Australia, Canada, Israel, China, India. SaaS startups are thriving in these countries and many more. Next generation software companies hail from many different parts of the world, and some of them are worth billions of dollars. Shopify and Hootsuite in Canada. Atlassian in Australia. Xero in New Zealand, just to name a few. As these successful startups have boomed, how has the early stage fundraising market for them evolved?
SaaS startups often find themselves in one of three different states when contemplating their burn rate. The first is the David Farragut strategy. Damn the burn rate, full speed ahead. The second is the conservative approach - attaining profitability using only the cash on the balance sheet. Those two are easy. Circumstances dictate the respective aggression or conservatism. Lots of cash or not so much. The more complicated state is the one in between, and that is the one that most SaaS startup operate within.
Sales leaders consistently underinvest in sales team training and development. As SaaS startups scale, sales execution becomes the most tangible metric of a business’ success, and the one by which the business’ health is benchmarked. Not to mention how the head of sales is evaluated. When is the right time to invest in sales training? And how much should a business invest?
Let’s take a hypothetical SaaS company with five sales reps, each with a $750k quota. Four of the team members attain 70% of their quota each month. But one of the account executives sets the standard. She closes $900k, booking 120% of her quota. It’s quite common to see a distribution of account executive performance resembling this one. Training aims to narrow the gap by spreading best-practices across the team.
What is your SaaS startup worth in an acquisition? To answer that question, we can analyze the data set of all software companies acquired over the last six years and benchmark them by enterprise value-to-revenue multiples.
What is your SaaS startup worth in an acquisition? To answer that question, we can analyze the data set of all software companies acquired over the last six years and benchmark them by enterprise value-to-revenue multiples.
For hundreds of startups in the as-a-service world, the scores of product launches at last week’s Amazon Web Services Reinvent Conference each were a warning shot across their bows. We are coming. We are coming right after you, with tens of billions of dollars on our balance sheet, hundreds of salespeople, and the broadest suite of software and infrastructure since Oracle. Anything that’s open source with traction, we will host. Any business where we see margin is our opportunity. We are coming fast and hard. At least, that’s the way I interpreted it.
In June, Frank Bien and I published our book, Winning with Data. It describes through case studies how some of the most successful startups use data to create sustainable competitive advantage. Since then, we’ve sold thousands of copies. Today, we’re releasing an Audible version of the book.
I have 8 free copies to give away to readers. If you’d like to throw your hat in the ring for one of the codes, please answer a one question survey about SaaS startups. I’ll select 8 respondents at random and send out the codes next week. Just a reminder that you’ll need an Audible account to claim the code.
Bookings, MRR, Revenue. All these metrics form part of the financial statements of SaaS companies. For as long as SaaS companies have existed, we’ve used one way of counting revenue, called GAAP. Starting in 2017, revenue recognition for SaaS companies will change, and SaaS startups will have more flexibility in the way they record revenue than in the past.
BDO has published the clearest summary of these changes, which number more than 750 pages in the tax code. Your accountant or CFO is the best person to consult about these changes. Public companies must transition to these new regulations starting in 2017. Private companies have the option to migrate to these new standards in 2017. They are obligated to comply in 2018.
As a SaaS startup begins to reach critical mass, the business generates more of its revenue from upsells and expansions, reaching about 30% at between $40-75M in revenue, which is in line with some of the models we’ve created. Many times startup teams ask how to compensate a sales team for renewals and upsells. The 2016 PacCrest Survey contains a wealth of information about these types of go to market questions.
Earlier this week, I published benchmarks on [What Percentage Of Revenue Should SaaS Startups Spend On operating expense?](http://tomtunguz.com/how-much-should-spend-on-operating expense/) Several founders asked to see this data broken down further. What fraction of operating expense is spent on sales & marketing, and what fraction of op is spent on engineering? Most businesses spend 2x more on sales & marketing than engineering.
Imagine you’ve just been named the head of a bustling New York City restaurant challenged by one issue - customers complain about the customer service. A data-driven person, you search for a metric to evaluate the current customer service to validate the complaint and then track as you experiment with the restaurant’s operations. What metrics would you employ?
You might run a survey of customers at exit. You could follow with customers by telephone the day after the meal. You might ask finance to tabulate the tip amount as a percentage of the total bill and aggregate by waiter.