Private Equities and Venture Capitalists on CROs: To Train or To Fire?

This is part one of a two part series on private equity and venture capitalists position toward chief revenue officers. Today we’ll discuss what we’ve discovered speaking to a number of VC firms over the past few years, and specifically how we determine the role of a VC.

Incredible as it may be, KeyRoad has found Venture Capitalists (VC) prefer to replace a Chief Revenue Officer (CRO) than providing third party support to help them achieve their business goals in the B2B world. 

We met with various VC firms over the past number of months to determine if our assumptions, offerings, and market opportunities for KeyRoad were valid and justified. To our great surprise we confirmed that PE were indeed good candidates for our services. We also discovered to our greater surprise that VC firms, in general, were not. What we discovered and confirmed was that during their due diligence they are terrific at analyzing and understanding their target companies’ markets, technologies, management team, and financial needs. Most of them are not visionaries but they are good at this type of due-diligence.

However, what we also discovered is that they are much less equipped or effective at evaluating their target companies’ go-to-market strategies, plans, and tactics.  We also discovered that VC firms prefer, post acquisition, to release a CRO of his/her duties, rather than providing them the necessary support to meet their revenue targets. 

Imagine this: the cost of replacing a CRO, when you account for lost opportunities in closing deals, cost of headhunting, cost of hiring, cost of prospects and existing clients disruption, new CRO ramp-up time, and some other miscellaneous costs, we calculated to be between $500K and $750K per CRO.  Compare that to the cost of arming a CRO with best practices selling processes, tailored messaging and selling tools, sales force enablement and training for a 30 strong sales force which is around $120K or approximately $4,000 per sales execs. You might imagine that the decision to equip the CRO to succeed would easily trump firing them (6 times less expensive!). It should. But it doesn’t.

So we asked ourselves: Why would a VC choose the firing route?  The arguments we heard were: “we are money people, not operators” or “in the CEO we trust, it is their call to operationally support their CRO”; or “our board seat demands we replace executives, not that we enable them to succeed”; and so on.  In our world, this doesn’t make much sense.

However, there may be something else in there.

In order to figure out the role of the VC, we have to ask ourselves these questions:

• Can or should VCs understand and evaluate whether the shortfall in revenue, and therefore the need to replace the CRO, is a person, a process, a market, or a business issue? 
• Should VCs identify whether their target or portfolio companies have a repeatable, scalable, disciplined, and well-defined engagement roadmap that would align the company’s selling efforts to the prospect’s buying process?
• Has marketing been a service organization to the sales team and the selling efforts of the company (aside from its PR, MARCOM, and Product Marketing responsibilities)?
• Post investment due-diligence, is it necessary for the VC to drive the revisiting and refinement of the target markets, industries, offering, and processes to assist the company in achieving its revenue and growth goals? 
• Is it the VC’s responsibility to hear and act on statements like: we have no competition; our market is unlimited; our problem is that we have the wrong sales people; we have the smartest people in our market?

The answer to all these questions should be a resounding YES.  But unfortunately in most cases, VCs do not carry out any of these points.  That is one of the true reasons why they prefer to fire the CRO. It makes them feel big, strong, engaged, active, and powerful. 

What do you think? Should a VC fire a CRO or equip them with tools necessary to become successful?