Q&A’s with Meetime: how to beat your SaaS challenges! Thoughts from 7 SaaS Experts
We are addicted to creating great content around SaaS challenges at Meetime, and a few days ago an idea came to our minds: we decided to ask SaaS experts around the globe about how to grow a SaaS business, and hack your way to a (really BIG) Growth. This turned out to a great Q&As, and we are very pleased to have these names on our blog. We honestly hope this post blows your mind. But first, let’s introduce our experts.
Lincoln Murphy, from sixteenventures.com
Sujan Patel, from ContentMarketer.io
David Skok, from Matrix Partners
Ragnar Sass, from Pipedrive
Nick Franklin, from ChartMogul
Garrett Moon, from CoSchedule
Michael Cheng, from Sniply
Q1 – Around 28% of startups die because they run out of money, and that is cruel. What would be your main advices on how to reach Product Market Fit before that happens? Is there any singularity for SaaS businesses?
Lincoln Murphy: first, it’s good to be clear that most startups don’t actually have a Product / Market Fit issue – that only really exists when you’re creating something totally new and developing a new product category. If you’re just iterating on an existing product, and making it a better/faster/cheaper, the Market is proven; it exists, and it uses products similar to yours to solve their problems.
If you can’t get traction and make progress in that market, you can’t blame the fact that a market doesn’t exist… you just haven’t been able to penetrate that market.
The good news is that’s MUCH easier, cheaper, and faster to overcome than a true Product / Market Fit issue.
That’s why I say you should sell early and sell often; don’t build your product in a vacuum and then launch to the world. Launch now, sell your product for actual money to real customers, and learn from that process. Though the market exists, you still have to figure out how to position your product for that market.
Hint: start by developing your Ideal Customer Profile.
Sujan Patel: make this your primary focus from day 1. Day 1 isn’t when your product launches, it’s when you start building your product. Talk to potential customers and your audience and make sure you share your findings with your team. I always recommend SaaS founders run a closed beta to really understand their customers.
David Skok: do tons of customer validation meetings before you start building the product. If you start development too early, and you have the wrong idea, you will very likely run out of money before you get to build the right product.
Ragnar Sass: I believe that this number is even bigger – I have a strong feeling that 90% of the startups die. Startups should have a product out as soon as possible. It should take max 3-4 months, when first clients should start to use it. Then, you should follow super carefully how they are using and make sure that your product makes them happy. Pipedrive started in June of 2010 and our first test clients started to use it after 2 months. Another thing is costs. You have to bootstrap and holds costs super minimum.
Nick Franklin: I think the main thing is just to manage cash well. Create a financial model in Excel that tracks your cash in, expenses, and how you expect those variables to change over the next 12-24 months under some different outcome scenarios (e.g. good, ok, bad). Might be a bit simplistic but hope for the best and plan for the worst.
Garret Moon: conserve your cash like crazy. I see a lot of startups burn cash and time on things that seem valuable, but don’t really matter. For example, trade shows. While they can be valuable and necessary in some (rare) cases, they are often one of the most expensive ways to get customers and feedback. If you expect every dollar you spend to return two dollars, you’ll become a lot better a saving cash early on and saying no to the waste.
Revenue is the king of product marketing fit. I think it is important to think of profitable growth over general growth. Early users and simple validation are great, but can you make it cash flow? In the SaaS market I think it is especially important to not overly rely on fundraising to get the job done. A SaaS business can easily be 100% bootstrapped if you focus on revenue early.
Michael Cheng: the number one leading cause of startups running out of money is tracking the wrong metric. No matter how many investor dollars you raise or accelerators you get into, those will not keep your startup running. The only metric that matters at the end of the day is monetization potential. The easiest way to assess monetization is to actually monetize. A startup that makes more money than it burns will never run out of money. Despite what outliers like Snapchat and Instagram have done, all businesses need to make money at the end of the day.
It’s important to manage your burn rate. Keep it low until you can figure out monetization. Moving fast means nothing if you’re accelerating towards the wrong direction. Take it slow until you identify a direction worth accelerating towards.
Q2 – One of the main problems that haunts a young SaaS is to balance value and pricing, in order to close more deals. What are your thoughts about pricing your product in a smart way?
Lincoln Murphy: just know that pricing is never a set-it-and-forget-it thing; it will change and evolve over time.
My suggestion to startups is to keep pricing very simple out of the gate… to the point where I say unless you have a compelling reason not to do this, stick with one pricing plan and unlimited users for some specific timeframe post-launch, like 3 or 6 months.
Then you watch and interact with your customers, observe and learn from customer behavior both in-app and beyond, and over time you’ll start to see patterns emerge that will indicate how you might further segment pricing.
One way to really understand your bigger customers – or at least prospects at first – is to tell those that “need more” (whatever that means, but a lot of folks that might self-identify as “Enterprise” customers may immediately assume they need more) to contact you.
This may be uncomfortable for some entrepreneurs who just want that self-service, “no-touch” experience… that passive revenue (that doesn’t actually exist)… but talking to customers is pretty much never a bad thing. And talking to customers that want to pay you MORE than the other customers is also not a bad thing.
Sujan Patel: talk to your potential customers during beta and ask your customers what they’ll pay for your solution. The real thing you need to figure out is the perception of value. At ContentMarketer.io we decided to go with $49/mo because it was slightly lower than the avg price people said they’re willing to pay. I also increased the perceived value by adding a private slack group that customers would get access too.
David Skok: my thoughts are not to worry about optimal pricing in the early days, and to focus instead on getting as many of the right kind of customers on board as fast as possible. Often the latter means offering a lower price to remove friction in your sales process. You can always raise price later.
Ragnar Sass: I don’t see this as a big problem. Your first goal should be getting as many clients as possible. In the later stage you can always increase pricing step by step. To have less negative emotions, your new price will be valid only for clients – what we call grandfathering. Pipedrive has changed pricing a couple of times and we never had any negative impact to our revenue.
Nick Franklin: Price is an interesting subject with psychology playing a big part (e.g. if something is cheap it must be bad, right?), my gym in Berlin for example costs €20 per month, my first thought was that there must be something wrong with it, but it’s a great gym with modern equipment, etc. Price is such a complicated subject with so many influencing factors I probably can’t give a comprehensive answer here.
One bit of advice I can give is if you do increase your price, always grandfather existing customers on their current plan (for a few years if not indefinitely), otherwise you alienate your early adopters and most loyal customers.
Garrett Moon: balancing growth and profit was a big challenge for us at CoSchedule, and it took several tries to get it right. My advice is to charge more and charge earlier. You have to remember that it is just as important to validate a price that scales as it is to validate an idea. People may love your tool, but will they still love it for X dollars per month? If the answer to the second question is no, then you don’t have product market anything.
Michael Cheng: at Sniply we offer a Name Your Own Price program. This allows our users to pick and choose their own plans, and then name their own price. Not only does this align value and pricing, this approach also helps us gather insightful data on how to price our features in the future.
Q3 – One of the most difficult SaaS challenges (specially in the beggining) is to keep users active and focus on stickiness. How to define an active user (in a practical way) and master product stickiness? Any special tools to use?
Lincoln Murphy: stickiness comes when customers are achieving their Desired Outcome, so make sure that whatever activity you’re measuring and monitoring is meaningful activity that’s in-line with moving them toward their Desired Outcome.
I suggest you go through his process:
1. Develop your Ideal Customer Profile
2. Understand their Desired Outcome
3. Develop the Success Milestones they need to move through to achieve that Desired Outcome
4. Ensure you bridge any Success Gaps that might keep them from achieving that Desired Outcome.
If you do those things, you’ll develop meaningfully-active and successful customers that are achieving their Desired Outcome and they’ll be meaningfully sticky!
There are lots of tools that can monitor and facilitate this – from lifecycle messaging tools and general analytics products, to purpose-built Customer Success Management products like Gainsight; but you have to first start with those 4 things I listed… no technology will make up for a lack of understanding of your customer’s Desired Outcome and how they should get there.
Sujan Patel: I use Intercom to and monitor inactive users & engagement from users on a regular basis. I setup drip campaigns for trial users or users in a free plan but I also setup educational email drip for paid customers. Usually for early startups there is 2 big problems: 1. You have signups but failed to get them to the “aha” moment or 2 .You have paid customers that haven’t got the value they thought they’d get when they signed up.
David Skok: great question. One way to think of this: a Facebook user who simply looks at other people’s posts is not very engaged. But if that user then makes a comment on someone’s post, they are slightly more engaged. But if they create their own post they are very strongly engaged. To create stickiness, look for the following:
– Ways to capture data that are important to the customer that they have to come back to you to access
– Ways to embed your product into their daily workflows so that they can’t easily get their jobs done any longer without your product
– Get more users to cross the threshold and participate in activities that increase engagement (as described in my Facebook example.)
Ragnar Sass: I would count active, only these users who are using your product at least once per week. But it can vary depending on your product and, business logic. We have used totango.com, but I am sure that there are more good tools. I have also read many good things about Intercom.
Nick Franklin: We’re using Intercom to give us this information currently, it tells us who is active, when they last logged in and who is slipping away. These are good indicators although there are more tailored tools out there for doing this analysis.
Assuming you have something people need and use I think one of the key things is to keep innovating at a fast pace, and continuously increase the value of your service, this will help keep your users engaged and active.
Garrett Moon: if you have product market fit and a good product most of this will take care of itself. In you have high churn, you don’t have product market fit. We’ve always focused more on user acquisition and conversion and less on retention. Focusing on conversions helps us keep onboarding and support on point, and the is a huge part of the battle with retention.
At the end of the day, retention is really about keeping your tool useful. If you provide value to your customers they will continue to buy.
Michael Cheng: for our product in particular, we track the creation of new Sniply links. We track most of this using our own custom built software since the nature of our product is relatively unique. Signing in to check analytics isn’t enough for us to consider a user active, they must engage with our value proposition in some meaningful way for us to consider it sticky.
Q4 – Despite all odds, some SaaS break the inertia and succeed. And then comes the time to control Churn, CAC and LTV to let the cavalry come, as Jason Lemkin says. How to decide which of these metrics is the most important and when to focus on each one of them?
Lincoln Murphy: focus on Customer Success and acquiring good-fit customers from day one and you won’t have to worry about churn later.
By focusing on customers who have the legitimate possibility of achieving their Desired Outcome with your product, your CAC will be more efficient since the customers have an accelerated time to value driving upsells and expansion faster – and thereby paying back the CAC faster – and ultimately bringing in other customers as advocates.
Also, your Net Revenue Retention (NRR) and average LTV will go up, which will drive your company valuation higher. NRR, BTW is one of the most important metrics because it indicates how much you’re growing revenue from your existing customers, which is the secret growth lever of the most successful companies.
So if you do all of that, succeeding won’t be defying the odds, it’ll be the most logical outcome. Unfortunately, most companies don’t do all of that.
Sujan Patel: my favorite metric is LTV to CAC ratio. All of these metrics are important and you need to monitor all of them on a regular basis but for early startups CAC & LTV are the most important.
David Skok: this isn’t a hard and fast rule, but my gut tells me that this is the order I would look to focus on those metrics:
c) LTV and CAC
Ragnar Sass: well, LTV is the most important metrics for me. You should also look carefully into the churn & CAC, but in the end of the day everything will depend on the LTV. Churn is something that has its importance growing, the older the company gets. And not caring about it, could really hit you hard.
Nick Franklin: I think you should be measuring all of these metrics from an early stage. You probably won’t get to the next level with a high churn rate so if this is high then you might want to work on this first over reducing CAC.
Garrett Moon: well, MRR will trump all of these metrics. If you have a churn problem MRR will drop of plate. CAC is usually fairly easy to monitor so keep an eye on it, but don’t focus there. LTV is very connected to MRR, so again I think MRR is the better metric.
Revenue is your lifeblood. The other metrics just help you diagnose what’s wrong with MRR.
Michael Cheng: never build assuming you’re the outlier. Focus on strong fundamentals and maybe you could become an outlier, but never design your business based on the assumptions of becoming an outlier. This means controlling church, CAC, and LTV from the very beginning. Every step you take lays down the foundation for the future. If you ignore churn, CAC, and LTV just to pursue growth, you could have a massive problem down the road.
Q5 – OK, let’s say the cavalry did come and it’s time to scale. What are the qualities that SaaS founders should look up on VCs?
Lincoln Murphy: don’t go to Venture Capitalists in search of just money.
There are lots of ways to get money for your startup without having to give up as much equity, turning over some amount of control, or enduring the quarterly board meeting cadence. None of that is actually bad, but in order to make that additional overhead of managing the relationship with VCs, they should bring real value along with whatever investment they make.
From valued-added board members to access to the collective intelligence of their portfolio of companies they’ve invested in, to assistance with marketing, business development, and even PR, to simple credibility by having them as investors, VCs should add a ton of value.
But value-added VCs (sometimes referred to as name-brand VCs) are much pickier about who they invest in, so you better do your homework and be prepared to wow ‘em.
Sujan Patel: are they going to helpful or hurtful & can they help you hire?
David Skok: Ideally look for a VC that has been a CEO of a startup, not some lesser operating role. They will have the greatest understanding of your situation and how to advise you. Then it is also very helpful if they have a lot of SaaS expertise.
Ragnar Sass: You really don’t just look at the money. You should look at VCs as team members and ask what experience & knowhow they are bringing to your company, that you don’t have. The bigger impact is usually the experience on how to scale things up. And help you with high end hiring. You should not look at the company, but the exact people in there. Does your contact person in the VC company has a great fit with your company, culture & values?
Since this is a long term relationship, you should make sure to ask how much can they help you. Will they only help you with seed round or they will be your partner with A, B & C round? In the last years there has been big number of new small VCs, that are focusing only seed round.
Nick Franklin: We’re very fortunate to work with Point Nine Capital who are a fantastic partner. You need to find someone you respect and enjoy working with, and someone additive who can bring more to the table than just the money.
Garrett Moon: first, don’t assume that VCs provide the only way to scale. If you are revenue focused you can do lot with your own cash and that is usually better.
If you do VC shop, you really need to know how you are going to scale the company and why it will work. Then, you need to find a VC that shares your vision. A lot of companies get pushed in bad directions once they take funding. The pressure can be intense, so don’t give up all your control for cash. Hint: Enterprise isn’t always the answer.
Michael Cheng: Industry expertise is one of the most valuable assets VCs can bring to a SaaS startup. Look for VCs with portfolios in your space, preferably a few successful acquisitions in the sector or even IPOs. You can’t hack experience and expertise, so it’s important to align yourself with good mentors.
Q6 – If you want to leave a final message for Brazilian SaaS, what would it be?
Lincoln Murphy: think big… Brazil is a big country and there’s a ton of opportunity, but just because you’re in Brazil doesn’t mean you can’t take over the world, too.
Also remember that it’s fun getting started, and it’s awesome at scale… but be prepared to handle just a handful of heavily-engaged customers for a while as you learn what works and figure out how to scale that.
Sujan Patel: focus on growth early and ship fast. There are 1000s of articles out there full of helpful information but most the tips/tactics/strategies aren’t going to apply your startup. Get ideas from what you read, test, measure and scale.
David Skok: go Brazil! You guys have a great market, and I have spoken to many great Brazilian entrepreneurs. I’m excited to see what you guys can accomplish!
Ragnar Sass: building a successful SaaS company takes a lot more time and dedication than people expects. It could take you 2-3 years before you will feel that you finally nailed something. And be ready for being committed 10 years into this project. But at the same time – despite all of economical problems in Brazil, this is a super interesting market for SaaS companies. Just don’t give it up!
Nick Franklin: The US dominates the global SaaS market, so to compete internationally you have to work twice as hard (at least), with most likely less capital – or find something where being a local gives you a competitive advantage in the Brazilian or LATAM market and focus there.
Garrett Moon: revenue. Revenue. Revenue. It solves all the things!
Michael Cheng: never stop talking to your users. Founders should be on support duty, standing on the front lines, tackling problems and soaking in feedback. Put a price tag on your product and charge early since it’s the only way you’ll ever know if there’s monetization potential.