What are the main dynamics driving the accelerated scaling of SaaS startups? As manifested by higher valuations / multiples.
Check out this presentation from Gail Goodman, Constant Contact CEO – “How to negotiate the Long, Slow, SaaS Ramp of Death.” Finding how to scale may take years – many years. For Constant Contact, they finally learned that radio ads and workshops at local Chambers of Commerce were the way to scale. Weird huh?
My three ideas:
- Be persnickity about hiring.
A bad sales hire costs you a year of revenue for their market area or territory.
Say you hire a new salesperson in January and give them a standard three-month on ramp up period. After three months, your new hire is underperforming. Maybe she’s not terrible, but she’s definitely not hitting goal. So you extend her out to a monthly plan, and in April she hits goal then falls back under goal in May and June.
Then you have your big industry conference in July or August, and so you hope that she pulls through with a few meetings where you can lead the deal and get it closed. You figure this will inspire her and bring her up to par, but alas, her big meetings fall through or you discover that the “big opportunity” in her pipeline is still in the early stages, and the prospect is already far along with a competitor.
In September, you decide to pull the plug and let the sales representative go, and you spend Q4 recruiting. But… the good sales reps you want to hire are having blowout years at their current company, so they want to wait until after the end of the year to make a move because of their bonus check. Now’s it’s January 1, 201X+1 and you finally have your new sales rep ready to start. Maybe.
The “bad” part of the hire might be just as much your fault as theirs.
- Do you have a lockstep sales training in place? Are you investing in ongoing training at least quarterly – webinars, coaching programs, full-day events?
- Do you know the flow of your sales opportunities from the time of first touch through to implementation and renewal?
- Is you sales training simply – “Go shadow one of our salespeople for a week then start making calls.”
- Are your weekly 1:1s simply – “Tell me about your pipeline” – or are you really teaching and holding the rep accountable for inaction in their opportunities?
- What are you performance metrics for new hires, and are you sticking to them? If your new hire quota is 10 new deals/month by month #3, are you sticking to it or finding excuses to keep them, justifying the decision because you think the pain of switching is greater than a sub-par sales team?
Check out “Revenue per Lead” as a metric: What metrics do you analyze in your Sales each month?
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- Be vigilant about product-market fit.
See Fred Wilson’s post: Revenue Traction Doesn’t Mean Product Market Fit
At a previous startup, I spent two years focusing on enterprise sales – deals $10k+/year. By the second year, that part of our business grew to ~$1mln annualized run rate. Here’s the approximate composition:
- One (1) huge deal = $250k/year
- Five (5) deals = $25-100k/year
- 10-15 deals = $5-25k/year
We thought – “Hey – we’ve got a real business line here based on these deals sizes and clients, including several Fortune 500 and 1000 companies. Let’s go hire a full-time enterprise sales team.”
We hired two salespeople and after a year, both combined for less than $250k/year.
Why? The customer types that comprised the ~$1mln ARR were all over the place – a few big Wall Street investors, a few data/analytics companies, and even a retailer. Hmmm…. Not exactly product-market fit.
Looking back, it’s blatantly obvious that I may have been good at selling our product to specific customers for specific problems, but we never achieved product-market fit with any one vertical that we could plug in a good salesperson and have them grow their territory. Duh.
- Build a 7 x 1 Customer Implementation Plan.
Losing a customer sucks. It really sucks. It hurts revenue and kills morale.
When you reach the end of the sales process, and your prospect says – “Okay, let’s get started” – make sure that you and everyone in your company knows what happens next in…
- …the first minute
- …the first hour
- …the first day
- …the first week
- …the first month
- …the first quarter
- …the first year
You need to figure this out for your business, then make sure everyone from engineering to sales to marketing to customer service knows where each customer is in this cycle and that everyone adheres to your Implementation Plan.
Read these articles about customer churn and cancellations:
- Understanding Cancellations
- Why Churn is SO critical to success in SaaS
- How One SaaS Startup Reduced Churn 71% Using Red Flag Metrics
**This Q&A article was originally posted on Quora. Check out Scott’s Quora page here.