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Building the Billion Dollar SaaS Unicorn: CEO Guide

In a Venture Capital world that is obsessed with growth, recurring revenue and software as a service, after you validate that you have a solution that people are willing to pay for, there is an entire new world ahead of you in scaling that venture. For many, this involves an entirely new language and set of metrics to manage the business. For the startup that wants to make the leap to scale up and fast growth this should serve as a starting point for key insights and metrics for that journey.

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Building the Billion Dollar SaaS Unicorn: CEO Guide

  1. Building the Billion Dollar SaaS Unicorn The CEO Guide of Key Insights and Metrics for B2B Software as a Service Companies By Kelly Schwedland
  2. Rising Table Stakes Christopher Janz, SaaS Investor http://tomtunguz.com/table-stakes-saas/
  3. 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
  4. Growth Stage Key Points I. Terms & Metrics II. Roadmap III. Sustaining Growth
  5. 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
  6. Impact of Faster Growth on P&L / Cash Flow 1. Cashflow - Don’t run out of money
  7. 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)
  8. 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/
  9. 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.
  10. 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
  11. 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/
  12. 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/
  13. 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
  14. II. Roadmap
  15. 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
  16. “T2D3” Growth Phases* *Triple twice, double three times
  17. 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/
  18. 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:
  19. 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
  20. 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
  21. 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”
  22. III. Sustaining Growth http://chaotic-flow.com/media/saas-growth-strategy.pdf
  23. 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
  24. 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
  25. 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
  26. 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
  27. 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
  28. 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/
  29. http://www.insightpartners.com/insight-onsite/onsite-s-customer-acquisition-metrics/
  30. “Make no small plans for they have no power to stir the soul.” ~ Niccolò Machiavelli.
  31. Thanks • Kelly Schwedland • 219-405-5723 • Kellys@ElevateVentures.com Have questions? See something I missed? Let me know.
  32. 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
  33. SaaS Metrics -Rules of Thumb
  34. http://chaotic-flow.com/saas-metrics-guide-to-saas-financial-performance/