What Private Equity Firms Really Want From CMOs - Part 1

You can bring on a lot of customers, but if they churn out, you know, you're just buying debt, you're not buying long term growth. Hello. Welcome to our first Exit Ready podcast. Today we have Gary Service, operating partner, AI transformation at Insight Partners with us. Gary, great to have you with us today. Thank you, Alan. And can you tell us about you and Insight Partners to start off? Absolutely. Well, first of all, thanks so much for having me on. I feel honored to be on your first podcast here. Insight partners is over 30 years old. We have over 550 active investments, 55 IPOs, $90 billion in regulatory assets under management. And I think what's cool about us is that we have the scale to do it a little differently. And I'm operating partner in our on site group and our on site team is over 100 people who just work with our portfolio companies. And I've been spending a lot of time over the last few years in the AI space and obviously I know recovering cmo. And as I say to people, I may not be leading the marketing center of excellence anymore, but you can't take the market in and out of me, so it's all good. And you can't have a conversation today without AI coming up quickly. So you're right in the crosshairs of everything. So, again, welcome. We're thrilled to have you with us today. Why don't we start with the CMO hiring process? What do you think PE firms do well and versus maybe not so well in hiring CMOs for your portfolio companies? Yeah, I think every PE firm approaches hiring differently. Some have more structure. Like, for example, we have a talent center of excellence. Other firms have maybe just a talent partner or whatever that might be. But I will tell you, the thing they do really well is finding candidates. Like, talk about boiling the ocean. I mean, whether it is their internal networks or leveraging, you know, trusted search firms, they find candidates. And I think that is incredible. I think the challenge for most investors is that they're not operators. And I think that the better firms include operators in the interview process beyond just the investor. An investor is looking for very particular things in a cmo. And it may be whatever the deficiency was of the previous CMO as an example, or they may be looking more specifically at a skill set. You know, I really think we need a brand cmo or I really think that we need a CMO who delivers on the numbers. And, and that's. That's great. Yep. But I often say the biggest challenge and something that I think an operator can bring is both the search firms and the investors are really good at round holes and round pegs, but not necessarily seeing how that square peg can be shaved down. And I'll, I'll give you a quick example. Someone may say to me know, I only want a CMO candidate who is a cyber security expert. And what I might respond back is hey, maybe and we should, but why not look at folks who have shown time over time success in multiple industries, not just a bring new ideas. Bring new ideas, don't be, don't be stuck because they bring baggage, you know, along the way. And I think that, you know, for most, you know, really good hiring means seeing a little bit beyond the obvious. And that's why I said like bringing an operator into the interview process, which we do, adds that structure to it. That makes complete sense. Do you see PE firms changing their expectations of CMO these days? And if so, how? Yeah, I mean let's be clear. P.E. in and of itself is changing its own expectations itself. And so whatever the model was in the past is not the model that's going to go forward for private equity. And I think that, you know, it's easy to say that we want to restructure the cost of go to market and really rethink what that marketing component is. But I would add, as you know, the overlay here that the real challenge isn't just cost and it's not just FTEs. It's really about those PE firms that are saying I really want a different kind of marketing. And you know, we can talk in depth about all the things that are changing in marketing in the age of AI, you know, everything from discoverability to the tactics that you use to the power brand and all of these things. Now I don't necessarily expect the investor to know that, but I do expect the operating partner who is over go to market to understand that. And therefore we want different people in seat. We want people who are going to be AI native thinkers. We don't want people to create the organization of the past. We want them to create the organization of the future. And we want them to understand technology and software and tools still have a role. It can't all be done by Claude, but I want you to create a different system than you have in the past. And sort of my rule, I have two like things that I'm looking for. One is I definitely want people who are willing to say I'm going to measure myself on pipeline per fte. I don't care about the headcount per se. I care about my pipeline to that FTE count. Yep. And then the second part of it, which I think matters is in, in, in the old days, a few years ago and so far back, we look right, you know, but like in the old days, you, you would very often throw people at the scaling problem. And if you saw that as the answer today, it demands a different approach, it demands a different way of staffing. And so these kinds of changes are all bumming. And by the way, you know, the number of AI first CMOs is small. Like there are few. There are some people who just said, well, you know, I'm just going to figure this out and do it. But you know, they're few and far between. And so I think it's just an interesting time in general in that regard. Absolutely. Yeah. It's. Things are changing very quickly. It's an exciting time, actually. Great time, I think. Great time to be in marketing. I agree with you, but we have to change with it. So what are board members asking of CMOs today? I mean, a lot of board members have a CEO or CFO background. Not enough marketing people in boards I've seen. But what are you saying board members are looking for in CMOs they bring on board? Well, first of all, when I'm on the board, I ask very different questions on the team there. And that's cool. I mean, that's the, that's, you know, in, in theory, that's the whole point of a board is to have a lot of different perspectives around the table. Absolutely. But you know, for, for folks that don't have an operator on the board, you know, I think there are several expectations that they want to see. The first, which is sort of easy, is, you know, I'm not coming in here asking you for more people. And, and right. That, that is. And we can talk more if you want just about like the future marketing work, because that has a lot to do here with how, how orgs are thinking about it. But yeah, the most important thing that the board wants is they want first and foremost clear performance, which they've always wanted. But they're also looking at new KPIs. That's why I talk about the revenue per FTE for the overall organization because that's what the CEO or maybe ARR per FD, that's what the organization is accountable for. And the more sophisticated board members don't get caught on the number, but they are looking for the efficiency, the impact and, and quite honestly, they don't want to hear what they were. They may not know what AI native marketing is, but they know it is whatever they were hearing before is not. So if they're hearing what they heard before, something in their head goes off and says, I'm not really sure you're really moving with the times here or that you're making the kinds of changes here. And I'll, I'll add one last little piece here just worth noting, you know, never before in the history of, of software. I know, Love this big comment. Have more boards been comfortable saying to the CEO, I'm giving you permission to reboot your business. I'm going to actually give you more money to reboot your business because I know if you don't reinvent yourself, you'll be obsolete. Right. But with that, with great power comes responsibility. Yes. And so now I'm giving you this opportunity. Show me that you're doing it differently. Show me that you've made some choices to really rethink your business. And by the way, you may need to put a lot more money into product percentage wise. You may need to shrink your marketing budgets and that means you need to do it differently and forcing function to do that. What about boards understanding the relationship between short term pipeline and the current quarter and long term. We were at the Insight, we were at the breakthrough conference, six sense breakthrough conference and heard Kerry Cunningham's talk. 5%, only 5% are in market now, 95% are consuming content. They may be in market, you know, 18 months from now, two years from now, six months from now. They're developing short lists and if you're not on it. So the importance of brand gravity upfront, even though it may not show up in this quarter's pipeline and results and, and long term growth versus, versus just this quarter. Any comment on that? Yeah, I'm going to, I'm going to add one other of his stats in there, which is the one that I've been quoting to folks. Weirdly, I was on the phone with Carrie yesterday. The quote is basically 60% of your ICP at any given time is not in market. Right. So you've got to be working them, getting awareness, making sure at some level you're trying to have a presence. Yes. But marketer's job today is around the 34% that are in just the consideration group. And I say to every marketer today, your job is to get in the consideration set. Because if you're not in the consideration set, no amount of cupcakes and you know, golf outings and whatever else sales could throw at it is going to make you part of the sale because of the folks in the consideration set is what the purchase is. So the only job of marketing is get me into the consideration set and then we can talk about as it moves down to purchase and buying motions. That's where sales is going to do its work. But your job in marketing isn't simply pipeline and it isn't just. It is absolutely get me into the consideration set and should be measuring how well you're doing that across buying groups. Because if you're not, the rest is just vanity because the right ICP that will, you know, retain and grow with you versus bringing on debt just to make the quarter correct. And ultimately you know this as well as I do, Alan, like the the vanity of hitting pipeline coverage is irrelevant. I say this to everyone. Can you imagine if instead of four times coverage we did three and a half how much less money you would need to spend Right. In order to get there? You have an inefficient motion because your conversion is so low. If you up your conversion, your coverage goes down and if you're targeting better and by the way, AI allows you to do all of this so much better. So there's no excuse for the old four times coverage as like my safety net here that we're going to hit the quarter. It's quality, not quantity. Absolutely. Long term growth. So okay, that's great. So. So you mentioned KPIs earlier, Gary. You see KPIs changing. You mentioned you know, coverage, you know, revenue or you know, per fte. Are there any other metrics, you know, things like gross revenue retention, net revenue retention, LTV to cac, others that PE firms are looking at or be or boards are beginning to look at more when they think about the multifaceted jobs of that marketing is doing. Yeah, look for us in the investing team and therefore for us in the operating team, gross retention is king. Yep. NRR is an interesting discussion but it covers over weaknesses in businesses and one of the things that I think is really hard today. So I make this comment often. It's never been harder to be an entrepreneur today and it's never been harder to be an investor today because the signals aren't quite the same and they don't mean the same. And so you what you're starting to see is some, especially around PLG driven businesses where you get to see this like jump in revenue and let's not talk how everyone is calculating that revenue but it is this jump in revenue and it's like wow, look at this traction. This Organization's getting, which is awesome. Yeah. But what you're missing, and it's hard to know, and that's why it's so hard to do. You may have some customers that are, are in major trial mode in the AI world. Everyone is in trial mode. Everyone is like one model away from jumping to another solution. And so if I can't see your gross retention numbers, like I don't have enough time. I don't, I, I can't have real quality in that measurement, then I really don't know what kind of traction your business is getting on this new technology because I may wake up tomorrow and cursor's done something magical and no one wants to use clock code anymore like it is possible. And so I just think that we're in a place today where gross retention is critical. I want to make sure, I want to see overall conversion is what I care about. I want to see those numbers going up. And you know, ultimately, again, this is, this is sure pipeline, but I want to make sure you're doing that efficiency. That's why I said you can bring on a lot of customers, but if they churn out, you know, you're just buying debt. You're not buying long term growth. No, no, that's great. So are there when you think of CMOs, you've seen CMOs operating in many portfolio companies now. Are there any common mistakes you've seen either presenting to the board or for the CMOs that haven't been successful at inside portfolio companies? Are there things you're seeing that you could advise folks to. Yeah, I mean, some of it is obvious what I'm going to say, but it doesn't mean that it doesn't happen. Sure. So let's start with the, the, the most obvious mistake people make. They go into a board meeting without knowing what the board cares about. Yep. They're like, well, I'm sure they're assuming, you know, they'll want to see, you know, my web traffic numbers. And I'm sure they'll want to see, you know, we know how to spell assume my pipeline looks like. And like the maybe, maybe not. Maybe they don't know what they want. And so if you're not empowered to at least have a conversation with one of your key investors to say, I want to make my time with you the most efficient. Right. What, what do you want? There's no magic thing because everyone has different buttons. A lot of times I'll give you, you know, the, the, the, the behind the scenes, it's a Lot of times it's what happened the last board. That's what they're going to ask at the next board meeting. Right. And so it's it. That's number one. Number two, and I think, most importantly. And this is not just CMOs. This is CEOs. This is CMOs. This is CROs. They look at the board meeting as a report card. I'm going to give you all my things here to get an A, B or C. Yeah, absolutely. Be a conversation, right? Exactly. Use the board for why you have a board. I, I have three topics I'd like your input in today. Yep. Here's. Here's a decision we're making about our positioning. Love to hear your experience in other portfolio companies about that. We have a problem in pricing. We're not quite sure. Like, give us some, like, here's the three options. We're leaning toward this. What else should we be considering? Yep. That's what a board is. This is not weakness, not having all of the decisions made. It is power to leverage the board to give you the input that makes you better. Absolutely. Yep. And for. You've seen so many CMOs and so many portfolio companies over the years. How many years have you been at Insight? I'm coming or shouldn't I ask? I'm coming on 11. 11 years. So for CMOs who haven't been successful, how much of it is the CMO versus the situation they walked into? Look, I have a high bar on what I consider to be a good CMO. And I have more mess CMOs than great CMOs. I try. I work hard. I know, I know you do, but, like, you can't. You know, the truly great CMOs, like, you know it, the board knows it, everyone knows it. And there, there are reasons why they're truly great. This middle is a lot of times where our folks spend time to try to lift them up, to give them more experience. They may have a limited aperture of what they've seen. I, I say this all the time. It's like, look, you know, you've been at 10 companies. That's amazing. You know, I've met with 10 companies, you know, by the end of my day. And so, yeah, you understand, I'm getting data points, our team are getting data points. We. Insight brings together more data than anyone around everything. And so there is no way for you to know what our teams know. And so the, the CMO that opens themselves up and is vulnerable enough to take the help, to look at the data, to, to change what they may have thought was the way to do it. Yep. Have a lot more success, a lot more respect for and they will be much more successful than those CMOs that just come in. Said, well, you know, I've been in 10 companies that have done this, so I'm just going to run my place. You have to be willing to take input and, and know it takes a village. And you don't know it all coming in. And I, I've seen that too. And I don't know it all either, by the way. Like, as much as none of us do. Like, no. I went to a conference one of our portfolio companies around credit unions. It's like, you know, I was learning about the credit unions things and I left that thing with so many ideas and so many different things and like a very particular part of the market with very particular compliance issues and very particular, you know, challenges around that. And so like, you gotta just open yourself up and just be really comfortable that you don't know a lot. Right. And be transparent. Especially today because it's moving so quick. Whatever you thought you knew, you know, six months ago. Is there one question a CMO should ask in the interview that they almost never ask to. You can think of to me or the investor to when they're interviewing for a CMO role at one of your portfolio companies. To the portfolio company itself. Yeah. Well, during the interview with the investor and. Or the portco. Great. All right. I'll. I'll give everything. Nothing held back. When you, when you, when you're talking to the company. I'm sometimes shocked about the CMOs that don't ask for more detailed financials. Oh yeah. From the company. Like, I'm shocked. Like, why would you step into that if you didn't have full. And if they don't want to share it with you, that's a big flip lag in. Absolutely. Now, I'm not saying to give me, you know, your fully audited income statements about. I like, I want to understand. I want to see what your debt is. I want to see your cash Runway. I want like all of this is table stakes. Okay. So that's to the company, to the board member. The question I just told you. Like, what would you want to hear from me at a board meeting? Yes, why not? Great time. And then for the operator, you know, tell me all the resources you have to help me be successful. And again, there's a whole continuum there. Yes. You know, it could be as much as I can introduce you to another cmo, which is great. Or I have research on every topic under the sun and you know, we can get you filling in the weaknesses in your skill set in your team and whatever. What do you give to me? You know, one of my favorite interview questions when I was still going for full time CMO roles, you know, I do interim CMO and coach cmos and go to market. But my favorite, I love what I do. My favorite question to a CEO was if you were me sitting here today, what would you most want to know but wouldn't know unless you worked here for six months? Yeah, I love that. Great question. And I always get good question and, and, and then you shut up. And the answer they give you gives you a sense for how open they are. Yeah, I agree with that. Because every company has issues. That's why they hire us to fix problems. Right, right. And, and I always, I, I always have a lot of respect for folks who have come from high flying companies and companies that were struggling but they were able to make the difference. And so, you know, I think there's no shame in, I sometimes say, you know, sometimes bad companies happen to good CMOs. And so just because, just because you weren't successful at the company, it could be the product market fit, which is never right. And there's no doubt a marketing fairy that we can put on it that's going to make it right. And so, you know, I go in like very, I'm not judgy at all about what happened, what the exit was, you know, great. It's a team, it's not them. It's never just one person. And you learn a lot by failing sometimes too. I mean, my favorite quote from Winston Churchill, the definition of success is moving from failure to failure with no loss of enthusiasm. Yeah. I mean that happens in our careers in life and you learn from them, you know, 100%. Well, Gary, thank you. This has been, this has really been a wonderful conversation. Really appreciate it being here. Thank you.