The SaaS Founder’s Journey: What Matters at Each Stage
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The document discusses the three phases of a SaaS startup's lifecycle: searching for product-market fit, scaling the business, and searching for a repeatable and profitable growth model. It emphasizes the importance of recognizing what phase a startup is in and taking the appropriate actions, such as not jumping ahead or expanding sales too quickly before completing the current phase. Cash conservation is also stressed until reaching the scaling phase. Aligning sales, marketing, and other functions is highlighted as important for predictable growth. The phases and lessons provided serve as a guide for SaaS founders to strategically navigate their company's development.
The SaaS Founder’s Journey: What Matters at Each Stage
- 1. The SaaS Founder’s Journey What matters at each stage
- 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. 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. 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. Startups are a race against time • The way to win is extreme Focus • & total alignment across all departments
- 6. But… what to focus on?
- 7. Since cash is crucial to survival…
- 8. … let’s look at how to successfully close your next round
- 10. Startup Valuations – The Reality Time Valuation Milestones
- 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. 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. 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. 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. Evidence of Product/Market Fit Evidence of Repeatable & Scalable & Profitable Growth Model Milestones for a Successful Fundraise: Series A Series A
- 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. Milestones for a Successful Growth Round
- 18. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
- 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. ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
- 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. % 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. 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. 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. #mistake Trying to force progress by jumping ahead before completing the current phase
- 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. Burn Cash & shorten the runway
- 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. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model Conserve Cash until the Scaling Phase Cash Burn
- 30. A FINER LOOK AT THE PHASES
- 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. 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. Search for Repeatable, Scalable, Profitable Growth Search for Repeatable & Scalable & Profitable Growth Model
- 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. At the beginning: No clear sales path
- 36. By the end: Well understood path • Lead funnel • Sales motion • Customer onboarding
- 37. Where do you start?
- 38. Pick one target market
- 39. … with a clear Use Case Use Case Benefit
- 40. Messaging • Business benefits, not product features • Clear • Simple • Short • Explains differentiation from competition
- 41. Initial Guess at Growth Process Website Free Trial
- 42. The normal approach to Funnel Design Vendor Centric
- 43. My view: the right approach to Funnel Design Buyer Centric Vendor Buyer-Centric
- 44. Buyer Personae See Appendix for more info
- 45. MAP BUYERS PROCESS TO YOUR STEPS Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial BUYER VENDOR
- 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. OPTIMIZE YOUR STEPS TO FIT Research Shortlist Vendors Evaluation ROI & Justification Website Free Trial ROI Calculator Competitive Features Matrix BUYER VENDOR
- 48. ADDRESS ALL DECISION CRITERIA Address Security Concerns 3rd Party Security Audit & Whitepaper BUYER
- 49. Blog post and slide deck: “Optimize Your Funnel By Getting Inside Your Buyer’s Head” http://www.forentrepreneurs.com/heavybit/
- 50. Fire up an initial lead source
- 51. Test and Optimize the Funnel Flow Fix Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
- 52. Funnel Optimization Meeting Participants Sales Marketing Product Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Customer Success
- 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. 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. 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. 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. Bookings Driven by very simple math
- 58. What Drives Bookings? No of Sales People Productivity per Rep (Average) x PPR
- 59. Lets look at each of these in turn…
- 60. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
- 61. Sales Hiring • You will need to build an in house recruiting machine See my blog post: “Recruiting: the third crucial Startup Skill”
- 62. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
- 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. There’s one other thing that drives PPR Adequate Lead Flow
- 65. Compute Leads required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
- 66. This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
- 67. Scaling phase Scaling the Business
- 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. SUMMARY The SaaS Founders Journey – What Matters at Each Stage
- 70. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model Recognize where you are in the lifecycle
- 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. Avoid Underfunding - not enough cash to reach next milestone Time Valuation Next Key Milestone x Cash Out Date
- 73. Use the cash out date and financing milestones
- 74. … and Alignment
- 75. For more details on all these topics: visit ForEntrepreneurs.com Presentation Slides: forentrepreneurs.com/saastock-2017
- 76. APPENDIX
- 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. A more detailed look at what drives bookings…
- 79. Without Sales people Leads Simple linear relationship Conversion Rate Average Deal Size x x
- 80. But when you add in Sales People… Ramp Time Sales Capacity Limit
- 81. Growth comes in discontinuous units
- 82. The Unit of Growth Sales Person
- 83. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
- 84. It’s not just the front of the funnel…
- 85. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
- 86. Top Factors affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
- 87. Dollar Renewal Rate is King See last year’s presentation Customer Renewal Rate >Dollar Renewal Rate
Editor's Notes
- #2: Going to talk about some lessons that I have learned working with many startups My goal is to help make it clear what is important at each stage of the journey, and hopefully help provide you with a tool to bring focus and alignment to your organization