Jan 31, 2024 · 1h 12m · news
Dave Kellogg: How to Forecast in 2024 & Why CaC Payback is Flawed and CAC Ratio is Better | E1110 · 20VC with Harry Stebbings
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In this episode of 20VC, host Harry Stebbings interviews prominent SaaS executive and strategic advisor Dave Kellogg to dissect the operational realities of modern software companies, providing actionable frameworks on metrics, sales forecasting, customer success, and leadership transitions.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 23.4% of the talking time here. How this is scored →
Harry as informed peer 4.1 Guest teaching 5.7 Guest disagreement 2.5 Harry pushing back 3.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 29:25 Rejecting Stretch Forecasts as Bad Management
Dave forcefully shuts down Harry's suggestion of using sales forecasts as motivational stretch targets, declaring that coercing higher commitments produces useless numbers and represents bad management.
Hardest push from Harry ▶ 21:15 Challenging Commercial CSM AlignmentHarry directly rejects Dave's framing of customer success managers as revenue-focused sellers, arguing that introducing explicit sales quotas destroys the trusted advisor dynamic.
Biggest teaching moment ▶ 10:05 Operator vs. Investor Metric PerspectivesDave explicitly calls out Harry's investor bias when Harry substitutes Net New ARR into the CAC ratio, detailing why operators require simple, atomic metrics to isolate sales efficiency.
Harry holds his own ▶ 6:13 Countering CAC Payback Limits with LTVHarry uses unit economic theory regarding long LTV horizons to challenge Dave's hard rule on CAC payback periods, forcing Dave to admit Harry beat him to the counterargument.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Career Highlights and Navigating Corporate Power Structures | 2 | 4 | 2 | 2 | Harry welcomes Dave back and asks about his career highlights and lessons learned around corporate power structures. Dave reflects on his time at Business Objects and how failing to understand corporate power got him into trouble, while Harry agrees on direct communication styles. | |
| Defining Efficient Growth, Data Maturity, and the Flaws of CAC Payback | 5 | 5 | 3 | 6 | Harry challenges Dave's strict limit on CAC payback periods by asking if long payback periods matter when customer LTV is 8+ years. Dave acknowledges Harry's point, noting Harry beat him to the argument while clarifying VC cutoff realities. | |
| The Superiority of CAC Ratio, Operator vs. Investor Metrics, and Metric Cheats | 6 | 7 | 4 | 5 | Dave calls out Harry for adopting a VC perspective when Harry substitutes Net New ARR into the CAC ratio formula. Dave explains why operators prefer atomic metrics like New ARR over compound VC metrics, though Harry defends evaluating overall business trajectory. | |
| Deconstructing NRR vs. GRR: Definitions, Formulas, and Benchmarks | 3 | 6 | 1 | 1 | Dave breaks down the exact mathematical formulas for Net Retention Rate (NRR) versus Gross Retention Rate (GRR). He provides updated post-downturn benchmarks, adjusting expectations down from 120% to around 105%-108%. | |
| The Evolution of Customer Success: Moving from 'Huggers' to Commercial CSMs | 7 | 5 | 3 | 7 | Harry cites Henry Schuck and Snowflake CRO Chris Degman to question whether CS teams should even exist. When Dave argues CSMs should act as commercial sellers, Harry pushes back that upfront commercial framing creates transactionalism rather than a trusted relationship. | |
| Churn vs. Sales Forecasting: The Art of Churn Data and Sales Triangulation | 4 | 6 | 4 | 5 | Dave argues churn forecasting is relatively straightforward using product usage data, whereas sales forecasting requires triangulation. When Harry suggests sales managers use stretch forecasts to push reps, Dave strongly rejects this as bad forecasting and poor management. | |
| Sales Team Scaling: Hiring in Threes for Controlled Experiments and Managing Reps | 4 | 6 | 4 | 6 | Harry pushes back on Dave's 6-12 month evaluation timeline for enterprise reps, arguing a manager can spot performance within a month from call notes and pipeline. Dave reframes the debate, explaining that the hardest decision is retaining non-selling reps who are executing correctly in difficult verticals. | |
| Categorizing Sales Reviews: Forecasts, Pipeline Scrubs, and Collaborative Deal Reviews | 3 | 6 | 3 | 2 | Dave corrects loose sales terminology by categorizing sales calls into three distinct types: forecast calls, pipeline scrubs, and collaborative deal reviews. Harry clarifies that he specifically means deal reviews and CEO involvement on material deals. | |
| The Anatomy of a Slip: Symmetrical Slipping and 'Closed Plan' Best Practices | 3 | 6 | 2 | 2 | Dave adopts a strict stance on sales slips, arguing reps have 'one job' and introducing the concept of a symmetrical slip evaluation and rigorous close plans. Harry is impressed by the methodology and asks Dave to share a closed plan template with the audience. | |
| Selling Through Curiosity: Identifying the True Buyer | 3 | 6 | 2 | 3 | Dave outlines Barry Rhein's 'Selling Through Curiosity' methodology to uncover true buyers, and walks through sequential negotiation tactics to counter aggressive discounting using his wet rag metaphor. | |
| The Role of Customer References in Negotiation | 6 | 5 | 3 | 4 | Harry offers a VC perspective on why outbound response rates have fallen, attributing it to the proliferation of AI sales tools. Dave agrees, describing automated outbound outreach as an arms race where buyers quickly become numb. | |
| Replicating Vertical Success: The "People Like Me" Effect | 3 | 6 | 1 | 1 | Dave summarizes Geoffrey Moore's core principle into a single sentence: people buy when they believe people like them use the solution. He explains how sales reps can demonstrate vertical alignment. | |
| Firing Up Focus: The Pitfalls of a Broad Ideal Customer Profile | 4 | 7 | 2 | 2 | Dave illustrates horizontal product marketing using a JetBlue vs. McGraw-Hill documentation analogy. He then warns against prematurely broadening an Ideal Customer Profile (ICP), recounting how Versant's IPO value was ruined when management abandoned vertical focus. | |
| Technical vs. GTM Founders and the History of CEO Replacements | 4 | 6 | 2 | 2 | Dave explains his specialty in helping technical PhD founders master go-to-market concepts. He traces Silicon Valley history from routinely replacing founders with GTM CEOs to Andreessen Horowitz shifting the paradigm toward founder supremacy. | |
| The Re-emergence of Founder Transitions and the Sherpa Model | 6 | 4 | 1 | 2 | Harry highlights Dev Ittycheria's success at MongoDB as a prime example of an executive CEO scaling a business alongside technical founders. Dave agrees, describing his own role at MarkLogic as a 'Sherpa' bringing technical founders to the summit. | |
| Navigating AI Sales Tooling and the Future of Sales Productivity | 4 | 5 | 2 | 2 | Harry cites Battery Ventures research showing AI sales tooling could reduce sales org staffing requirements from 110 to 75 people for the same quota. Dave agrees that AI will eliminate sales drudgery while advising founders to experiment aggressively. | |
| Quick-Fire Round: Pricing, Hiring Mistakes, and Overfunding | 3 | 6 | 3 | 2 | In the quick-fire round, Dave offers sharp takes, calling subscription pricing a 'religion' pushed by VCs that creates hidden downside risks during market downturns, and criticizes overfunding startups. |
Statements from this episode (40)
Dave Kellogg: Analyzing sector performance is low-hanging fruit for efficient growth
“The low-hanging fruit on efficient growth is a dispassionate, calm analysis of what sectors do we sell to.”
Kellogg: Marketers focus on correctness while salespeople navigate room politics
“Now, I think the difference between a salesperson and a marketing person is I tended to be more theoretical. What is correct? What is right? Whereas a seller is reading the room very closely. Who cares about what? Who has what interests?”
Kellogg: Ideal customer profile evolves from aspiration to regression
“An ICP, ideal customer profile. ICP starts out as an aspiration, and over time it becomes a regression, right?”
Kellogg: VCs stop calling SaaS startups with CAC payback exceeding 24-36 months
“I do think somewhere around 24 to 36 months people stop calling you back, so you have a different problem. It doesn't matter how good your story is if you don't get the meaning.”
Kellogg: Good CAC ratio benchmark is 1.5 for enterprise, 1.0 for SMB
“I'd say a 1.5 or less is in enterprise. I mean, here we are back to your question. The bigger the deals, the more permission you have. So an enterprise, I might go one five. In SMB, I might go one O.”
Kellogg: SaaS operators should calculate CAC ratio with new ARR, not net new ARR
“As an operator, I actually just do it on new ARR. My first order CAC is just, it's not net new, because net new introduced churn. You just made my metric more complicated, right? You made it easier to cheat. You took away some of its meaning.”
Kellogg: Investors need compound metrics for screening; operators need atomic metrics for fixing
“If I were screening companies I would, I tend to want to use compound metrics. The more I'm trying to fix broken things, the more I want atomic metrics.”
Kellogg: Startups blaming rising CAC on 'low-hanging fruit' underestimate market size
“I think most startups, when they make that argument to me, I think they're vastly underestimating the size of their market. That if you have a really, really big market, That, that you haven't picked all the low hanging fruit.”
Kellogg: SaaS NRR dropped to 105%, driven mainly by increased churn
“And by the way, if you asked, like, the most recent study, I think, said one oh five. The reason I said one oh eight is I just can't make my mouth say one oh five. But I think it may have come down from one 20 to one oh five, to be honest, and I think it's thr…”
Kellogg: Pitched against competitor hunters, SaaS customer success farmers always lose
“The single biggest sin in SAS is putting your farmer against someone else's hunter, right? Cause they will lose.”
Dave Kellogg: Churn forecasting is easier than new sales forecasting
“Churn forecasting to me is actually easier than new sales forecasting.”
Kellogg: Leaders should be unsympathetic to CS VPs missing churn forecasts
“So, so I just think CS for it, I am, if a VP of sales misses their forecast, I'm somewhat understanding. To me, it's I'm not very sympathetic to a VP of CS that misses their forecast, because how is it that you didn't know?”
Kellogg: A good sales forecast gently upslopes to actual sales, not quota
“And a good forecast looks like this, gently upsloping to the actual number you sell. Notice I've never talked about quota. Because forecast is not about quota.”
Kellogg: Pressuring reps into higher commits ruins sales forecasting accuracy
“Some sales managers use the forecast as a club to kind of push the reps around. Like if I could just in a moment of week is get you commit to one 20, then I can hold it against you for the rest of the quarter. First, I don't think that's great sales management…”
Dave Kellogg: Startups should hire sales reps in groups of three
“So I like hiring three at a time but not for the Hunger Games effect, for the controlled experiment effect.”
Dave Kellogg: Evaluating enterprise sales reps takes six to twelve months
“I would say somewhere between six and 12 months in enterprise.”
Dave Kellogg: Keeping non-performing sales reps is harder than firing them
“The hardest case is not firing somebody who's not selling. That's easy. The hardest case is keeping somebody who's not selling.”
Kellogg: Sales reviews must be split into three distinct, specialized calls
“In my world, there's three different types of calls. Let me just define them. I think the There's a forecast call, there's a pipeline scrub, and there's a deal review. Purpose of forecast call is to come up with a forecast. Should be all numbers. One of my sid…”
Kellogg: CEOs are negligent if not deeply involved in material quarterly deals
“As a CEO founder, I think you just need to look at the materiality of the deal to the quarter. And like, are you What's the word? But negligence in your duties. Like at some level, if the deal is material of the quarter, you better be in it deep.”
Kellogg: Sales reps' sole job is forecasting and closing on time
“You don't make the software. So your only job is to sell the software. You're not a technical resource. You don't help customers deploy. So this is kind of the, you had one job argument, right? Like you had one job. And it's like, let's just remember, that's w…”
Kellogg: Sales teams must update close plans whenever deal excuses arise
“By the way, everyone should have a closed plan, and every time you hear one of those excuses, it should go on in the closed plan.”
Kellogg: Deal slips are only excusable due to unforeseen acts of God
“The company got acquired on the last day of the quarter, all purchasing got frozen. Okay! Right? That we couldn't have seen coming, right? But it needs to literally be that level of act of God, right, before It's before it's an excusable reason for a slip.”
Dave Kellogg: Selling through curiosity works better than trying to act smart
“Selling through curiosity is just amazing, because most salespeople are, in some ways, they're too busy trying to prove how smart they are, be tough and confident, and it's just so humble a place to come from”
Kellogg: Enterprise sales teams must draw a firm line on discounts
“There's a great metaphor, Harry, which is when do you stop squeezing a wet rag? When the water stops coming out, right? So as long as there's water coming out, I'm going to keep squeezing, and then even then, when the water stops coming out, what do you do? On…”
Dave Kellogg: Using customer references as sales negotiating chips is flawed
“I don't love it as a negotiating chip because if I'm doing right by your business and if I'm delivering value and if we have a good relationship, you should do it anyway. And if you're only doing it because of a gun to your head, because you promised you'd do …”
Kellogg: Outbound sales worked significantly better four years ago than today
“I think Outbound actually worked better four years ago than it does today, because I think everyone's doing it, and people are getting flooded with it, and they don't like getting called on their cell phone, they're not answering their regular phone, and you c…”
Kellogg: Outbound sales strategy fails on low ACV $5k productivity products
“If you're selling a 5000 dollar a year system to anybody, As a generic productivity tool, I have a lot more trouble getting excited about outdoor.”
Kellogg: Buyers purchase software when they see similar peers using it
“I mean, I can summarize all of Jeffrey Moore in one sentence, which is people buy when they think people like them use your solution, period.”
Kellogg: Vertical sales strategies succeed despite higher implementation costs
“Look, vertical strategies work, because the people like me effect, they're inherently limited, and they're a little bit high cost, because you now have to learn a lot about all your customers in that industry”
Kellogg: Expanding across verticals or use cases is high-friction for startups
“The other thing, so I imagine this all as a matrix of vertical versus use case, and every time you're hopping a cell, it's danger, right? Like you know how to sell the custom publishing use case to publishers. Can I sell it to airlines? First, the first one is…”
Kellogg: Aspiring founders should choose product management over engineering
“If I was advising a young person where to go, if you wanted to found a company in two or three years, I'd say product, not engineering.”
Kellogg: Founder replacements will increase and favor GTM executives
“If and when you replace a founder, which was extremely unpopular for the last five years, but I think will get more popular going forward, you will tend to replace them with a GTM person.”
Kellogg: Andreessen Horowitz paused Silicon Valley founder replacements for over a decade
“Jason Horowitz, in my opinion, Put that trend on hold for a decade or more, right?”
Dave Kellogg: AI sales tools market will consolidate within 18 months
“So if I were a founder of one of these companies, I'd be very aggressive right now to get myself known and established in the market, because this market will organize, right? We're in the chaos phase of the market, and so from the vendor side, this will organ…”
Dave Kellogg: AI sales tools will reduce sales support headcount by 30%
“Well, you know, battery came up with a famous slide well now famous slide, but they basically said, I'm going to get the, I think to support 30 sellers, they argued that today it takes a 110 personal organization and that tomorrow it'll take 75. So they're say…”
Kellogg: Subscription SaaS Companies Were Hit Harder Recently But Still Grow Faster
“The great paradox right now is that people who are in subscription pricing generally have been hit harder than those who are not, but they're nevertheless still growing faster.”
Kellogg: Expanding into Enterprise Fails When Founders Ignore Enterprise Requirements
“They think that the product will work in enterprise without understanding the requirements.”
Kellogg: Hiring Sales VPs Based on Pedigree Often Rewards Luck Over Skill
“Hiring a VP on pedigree value who turns out just to have been in the right place at the right time.”
Kellogg: Asking 'Why' Questions Reveals Whether Sales VPs Drove Past Success
“I think if you ask why questions about how decisions got made, you tend to find out if they were making them.”
Kellogg: Stuffing Startups Full of Cash Encourages Unhealthy Wasteful Spending
“I honestly don't believe that floggrowing startups, as they say, stuffing them full of cash is a healthy behavior. Some are actually good. I know a few that seem good at raising money and not spending it and saving it to grow later, right? But most people, whe…”