How Early Customer Define Your Destiny, Customer Money & Getting Better: SaaStr CoSelling Space Speaker Series Event

By Scott Sambucci | January 11, 2017

Last night’s SaaStr Speaker Series event  – “The Real Secrets to Happy Customers & to Making More Money” – hosted Byron Deeter of Bessemer Venture Partners and Nick Mehta of Gainsight.

Nick Mehta (left) & Byron Deeter (right)

Jason Lemkin MC’ed the two-person panel, and each shared their perspectives on SaaS company sales and growth requirements, early customers and capital-raising. Many of their answers to Jason’s questions were questions themselves – questions that startups need to answer if they are planning to grow out of startup mode and early-stage purgatory.

BTW – Definitely check out the SaaStr Coselling Space. Very nice digs! Here’s a live tour of the SaaStr CoSelling Space via my Facebook Live last night.

(Note: The quotes below are really, really close to what they said, but to be safe, let’s just assume I’m paraphrasing…)

1 – Early Customers Define Your Destiny

Two questions that Nick posed to the audience: and “Who are you early customers?” and “What’s the best possible customer you can get early?”

He said:

“It’s about the customers you work with in the early days… Choose your early customers wisely. They define your destiny… Get the customers who you want to represent your company.”

Believe in your company’s mission and vision – be authentic & passionate. Gainsight’s Pulse event started when they had just six customers. SIX! They built a community and a movement. They created and now are leading the crusade for the cause of “Customer Success.”  Gainsight made a bet that “Customer Success” was a new job function, and a new job function means new products and software is needed to do that job.

Action Steps:

Gainsight’s early customers included Marketo, Box, Cisco and Adobe. That was no accident. These companies are known for being early adopters. If you’re looking for early adopters for your startup:

• Check the customer logos of other startups in your space. Look for executives on the industry conference speaking circuit.
• Find job changers – someone that was a CIO, CMO or VP of Product at an early adopter company who is now at a new company.
• Be there in person to get early customers, and bring your team. Nick said he had more than 100 scans at Box’s office and met Aaron Levie “50 times” in the company’s lobby.

2 – Raising Capital vs Customer Money

When asked about raising capital as an enterprise SaaS startup, Byron’s answered:

“Customer money is the best way to finance your business.”

Bessemer Ventures has had 14 cloud-based company IPOs, and are only 43 publiclu-traded cloud-based companies. Bessemer was involved with ONE OUT OF THREE of these! Wow.

The conversation turned to the “investor bar” – what do investors expect from early stage companies looking to raise capital. Jason asked if the “Rule of 40” was dead. (Read more about the Rule of 40 in Brad Feld’s post.) Byron and Nick talked instead about “capital efficiency.” It’s an easy concept – what’s your growth rate vs. your burn rate. If your startup is growing at 3x while your expenses are growing at 1x, that’s a pretty darn good story.

More specifically when it came to startup sales growth, the metrics investors use are a harsh reality check for most startups. At $1mln ARR, a startup needs to be growing at 3-4x to raise a Series A. This often comes down to the company’s focus.

Nick suggested checking: “What is your reality vs the [investor] bar?”

I witnessed the “investor bar” all the way back in 2012 with Altos Research. Back then, we were a six-year-old company and bootstrapped to $2mln/ARR, growing 25%-80% per year over the past five years. We couldn’t even get meetings with the venture community. Company age aside (five-years-old is pretty grown up for a startup looking for its first funding round), the growth rate just wasn’t interesting for VCs. Bootstrapping to $2mln was a nice accomplishment, but not even in the ballpark for serious VC funding.

Byron suggested asking yourself as a startup: “Do you have a sales-driven model?”

Time and time again, I talk to startups founders who say – “I just need to raise some capital first then I can focus on sales.” Bzzzzzz. Wrong answer, and why this might be the quote of the night. If your product works and solve an important customer problem, YOU NEED TO BE SELLING IT!

Action Steps:

• How much of your day or week are you dedicating to sales?
• How many of your internal meetings and conversations are sales conversations, vs talking about the product, engineering or raising the next round?
• Check your calendar and time yourself.

3 – Company Growth: Get Better & Faster

Two questions Byron suggested for startups to ask themselves: “How do we do better? and “What could we do faster?”

Byron described a company he recently reviewed, looking for how that company would grow faster. The problem was they were lead constrained – they couldn’t grow faster because no amount of investment was going to accelerate the number of leads.

Here are a few KPIs and metrics to examine in your startup:

• Repeat buyers: Are customers that go to other companies buying from you again?
• Retention: Gross Revenue Retention vs Net Upsells. Net shows how strong your economic engine is
• Net Promoter Score, which is a leading indicator of Customer Lifetime Value (CLTV)
• Adoption metrics: What is your customer usage and engagement with your product?
• Customer Health Score. Gainsights uses colors to map to each customer’s “health” – a scale from bad to good: Red-Orange-Yellow-Lime-Green

Operationally, Nick & Byron suggested:

• Adding Sales Ops at $3-4mln ARR. Jason wrote about. Your sales efficiency will go drop when you grow from $1mln to $10mln ARR. Sales Ops will mitigate this loss.
• Avoid hacking Customer Success, Human Resources and G&A functions. As you grow, you need infrastructure to support customers and yourself.
• Specialize early. This means bringing in SDRs, Customer Success, Account managers and the aforementioned infrastructure headcount.
• Hire a “Head of CS” $3-4mln ARR. Start with a DIY approach first, then find someone to execute on your plan and vision. This is a good lesson for sales too – as a startup founder, figure out how to sell your product first, then hire a sales team. See: “How do I get sales off the ground for my enterprise SaaS company?”
• Hiring decisions. If you’re torn between added engineering vs sales resources, ask yourself: “Where are there more problems to be solved?”

Action Steps for Customer Success Proactivity:

• Create events and environments where you have a forcing function to be proactive with your customers
• Find incentives for customers to use more of the product
• Organize half-day “hack-a-thons” or “customer success sprints” to email customers about a new feature or join a live training.
• Tier your customers for your Customer Success team so that your biggest customers receive the love and attention they need and deserve, and to avoid loss aversion
• Require at least five (5) onsite customer visits per month. Nick mentioned that he’s still doing 15-20 customer calls or visits every week.

What do you think? What are your thoughts?