Thought Leader Interview
Chris Cabrera has had a great career in senior management positions at small and large companies both public and private. He founded Xactly Corporation a cloud based sales compensation company and he has been active in the CRM space writing for numerous publications and speaking on compensation topics. He was the senior vice president of operations for Calidus Software (NASDAQ: CALD) an on-premise incentive compensation compensation management company that he now competes with, and he ran North American channel sales at Silicon Graphics (NYSE: SGI) where he was responsible for annual sales of over $500 million. If there’s one thing Chris knows its selling and how to reward it. We took the opportunity recently to seek out some of his wisdom.
Denis Pombriant: You’ve been in the sales compensation management market for a long time, first at Callidus and now at Xactly, a company you started. That makes you an expert in my book, but what is it about this space that’s so interesting?
Chris Cabrera: Well, great question. The space has fascinated me since I first learned about Callidus, which was in 1998 and Callidus was a very small company. It’s partly because I’d always been in sales and I’d always been dealing first hand with the pros and cons of compensation and how it worked and mostly of the cons. Being paid inaccurately and not having ways to see how I was doing — and later when I was a sales manager not being able to see who were my top performers were some early motivators. So, that was all frustrating but the thing that’s most interesting to me, now that I’ve worked in this space for thirteen years, is how dramatically doing compensation correctly can positively impact a business. There are just so many ways in which compensating correctly or incenting right can drive better revenues, affect discounting practices, change product mixes. It’s so much bigger than what lay people think of compensation — i.e. just automating spreadsheets. But it’s so much bigger than that and it’s always fascinated me.
DP: So it’s really a sales optimization tool even though it gets wrapped up in the idea of compensation. It sounds to me like it improves the sales process from end-to-end.
CC:It absolutely does. It’s about some age-old behavioral science and about the DNA that sales people have. It’s why we hire them; it’s how we train them. We want reps who wake up in the morning and are driven by over-achieving on their sales objectives so that they can make more money. At the core that’s the DNA you look for in a sales team and compensation is the tool or mechanism you use to make that happen. It’s fascinating to me that in 2011, with all the things that are happening in technology that ninety-nine companies out of a hundred are managing this problem in Excel. It’s a shame because this is such an important area with literally millions and millions of dollars being managed and spent — to not automate it, to me, is criminal.
DP: Well, it’s a good problem to have if you’re you.
CC: Right!
DP: Chris, front office business processes were relatively late to get automation support and for incentive compensation came even later, why do you think it’s taken so long?
CC: You know it’s funny, and this has been an area of consternation for me having been in this space for so long. When you look at the history of this space, the reason is pretty simple. Callidus was an early player, as were Oracle and Siebel had a product — and all of those products were designed for mega companies that could afford to write a check for multiple millions of dollars for those products. They could also buy half a million dollars worth of hardware to run it and pay IBM or Accenture to install it and then wait a year and a half. It was really designed for the mega company and I was in the forefront of selling those systems to the likes of Allstate Insurance and Direct TV and Sprint and Verizon and that class of customers. So the vast majority of companies in the world couldn’t even play and there wasn’t a solution available to them and that’s what I believe has been the cause of this slow adoption. With the advent of Xactly, we’ve seen the market really take off before our eyes. Xactly today has almost four hundred customers because now whether you have three reps or three thousand reps there’s a solution that’s affordable.
DP: What are some of the benefits that you have seen customers receive over the years from incentive compensation management?
CC: There’s a number of powerful ROI’s for this kind of system and there are case studies on our website about our customers. But in general, we are automating a very manual process, so right out of the gate there are some big benefits to just getting off Excel. Gartner’s done studies that describe a three to eight percent known error rate in payments with these manual systems. Now think about a two hundred person sales force and you’re paying them fifty grand a year or even a hundred grand a year (in commissions) and you’re talking about a five to ten million dollar cost center. To be managing that with a three to eight percent error rate, you can do the math, that’s a big problem. So one part of the ROI is just that.
The second thing that we see is a behavioral change, tapping into this DNA of sales people. Tweaking the compensation plan to drive better behavior, and this can be done by motivating through getting more cash up front or discounting less or selling “fries with the shake” getting reps to sell products in conjunction with other products. In each of those areas I can give you examples of companies where just one change to the comp plan has justified the entire expense of automation. So that’s how powerful this area is when you consider the multiplication effect — if I can change one rep’s behavior imagine what would happen if I could change ten, twenty, a hundred or a thousand. It becomes pretty impactful.
DP: Pretty cool and that’s just the low hanging fruit, isn’t it?
CC: Absolutely. This is not rocket science. You’re tapping into some of the oldest and well used motivators in the world. You can go back to pirates plundering ships and they were using compensation routines to split up the plunder. It has been around forever and it’s just amazing that companies are not using cutting edge tools and they’re still scratching it out in Excel and hoping they’re driving the right behaviors.
DP: So are you saying that large company CEO’s need to be more like pirates?
CC: Well…
Don’t answer that!
CC: Ha!
DP: Is SaaS a key ingredient in delivering value in this market? Do you see much of the typical resistance to SaaS (issues about storing data off site, reliability etc.) that SaaS vendors have seen in other areas?
CC: SaaS is absolutely the key to delivering value in our market. If you go back to what I said earlier, for years this market was centered around doing relatively few deals in a quarter because so few companies could afford it, that was one thing that plagues our industry. The second thing is that even those companies that managed to go live after a year to a year and a half, quickly became stranded on an old platform, an old version — they weren’t always able to take advantage of the latest and greatest technologies. What’s so exciting about SaaS and this new paradigm for delivering software from a vendor’s standpoint is that everyone of my customers is on the same version of my product. They can never be stranded and we can focus all of our energy and engineering on just one code line and make it better and better. Every six weeks, literally, we’re able to bring out great new features and functionality and every customer gets the benefit. They don’t have to do an upgrade, they don’t have to pay more money, they just get it. For me that’s the reason the market is starting to work, nobody wants to build their own power plant. They just want to get onto the Internet and get their reps paid.
DP: Now, let’s look at the flip side. Do you see much resistance to SaaS like we’ve seen in other places. Things like people not wanting to store their data off site or reliability concerns or any of that other stuff?
CC: You know, I think it’s just the opposite. When CIO’s ask these kinds of questions — and it only comes up in about one out of ten sales calls — I ask them who does your compensation today? The answer is usually something like, “Suzie’s our compensation person and she does the compensation.” So I ask, ok where does she keep everything and the answer is often, “Well, it’s on her laptop” and all of a sudden you see a smile on their faces because they know this is confidential stuff and they know this data is just floating around on someone’s laptop. I can’t tell you the number of times as the situation plays out that someone says, “Oh, yeah, remember that time her laptop got stolen when someone broke into her car?” I think you begin to realize how silly that all is. I think today with Salesforce having led the way it’s rare to find someone who believes all that, it’s become something of a red herring. From a reliability standpoint our system has had near one hundred percent up-time for twenty months, which you’d probably never have in your own data center.
DP: Compensation management is a relatively simple application, is it the tip of an iceberg? Are there other areas or business processes where a sales organization can benefit from this kind of automation?
CC: Well, I might take exception to the idea that this is a “simple application.” People who aren’t familiar with compensation might think, how hard could it be? You’re paying some reps on some orders but what’s phenomenally misunderstood in our space is that many of these companies are paying on millions of lines of transactions. For those companies, each transaction might have ten line items on it and if they want to pay at the line item level, which is common, then all of a sudden that million transactions just became ten million transactions.
On average across our customer base it’s very common that a company might pay ten, twelve even fifteen people on a given order. You might pay the rep, the rep’s manager, the manager’s manager, the VP of sales. You might also pay the SE and the SE’s manager. You might have a channel partner involved, a marketing person and before you know it you’re paying ten people on one line item. So you’re paying ten people on ten million line items and all of a sudden you realize this is an exponentially difficult math problem. This is why compensation can become so complicated so fast.
Having said that we typically sell to finance organizations and they struggle with this but things around compensation like quota management and territory management and being able to do modeling and analytics and things like that all fit around compensation like bookends.
DP: I think I’m going to cry Uncle right here. It’s not a simple bit of automation!
CC: Ha, ha!
DP: We are beginning to hear about revenue performance management, is this an area where incentive compensation management can make a difference? How?
CC: Well, compensation is at the core of what drives a company and it’s going to drive the behaviors of the sales team. So to the extent that what the sales people are doing impacts revenue performance then compensation is going to be a major piece of that. What companies are struggling with is that revenue recognition is specific to the company and its history. Events can cause things to be recognizable or not so this is an area where companies can look at their specifics and say, we know that for us to recognize something that a deal has to have this sort of structure. Great, so let’s build a compensation plan that drives that kind of structure and that de-incentivizes structures that would not let us recognize revenue. So to that extent it can definitely impact revenue performance.
DP: What are some of the other benefits of incentive compensation management say, for the sales person, the sales manager and for the CFO?
CC: At the end of the day the greatest beneficiaries are the salespeople because it can help them make more money. The way this happens is with the ubiquitous web. In the world today to not be able to show your sales people every day how they’re doing, to not be able to show them what-if scenarios on the deals that haven’t closed yet, to not be able to show them right away what they’ve earned is a tragedy.
Then there’s sales management. As I’ve come up the ranks in my career in sales management I’ve run teams from ten people to hundreds of people. The thing that always frustrated me as a first line sales manager was that I always wanted to know how my team was doing. Give me the top reps, the bottom reps so that I could give kudos to the top people and maybe bump somebody on the head that was on the lower side. Again this is all about providing visibility and information that’s what these systems provide to sales management and sales leadership all the way up to the VP of sales.
Finally, on the CFO side, clearly taking this quagmire of Excel spreadsheets that’s paying tens of millions of dollars out and automating it so that it has audit trails and it’s SOX compliant — that’s what CFO’s care about. Also, making sure their sales admins and compensation admins can do analysis and help them with modeling and run things like a business and that’s the big benefit to those folks.
DP: Ok, time for the last question. The Rex Sox have been acquiring players left and right this off season including Adrian Gonzalez from the San Diego Padres and Carl Crawford from Tampa. How do you assess their chances to make the playoffs in 2011?
CC: I think they’re pretty good! I am feeling good about the team. I thought they were’ starting to gel near the end of last year. It was a tough year but we have high hopes for ’11 and I think some of the moves they’ve been making are pretty good.
DP: We’ll see how it goes when the games start to count, I guess. Thanks for your time, Chris.
CC: Thank you.
