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 RevenueARR = 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 $1.3BZEN $127M $1.9BMKTO $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

• [email protected]

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