When I am talking with SaaS founders the discussion frequently turns to the pros and cons of asking customers to prepay their subscription annually. Often the decision to do this is driven by a desire to improve conversion rates. I think this is mistaken.
I was with one of my CEOs this morning. As we walked through the highs and lows of his business I made a suggestion that I want to pass on.
Nothing’s ever perfect in a startup, or life for that matter. Perfection is an illusion. However, on the startup journey the bulk of value gets created once everything starts to work.
Many startups begin life selling to small business (SMB). SMB is a very appealing market. For one, it’s big (30 million businesses in the US alone). Also, they make quick buying decisions. Sounds great!
The challenge with SMB as a customer segment is that each customer is small. It might be easy to get your first few customers. But over time you become a victim of your own success. The bigger you get, the higher your customer acquisition costs go. Hubspot’s CEO Brian Halligan illustrates this challenge beautifully in his recent post ‘why aren’t there more Intuits”.
Building the next Intuit…
If you sell more to the ‘M’ (i.e. mid-sized businesses), then you can build a large inside sales team. This is what Hubspot does. This is also why they raised boat loads of capital. Once they got their fundamental unit of growth working, they never stopped hiring sales reps. Continue reading Creative ways to scale SMB customer acquisition
As a passionate and regular Soundcloud user I was saddened (but not at all surprised) to learn that the music streaming network is in financial difficulty.
Apparently, they have lost over $70M in the last 2 years alone. To date, they have raised over $150M. According to this leaked document, in 2014 they lost $ 2.25 for every $1 in revenue. Continue reading Soundcloud’s losses: How much is too much?