SaaS

Stages of a SaaS Venture

The stages of a SaaS Venture seem to be pretty standard if you listen to most SaaS Experts (e.g. David Skok, Jason Lemkin and David Skok in the Saastr Podcast) and talk to SaaS executives. Interestingly enough it is not so much what you do in the stages that is important, but rather what you don’t do.

Stage 1 – Finding product market fit.

Typical funding situation: pre-seed or seed.

Goal: Find product-market fit with your software, build something that you client persona will want to take you out of your hands at a decent margin

What you do.

  • Talk and listen to your customers to understand what they need and what they are willing to pay for. This should give you your product definition and customer persona
  • Develop your product as simply as possible, be willing to take shortcuts until you know what clients want. Minimum Viable Product is your motto.
  • Make your initial sales. These sales should be founder-lead but should go beyond the people you know
  • Ensure the product generates value and stickiness with your customers once developed. Your product is not just the software. Product = Software + Customer Success.

What you don’t do.

  • You don’t try to sell at scale or expand internationally.
  • You shouldn’t be optimizing customer acquisition metrics or sales channels.
  • You shouldn’t try to get the pricing right (yet).
  • You shouldn’t be hiring like crazy.

What signs show that you are ready to move to the next phase

  • You have a relatively stable and clear product your customers love and get value from
  • You know who is your customer persona, competitive set and value proposition
  • You can sell to your customer persona consistently with high success rates

Key metrics

  • MRR (target >50k)
  • Close rate of customer persona opportunities (target >50%)
  • Gross margin (>50%)

Materials

Stage 2 – Creating a repeatable sales and marketing model with good unit economics.

Typical funding situation: seed or round A.

Goal: Develop a consistent sales and marketing methodology through which someone other than the founder can sell your product consistently, at an attractive price and have a customer success process that allows you to keep your clients and upsell them.

What you do.

  • Optimize your sales and marketing methodology to reduce CAC and improve pricing and margin
  • Improve your Customer Success process to optimize your LTV and Net Retention
  • Create standard sales, marketing and customer success process that can be executed consistently with a defined set of tools.
  • Develop a hiring and onboarding machine

What you don’t do.

  • Scale your sales and marketing rapidly or go international
  • Totally redefine the product or create a new product category
  • You shouldn’t be hiring like crazy.

What signs show that you are ready to move to the next phase

  • You can bring on regular sales and marketing people to sell consistently at your desired CAC to LTV ratio
  • You have a high net retention and are able to scale the customer success team to serve new customers
  • You are able to consistently source qualified sales, marketing and customer success talent

Key metrics

  • CAC to LTV ratio (target >3)
  • Gross margin (target >70%)
  • Net Retention (target >110%)

Materials

Stage 3 – Growing to global dominance

Typical funding situation: round B and beyond.

Goal: Pour gasoline into a well-oiled machine to convert it to increasingly high ARR without losing what has made the company great

What you do.

  • Strengthen the culture and processes to ensure the company can survive hypergrowth
  • Build a management layer to be able to withstand growth
  • Hire, hire, hire and fire quick

What you don’t do.

  • Be conservative with cash as if you where in Stage 1 or 2
  • Hire B players or keep them because you spend too much time hiring
  • Sacrifice unit economics to growth
  • Stop adapting your product to client needs

What signs show that you are ready to move to the next phase

  • You are able to grow consistently without deteriorating unit economics or culture
  • You are the 800 pound gorilla in your category
  • You find adjacent markets you can colonize

Key metrics

  • ARR growth > 50%
  • LTV to CAC >3
  • Net retention > 110%
  • Gross profit >70%

Materials

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