Whether implicitly or explicitly, it’s critical for a startup to map out accounts to understand the purchasing dynamics of a buyer. When sales teams start selling, their goal should be to create the sales playbook. The playbook all begins with understanding the key dynamics among the five players in the sales process. These are the five people
If you want to understand how to build a great SaaS sales organization, you should read Mark Roberge's The Sales Acceleration Formula. It's the single best book on the topic. Mark is the Chief Revenue Office at Hubspot, a company which has created tremendous success by perfecting the inbound marketing plus sales model. The book is invaluable for every founder, CEO and member of the management team because it not only explains how the Hubspot sales team is structured, but why the structure came to be.
In 2.5 years, Adobe has transformed its business from a software license business into a SaaS business. It's been a remarkable transition, and one not talked about very much in the SaaS world. Transitions from licensed software to SaaS are rare. The travel and expense management behemoth, Concur, recently acquired by SAP for $8.3B, is another great example that made the transition first from CD-ROM packaged software, then to enterprise license software and then to SaaS. Above, the line chart shows the astounding growth in the number of Adobe Creative Suite subscribers from the launch of CreativeSuite 6 in mid-2012 through March 2014 growing at 31% per quarter.
Leads are the lifeblood of every SaaS company. As a SaaS startup grows, the limiting factor of the business quickly becomes demand generation. Can the marketing team generate enough leads to for the inside sales team to attain their monthly quota? The Marketing team's mandate is to generate these leads in a cost-effective way and develop a portfolio of lead-generation mechanisms. Ideally, these generate inbound leads, who often convert at 2-3x the rate of outbound leads. Below are the five marketing channels I've observed at SaaS companies.
Over the last 15 months, the typical high growth public SaaS company's multiple has halved. The chart above plots the average enterprise value to forward revenue multiple for established SaaS companies and high growth SaaS companies. High growth companies peaked in February last year at about 22x forward revenues and have fallen to 11x on March 1, 2015. Established companies dropped similarly from 6.6x to 4.5x.
Every SaaS company should be focused on mitigating churn because greater retention enables a business to grow far more rapidly, to reduce the cost of customer acquisition, and to slash the amount of capital required for the business to grow. But there's one additional reason to focus on churn: predictability. The more dollar churn a business creates, the less predictable its performance - and vice versa.
In a recent survey, 40% of VCs pointed to SaaS as the startup sector most likely to be impacted by a market correction. There's no question that the early stage SaaS founders are benefiting from substantial multiple expansion and pre-money valuation increases. But I was curious about how widespread aggressive investments are in software companies. As the data below shows, the seed and Series A markets have been stable, but Series B rounds have seen a dramatic acceleration recently.
When you walk into Looker's offices, the first thing you'll see are the surfboards standing in a corner, still sandy from a morning's outing. Looking around, you'll notice the sunny outdoor patio where a chef once made enough paella in one enormous *paellera* for Looker's 100 employees, and you might sit at the long tables where they shared the feast. As you entered the building, you would have passed a motorcycle glinting in the sun, a gift from the company to an early engineer for his outstanding contributions to the business. All around the office, you can feel the culture Frank, Lloyd and the rest of the Looker team have imbued into company from the very earliest days.
There's a magical property to the classic sales funnel SaaS startups use to evaluate the effectiveness of their go-to-market organizations: an increase in effectiveness at any stage of a sales funnel cascades through to the end funnel. But improvements to the early parts of the funnel are more important than those later in the funnel, because they meaningfully improve key SaaS metrics like cost-of-customer acquisition and pay-back period.
Over the past four years, the amount of seed investment has increased by more than 200%. And the typical seed investment size has risen by 25% in just the last 12 months. In 2014, for the first time in four years, median Series A round size have increased.
After writing about the Seed Market in 2015, I wondered whether I could find some data to support Sam Altman's observation that acquihires have fallen in frequency over the past year by 66-75%. The chart above shows an estimate of the acquihires in US technology companies over the past four years.
A few weeks ago, I joined Mike Volpe, CMO of Hubspot, on the Growth Show where we had a great time talking about a few SaaS topics. A few listeners to the podcast picked a line from that podcast that I think is a really important point for content marketing. I said, "Content is one of the few forms of marketing that has a compounding return."
The seed stage investment market feels like it's changing quickly. Last year and the year before, the institutional seed investor came to the fore. These firms raised between $5 and $75M to invest in seed stage companies. In addition, VCs have been participating in the seed stage market as well, making 2013 a banner year for seed investment. Startups raised 132% more in seed rounds than in 2012. But what of 2014? And what does it mean for 2015?
Once a startup has found an initial product market fit, the business must evolve the way it models its growth. Before product market fit, a startup's financial projections focus on costs. The company has no visibility into their revenue growth. So, the management team should minimize costs, maximize cash and lengthen runway to provide as much time as possible to find that product market fit. As we've seen, staff are both the greatest asset of a business and also the greatest cost, at least initially, and modeling those is straightforward. But when a repeatable sales process seems to have been discovered, it's time to develop the startup's revenue forecast.
In The Shape of Things to Come, the New Yorker profiles Jony Ive, the man they call Apple's greatest product. Ive is iconic. His products have been sold 1.5 billion times. For all of his success, Ive's personality isn't well known. Neither is his personal history. Or how he manages the Apple Design Lab. The New Yorker article reveals some of these three things. Here are some of my favorite quotes.
If I were asked to create a content marketing strategy for a person or a business from scratch, I would craft a strategy with three dimensions: customer segments, customer lifecycle stage and content type.
In 2009, the Corporate Executive Board, a consultancy providing expertise to some of the world's largest companies, studied the distinguishing characteristics of great sales people and well-run sales processes. They surveyed more than 6,000 sales reps across 90+ businesses. The analysis revealed three interesting things.
In "The Rule of 40% for a Healthy SaaS Company," Brad Feld shared a simple rule of thumb growth investors often apply to judge the attractiveness of a $50M business. "The 40% rule is that your growth rate + your profit should add up to 40%." I was curious if this theory were broadly true, applicable for growth stage companies, but also early stage companies. So, I calculated this metric, which I'll call the GP metric in this post, for all the publicly traded SaaS companies over their lifetimes.
It's becoming more and more expensive to scale a startup in San Francisco. In fact, it's twice as costly to operate a startup in 2014 as it was in 2009.
After a SaaS startup has achieved some degree of product market fit, the business will likely ramp the go-to-market teams, and in particular the sales team. Measuring and tracking the performance of a growing sales team is critical to the growth and financial health of a business. The report above is the most effective view of the performance of a sales team I've found for SaaS startups.
In 2011, a team of researchers from Stanford and Harvard led by Teresa Amabile collected daily work journals from more than 250 people at large and small companies in a variety of roles. In each journal entry, an employee described one work event that stood out that day. Over the course of a few months, the study received more than 12,000 responses. From all this data, the team revealed a critical ingredient to be a great manager: managing for progress.
SaaS companies are marvelous businesses. They are more predictable than most other kinds of companies and in addition they demonstrate leverage from technology. The best SaaS companies are able to build strong brands, develop scalable products and hire teams to bring those products to market effectively. To show the power of the convergence of these forces, I've analyzed the employee productivity patterns of the 50+ publicly traded SaaS companies.
Each quarter, Zendesk releases a Customer Satisfaction Benchmark to help companies build more effective customer support teams. The Q4 2014 differs from the previous in an important way. Instead of comparing companies in the same industry, for example, Education, Zendesk clustered companies with similar customer support characteristics, including ticket volumes, product support complexity and a few others, which revealed some important conclusions.
At Google, Product Reviews were held on Fridays at 130pm in a big room with a long table, two projection screens at one end and red couches along the walls called Marrakesh in Building 42. Each week, Eric, Larry and Sergey invited three product and engineering teams to present their progress each for about 30 minutes. On several occasions, I updated the executive team on the status of our team's project, social network monetization. Needless to say, especially the first time but really every time, I was nervous about the presentation.
How much should your startup budget for its employee stock option pool? One way of answering this question is a blanket addition per year, say a 2% renewal. Another way is to look at the cash based cost of the stock based compensation. We're going to examine the second one today by looking at the basket of 50+ SaaS companies.