12 Key Levers of SaaS Success
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Building the Billion Dollar SaaS Unicorn: CEO Guide
- Building the Billion Dollar SaaS Unicorn The CEO Guide of Key Insights and Metrics for B2B Software as a Service Companies By Kelly Schwedland
- Rising Table Stakes Christopher Janz, SaaS Investor http://tomtunguz.com/table-stakes-saas/
- Why a $Billion? – It’s Investable * Each investor has their own investment thesis, certain products, markets or business models that they prefer. Look for a good match to your product offering and market validation Typical Investor Interests: • $1B+ Market • Scalable Solution • Recurring Revenue • Past Successes • Full team • Traction
- Growth Stage Key Points I. Terms & Metrics II. Roadmap III. Sustaining Growth
- I. Key Terms & Metrics for SaaS 1. Cash flow 2. MRR/ARR 3. CAC & LTV 4. ACV 5. Churn 6. Cohort analysis 7. LVR 8. TtV If you only read one article on SaaS metrics this would be the one: http://www.forentrepreneurs.com/saas-metrics-2/ For Developing a KPI dashboard for a SaaS company: http://christophjanz.blogspot.de/2013/04/a-kpi-dashboard-for-early-stage-saas.html
- Impact of Faster Growth on P&L / Cash Flow 1. Cashflow - Don’t run out of money
- 2. MRR & ARR • The First $1M ARR Goal – 6 months • Simple Math: – $1M ARR = $83K MRR – $83K/ $1000/mo. ACV = 83 customers – 83/6 mo. = ~ 14 new customers per month (or one new customer every 2 days, simple!) http://sixteenventures.com/saas-secret-to-one-million-dollars MRR = Monthly Recurring Revenue ARR = Annual Run Rate (MRR x 12)
- LTV > 3x CAC Months to recover CAC < 12 Months 3. CAC & LTV: Viability Test Business model viability, in the majority of startups, will come down to balancing two variables: • CAC: Cost to Acquire Customers • LTV: Lifetime Value of a Customer or The ability to monetize those customers http://www.forentrepreneurs.com/startup-killer/
- 4. Matching CAC, LTV & ACV • Product Pricing, Sales Strategy and Product are all interconnected. http://vcwithme.co/2015/03/30/optimizing-the-ltvcac-ratio/ http://pando.com/2013/06/15/what-the-data-reveals-about-how-to-make-SaaS-secret-sauce/ Average SaaS Companies Well marketed, easy to use and easy to implement ACV= Average Contract Value VS.
- 5. Churn = # MRR this month / # MRR lost from last month http://www.slideshare.net/03133938319/saastr Big impact on value over time What’s good, what’s bad ‣ What you want ‣ Get to $1M ARR ~12 months after launch ‣ Net New MRR keeps increasing quarter over quarter ‣ Maintain a Churn Ratio > 4 ‣ What to watch out for ‣ A Churn Ratio < 2 – churn is too high /new sales aren’t working ‣ Net New MRR is flat or down quarter over quarter ‣ As a result takes 18+ months to get to $1M ARR
- 6. Cohort Analysis • With a SaaS business there is a simple way to understand Customer Retention/ Churn through multiple product iterations. http://andrewchen.co/the-easiest-spreadsheet-for-churn-mrr-and-cohort-analysis-guest-post/
- 7. LVR - Lead Velocity Rate • Qualified Lead Velocity Rate (LVR), your growth in qualified leads, measured month- over-month, every month. • Grow your LVR about 10-20% greater than your desired MRR growth — you’ll hit your revenue goals. • You’ll see the future of your business 12-18 months out, clear as can be. http://www.saastr.com/why-lead-velocity-rate-lvr-is-the-most-important-metric-in-saas/
- 8. TtV- Time to Value • How fast can a customer derive value from your product? • Ways to Improve: – Simplicity wins… be feature-complete, not feature-rich – Hack the onboarding flow – Document, Document, Document – Quantify, Set goals and Benchmark http://www.rre.com/blog/89
- II. Roadmap
- 5 ways to build a $B business http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html http://tomtunguz.com/2015-saas-multiples/ In SaaS to get a Billion Dollar valuation you need somewhere over $100M in Annual Revenue. You essentially need: ~ 1,000 enterprise customers at $100k+ /Yr or ~ 10,000 medium-sized at $10k+ /yr or ~ 100,000 small businesses at $1k/yr or ~ 1 million consumers at $100+ /yr each or ~ 10 million active consumers who you monetize at $10+ per year each by selling ads Examples: 2014 Rev Valuation* HUBS $115M $1.3B ZEN $127M $1.9B MKTO $149M $1.1B *Also dependent on growth rate and Cost of Revenue. Avg 5-10 x Rev multiples
- “T2D3” Growth Phases* *Triple twice, double three times
- T2D3 Cont’d • Phase 1: Establish a great product-market fit • Phase 2: Get to $2 million in ARR (annual recurring revenue) • Phase 3: Triple to $6 million in ARR • Phase 4: Triple to $18 million • Phase 5: Double to $36 million in ARR • Phase 6: Double to $72 million • Phase 7: Double to $144 million http://techcrunch.com/2015/02/01/the-saas-travel-adventure/
- Phase 0: Lean Startup Process http://www.slideshare.net/KellySchwedland/lean-startup-basics-evidence-based-entrepreneurship Also: The 20 Interview rule http://www.saastr.com/planning-to-do-a-saas-start-up-dont-forget-the-20-interview-rule/ Note: If you are still starting out, then you need this presentation:
- Phase 1: Product/Market/ (Team) Fit • The Simple definition – When your problems shift to keeping up with demand rather than finding more customers. • The only thing that matters: Market • Warning signs you aren’t there: • Product Market Fit Myths http://pmarchive.com/guide_to_startups_part4.html http://vcwithme.co/2014/11/10/five-signs-your-product-market-fit-isnt-real/ http://www.feld.com/archives/2015/01/illusion-product-market-fit-saas-companies.html
- Building a replicable model* http://www.slideshare.net/KellySchwedland/generic-system-strategy-flow-chart *Documenting the systems throughout the business so that they can be replicated by the next hire. Example of a system strategy flow chart
- Focus: Marketing, Sales, Revenue http://www.bvp.com/blog/new-whitepaper-released-%E2%80%9C30-qa-every-saas-revenue-leader-needs-know%E2%80%9D “30 Answers that Every SaaS Revenue Leader Needs to Know”
- III. Sustaining Growth http://chaotic-flow.com/media/saas-growth-strategy.pdf
- Median GP Ratio by year for Public SaaS companies How fast? • Rule of thumb – Growth Rate +Profit Margin should equal 40%... for a $50M business • Early on it should probably be higher. http://tomtunguz.com/rule-of-40
- Accelerating Customer Acquisition and Retention • Remove Buyer Roadblocks: – Increase Awareness – Facilitate Evaluation – Streamline Purchase – Simplify Onboarding • Improve Retention – Remind Customers of Value they are getting – Triggered up-selling and cross-selling that expanded usage of your service (and revenue) http://chaotic-flow.com/SaaS-marketing-accelerating-customer-acquisition/ http://sixteenventures.com/customer-retention-profitability
- Improving Lead to Conversion Ratio • Measure and optimize each conversion channel. http://blogs.salesforce.com/company/2014/11/b2b-sales-benchmark-research-finds-some-pipeline-surprises-infographic-gp.html B2B Sales Benchmark Research by Implisit using Salesforce data
- Polynomial Growth By Alex Moor, CEO of Baydin Overcoming the Growth Challenge http://www.slideshare.net/500startups/alex-moore-25097027 Polynomial Growth: The Additive Value of new Sales Channels
- Median revenue per Employee by year since founding Two development tracks one goal • Efficiency and Product Value always seem to be competing for internal talent. • But they are flip sides to the same productivity coin. http://tomtunguz.com/employee-productivity-patterns-saas/ Note: Best in class companies like Salesforce and FinancialEngines are able to achieve more than $300k in revenue per employee per year
- Benchmarking • How Does your SaaS business stack up? – Pacific Crest SaaS survey data (2014) http://www.forentrepreneurs.com/2014-saas-survey- 1/ – Sales Reps http://blog.bridgegroupinc.com/sales- development-metrics – Customer success http://blog.totango.com/2014/05/2014-customer- success-salary-survey-report-and-infographic/
- http://www.insightpartners.com/insight-onsite/onsite-s-customer-acquisition-metrics/
- “Make no small plans for they have no power to stir the soul.” ~ Niccolò Machiavelli.
- Thanks • Kelly Schwedland • 219-405-5723 • Kellys@ElevateVentures.com Have questions? See something I missed? Let me know.
- More SaaS Resources • http://www.saastr.com/ • http://tomtunguz.com/categories/saas/ • http://www.forentrepreneurs.com/saas/ • http://sixteenventures.com/page/?s=B2B+SaaS • Pitching a VC • http://www.bothsidesofthetable.com/pitching-a-vc • http://www.slideshare.net/KellySchwedland/how-to- pitch-a-vc-or-angel-and-get-funded
- SaaS Metrics -Rules of Thumb
- http://chaotic-flow.com/saas-metrics-guide-to-saas-financial-performance/
- INSIGHT’S PERIODIC TABLE OF B2B DIGITAL MARKETING METRICS
