What the CTO Should Have Said

Saw this joke the other day:

VP of Sales: "Every dollar I spend returns three."

VP of Marketing: "Same."

CTO: "Well, without us, there'd be nothing to sell!"

Now it's obvious that a software company that doesn't have software doesn't have anything to sell. But obvious things aren't helpful, so let's dig in deeper. When put on the spot to explain what their return on investment is, the CTO might feel justified pointing out the obvious. But that doesn’t help us answer important questions for the business:

• If we spend good money on building this feature for our product, will it lead to more business?

• If we hire another couple engineers, will their contributions create enough revenue to cover their salaries (and more)?

• How much, if anything, should we invest in tools that make our developers more effective? How much is a 10% speedup worth?

These are important questions, but hard to answer. One reason is that the efforts of the software engineering department take a long time to bear fruit. Say you add a new feature to your software product. Now what? You’ll have to measure:

• How many more people signed up because of that feature?

• How many people didn’t cancel because of that feature?

• How does the presence of that feature change the ROI multiple for sales and marketing, as in, “Now that we have Feature X, every dollar I spend returns four instead of three.”

The last part is worth emphasizing. It adds nuance and quantification to the CTO’s objection: How much easier do the product features make it for sales and marketing to do their jobs? And not just raw number of features, but also their quality. That’s why some products are flying off the shelves and others need gargantuan advertising budgets and an aggressive salesforce.

And that in turn brings us to the lesson that sales, marketing and engineering make no sense in isolation, where the engineers cook up features based on a hunch and now marketing and sales have to figure out how to turn that into revenue. Or, conversely, where marketing and sales make unsubstantiated promises to generate buzz and close deals and now engineering has to figure out how to make it a reality. That’s just local optimization rearing its ugly head again.

So in the end, what should the CTO have answered?

“I make those three dollars turn into 4.”