Why Most Fractional CROs Fail

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue®, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

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Welcome to the House of Revenue®. I'm Mary Grothe, Founder and CEO. I love scaling companies to their first 5 million, then 10, 15, and 20. If you've reached a revenue plateau and aren't sure how to get past it, you're in the right place. Listen in as we interview CEOs and solve their most pressing revenue challenges. If you want to be on our show or want to learn more, connect with us at houseofrevenue.com. 

Why most fractional CROs fail without a high-performing team? That's our topic today. And we're going to start by digging into what a CRO is first, I think that's important before we even start talking about how to hire one fractionally. The second is defining what is a fractional CRO because there's a difference between a full-time and a fractional. We're going to go through the pros, the cons, hiring, timing, how you use them, what the common pitfalls and mistakes to avoid. So, let's dig into all of this. For those of you who don't know, we add House of Revenue® operates as a fractional CRO, but we have figured out how to do it to where you actually get it's a weird term, I don't know, maybe give me some feedback if we should even say this or not. But we refer to it as a three-headed CRO, because we are accounting for all functions of a CRO, but it for a single person, but you actually get three. So we'll dig into that more here in a minute. But let's talk about why most fractional CROs fail without a high-performing team.

First, what is a CRO? That is Chief Revenue Officer and a Chief Revenue Officer is responsible for all revenue functions and revenue teams with an organization typically defined as marketing, sales, customer success and revenue operations, those four components should fall under a CRO, they are responsible for the entire lifecycle of a customer from the first touchpoint through onboarding or that renewal expansion point. And all the revenue that is tied to that customer throughout the process. With a great CRO, you are able to enhance your client experience, you're able to reduce churn, you're able to bring in new qualified prospects and buyers into your funnel, you should be increasing conversion rates through the funnel because they're hyper-focused on bringing efficiency into the stages of your pipeline and your funnel. You should be creating brand ambassadors out of your clients, they're so hyper-focused on that customer success piece and ensuring there's user adoption of your product or service. There's penetration into your full suite, you're maximizing revenue on every client, you're doing the voice of the customer surveys, you're creating these brand ambassadors, you're getting case studies and testimonials, leveraging incentive programs is getting referrals from your client base.

There's so much that this Yarrow is responsible for, but it is not a single person's job. But that's why it's a chief revenue officer, not a revenue person in your team. I couldn't think of anything better revenue manager, it's a chief revenue officer, they are meant to be executive level, which means they need to have a team underneath them. Well, let's talk about the CR o with some of the challenges that we've seen with executives hiring a full-time CRO, one, they either have sales bias or marketing bias. And now as we're seeing more heads of customer success, potentially taking that track into CRO world, you may see a bias on customer success. Or you may see which is probably more common, zero experience in customer success. And so you're looking at this zero position. And what you have to be careful of is I always thought coming up the ranks as a high-performing salesperson the number one viewed within a company was sales versus operations. So I always thought that's who argued and that's who battled sales says it's always operations fault operations. It's always sales fault, but I'm wrong.

I think one of the bigger battles now that we've seen the evolution of marketing departments scale is between marketing and sales and marketer marketers and heads of marketing are attempting to drum up leads for sales teams and then you hear all these sales teams say that marketing qualified leads are joking there a waste of time. And you hear sales teams that say I don't even call an MQL because it's probably some white paper download from somebody who's just doing research and their college students. Well okay, if you're MQLs are that bad, there's a different problem to solve. That's a whole other show. We'll dig into it. But ultimately, you're gonna either have marketing but you're going to have sales bias. And there's typically a history of feuds between these two departments. Because out of the same salesperson's mouth, they're gonna say, marketing doesn't give us any leads. And then marketing is gonna say, well, sales never close our leads, and they never accept our leads. And so the metrics are off. So one, this URL should be solving that problem but they can't solve that problem.

If you're hiring somebody as a CRO with a heavy marketing background, or heavy sales background, the best sorrows have spent time in execution, management, and leadership positions in both marketing and sales. Yes, that makes it a little bit harder to find that person. But I'm warning you if you hire a CRO, that their whole life has gone up the sales track, and you put them in a CRO position, and now all of a sudden, they're responsible for marketing and customer success, but they've never worked in those functions, you're going to have some gaps. So where do the y's find people who are proficient in marketing and sales and potentially also in that customer success conversation, which just a little bit harder to find that because that is a newer role within the last decade. And so it's just, you're gonna be hard-pressed to find people that are evenly experienced throughout those three functions. 

There's also the concern of timing with bringing into CRO, we have found that a lot of startups and first stage scale companies, so historically, we work with second stage scale, meaning they already achieved their first few million in revenue. If you're in that b2b tech, SAS professional services space. For our clients in the CPG. And consumer brand space, we're noticing that they're hitting their first real revenue plateaus between 50 and 100 million is when we're usually getting involved for the second stage of scale, buy in, in the first stage of scale, CEOs are tasked with making a very big decision on how they're going to grow their revenue department. And it's becoming increasingly popular to hire a CRO, but I don't want you the CEO, my audience, I might somebody might people, CEOs, a love you. And I want to bring caution to you that hiring a CRO without understanding that the best CRO has to have a high-performing team backing them, it will not set you up for success. So often what we see is CEO saying is it chicken or egg because a CRO is going to be a high-level strategy.

Whereas if you start to hire functionary roles or those that are doing execution and report direct to the CEO, you can actually build your base of infrastructure, get more proof of concept, have revenue brought into the organization, and then you can bring in that CRO layer afterward to bring in that strategy for that second level scale. But it's very much chicken or egg. But I'm cautioning you because with the work that we do, I get to meet with CEOs every week. And in the initial conversation, I typically hear their two to three years if not more, into their journey. And almost all of them have made a mistake on this key hire. And I hear war stories about prematurely bringing in executives who were not the right fit, because the CEO has had this idea that because the CEO is the chief everything officer, I can do every role within the company that a CRO level hire should also be able to do everything within the company. But that's not how it works.

They're not a CEO, they're not you, they're not going to be the car. Typically, that's going to carry a bag and also to build their own marketing campaigns, and run the whole revenue function and then eventually build-out of the team. Those are unicorns, they're few and far between most heroes that would be willing to do that function for a startup or going to seek a significant amount of equity, they've probably done it before helps the company scale had an exit or two, that's somebody that would be great for this role. But they're few and far between. So if you're looking at bringing this person on board, just be cautious of those things. Let's talk about the difference between a full-time CRL and a fractional CRL. Here's where I'm bringing you another round of caution. First, what is fractional What does that mean? How do you have a fraction of a person that sounds scary? 

Okay, if you think about the term fractional, it has been around for a while, it's predominantly used with fractional CROs where I see a lot of fractional executives. I've heard and seen fractional VPs of Sales. These are people who are executives and there's fractional CMO. Now it's becoming increasingly popular. These are executives who are typically consultants who work on contract and those support two, maybe three or four or five clients. And what they do is they split up their time. And so you get the talent, the brilliance of an executive, but you only pay for a fraction of their time because they are breaking up their time amongst multiple companies.

So therefore, you should one, be identifying how many hours are you truly getting paid? If you're an earlier stage company, it is going to be very difficult to not have a fractional executive that can allocate half of their time to you at a minimum. Be cautious of the Chief Revenue Officer role, it is so vital to the success of your organization. If you're a CEO who's more of a technical CEO or technical founder, and sales and marketing is really not your forte, this role just became even more important because for all of you, technical CEOs and founders out there, like we love you, by your ability to speak in your buyers language, like normal human being language and translate what your technology your product and service does in their day in the life and the problems it solves. You struggle with that.

Typically, technical founders and CEOs struggle with even understanding the mechanics behind marketing and sales, because it's so foreign. And that's okay, because you're brilliant in the technical side of the conversation, find someone who's brilliant in marketing and sales, actually using two different sides of your brain to different unique skill sets and DNA at the inner core means. So know that if you're more on the technical side of this role has to be brought in sooner than later, when we are talking about having a fractional leader for your organization. 

Let me break down the mathematics for you and why most fractional CRO models will fail. If you're only getting one person. One, a fractional CRO is already splitting up its time amongst multiple clients. So you're getting a fraction of their time. A full-time CRO already has to split up their time between marketing sales, customer success, and revenue operations. That's a full-time job. It's a lot of work. And so if you're already having to take what's a full-time role, and carve it up fractionally and the consultancy or service, or the individual fractional CRO that you're talking to, is only giving you a portion of their time, that's a huge red flag to me because there are going to be critical components of the work that you're doing that are not going to get done in a decent timeline, because they simply won't have the bandwidth, the time the capacity to make it happen. Also, most fractional CRS again, as we spoke about whether it's a full-time CRL, or a fractional CRL, the best sorrows don't do execution. They do strategy, they build infrastructure, they build playbooks, they build rhyme and reason, they recruit brilliant and talented teams, they make a playbook come to life by hiring exceptional talent, who they oversee and hold accountable and coach and mentor.

It's those people that got brought in underneath them, like VPS of marketing, or sales or directors or managers and then all the way down to that executive level. So be cautious. And again, I'm speaking from experience both because this is what we get to do for a living. So, I do believe that with our 100% success track record, in scaling companies knock on wood, we have something to talk about here. But as I said, I get to meet with CEOs all the time, every week, I mean, four or five fresh conversations with CEOs per week, understanding their challenges in scaling and what's leading or what led to their current revenue plateau, what they've tried to do to get past it. One of the very common pieces that they're speaking about is this component of when to hire a CRO and how it works. So, there're pros and there're cons of the fractional CRO model, the pros, it's usually less expensive than hiring one, she CROs are super pricey, like, on average, maybe $250,000, bays, another $250,000 and variables. So, it's probably a good benchmark to say 500,000. And then they're super expensive, and then they're not going to come in and do the work for the execution. So, expect them to want to build out their revenue team, they're going to want to head of marketing, they're going to want to head of sales.

You're probably looking at a buck and a quarter for the head of marketing, you're looking at a buck 50 on the base for the VP of sales, probably up to 250 on o t, depending on your type of company. Underneath that. On the marketing side. Marketing is not one function marketing actually has about 10 to 15 specialties built into what marketing is versus sales, you may have your sales team carved up by segments. So, you could have like small business mid-market upmarket or enterprise. You could have geographic carve-outs, you could have vertical-specific you could have the sales cycle broken out into roles like SDR BDR, who are doing that top of funnel work alongside marketing, then you have your account executives or sales engineers, account managers, so you can segment those roles. But ultimately, you can find salespeople that can Do a lot of those functions are most likely have done a lot of those functions in their career, and they're very proficient. So, there's a huge variance. 

On the marketing side, you're going to need somebody who lives and breathes and loves social media as an example, this is one of those roles, that usually gets put to like the owner, 16-year-old children whose super good with Instagram, who's never done a brand or done any social media, but like, we've seen this, oh, well, we actually have the owner's daughter that's helping us out or whoever the person is, we have a marketing intern that's working on that why social media is delegated to somebody who isn't an expert in social media. That's an issue because social media is a huge way for your brand, to create relationships with the community, with your community. And through social listening and engagement. It's a huge proponent for our growth, we just got an inbound lead through a LinkedIn post, I've never met this person before. And I'm we're working on a new opportunity to close from a LinkedIn post. So, don't underestimate the power of social media. So that's an example that could be a full role in itself.

Then you have paid media, it is a very specialized skill set to be certified in paid ads. There are multiple mediums for it. There're multiple methods and ways to do it, and skill level and certification, and ways to work your ad spend, and you need a skilled professional, and that's a full-time job. Then you have graphic designers, you have your creative person who's on staff that's responsible for producing all of your sales ennoblement, I mean, down to your logo down to your social media templates down to the brochures, the flyers, your investor decks, whatever it is, you have somebody that owns the brand guidelines in the creation of all creative materials to help any buddy in the organization. It could even be for new client implementation and onboarding where you have an onboarding plan for new clients to help them with training and learning your technology or service as an example, that could be a marketing function that requires creativity, then you could get into video, video production, storyboards, editing, producing videos, that's a whole other specialty that you could have a full-time person on your staff. And when you get into content and having content writers and a content road map and blogs, you get into podcasts and broadcasting methods, then you're getting into so many other roles.

What about SEO, and oh my gosh, marketing is not just marketing, a great marketing department has specialists in all of these roles. And your CRO, like if you're just expecting, oh, we're hiring a CRO, and they're coming from inserting big name company here, great, but like Do they not have an amazing team potentially 10 to 15 people deep on their team, covering facets of marketing and sales, like do not have an expectation that they're not going to come to your company and want to build out that same team in order to be high performing. So, we have noticed that a lot of CEOs and the first stages scale and second stage of scale, just don't acknowledge and understand how much of an investment they need to make in order to scale. Usually, the allocation that they've set aside in their budget, or what they've taken to their investors or the board or put in their pro forma, it's too low, and they're way underestimating. So, on that there's, there're pros of a fractional CRO, because they're less expensive than that 500,000. But please do not be confused to think that a fractional CRO themselves is going to do anything more than building a high-performing strategy for you amongst your revenue departments.

You're still going to have the expense of building out all those layers, so that CRO, who comes in may recommend hiring five to seven roles. Well, now you're a $1 million expense, $1.2 million, plus what's the expense of the marketing budget they want to bring forth? Because you may have Ad Spend built in there and other expenses and fees. And so you think, well, Oh, goodness, you know, I was looking to grow revenue. Now all of a sudden, I'm out $1.2 million. This isn't what I signed up for. So, you have to ask those questions and be very clear. Oh, gosh, I didn't even bring up the tech stack. Like what about revenue operations? Are they gonna want to bring in new automation and upgrade your CRO and bring in other technologies to automate steps of your process so there're tech fees as well, that go into them. So, there's there's something to be aware of on that. So I guess I would share the pros and the cons when you fractionally you can get them less expensive, but just have an understanding of what the expense is going to be in addition to them. When you look at the cons of a fractional CRL here are the things that would cause concern for me as a CEO, how much time they're going to be spending with me what biases they have whether those biases lean towards marketing or sales.

If they have you ever been in a customer success role at all even dabbled in operations or account management or anything with client experience, worked in a call center, done anything with new clients fomentation an onboarding client new client training in the delivery, customer support, tech support customer service, anything you want to add in that category, have they ever done anything in that except you know, more than walk the floor and know who their counterparts were in those roles. And so it's critical that your CMO has an understanding of those functions. Otherwise, they're going to be great at driving new business for you. But then you're going to create and this would fall under the con, you're going to create a problem for yourself when you're driving a ton of new business, and then it all falls apart in the back of the house because now you bottleneck implementation. And so then your marketing and sales team, you just dropped $1.2 million on this CRO and the plan and you've built all this out, you bring on all this new business. And now your churn rate goes through the roof, you've already signed contracts, you can't even get the new business through implementation, because you didn't plan for this. And you didn't have a CRO that was looking through the full funnel.

Let's say you get them through implementation, but a lot of the team strategy was land and expand strategy. So, we'll just bring him in on our main core product or service that we sell. And then after they've been on our service for three to six months, let's upsell them to the rest of our product suite, or service that we'll get but who actually wrote that strategy isn't overseeing that strategy and ensuring that's happening, that should fall under the CRO. And if you don't have eyes on this, then you need to have eyes on it. One of the biggest things that we find when we start working with a company, I immediately tasked our team with a data dump of their current client base, how many clients they have the products or services, they subscribe to the products and services, they don't subscribe to you and identify how much revenue This is what we call it, revenue is sitting in the base waiting to be sold.

Then we encourage them to create an account plan and strategy by every single client put in steps and parameters identify what they're even qualified for to buy and where we can further the penetration into the product or service that. And then we have a timeline, we assign a quota to that we have mentorship and training and coaching for key account managers or strategic account managers or whatever you call that role. Customer Success. Whatever you call it, whoever's responsible in this arrow should be overseeing that strategy and ensuring that's coming into fruition because a chief revenue officer is responsible for all the revenue within the company. And so they have to have their eyes on that component. So, the biggest AHA for us a House of Revenue® was we acknowledged when we were going to start having a say, in our client's marketing, customer success and revenue operations. 

As a reminder, when we started our company, at the end of 2017, we operated under the name sales b q. And our plan was to rebuild sales departments. But about 18 months into that journey, we realized, wow, we're building these great sales teams, but they're hitting ceilings, because we don't have a say in our client's marketing, customer success or RevOps. And so we did something about it, we doubled in size, we organically grew that offering. So now, when we go to an executive, typically in the b2b, tech, SAS professional services space, we are looking at companies such as scale between that two and 20 million, that's really our sweet spot with our CPG and consumer brand clients, we are playing up in that 50 to 100 million space and beyond.

When we come in, one of the biggest components is they're looking for a chief revenue officer, they're looking for somebody who can have an eye and help develop a holistic revenue strategy from start to finish. And one of the areas that we decided to be innovative to be different was to not solve this from a single person's perspective, to not bring in a fractional CRO. Instead, our clients get a VP of Marketing, a VP of revenue, who oversees sales, customer success, a RevOps analyst, as well as our entire marketing team. If you remember those 10 roles that I was talking about, our clients get access to all those 10 roles in addition, so everything from that executive-level strategy through granular level execution, and that's why our clients win in the scale. That's why they do it. way less than hiring a CRO and all these roles, our average client spends about 200 to $250,000 a year for our services. So not even for the base salary of a full-time CRO, you're getting an entire revenue team. We are known for scaling companies, we're typically to exceed MRR within 10 to 12 months. And that work is only done with a strong commitment from our CEOs who are committed and ready to scale which is very different than wanting to scale. Did you all hear me on that?

CEOs want to scale, or they're ready to scale we want the CEOs who are ready to scale. Being ready to scale means you're open to the conversation acknowledging that what you've done to get to this point isn't what's going to take you to the next level. We are committed to guiding you along that journey and making sure that your revenue plan comes to life in one holistic strategy, not silo Focus we will save you so much money in the long run pain, heartache by doing it right, being on the right set path to scale. So, as you are on this journey of looking at hiring a CRO or fractional CRL This is what I want you to be aware of. Hopefully you have a powerful checklist today to say in my evaluation process, I am now confident that what I am bringing forth is right for my company and I have exhausted the options and I'm clear and if I've left you confused or wanting to learn more by me Mary growth the connect on LinkedIn or find us at houseofrevenue.com

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Thanks for listening to today's episode. If you're interested in being on our show or want to learn more about how we can help you scale your company, connect with us at houseofrevenue.com or with me Mary Grothe spelled G-R-O-T-H-E on LinkedIn, Twitter, or Instagram.

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