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The SaaS Founder’s Journey: What Matters at Each Stage

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From a talk given at SaaStock 2017 in Dublin, this slide deck covers the three stages of a startup, the most important question founders should be asking to ensure survival/success, and how to build and scale a sales funnel.

Published in: Technology

The SaaS Founder’s Journey: What Matters at Each Stage

  1. 1. The SaaS Founder’s Journey What matters at each stage
  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. Scaling the Business Evidence of Product/Market Fit Evidence of Repeatable & Scalable & Profitable Growth Model Very Approximate look at Round Types Seed Series A Series B Growth Financing
  15. 15. Evidence of Product/Market Fit Evidence of Repeatable & Scalable & Profitable Growth Model Milestones for a Successful Fundraise: Series A Series A
  16. 16. 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
  17. 17. Milestones for a Successful Growth Round
  18. 18. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
  19. 19. 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
  20. 20. ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
  21. 21. 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
  22. 22. % 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
  23. 23. 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
  24. 24. 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
  25. 25. #mistake Trying to force progress by jumping ahead before completing the current phase
  26. 26. 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
  27. 27. Burn Cash & shorten the runway
  28. 28. 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
  29. 29. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Conserve Cash until the Scaling Phase Cash Burn
  30. 30. A FINER LOOK AT THE PHASES
  31. 31. Search for Product/Market Fit Search for Product/Market Fit Develop MVP Figure out MVP Close early-access sales Make the customers successful Validate the idea Identify initial target market
  32. 32. The number one problem at this Stage • Not enough customer meetings set up for validation • Both before, and during product development • Results: • Product doesn’t quite fit the needs of the market • Interest is there, but can’t close sales • Lots of wasted time, and cash burned
  33. 33. Search for Repeatable, Scalable, Profitable Growth Search for Repeatable & Scalable & Profitable Growth Model
  34. 34. 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
  35. 35. At the beginning: No clear sales path
  36. 36. By the end: Well understood path • Lead funnel • Sales motion • Customer onboarding
  37. 37. Where do you start?
  38. 38. Pick one target market
  39. 39. … with a clear Use Case Use Case Benefit
  40. 40. Messaging • Business benefits, not product features • Clear • Simple • Short • Explains differentiation from competition
  41. 41. Initial Guess at Growth Process Website Free Trial
  42. 42. The normal approach to Funnel Design Vendor Centric
  43. 43. My view: the right approach to Funnel Design Buyer Centric Vendor Buyer-Centric
  44. 44. Buyer Personae See Appendix for more info
  45. 45. MAP BUYERS PROCESS TO YOUR STEPS Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial BUYER VENDOR
  46. 46. 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?
  47. 47. OPTIMIZE YOUR STEPS TO FIT Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial ROI Calculator Competitive Features Matrix BUYER VENDOR
  48. 48. ADDRESS ALL DECISION CRITERIA Address Security Concerns 3rd Party Security Audit & Whitepaper BUYER
  49. 49. Blog post and slide deck: “Optimize Your Funnel By Getting Inside Your Buyer’s Head” http://www.forentrepreneurs.com/heavybit/
  50. 50. Fire up an initial lead source
  51. 51. Test and Optimize the Funnel Flow Fix Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
  52. 52. Funnel Optimization Meeting Participants Sales Marketing Product Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Customer Success
  53. 53. Initial Sales Staffing Close early-access sales Find Predictable and Repeatable Sales Motion Make it Scalable and Profitable Founders 1 to 2 Pathfinder/Trailblazer Salespeople Sales Manager 2 Reps 2 Reps 2 Reps
  54. 54. 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?
  55. 55. When to hire your first Sales Manager • Wait till you think the process is repeatable • The managers job is to scale something that works • Make sure you see a path to viable unit economics • LTV > 3x CAC • Months to recover CAC ≤ 18
  56. 56. 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
  57. 57. Bookings Driven by very simple math
  58. 58. What Drives Bookings? No of Sales People Productivity per Rep (Average) x PPR
  59. 59. Lets look at each of these in turn…
  60. 60. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
  61. 61. Sales Hiring • You will need to build an in house recruiting machine See my blog post: “Recruiting: the third crucial Startup Skill”
  62. 62. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
  63. 63. 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
  64. 64. There’s one other thing that drives PPR Adequate Lead Flow
  65. 65. Compute Leads required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
  66. 66. This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
  67. 67. Scaling phase Scaling the Business
  68. 68. 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
  69. 69. SUMMARY The SaaS Founders Journey – What Matters at Each Stage
  70. 70. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model Recognize where you are in the lifecycle
  71. 71. 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
  72. 72. Avoid Underfunding - not enough cash to reach next milestone Time Valuation Next Key Milestone x Cash Out Date
  73. 73. Use the cash out date and financing milestones
  74. 74. … and Alignment
  75. 75. For more details on all these topics: visit ForEntrepreneurs.com Presentation Slides: forentrepreneurs.com/saastock-2017
  76. 76. APPENDIX
  77. 77. 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
  78. 78. A more detailed look at what drives bookings…
  79. 79. Without Sales people Leads Simple linear relationship Conversion Rate Average Deal Size x x
  80. 80. But when you add in Sales People… Ramp Time Sales Capacity Limit
  81. 81. Growth comes in discontinuous units
  82. 82. The Unit of Growth Sales Person
  83. 83. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
  84. 84. It’s not just the front of the funnel…
  85. 85. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
  86. 86. Top Factors affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
  87. 87. Dollar Renewal Rate is King See last year’s presentation Customer Renewal Rate >Dollar Renewal Rate

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