as a Service” subscription models is a major challenge. “it is a monumental task and the

cost of sales is challenging when it is a subscription model. it is absolutely brutal for the hybrids,’’ said Vinogradov.

consider the following cost and productivity benchmarks:

Cloud Transformation ProcessHybrids often lose market share when their strategy is based on asking their reps to simply close more deals to offset the

cloud-driven drop in annual contract value (AcV) per deal and thus in-year bookings.

Dabble Adapt OptimiseScale

“Toe in the water” “Learn and validate” “Put the pieces together” “Step on the gas”

Break EvenCloud Sales

Expense / Revenue

= 100%

ROI8 to 1 out-year

Customer Lifetime Value

(CLV) ratio over 5 years

E�ciencyLarge Pure Play Sales

Expense / Revenue < 20%

Per R

ep Sales Investment

Per Rep Licence Revenue

for the hybrids, the total fully loaded and allocated

cost per field sales rep averages between $600,000 and

$700,000 on an annualised basis. this figure includes sales

rep compensation, management, training, and some

marketing costs. this is acceptable within a traditional,

on-premises licence sales environment for the enterprise

segment, where rep productivity can be $2.5 million to

$3.0 million or more per year. cloud productivity, however,

is a different matter. while sales costs are lower, average

productivity per sales rep is significantly less, typically

between $800,000 and $1 million a year. this is a key

reason why hybrids remain reluctant to make the switch

to a subscription model: they face a significant dip in up-

front bookings while still carrying similar costs per sale.



consequently, hybrids typically progress through four phases of transition as they migrate towards a fully subscription-

based model:

• Dabble, or “toe in the water”. cloud is talked about

in the c-suite, but the company is not ready to push

the subscription model—the strategic imperative

is not in place. Sales personnel are typically

paid pound for pound for both subscription/

cloud and traditional licence bookings.

• Adapt, or “learn and validate”. the company decides to

begin removing barriers to selling cloud/subscription

offerings, usually by providing sales credits on

cloud bookings, to attempt to achieve pay parity.

• Scale, or “put the pieces together”. this is the point

at which companies decide to emphasise cloud/

subscription sales; the organisation is comfortable

the model is sustainable and will grow. this approach

could involve deploying dedicated cloud sales teams.

• optimise, or “step on the gas”. the company is firing

on all cylinders: sales, delivery, and operational

capabilities are tuned in to grow and manage

the cloud/subscription business. Sales personnel

have separate performance metrics for cloud

business or are fully dedicated to cloud sales.

Hybrid Cloud Ramp Up PhasesHybrid companies move through the following change management phases as they ramp up their cloud sales models.

Dabble Adapt OptimiseScale

“Toe in the water” “Learn and validate” “Put the pieces together” “Step on the gas”

Characteristics

Strategy

Structure

Performance Management

● Increased solution revenue per account improves E/R

● Learning to consistently cross-sell / upsell

● Bigger Sales Ops role in sales optimisation

● Separate solution measures and quotas

● Learning to communicate and deliver solution ROI

● New specialist / support roles, but fuzzy rules of engagement

● New focus on building partner ecosystem

● Solution multipliers / accelerators

● New solution- oriented o�er messaging

● Fear of overinvesting (high E / R), creates vicious circle

● Product-centric training

● No solution focus in compensation plan or performance metrics



Lessons from a hybrid sales leader

Mark Zablan

Mark Zablan is currently the chief revenue officer at

Sitecore, but in his previous role as President of Adobe

eMeA, he explained the company’s shift to cloud sales

at Adobe during the crucial transformational period in

their history (2012–2016). Adobe Systems started in 1982

when chuck Geschke and John warnock, two Xerox

PArc executives, took the print business and moved it

onto desktop publishing with PostScript, adding Acrobat

and Photoshop, thereby creating an industry segment.

After this came the digital marketing business. Adobe

was an industry-leading, high-flying company from

2001 until 2008, when it was still selling its software

cDs in boxes; selling perpetual licences with new

releases every 18 to 24 months had customers buying

new licences periodically and this kept profitability

ticking over. then, in 2008–2009 during the global

market meltdown, Adobe lost around 20% of its

revenue—the company was not winning new users.

in response, management decided to change the

business model in order to rekindle growth. the aim

was to reboot the recurring revenue model and reclaim

investor confidence in the business. Adobe piloted a new

business model in Australia, where a compact yet mature

market operates like europe and America. increasingly,

consumers were using credit cards to buy, so Adobe also

introduced this payment capability in the United Kingdom

and the United States. while renewals were vital, 38%

of clients in Australia were new users. the strategy was

modified so that any innovations, updates, or acquisitions

(such as Behance and fotolia) were immediately available

for download via the cloud for subscribers, who had

immediate access to new features and extra functionality.

“from our test model in Australia, we saw that the move

to a subscription model was going to work and we also

started buying [companies with successful] recurring

revenue models in the digital marketing space,” said

Zablan. “omniture was the first one, and this started

moving the business from the old cD model to delivery

in the cloud. there are only a few products that you

can still buy perpetual licences for, and we charge

premium pricing. if a customer really needs something

in a certain specialist industry there are exceptions that

can be made, but we turned everything off. there was

a burn-the-boats mentality that started from the top.

from the ceo down into every functional unit, across

every region, we were moving off perpetual licence to

subscription, and it was all to be delivered via the cloud.’’

in 2012, the move to subscriptions represented a major

business decision for Adobe Systems. “we made the

big shift. the ceo made the decision to turn everything

off. then the ceo and cfo did a good job going

out to major investors, telling them about the new

strategy, and preparing them for a drop in revenues.’’

Adobe started selling three-year enterprise term

Licence Agreement (etLA) subscriptions delivered

via the cloud, and revenues began creeping up.

in 2015, the company surpassed its 2012 revenue

figures. in 2014, 60% of the business was recurring;

by 2016 this had jumped to over 90%.



Lessons from a pure play sales leader

Kevin tumulty

Like most SaaS companies, the Sales personnel focused

on three goals. Kevin tumulty, chief revenue officer

at Nexthink and former VP, eMeA at ServiceNow,

highlighted how the company grew sales as a SaaS

pure-play company during his four-year period.

ServiceNow has 3,200 enterprise customers and 4,200

staff globally; the firm went for an iPo in 2012.

when tumulty joined the company in September 2011,

sales were $110 million; by 2016 they had risen ten-fold

to $1.1 billion. However, as is common in subscription

models, clients typically sign for a three or more multi-

year term. for this reason, whilst needing to report

revenues quarterly, many cloud companies will measure

their teams on Arr (Annually recurring revenues) or

AcV (Annual contract Value), metrics that describe the

amount of committed subscription at any point in time.

However, it wasn’t all plain sailing: “the biggest challenge

we faced was that, for many customers, ServiceNow was

their first SaaS solution. once we had buyers interested

in our value proposition, we had many on their it side

who were worried about losing control because the

applications were on the cloud,’’ he noted. “when i

joined, i found a sales organisation who understood

how to position the value of the applications but really

couldn’t handle the objections to cloud around security,

scalability, resistance, loss of control,’’ he explained.

tumulty suggested it is also important to educate

investors about why a SaaS business is unlikely to be

profitable in the short-term. As an example, Salesforce—

the world’s leading crM SaaS business, founded in

1999—has only recently turned in profits after 15 years

of running a deficit on its march to acquire and grow

customers. ServiceNow was cash rich but took its many

costs up-front, which had a negative impact on profit.

equally, sales leaders need to be able to explain the

implications of the recurring revenue model and the

upfront investment often required to grow the business

so that customers feel comfortable. “it is important to

educate the sales leadership about this,’’ he emphasised.

in addition, he said it was critical to educate the sales

and pre-sales people, not just about the positioning

of the apps and the cloud infrastructure, but also the

issue of cloud security. in many cases, objections to

cloud were sent back to technical people who were

not in the best position to reassure clients about the

value, security, and scalability of the cloud. in other

instances, customers appreciated the services but

wanted the platform to be part of their own server and

internal data centres. Sales teams, frequently sought

to discuss how the company might accommodate this,

when really it was a case of explaining that SaaS was

cloud based. “we should have been saying: ‘Here is our

model. if it doesn’t fit with your business, it doesn’t fit.’

we spent a lot of time re-educating sales, pre-sales,

and customer support on how secure, scalable, and

resilient our system was market by market,” he said.

from a customer perspective, if they sign up for a

three-year term, they are expecting value from day one.

However, in some cases, it was taking up to 15 months

to get the system running at the optimal level. it was

a matter of explaining to the customer that they were

getting the service from the start, and this included the

cost of the infrastructure and data centres. it was then

up to the customer to decide when they would “go

live” with a new system. “our sales and service teams

needed to aid the customer to adopt our solutions

more quickly in order to realise value,” tumulty noted.



the sales personnel had a commission plan based on

three goals: landing the targeted number of new business

customers; the percentage of business transacted with

existing customers; and the percentage of renewals. this

provided for sales personnel to both land new accounts

and expand the business within existing customers.

However, as is common in subscription models, there is

often a mismatch between the cfo’s requirements to

book quarterly revenues and out-of-quarter or out-of-

year subscriptions, which might last three to five years.

for this reason, many cloud companies track annual

recurring revenue, a metric that describes the amount

of committed subscription revenue at any point in

time. this is another example of how companies have

evolved business practices for the cloud and also how

they measure sales teams compared with older licence-

based models. “we have been going through this exact

transition at Nexthink where today all new clients engage

with us on a subscription-only basis,” tumulty said.

the Adobe and ServiceNow experiences indicate that, as

with any major business transformation, the transition

to the cloud requires strong leadership from the very

top. Additionally, they offer us three key takeaways:

there will be an inevitable lag in revenue and profitability

when switching from an on-premises model to a

cloudbased subscription model or during the customer

acquisition phase for pure-play start-ups. it is essential to

educate the market about this to maintain confidence.

the sales organisation needs to be in a position to

explain the implications and benefits of a cloud-based

subscription model to existing customers and new

prospects; at the same time, the sales organisation may

require education around addressing customer concerns

in relation to the cloud and to be re-oriented towards

upselling and cross-selling in order to maximise revenues.

Performance metrics and compensation plans

should reflect the switch to the cloud to maximise

sales force engagement, while financial reporting

metrics should ideally recognise the realities of the

switch to the new cloud-based business model.

About the authors

Chris Bray ([email protected]) is a partner in

Heidrick & Struggles’ London office; he leads the

firm’s software group in europe and Africa.

Kelly O. Kay ([email protected]) is a global

managing partner in the firm’s San francisco office;

he is the global leader of the firm’s software group.



The Alexander GroupThe Alexander Group provides sales management consulting services to the world’s

leading sales organisations.

when clients need to drive sales roi and improve revenue, they look to the Alexander Group for data-driven insights,

actionable recommendations, and most importantly, results. founded in 1985, the firm has served more than 1,000

companies around the world and across all industries. this experience affords the firm not only a highly sophisticated

set of best practices to grow sales but also a rich repository of industry data that informs our recommendations.

the Alexander Group applies proven methodologies for evaluating sales organisations and delivering

insights and execution plans. Across all practice areas, every recommendation made is supported by rigorous

analysis of the relevant data, ranging from historical results to sales force attitudes and behaviours. the

sales and marketing solutions we recommend are specific, detailed, ready to implement. we help our clients

grow revenue and deliver roi by providing them a roadmap and support at a cost they can afford. n

Key contactPaul Vinogradov ([email protected])

is a vice president of the Alexander Group and a leader of

the firm’s international consulting Practice and

technology consulting Practice.



Software PracticeHeidrick & Struggles is frequently called upon by the most well-known and well-

regarded companies, private equity, and venture capital firms in the Software/

Internet industry. This sector changes FAST in every market from consumer to

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drive growth. we have trusted relationships with the leaders the organisations want to attract, as well

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demand for future success.


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