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

The SaaS Founder’s Journey

What matters at each stage

Search for Product/Market Fit

Scaling the Business

Search for Repeatable & Scalable

& Profitable Growth Model

The Three Phases of a Startup’s Lifecycle

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?

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

Startups are a race against time

• The way to win is extreme Focus

• & total alignment across all departments

But… what to focus on?

Since cash is crucial to

survival…

… let’s look at how to

successfully close your next

round

Startup Valuations

Time

Valuation

Startup Valuations – The Reality

Time

Valuation

Milestones





The VC view - How risk changes over time

Risk

As perceived by

the financial metrics

and Growth Investors





How risk changes over time

RiskAs perceived by

Early Stage Investors





And Valuations are inversely correlated to Risk

Risk Valuation


Evidence of Product/Market Fit

Evidence of Repeatable & Scalable


Very Approximate look at Round Types

Seed Series A Series B Growth Financing

Evidence of Product/Market Fit

Evidence of Repeatable & Scalable


Milestones for a Successful Fundraise: Series A

Series A

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

Milestones for a Successful Growth Round

Predictable, Repeatable, Scalable, Profitable Growth





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

ARR with Flat Bookings ARR with Growing Bookings

Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7

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

% of Reps at Quota

30%

40%

50%

60%

70%

80%

90%

100%

Q1-16 Q2-16 Q3-16 Q4-16

% of Reps above75% of Quota

30%

40%

50%

60%

70%

80%

90%

100%

Q1-16 Q2-16 Q3-16 Q4-16

% of Reps above100% of Quota

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





More lessons we can learn from the three phase diagram

#mistake

Trying to force progress by

jumping ahead before

completing the current phase

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

Burn Cash& shorten the runway





What we’ve learned…

Not Predictable how long this will take





Conserve Cash until the Scaling Phase

Cash Burn

A FINER LOOK AT THE PHASES



Develop MVP

Figure out MVP

Close early-access

sales

Make the customers

successful

Validate the idea

Identify initial

target market

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

Search for Repeatable, Scalable, Profitable Growth



Break this into phases

Search for Repeatable, Scalable


Close early-access

sales

Make the customers

successful

Find Predictable and

Repeable Motion

Make it Scalable

and Profitable

At the beginning: No clear sales path

By the end: Well understood path

• Lead funnel

• Sales motion

• Customer onboarding

Where do you start?

Pick one target market

… with a clear Use Case

Use Case Benefit

Messaging

• Business benefits, not product features

• Clear

• Simple

• Short

• Explains differentiation from competition

Initial Guess at Growth Process

Website Free Trial

The normal approach to Funnel Design

Vendor

Centric

My view: the right approach to Funnel Design

Buyer

CentricVendor

Buyer-Centric

Buyer Personae

See Appendix for more info

MAP BUYERS PROCESS TO YOUR STEPS

ResearchShortlist

VendorsEvaluation

ROI &

Justification

Website Free Trial

BUYER

VENDOR

GET INSIDE YOUR BUYERS HEAD

ResearchShortlist

VendorsEvaluation

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?

OPTIMIZE YOUR STEPS TO FIT

ResearchShortlist

VendorsEvaluation

ROI &

Justification

Website Free TrialROI

Calculator

Competitive

Features

Matrix

BUYER

VENDOR

ADDRESS ALL DECISION CRITERIA

Address

Security Concerns

3rd Party

Security Audit &

Whitepaper

BUYER

Blog post and slide deck:

“Optimize Your Funnel By Getting

Inside Your Buyer’s Head”

http://www.forentrepreneurs.com/heavybit/

http://www.forentrepreneurs.com/heavybit/

Fire up an initial lead source

Test and Optimize the Funnel Flow

Fix Conversion

Rate Problems

Suspects Suspects

Suspects

Suspects

Suspects

Suspects

Suspects Suspects

Suspects

Suspects

Suspects

Suspects

Funnel Optimization Meeting

Participants

Sales Marketing

Product

Suspects Suspects

Suspects

SuspectsSuspects

Suspects

Suspects Suspects

Suspects

Suspects

Suspects

Suspects

Customer

Success

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

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?

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

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

Bookings

Driven by very simple math

What Drives Bookings?

No ofSales People Productivity per Rep

(Average)

xPPR

Lets look at each of these in turn…

Number of Sales People

One of the most common reasons for missing plan

Didn’t hire sales people fast enough

Sales Hiring

• You will need to build an in house recruiting machine

See my blog post:

“Recruiting: the third crucial Startup Skill”

PPR: Productivity per Rep

• Quality of sales hires

• Sales Training and

Onboarding

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

There’s one other thing that drives PPR

Adequate Lead Flow

Compute Leads required per Rep

x

No of

Closed Deals

=

Reverse Funnel

Conversion Rate

Marketing Qualified

Leads Required

This becomes the Contract between Sales & Marketing

Marketing Qualified

Leads Required Sales

Marketing

SDR’s

Scaling phase






A common mistake…

• Not hiring enough sales

people in the Scaling phase

• Founders remain in burn

avoidance mode

SUMMARYThe SaaS Founders Journey – What Matters at Each Stage





Recognize where you are in the lifecycle





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

Avoid Underfunding -

not enough cash to reach next milestone

Time

Valuation

Next Key

Milestone

x

Cash Out Date

Use the cash out date and financing milestones

… and Alignment

For more details on all these topics:

visit ForEntrepreneurs.com

Presentation Slides:

forentrepreneurs.com/saastock-2017

APPENDIX

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

A more detailed look at what

drives bookings…

Without Sales people

Leads

Simple linear relationship

Conversion

Rate

Average

Deal Size

x x

But when you add in Sales People…

Ramp

Time

Sales

Capacity

Limit

Growth comes in discontinuous units

The Unit of Growth

Sales Person

Supported by Leads & Customer Success

Sales Person

$’s

Marketing

Spend

SDR’s

Leads Customer Success,

Renewals, etc.

It’s not just the front of the funnel…

The Backend of the Funnel

Closed Deals

Loyal

Customers

who are

Advocates

Renew ExpandOnboard

It’s all about LTV

Top Factors affecting Renewals

• On-boarded successfully?

• Champion still at the company?

• Customer getting meaningful business benefits?

• Is the product Sticky?

Dollar Renewal Rate is King

See last year’s presentation

Customer

Renewal Rate

>Dollar

Renewal Rate

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

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