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Building a Repeatable, Scalable & Profitable Growth Process

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In a talk I gave at SaaS North 2017 conference in Ottawa, I talk about the fundamentals of building a repeatable, scalable, and profitable growth process for a startup.

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Building a Repeatable, Scalable & Profitable Growth Process

  1. 1. The SaaS Founder’s Journey Building a Repeatable, Scalable, & Profitable Growth Process
  2. 2. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model The Three Phases of a Startup’s Lifecycle
  3. 3. The Most important Startup Questions • When will we run out of cash? • Are we on track to reach the milestones needed for a successful fundraise?
  4. 4. The Cash Out Graph Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 $0 $2m $4m $6m $8m ($2m) Start Fundraising 3 months
  5. 5. Startups are a race against time • The way to win is extreme Focus • & total alignment across all departments
  6. 6. But… what to focus on?
  7. 7. Since cash is crucial to survival…
  8. 8. … let’s look at how to successfully close your next round
  9. 9. Startup Valuations Time Valuation
  10. 10. Startup Valuations – The Reality Time Valuation Milestones
  11. 11. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model The VC view - How risk changes over time Risk As perceived by the financial metrics and Growth Investors
  12. 12. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model How risk changes over time Risk As perceived by Early Stage Investors
  13. 13. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model And Valuations are inversely correlated to Risk Risk Valuation
  14. 14. Evidence of Product/Market Fit Evidence of Repeatable & Scalable & Profitable Growth Model Milestones for a Successful Fundraise: Series A Series A
  15. 15. Good Evidence of Product Market Fit • A number of customers have purchased • Referenceable • Customers are happy • Using the product (and would be very reluctant to give it up) • Realizing the promised benefits • Evidence of intent to expand usage • Churn is low
  16. 16. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
  17. 17. What Growth Round investors are looking for
  18. 18. The key sign that you’re getting there: Bookings - (NOT Revenue or ARR!) For SaaS: Bookings = Net New ARR (New + Expansion – Churned) Q1 Q2 Q3 Q4 Q5 Q6 Q7
  19. 19. ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
  20. 20. Net New MRR/ACV Expansion MRR/ACV (Existing Customers) Churned MRR/ACV (Lost Customers) New MRR/ACV (New Customers) The right way to measure SaaS Bookings
  21. 21. Key SaaS chart: 4 components of bookings $(15.0) $(10.0) $(5.0) $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Jan Feb Mar Apr May Jun ARR Bookings New ARR Net New ARR Expansion ARR Churned ARR Always look at a chart that shows the trendlines to see if there is growth
  22. 22. Break this into phases Search for Repeatable, Scalable & Profitable Growth Model Close early-access sales Make the customers successful Find Predictable and Repeable Motion Make it Scalable and Profitable
  23. 23. At the beginning: No clear sales path
  24. 24. By the end: Well understood path • Lead funnel • Sales motion • Customer onboarding
  25. 25. Where do you start?
  26. 26. Pick one target market
  27. 27. … with a clear Use Case Use Case Benefit
  28. 28. Messaging • Business benefits, not product features • Clear • Simple • Short • Explains differentiation from competition
  29. 29. Initial Guess at Growth Process Website Free Trial
  30. 30. The normal approach to Funnel Design Vendor Centric
  31. 31. My view: the right approach to Funnel Design Buyer Centric Vendor Buyer-Centric
  32. 32. Buyer Personae See Appendix for more info
  33. 33. MAP BUYERS PROCESS TO YOUR STEPS Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial BUYER VENDOR
  34. 34. GET INSIDE YOUR BUYERS HEAD Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial BUYER VENDOR • How are they reacting as they go through our funnel steps? • What are they thinking as they go through their process?
  35. 35. OPTIMIZE YOUR STEPS TO FIT Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial ROI Calculator Competitive Features Matrix BUYER VENDOR
  36. 36. ADDRESS ALL DECISION CRITERIA Address Security Concerns 3rd Party Security Audit & Whitepaper BUYER
  37. 37. Blog post and slide deck: “Optimize Your Funnel By Getting Inside Your Buyer’s Head” http://www.forentrepreneurs.com/launch-scale-2017/
  38. 38. Fire up an initial lead source
  39. 39. Test and Optimize the Funnel Flow Fix Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
  40. 40. Funnel Optimization Meeting Participants Sales Marketing Product Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Customer Success
  41. 41. Ideal Initial Sales Staffing Close early-access sales Find Predictable and Repeatable Sales Motion Make it Scalable and Profitable Founders 1 more Pathfinder/Trailblazer Salesperson Sales Director (willing to act as a Pathfinder/Trialblazer rep for a few months) 2 Reps 2 Reps 2 Reps
  42. 42. Pathfinder/Trailblazer Sales People • Not like ordinary sales people – who follow a playbook • They have to create and evolve the playbook • Which target market? • Who in the organization to sell to? • What messaging? • What sales motion? • What pricing? • What new product features are needed?
  43. 43. When to start hiring additional sales people • Wait till you think the process is repeatable • Make sure you see a path to viable unit economics • LTV > 3x CAC • Months to recover CAC ≤ 18
  44. 44. Sales Manager’s job 1. Ensure your sales process is Predictable, Repeatable, Scalable, Profitable 2. Scale the process • Recruiting • Training and onboarding the new sales people • Coaching • Forecasting & Deal/Pipeline management • Making the number
  45. 45. Bookings Driven by very simple math
  46. 46. What Drives Bookings? No of Sales People Productivity per Rep (Average) x PPR
  47. 47. Lets look at each of these in turn…
  48. 48. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
  49. 49. Sales Hiring • You will need to build an in house recruiting machine See my blog post: “Recruiting: the third crucial Startup Skill”
  50. 50. Two Metrics to Track 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k
  51. 51. Lost Bookings due to slow hiring $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k $500k
  52. 52. Over Assignment of Quota needed to hit plan =1/85% $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k 85%
  53. 53. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
  54. 54. PPR: Sales Training and Onboarding • Sales people: one of the most expensive resources • Yet typically little effort put in to sales training in early days • High payback • Worth having the founders spend time to develop & deliver a lot of the material
  55. 55. Productivity Per Rep (PPR) Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 150 145 Fred 60 35 75 40 55 Alice 85 145 160 180 145 Joe 60 110 85 130 145 Mike 155 170 145 190 Sarah 35 45 70 45 Sue 80 145 175 165
  56. 56. % of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 100% of Quota
  57. 57. There’s one other thing that drives PPR Adequate Lead Flow
  58. 58. Compute Leads required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
  59. 59. This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
  60. 60. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model More lessons we can learn from the three phase diagram
  61. 61. #mistake Trying to force progress by jumping ahead before completing the current phase
  62. 62. Common variations… • Hiring salespeople before the founders have proven that they can sell the product • Scaling sales before solving a churn problem • Scaling the salesforce before the growth process is predictable & repeatable
  63. 63. Burn Cash & shorten the runway
  64. 64. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model What we’ve learned… Not Predictable how long this will take
  65. 65. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Conserve Cash until the Scaling Phase Cash Burn
  66. 66. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model A common mistake… • Not hiring enough sales people in the Scaling phase • Founders remain in burn avoidance mode
  67. 67. Milestones for a Successful Growth Round
  68. 68. Proof Points for Investors • Predictable, Repeatable, Scalable • Consistent growth in Bookings (not just ARR) • Proof that you can grow the sales organization, and make them productive • Proven lead sources that can scale • Profitable: • LTV > 3x CAC • Months to recover CAC ≤ 18 • Product/Market Fit • Strong customer usage patterns over time • Low customer churn, Net negative revenue churn
  69. 69. Freemium, Free Trials, Open Source The Product is your sales person
  70. 70. WHAT IS YOUR TIME TO WOW! ? Thanks to Gail Goodman of Constant Contact
  71. 71. DEFINING WOW! A moment where your buyer sees something cool and exciting • Motivates them to continue exploring The moment when your buyer gets excited enough to want to buy Mini Wow! Full Wow!
  72. 72. TIME TO WOW! • How many steps? • How much time does it take? • How much FRICTION is involved
  73. 73. REMOVE STEPS & REMOVE FRICTION
  74. 74. EXAMPLE
  75. 75. As eCommerce shoppers… … what makes us buy?
  76. 76. Photos Feature Summary Recommended Accessories Rich description Video Reviews Detailed Specifications Answer: Rich Product Content
  77. 77. Salsify – Product Content Supply Chain Automation Brands Photos Videos Text Specs Etc. Retailer Portal Retailer Portal Retailer Portal Retailer Portal
  78. 78. Salsify’s original trial experience Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer
  79. 79. Landing Page Lots of Fields
  80. 80. Next, Wait for Email…
  81. 81. Sign In… Now What? • Lots of work still required
  82. 82. Get inside your Buyers Head and analyze for Problems Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer
  83. 83. Redesign Trial Steps for Problems (Friction, Concerns, & Motivations) Sign up Wait for email with Account Open the App Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Delay causing major drop off
  84. 84. First step in the redesign Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Sign up Learn the UI
  85. 85. New Landing Page: JUST YOUR EMAIL
  86. 86. Motivation: “If these guys are using it, it must be pretty good…”
  87. 87. Still leaves a problem: • Locate & Export Content • Then import to Salsify to have something to play with Then: Land directly in App
  88. 88. Major Friction + Other people involved = Long Delays Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Sign up Learn the UI
  89. 89. Offer a chance to start with Sample Data Sign up Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer They now have the MOTIVATION to import their own data Play with Sample Data Mini Wow! Learn the UI
  90. 90. Eliminate the risk that the won’t find the path to Wow! Learn the UI Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer • High friction • Too much risk they won’t find the path to Wow! Sign up
  91. 91. Guided Navigation Human Help available
  92. 92. Uplift - % Conversion, Before and After 0 10 20 30 40 50 60 70 80 90 100 Before After Trial Request -> Logged into App Trial Request -> Product Page Trial Request -> Taking action 3x Overall Improvement
  93. 93. Next problem area… Sign up Import Content Locate & Export Content Export to new Retailer Sign up with new Retailer Play with Sample Data • High Friction • Long Delay
  94. 94. Problem solved – Export to Google Manufacturer Center Sign up Import Content Locate & Export Content Play with Sample Data Export to Google
  95. 95. Last remaining problem area… Sign up Import Content Locate & Export Content Play with Sample Data Export to Google • Huge Friction & Delay • Other People involved
  96. 96. Scrape publicly available data from existing retailer’s pages Sign up Play with Sample Data Export to Google No import needed Scrape Content for them • They have my content in here already • They’re showing me all the issues Mini Wow!
  97. 97. Eliminates need for Sample Data Sign up Play with Sample Data Export to Google See their own Data Scrape Content for them
  98. 98. Final Redesigned Process • Fast Time to Wow! • High conversion rates Sign up Export to Google See and solve problems with their own Data Scrape Content for them
  99. 99. RE-THINK THE PROCESS Source: Josh Porter – Designing for Social Traction CONVENTIONAL APPROACH SIGN UP FOR TRIAL Wow! CONVERT TO CUSTOMER WOW! FIRST, REGISTER LATER Wow! SIGN UP FOR TRIAL CONVERT TO CUSTOMER
  100. 100. SUMMARY
  101. 101. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model Recognize where you are in the lifecycle
  102. 102. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Choose the right actions for your stage • Don’t jump ahead: • Expanding sales before product/market fit • Hiring too many sales people before the sales process is working
  103. 103. Avoid Underfunding - not enough cash to reach next milestone Time Valuation Next Key Milestone x Cash Out Date
  104. 104. Use the cash out date and financing milestones
  105. 105. … and Alignment
  106. 106. For more details on all these topics: visit ForEntrepreneurs.com Presentation Slides: forentrepreneurs.com/saas-north-2017
  107. 107. APPENDIX
  108. 108. Getting to know your Buyer Personae • Identifying Characteristics • What are their key business goals? • How does our product help them achieve those? • What does their Boss expect of them? • What pain do they have that we address? • Is it latent pain, or obvious pain? • How do they describe the pain and what they are looking for? • (Helpful for messaging) • Are they out there searching for solutions? • If so, how? • Is solving this pain a high priority for them? • If not, what features would make it a higher priority? • What are the most important features on their checklist? • What are their reactions to our product/company? • What will they like? What will they not like? • What are the main questions and concerns they will have? • What are the steps in their purchasing process? • What are their likely decision making criteria? • Who else has to be involved in the decision (e.g. Business buyer, IT)? • Who influences them? (Sites, organizations, and people) • (Helps us figure out how to market to them) • Other characteristics that are relevant to this purchase • E.g. Developers: • Don't have a budget • Prefer Open Source, and don't like to pay for software
  109. 109. A more detailed look at what drives bookings…
  110. 110. Without Sales people Leads Simple linear relationship Conversion Rate Average Deal Size x x
  111. 111. But when you add in Sales People… Ramp Time Sales Capacity Limit
  112. 112. Growth comes in discontinuous units
  113. 113. The Unit of Growth Sales Person
  114. 114. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
  115. 115. It’s not just the front of the funnel…
  116. 116. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
  117. 117. Top Factors affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
  118. 118. Dollar Renewal Rate is King See last year’s presentation Customer Renewal Rate >Dollar Renewal Rate

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