If you’ve been hiding under a rock you may have missed massive news that came out with the cancellation of Elon Musk’s compensation package. ]
According to Reuters:
Under the 10-year deal, Musk was eligible to win an options tranche every time Tesla hit a series of up to 12 targets. Those targets were tied to increases in Tesla's market capitalization in $50 billion increments, and to aggressive hurdles for revenue and EBITDA growth. Musk went on to hit all 12 targets, and the options are now worth $51 billion, accounting for the cost to Musk to exercise them. He still owns the options.
Now I’m a huge fan of understanding arguments and counter arguments. It’s one of the best ways to understand both sides and build bridges. Effectively, Elon was tasked with growing the company’s market cap to $600 billion and in return he would be paid $51 billion. That is an 8.5% “commission” to Elon the way I see it. On the surface that doesn’t sound outrageous.
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I owned Tesla shares from 2018 to 2021 so call me a fan of the brand. I listen to two podcasts fairly religiously and both of them came down separately on their analysis and opining of the verdict. The two podcasts are Pivot (Scott Galloway, Kara Swisher) and the All-In Podcast.
The Pivot podcast (PP) tends not to say nice things about Elon. The All-In podcast (AIP) is hosted by venture capitalists who are also personal friends of Elon. They both compared the rulings and here’s what I took away:
Both PP and AIP argued the cancellation of the comp program is unprecedented (sounds like this will have ripple effects)
PP argued that the board is comprised of “friendlies” to Elon and that their closeness prevented the compensation package process as bending to his will (sounds like conflict of interest)
AIP argued that the package itself was considered a BHAG (big hairy audacious goal) in that at the time the package was a high risk gambit. Most analysts thought the package to be unattainable. (Sounds like topdown VC backed goals for startups)
AIP brought up the fact the person who raised the lawsuit owned nine shares and they had held onto their shares they would have received a 10x return (sounds like the ability for shareholders to hold companies accountable is alive and well)
AIP compared the Tesla comp plan to the comp plan of the General Motors CEO. The plans are unfair in that one company’s gamble on innovation is punished while an established company who’s stock has performed flat in the same period is richly rewarded. (Sounds like sour grapes to me. Life is unfair in many other places in life. I’m a huge believer in letting capitalism run its course with appropriate intervention and focus on safety by governmental laws).
So what does this have to do with Revenue Operations?
Governance matters when it comes to corporate directorship. Did Elon surround himself with a board comprised of individuals who have more to gain working with him long term if they acquiesce to his ideas? Did he tilt the game in his favor to engineer results in selfish pursuits? I have my opinions but again, look at the facts and consider the unforeseen consequences that may follow.
But let’s talk about RevOps!
One could also argue that Revenue Operations plays an outsized and often unrecognized role in corporate governance. Hear me out.
Imagine Revenue Operations is responsible for shaping the following:
Company targets (top of funnel, new business/expansion targets, renewal / retention rates)
Territories
Segmentation
Individual targets / quotas
Compensation plan design
Business systems pertaining to Go To Market
OKR (objective, key results) / MBO (management by objective) setting
This doesn’t seem outrageous right? Seems fairly mundane.
Let’s look at the usual suspects of who RevOps reports to
RevOps can roll up under the following:
GTM via Chief Revenue Officer (the “GTM” team)
Finance via Chief Financial Officer (the “Finance” team")
Operations
Sales
Marketing
Customer Success
In a LinkedIn poll run by Haris Odobasic 64% of respondents said the CRO. Here are the poll results:
Okay cool. Now does the CRO determine your bonus as a RevOps leader? And do you in turn help to shape the CRO’s comp plan? Could this be a conflict of interest?
Let’s dive into the Conflict of Interest of reporting to a CRO
So if Elon packed Tesla’s Board with “friendlies” could you argue that a reporting structure of RevOps-to-CRO with the responsibility of setting targets and comp plans also falls suspiciously into conflict of interest? Let’s explore how.
In a typical organizational structure, RevOps (Revenue Operations) leaders are responsible for aligning sales, marketing, and customer success operations to drive revenue growth. The Chief Revenue Officer (CRO) is usually in charge of overseeing the entire revenue generation process. While having a RevOps leader report to the CRO can work well in many organizations, it could potentially lead to conflicts of interest depending on how responsibilities and reporting lines are structured. Here are a few scenarios where conflicts of interest might arise:
Bias Towards Sales Goals
If the RevOps leader primarily reports to the CRO, who is focused on revenue generation, there might be a risk of the RevOps leader prioritizing sales goals over other aspects of operations such as customer success or long-term customer satisfaction. This could create imbalances in the overall customer experience.
Data Manipulation for Short-Term Gains
In some cases, a RevOps leader reporting directly to the CRO might feel pressure to manipulate or present data in a way that highlights short-term revenue gains, even if it's not sustainable or in the best interest of the company's long-term health. Not saying you’re doing this, but I don’t think it’s impossible this could happen.
Limited Independence
A RevOps leader reporting directly to the CRO might have limited independence in decision-making, especially if the CRO has a strong focus on sales. This could hinder the RevOps leader's ability to address broader operational issues that impact overall revenue health. Which leads to…
Neglect of Customer Success
I’ve explored this topic recently in…
If the CRO is solely focused on revenue generation and the RevOps leader reports directly to them, there might be a risk of neglecting customer success and satisfaction, which is critical for long-term revenue sustainability.
To mitigate these conflicts of interest, organizations need to clearly define the roles and responsibilities of both the CRO and the RevOps leader. Establishing a balance between short-term revenue goals and long-term customer satisfaction is crucial. It might also be beneficial to have checks and balances in place, such as having the RevOps leader report to both the CRO and another executive, such as the COO or CEO, to ensure a more holistic and balanced approach to organizational operations.
Hierarchical Dynamics
Reporting directly to the CRO can create a strong hierarchical relationship, making it potentially challenging for the RevOps leader to push back against the CRO's ideas. There may be concerns about how dissent will be received and the potential impact on their working relationship.
Alignment with Revenue Goals
Since the CRO is primarily focused on revenue generation, the RevOps leader may feel pressured to align with revenue-centric ideas even if they have reservations. This alignment could stem from a desire to support the overall organizational goals and maintain a positive working relationship with the CRO.
Lastly, the big one: Fear of Consequences
Reporting directly to a senior executive like the CRO may create a fear of consequences for the RevOps leader if they challenge ideas or strategies. This fear could be related to potential negative performance evaluations, strained working relationships, or concerns about professional advancement within the organization.
Reader: Okay now you’ve convinced me that RevOps shouldn’t report to the CRO. What about the CFO?
Me: I didn’t say that but yes let’s take a look at reporting to the CFO
Reporting to the CFO
Before I moved into Revenue Operations in 2014 I worked in FP&A at Google. I partnered very closely with my marketing operations and sales operations counterparts. Specifically, we worked on the following deliverables:
Unit economics definitions
Bookings and Revenue reconciliation
Budgets and planning
Quotas
Compensation plan design
Deal desk
At the time I saw the role had a ton of crossover. So much so that I eventually made the move myself into Revenue Operations.
When a RevOps leader reports to a CFO (Chief Financial Officer), the dynamics and potential conflicts of interest can be different compared to reporting to a CRO. Here are some considerations for how this reporting structure might affect the RevOps leader's willingness to push back on the CFO's ideas:
Financial Focus
Reporting to a CFO suggests a strong financial focus, as the CFO is primarily responsible for financial management and strategy. The RevOps leader might face pressure to align their initiatives more closely with financial metrics, potentially prioritizing cost control and efficiency over other operational aspects.
Balancing Revenue and Costs
While the CFO is concerned with financial performance, including revenue, they also play a role in cost management. The RevOps leader may need to strike a balance between revenue generation and cost control, and this could influence their willingness to challenge ideas that may impact either aspect.
Data-Driven Decision-Making
CFOs typically rely heavily on data for decision-making. This could create a dynamic where the RevOps leader, who often deals with operational data, feels more empowered to push back if their arguments are supported by robust data and financial analysis.
Alignment on Long-Term Financial Health
Both the CFO and RevOps leader are likely aligned in their focus on the company's long-term financial health. This shared goal may foster a collaborative environment where the RevOps leader feels more comfortable providing input on decisions that impact revenue, costs, and overall financial sustainability.
Operational Efficiency vs. Revenue Generation:
Unlike a CRO, a CFO's primary concern is not solely revenue generation; they are also concerned with financial efficiency and risk management. The RevOps leader may find it more acceptable to challenge ideas that prioritize short-term revenue gains at the expense of long-term financial stability.
Lastly, let’s look at reporting to the COO
I coach a client who reports directly to the VP of Operations. Not Revenue Operations, but Operations. Much like Sales Operations and Marketing Operations could be a subset of RevOps, then in this view RevOps is a subset of Operations. In my current role I not only perform the usual RevOps responsibilities, I also help with revenue recognition activities at month’s end. Additionally, I’m performing contract review activities before a contract goes out for proposal. At startups you tend to wear a lot of hats!
So let’s dig into the conflicts of interest with a COO reporting structure.
Operational Focus
The COO is typically responsible for overseeing day-to-day operations and ensuring efficiency across various departments. Reporting to the COO may mean a greater emphasis on operational effectiveness and streamlined processes, with a focus on achieving overall organizational goals. Sounds like a lot like RevOps? Maybe just maybe this is a strong fit for RevOps over the CRO and CFO.
Balancing Operational Efficiency and Revenue
While operational efficiency is a priority for the COO, revenue generation is also crucial for overall organizational success. The RevOps leader may need to navigate the balance between optimizing processes and driving revenue growth, and their willingness to push back could be influenced by this balance. A COO may not appreciate all of the specificities of certain roles. For example, with Sales Operations the COO may not dive into team culture and the impact of changing territories.
Collaboration Across Departments
The COO oversees various departments, and the RevOps leader may need to collaborate with multiple teams to optimize revenue operations. Conflicts may arise if there are competing priorities among departments or if the COO's focus on operational efficiency hinders cross-functional collaboration for revenue growth.
Resource Allocation
Conflicts may occur when deciding how resources, including personnel and budget, are allocated between optimizing operational processes and investing in revenue-generating initiatives. The COO might be more focused on resource efficiency, while the RevOps leader may advocate for strategic investments to drive revenue.
Risk Tolerance
The COO may have a risk-averse approach to operational changes to ensure stability and efficiency. In contrast, the RevOps leader may need to advocate for innovative strategies and take calculated risks to drive revenue growth. Conflicts may emerge if risk tolerance levels differ significantly.
Performance Metrics
The COO may use operational metrics to assess departmental performance, while the RevOps leader may focus on revenue-related KPIs. Conflicts can arise if the COO prioritizes metrics that do not align with revenue goals, potentially leading to misaligned incentives.
Now that we’ve gone over all of the issues for reporting to each position. I’d like to review the positives and where I think the RevOps team should report into by stage of company. Also, what are the prerequisites for success.
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