Continuing with yesterday’s post on SaaS Company Premium Valuations, there’s an important point about the SaaS business model that isn’t well understood. With all the talk about finding product/market fit followed by building a repeatable customer acquisition process (see the 4 Stages of a B2B Startup), it’s regarded that with enough time and money, both of these tasks will be accomplished. Assuming there’s sufficient need in the market, and enough resources, product/market fit can be achieved. Only, it’s the repeatable customer acquisition process that’s also capital efficient and profitable where there’s even more difficulty. Customer acquisition that’s capital efficient and repeatable starts with lead generation.
Here are a few thoughts on lead generation as the #1 challenge for SaaS:
- Cost of customer acquisition relative to the first year’s customer revenue is one of the driving metrics for building a SaaS business, and lead generation is the top of the funnel for customer acquisition
- Company size upper limits are determined by the number of new customers signed relative to customers that leave (churn) and is also accentuated by the law of large numbers that makes growth more difficult at scale
- Acquiring customers in a manner that is scalable and profitable isn’t always possible, which is why many entrepreneurs give up on building out a sales team due to repeated failure (the lower cost and higher volume of leads can be generated, the greater the chance for a profitable and repeatable customer acquisition process)
- Top of the funnel lead generation is the most difficult to plan and control for — once a lead is in the pipeline, automated nurturing and human selling is very controllable
The next time an entrepreneur talks about how hard it’ll be to scale the service for a large number of users or get the user interface just right, ask the harder question about how they’ll generate a huge number of marketing qualified leads.
What else? What are your thoughts on lead generation as the #1 challenge for SaaS companies?