Lean Startup Boston

Most businesses, especially small to medium sized businesses, are run poorly. That’s why they don’t all succeed. Not because they have bad ideas, or bad employees, but because of poor execution. I focus most of my professional energy trying to execute well. I use that word, “well,” purposefully. Well is not perfect. Well is not poorly.

Historically, I get a lot of flak from professionals in all the companies I’ve been in, whose primary interest lies someplace else. Usually, these well-intentioned people are just focused on talking rather than executing. Sometimes these people are less well-intentioned and just want to maximize their own benefits. This constant struggle between me vs. them is wearing.   Occasionally, I’ll come across a book, an author, or a presentation that revitalizes me and reaffirms my beliefs in what I feel is the “right way” to run a business. The “10 Laws of Building a SaaS Company” presentation by Bessemer Venture Partners is one of those. Here’s a Cliff Notes version of what I learned:

1. Your key monthly business metrics are: CMRR Committed Monthly Recurring Revenue, Churn, Cash Flow. “Bookings” is for suckers.
2. Customer Acquisition Cost (CAC) and Customer LifeTime Value (CLTV) are the best indicators of long term value creation.
3. Tune before you scale. Stop at 3 sales reps until at least two of them are making 100k MRR quotas. “You need at least 2 to 3 sales reps that are productive and efficient on their own, without a lot of executive support, before you step on the gas.”
4. Separate your “hunters” and “farmers” and pay them all on CMRR growth. “Orient all your [sales team] compensation plans around CMRR, not around bookings.”
5. Focus your business dev. efforts on business service channels, not IT channels. IT Channels are not good for SaaS companies because there isnot a lot of hardware and software needs when your product is purchased, because you’re providing it. Also, there aren’t a lot of professional service deals because it’s not an implemented product.
6. By definition, your sales prospects are online. Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business.
7. Stay local – prove your business in North America first. Only after reaching $1M in CMRR should you consider overseas. Save Asia for post-IPO.
8. Single instance, multi-tenant, single datacenter. Have only 1 version of code in production. “Just say no” to on-premise deployments. “You can get the worst of both business models if you have a highly fragmented, on-premise model with the subscription economics of revenue.” This made me think of 37 signals, immediately.
9. The most important part of software-as-a-service isn’t software it’s service. Monitor,  gather feedback, and then benchmark. You can drive a ton of Product Marketing and Product Management insights from all having all customer data in single instance. Simply tracking usage of your customers gives you significant insights into your product. I thought of Hubspot.com when I heard this.
10. Be prepared to cross the desert. SaaS requires R&D and sales expense up front for a multi-year stream of revenue, so it demands enough investment captial to fund 4+ years of runway. Load up for the long trip and pace your consumption of calories! (dollars)
11. Bonus Rule. You can ignore 1 or 2 of these rules, but not more. Great companies innovate, but pick your battles. This “bonus” rule made me laugh. This first excuse that poor leaders of companies give, when faced with the overwhelming data that their current strategy and tactics aren’t working, is something like “Well, this companys is so different from all the other companies out there, the normal rules don’t really apply to me.” Obvioiusly, the folks at Bessemer have heard this too. (Probably a lot more times than I have. . .) and decided to throw this Bonus Rule in. You’re not that different. You’re just a bad leader.