"Numbers That Actually Matter For Founders"
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The document discusses the growth trajectory and financial metrics of a hypothetical SaaS company over its first three years, illustrating key performance indicators such as Monthly Recurring Revenue (MRR), churn rates, and quick ratios. It highlights the importance of understanding revenue growth accounting, product-market fit, and metrics that reflect value delivered rather than just prices paid. The overall analysis suggests that while the company initially experienced significant growth, challenges such as high churn rates and funding limitations impacted its long-term sustainability.
"Numbers That Actually Matter For Founders"
- 3. SaaStr 2017 Numbers That Actually Matter Mamoon Hamid Co-Founder + General Partner 02.08.17
- 4. The Dream
- 6. Not-So-Fictional SaaS Company $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
- 7. MRR Growth Accounting in Year 1 -$10,000 -$5,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 New Expansion Contraction Churned
- 8. 0.4 4.0 40.0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Quick Ratio in Year 1
- 9. 0.5 5.0 50.0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 New MRR + Expansion MRR Churned MRR + Contraction MRR Quick Ratio (QR) = QR > 4 👍
- 10. -8% -6% -4% -2% 0% 2% 4% 6% 8% Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Gross Churn Net Churn Churn – Year 1
- 11. Not-so-Fictional SaaS Co. – Year 1 Recap • From almost zero to $1.1M in ARR • Mostly organic MRR growth • Quick Ratio hovering around 4 • Negative Churn 👍 👍 👍 👍 Series A Likelihood > 90%
- 12. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
- 13. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
- 14. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 🔥
- 15. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 💰💰💰
- 16. MRR Growth Accounting – Year 1-3 -$60,000 -$40,000 -$20,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 New Expansion Contraction Churned
- 17. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Quick Ratio in Year 1 to 3 🆘
- 18. -8% -6% -4% -2% 0% 2% 4% 6% 8% Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Gross Churn Net Churn Churn – Year 1 to 3
- 19. Not-so-Fictional SaaS Co. – Year 1 to 3 Recap • From $1.1M to $9.4M • But it took 20 sales people • Expansion revenue offset by churned revenue • Quick Ratio hovering around 2 • High Gross Churn & Positive Net Churn • $1M/month of burn! 👍 Vanity Metrics Suggest Series B Likelihood > 90% Underlying Metrics Suggest 👎 👎 👎 👎 🆘 👎 👎
- 21. How do we make sense of this? • Product-market fit happens one customer at a time one month at a time. • Mostly ignored any product-market fit metrics • Churn/Expansion/Contraction MRR is a lagging indicator of product-market fit • How could you have seen it? By focusing on a leading indicator of the MRR decision...
- 23. Find your North Star • MRR is the price that the customer pays, the North Star is the value that they get. • Your North Star measures the value you deliver!
- 24. North Star Metric: For example - DAU/MAU What Company is this? 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
- 25. North Star Metric: Facebook DAU/MAU = 55% (until 2012) 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
- 26. North Star Metric: DAU/MAU for Slack 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 � �
- 27. North Star Metric – Wait a Second… What’s the Orange Line? 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 � �
- 28. North Star Metric – DAU/MAU Front: The Shared Inbox App 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 � �
- 29. What’s a good or bad North Star? • Bad: Mostly measuring price paid as opposed to value delivered • MRR, paid seats • Good: Measures value delivered in bulk • MAU, DAU, messages sent • Better: Unquestionably indicates Product Market fit has been reached with the customer • Number of users with L28>=16 • Messages sent w/in 30 days of signup
- 30. # of file actions DAU/MAU # of Customer Interactions WAU/MAU Pitches Viewed DAU/MAU Hires made WAU/MAU User App - Pairs Apps signed onto per DAU Apps monitored per user MAUs Other North Star Metrics
- 31. Value Delivered > Price Paid (MRR) • Understand your MRR growth accounting • Even though it’s likely a lagging indicator • Focus on value delivered, not price paid or the efficiency of the sales machine that got them to pay • Find your North Star
- 32. So What Happened to Not-So- Fictional SaaS Co. Over Time?
- 33. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
- 34. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
- 35. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
- 36. MRR Growth Accounting – Over 6 Years -$200,000 -$100,000 $0 $100,000 $200,000 $300,000 $400,000 New Expansion Contraction Churned
- 37. -7% -5% -3% -1% 1% 3% 5% 7% Date Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Gross Churn Net Churn Churn – Over 6 Years
- 38. 0.4 4.0 40.0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Quick Ratio– Over 6 Years
- 39. What does this mean? • New Revenue barely makes up for your churned revenue • Lack of new funding require sacrifices - product development gets starved • Less competitive product means it becomes harder to add new customers and more churn • Hard to retain talent • And you enter a vicious cycle…
Editor's Notes
- #5: SaaS industry tends to be enamored with revenue growth. But that’s dangerous/deceptive. Why?
- #7: A standard SaaS company raising a Series A. MRR growing nicely Deck probably says “11% CMGR → 3.5x y/y MRR growth!!” 12 months of data, just crossed $100k of MRR ($1.2M ARR).
- #8: A bunch of new and expansion revenue. Some churn entering the picture
- #9: Quick ratio settling in around 4. What you don’t know what a quick ratio is You’re in luck. For every $4 of revenue we’re adding, we’re losing about $1
- #10: Quick ratio settling in around 4. For every $4 of revenue we’re adding, we’re losing about $1
- #11: Early churn can be choppy Negative Churn. Our lost revenue is offset by gains in expansion revenue
- #14: Same chart as slide 2
- #17: Let’s look at the underlying data Wait a second. A lot of yellow. Churn
- #18: That churn is really dragging the quick ratio down. Remember that we want to be close to 4
- #19: Similar story with our churn rate Say bye bye to negative churn
- #20: Burning a $1m a month 80 employees 20 in sales $800k 50% GM $400k GP 80*18 = 1440
- #24: Expect that your North Star changes as you progress. You will likely evolve in how you think about value.
- #25: Guess Who It is?
- #26: Guess Who It is?
- #27: Averaging 52% DAU/MAU over the last 24 months Hit an all time high of 56% after the Holidays
- #28: Hint: It’s our latest SaaS investment The company is originally from France
- #29: Yes, it’s Front. Front is a shared inbox app. It brings all your external messages – email, texts, twitter, messenger messages into one unified inbox where your colleagues can triage, assign and track messages. So if slack is for internal messages Front is external messages
- #38: Gross Churn Stabilizes between 1.5%-2% Net Churn 0%-1%
- #39: Quick Ratio Stabilizing right above 1 For every $1 we add we lose $1. We are barely able to keep up with our leaky bucket of revenue
- #41: Don’t become one of them