The one metric that matters

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Today’s startups are more data-driven than ever. We can measure and optimize so many aspects of our businesses. That’s a good thing. But, sometimes, we can get lost in all that data. And if you’re lost as a founder or exec team member, imagine how lost the rest of the team must be!

If you’re an individual contributor at a growing company capturing lots of data, how do you know what metrics matter? And how do you know whether the results you have for those metrics are good or bad?

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The only 2 ways to scale SMB SaaS

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Many startups launch focusing on the small business (SMB market). Given how large this market is, it can be a compelling target. There are 30M small businesses in the US alone. In addition, SMBs don’t have big purchasing departments and corresponding long sales cycles. If you reach the owner and solve a need that she has, you’re in!

I love the SMB market. Many of my previous startups have addressed on it. Most notably FreshBooks, which has built a very large customer base here. However, I have seen over the years that most startups that launch with an SMB focus eventually go up market serving larger customers. They do this because while the SMB market is huge and sales cycles are short, each customer is small and not worth much. So, you need a lot of them in order to build a big business. Acquiring lots of small customers in a cost effective way is difficult.

Without further ado, here are the only two ways that I know off to truly scale SMB SaaS companies:

1.) Ridiculously low cost of customer acquisition: Read More

Managing Investor Pedigree

It’s a known fact that not all venture firms are created equal. Cambridge Associates, an advisor to the Limited Partners that invest in venture capital firms, says that only about 20 firms – or 3% of all firms – generate 95% of the industry’s returns. 

Those 20 firms remain pretty consistent over time. Sequoia, NEA, Accel, etc. have figured out the secret recipe for generating consistent premium returns. That recipe centres around getting into the big outliers; The unicorns that make or break fund returns.

There’s a funny thing happening in today’s venture market: The fear of missing out is bigger than ever. Success (i.e. traction), when it comes, comes faster than ever. The best venture firms have highly tuned radar screens, proactive early stage scouting programs, demo day attendance and many other tactics to make sure they get access to back the winners.

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How much churn is too much?

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I have often said that churn (the rate at which customers cancel their subscriptions or otherwise stop buying from you) is the most important metric for  a recurring revenue business. Why?

  • The longer a customer stays, the more they are worth.
  • The more they are worth, the more you can pay to acquire them.
  • The more you can pay to acquire your customers, the faster you can grow.
  • The faster you grow, the more capital you can raise to further accelerate everything. It’s a virtuous cycle.

The question I often get then is how much churn is too much? Read More