Data Doesn't Lie: Why Root Cause Analysis is the CRO's Secret Weapon

INTRODUCTION

Over the past few months, I've had countless conversations with CROs, and one topic keeps emerging repeatedly. It's getting harder and harder to make the quarterly numbers.  Each CRO I spoke with had slightly different issues, but the result was the same.  What were some of the problems they had been seeing?

• Win-rates?  Slowly going down in aggregate in nearly every company I've spoken to (some pockets of the business might be holding up – but overall win rates are trending slowly down).   

• Sales Velocity?  Opportunities are taking longer and longer to close (average days to close) – and more and more deals expected to come in the quarter are slipping into the next quarter.

• Pipeline Coverage Ratios: A sales team used to need 3-4x pipeline coverage to hit the number in the quarter—now I'm seeing cases where it's 5x, 6x, 7x, and in some cases even 8x.  

• # of Sales Reps Achieving Quota: Most of the companies I've worked with set a target of 80% of their reps achieving quota every quarter, but this has been falling over the last 4-5 years, and I'm regularly seeing companies in the 60%- 70% range and some as low as the 40% range.

There isn't a single issue causing this to happen—there's no doubt it's a multitude of issues. They could include increased market competition, economic uncertainty, evolving customer needs, ineffective sales enablement and training, poor product-market fit, "good enough" substitutes, or more.   

Over the last decade, I've seen a lot of organizations try and band-aid over the issues by investing more in technology, spending more on lead generation, adding additional salespeople, forcing more and "better" training on teams, lowering sales targets, and more.

In the end, none of these solutions ultimately solves the problem. They might help temporarily, but over time, the trend will continue. Why? They don't find and honestly address the root causes of what's impacting their performance.

If you're a CRO or leader in the RevOps organization, how can you find out what's happening?  One method I have found to be a powerful way to find out what's happening is doing root cause analysis.  Note that there are other approaches to identify underlying problems (e.g., systems thinking, fault tree analysis, 8D problem-solving, etc.) – but I will focus on root cause analysis in this article.

RCA OVERVIEW

Root cause analysis (RCA) is a structured problem-solving approach to identify the underlying causes of an incident, problem, or failure. The primary goal of RCA is to determine what happened, why it happened, and what can be done to prevent it from happening again. By addressing the root causes, companies can avoid recurring similar issues and improve overall performance, quality, and safety.

Why is root cause analysis important?

• Prevents recurring problems by addressing the fundamental issues rather than just treating symptoms (don't just band-aid the issue)

• Enhances reliability and performance by identifying and eliminating the sources of failures

• Improves safety by recognizing and mitigating potential hazards 

• Reduces costs associated with failures, downtime, and repairs

• Promotes a culture of continuous improvement and organizational learning

There are two standard methods I've used in the past for conducting root cause analysis:

• 5 Whys Analysis: This simple yet effective technique repeatedly asks "why" questions until the root cause is identified. Start with the problem and ask why it occurred. Then, continue asking "why" for each answer until you reach the underlying cause. This method is best suited for less complex issues

• Fishbone Diagram (Ishikawa Diagram): This visual tool helps identify potential causes by categorizing them into different areas, such as people, processes, materials, environment, and equipment. The problem is placed at the "head" of the fishbone, and potential causes are listed along the "bones." This method is helpful for brainstorming and visualizing the relationships between

There is no single "best" method for doing root cause analysis; the most successful approach depends on the nature and complexity of the problem. Regardless of the method used, a thorough and well-executed root cause analysis is essential for driving continuous improvement and preventing future problems.

EXAMPLE

Let's say you are the CRO of a $100M B2B SaaS company. You've noticed that win rates are declining, and you need more pipelines to meet the number. As the team was brainstorming potential causes, you might have started with a list that looked like this. 

• Lead Quality Issues

• Sales Team Performance

• Competitive Landscape

• Product-Market Fit

• Marketing and Sales Alignment

It's a good start, but those are broad categories, so we'll need to examine the potential sub-issues driving each of them more deeply. 

Lead Quality Issues

1. Targeting the wrong audience

2. Ineffective lead scoring

3. Poor lead nurturing

Sales Team Performance

1. Insufficient training

2. Low motivation and engagement

3. High turnover rate

Competitive Landscape

1. Stronger competitors

2. Shifting market trends

3. Inadequate competitive intelligence

Product-Market Fit

1. Misaligned product features

2. Poor user experience

3. Insufficient value proposition

Marketing and Sales Alignment

1. Inconsistent messaging

2. Misaligned goals and metrics

3. Inefficient lead handoff process

This is a much better list to start drilling into. After talking to the various teams, you've realized it's most likely not the last 3 categories but potentially somewhere in Lead Quality or Sales Team Performance.  Drilling down into the next level on those might get you an updated list that looks something like this:

Lead Quality Issues

1. Targeting the wrong audience

   1. Insufficient market outreach

   2. Outdated buyer personas

2. Ineffective lead scoring

   1. Lack of clear criteria for qualified leads

   2. Inadequate data collection and analysis

3. Poor lead nurturing

   1. Inconsistent or irrelevant content

   2. Lack of personalization in communication

Sales Team Performance

1. Insufficient training

   1. Inadequate onboarding process

   2. Lack of ongoing coaching and development

2. Low motivation and engagement

   1. Unclear career growth opportunities

   2. Ineffective compensation and incentive plans

3. High turnover rate

   1. Uncompetitive compensation

   2. Poor management and leadership

You've looked at this list with the team and, based on the data, strongly feel that lead scoring is the issue to address in depth. Let's go back to the starting problem statement, add this as a hypothesis, and do a 5 Whys analysis on it.

PROBLEM STATEMENT AND 5 WHYS

Problem statement: The sales team is experiencing a decline in win rates and an increase in pipeline coverage ratios, indicating that the lead scoring process may not effectively identify high-quality leads.

1. Why are win rates declining and pipeline coverage ratios increasing?

   1. The sales team is spending time on leads that are less likely to convert, resulting in a lower win rate and a need for more pipeline coverage to hit their targets.

2. Why is the sales team spending time on leads that are less likely to convert?

   1. The current lead scoring process does not accurately identify the leads that are most likely to convert, causing the sales team to pursue lower-quality leads.

3. Why is the current lead scoring process not accurately identifying high-quality leads?

   1. The lead scoring criteria and model may not be aligned with the attributes of the ideal customer profile (ICP) and may not be based on historical data and conversion patterns.

4. Why are the lead scoring criteria and model not aligned with the ICP and historical conversion patterns?

   1. The organization has not invested sufficient time and resources into analyzing historical sales data, customer attributes, and engagement patterns to develop an accurate and predictive lead-scoring model.

5. Why has the organization not invested sufficient time and resources into developing an accurate lead-scoring model?

   1. The importance of a data-driven lead-scoring approach has not been fully recognized or prioritized by leadership, and there may be a lack of collaboration between sales, marketing, and data analytics teams.

Root cause hypothesis: The organization has not prioritized the development of a data-driven lead-scoring model that accurately identifies high-quality leads based on historical conversion patterns and alignment with the ideal customer profile.

SOLVING THE PROBLEM

Once you have identified the cause, it’s time to develop an approach.  This isn’t meant to be an extensive discussion on how to solve the problem, but you might take steps like the following.

1. Establish a cross-functional team consisting of sales, marketing, and data analytics representatives to oversee the lead-scoring optimization project.

2. Conduct a thorough analysis of historical sales data, customer attributes, and engagement patterns to identify the key characteristics of high-converting leads.

3. Develop an updated lead scoring model that assigns weights to different attributes and behaviors based on their correlation with conversion likelihood.

4. Implement the new lead scoring model within the marketing automation and CRM systems, ensuring that scores are automatically updated based on lead interactions and characteristics.

5. Provide training to the sales team on how to interpret and utilize lead scores effectively in their prioritization and outreach efforts.

6. Establish a process for regularly reviewing and updating the lead scoring model based on new data and insights to ensure ongoing accuracy and relevance.

7. Monitor the impact of the updated lead scoring model on key metrics such as win rates, pipeline coverage ratios, and sales cycle length to measure the effectiveness of the optimization efforts.

By following this 5 Whys analysis and implementing the recommended solutions, the organization can address the root cause of the lead scoring issue and improve the accuracy of lead qualification. This will enable the sales team to focus their efforts on the most promising opportunities, ultimately leading to improved win rates, more efficient pipeline management, and better overall revenue performance.

WRAP-UP

This is just a simple example of how you might use a root cause analysis tool like the 5 Whys. As a former strategy consultant, I can tell you that this is a highly effective tool used across organizations and problem types of all sizes. It's not a one-size-fits-all solution, but it's one way to really get at the core of an issue and engage the organization in a meaningful discussion of critical issues and topics.

There is a lot of great research out there on how to use tools like 5 Whys and I would strongly encourage any ops team or sales leader to use tools like this to help make sure that their organizations are always performing the best that they can.

OLLIE

As always, I'm ending with a quick photo of Ollie. At the moment, he’s sound asleep at my side, keeping me company while I hit publish.

Best,

Steve

steve@revopz.net