“Heck yeah!” or “No”

Recently I was reminded the Derek Sivers post that has stuck with me for years: No “yes.” Either “HELL YEAH!” or “no.” The idea is that too often we say “yes” as it’s the easy answer even though we don’t feel strongly about. Too many “yeses” and there’s no time for yourself and the important priorities.

When it isn’t worth your time, just say “no.”

When you’re not passionate about it, just say “no.”

When you have more pressing priorities, just say “no.”

When life feels overwhelming, just say “no.”

When you’re super excited and want to do it, just say “yes.”

The next time someone makes a request of you, ask the “heck yeah!” or “no” question.

Video of the Week: Tim Ferris – Tools of Titans

Last week I started reading Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers by Tim Ferris. I’ve been a fan of his for years as his blog and books are excellent. For the video of the week, watch Tim Ferriss: Tools of Titans. Enjoy!

From YouTube: Whether you’re a millionaire-in-the-making or just trying to check off your to-do list every single day, you’re always on the hunt for how to do your best, but where do you even start? Enter Tim Ferris of Four-Hour Work Week, and his latest book Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers. Just for you, Tim picked the brains of 200+ of the most creative, successful leaders from around the world to help you do better every day, including Brene Brown, Malcolm Gladwell, Jamie Foxx, Reid Hoffman, and dozens of others. He asked them actionable questions (What does the first hour of their day look like? What do their workout routines look like and why? What are the biggest time wastes they avoid?) so that you can apply their philosophies to your own life.

Quick Thoughts on Product Pricing

Earlier today an entrepreneur asked about thoughts on product pricing. I’ve found that product pricing evolves over the life of the startup based on a number of factors including competitive dynamics, target markets, corporate strategy, and overall value to the customer. Here are a few more specific ideas around pricing:

Pricing should be treated like everything else in the startup: an iterative element that warrants regular experimentation and improvement.

What else? What are some more good resources on product pricing?

Think Gross Margin When Considering Metrics

Earlier today I was talking to a growth stage startup in town and was reminded of the importance of gross margin when considering metrics. From Wikipedia:

Gross margin is the difference between revenue and cost of goods sold, or COGS, divided by revenue, expressed as a percentage.

In the SaaS world, gross margins are assumed to be in the 75-85% range such that the heuristics, like The Golden Metric for SaaS – $1 Burned for $1 of Recurring Revenue is consistent from company to company. Yet, most companies don’t have SaaS gross margins (and different cost of goods sold), such that when thinking about metrics and best practices, they should be recalibrated for the gross margins of the specific company. Meaning, if the Golden Metric for SaaS is $1 of cash burned for $1 of net new annual recurring revenue, that assumes 80% gross margins. If the company has 40% gross margins, the Golden Metric would be $1 of cash burned for $2 of net new annual recurring revenue (half the margin so need twice the revenue).

Whenever you hear metrics and best practices mentioned, factor in the gross margin.

What else? What are some more thoughts on considering gross margin when thinking about metrics?

The Golden Metric for SaaS – $1 Burned for $1 of Recurring Revenue

Thinking more about the post from a couple weeks ago titled Evaluating a Startup Based on Cash Burned vs Recurring Revenue and how the same idea was brought up again two days ago in Bessemer’s 2017 State of the Cloud Report, I’ve come to believe that $1 of cash burned for $1 of net new recurring revenue is the Golden Metric for SaaS.

As an idea, it’s easy to understand.

As a metric, it’s easy to track.

As a way to create value, it’s excellent.

As a benchmark for entrepreneurs to measure against, it’s perfect.

Some startups will choose to burn more than $1 for each $1 of new new recurring revenue, but most won’t have that luxury. Startups that achieve scale, and burn $1 (or less!) for every $1 of net new recurring revenue, will do well for all stakeholders involved.

What else? What are some more thoughts on the Golden Metric for SaaS being $1 of cash burned for $1 of net new recurring revenue?

5 Questions to Ask When Evaluating a Market

Looking back on the recent posts, including Bessemer’s 2017 State of the Cloud Report and 12 Key Levers of SaaS Success, it’s clear that the core market is critically important for any of the metrics and ideas to matter. Without a great market, worrying about things like how much cash to burn won’t even be relevant. Here are five questions to ask when evaluating a market:

  1. Where is the market in the adoption lifecycle? Ideally, you want to be 2-3 years early so that there’s a great foundation in place when the market really heats up.
  2. How big can the market become? Most entrepreneurs talk about a market being X big (say $2 billion/year), when in reality that’s all the spend in the market and not the spend on software in the market (which might only be $100 million/year). Potential market size is crucial.
  3. Why now? Besides the size and adoption component, ask the core why question. There should be a compelling reason why now is the time to enter the market (market shift taking place, new innovation, new trend, etc.).
  4. Where does the budget come from? Customers have to figure out how to pay for the solution. Existing budget vs new budget makes for a different dynamic. Departments that are used to buying solutions vs ones that rarely do makes for a different dynamic. Figure out the budget question.
  5. How bad does the market need the solution? The must-have vs nice-to-have dynamic never goes away. Pain killers demand a premium over vitamins.

Picking a great market and timing it perfectly are two of the most important things an entrepreneur can do. Never underestimate the importance of these when evaluating the potential for success.

What else? What are some more questions to ask when evaluating a market?

Bessemer’s 2017 State of the Cloud Report

There was so much good content at the SaaStr Annual that it’s going to time to get through it all. Next of the list is Bessemer’s 2017 State of the Cloud Report.

Here are a few notes from the Bessemer slide deck:

  • 40% of the market cap of publicly traded SaaS companies has already been acquired representing greater than $300 billion in value
  • Key questions from top CEOs:
    • How fast should I be growing?
    • How much should I burn?
    • How do I scale?
  • How fast should I be growing?
    • Dropbox is the fastest SaaS company ever to hit $1B in run rate (did it in eight years)
    • The pace is quickening for SaaS companies going from $1M – $100M in recurring revenue (5.3 years for top 25%, 7.3 years median, 10.6 years bottom 25%)
    • BVP Growth Benchmark for ARR
      • Good
        • $1 – $10M in four years
        • $1 – $100M in 10 years
      • Better
        • $1 – $10M in three years
        • $1 – $100M in 7 years
      • Best
        • $1 – $10M in two years
        • $1 – $100M in five years
  • How much should I burn?
    • Rule of 40 = % Annual Revenue Growth + % Profit Margins
    • Efficiency Score = % Annual CARR Growth + % Burn
    • BVP Efficiency Rule (> $30M ARR)
      • Expansion ($30 – $60M ARR) – 70% efficiency score
      • IPO (~$100M ARR) – 50% efficiency score
      • Public (>$150M ARR) – 30% efficiency score
    • BVP Efficiency Rule (< $30M ARR)
      • Net New ARR / Net Cash Burn > 1
      • Meaning, for every dollar burned, company needs $1 or more net new dollars of ARR
  • How do I scale?
    • Customer Acquisition Cost (CAC) Payback = Total Sales and Marketing Costs Last Quarter / New CMRR Added Last Quarter * % Gross Margin
    • Understanding Your Sales Model
      • SMB
        • CAC Payback 3-6 months
        • AVG ACV < $12k
        • Churn/Upsell < 3% monthly
      • Midmarket
        • CAC Payback 12 months
        • AVG ACV $12 – $50k
        • Churn/Upsell 1% monthly
      • Enterprise
        • CAC Payback 3-6 months
        • AVG ACV $50k+
        • Churn/Upsell < 1% monthly, upsell

Thanks to the team at Bessemer for putting together the great information. Every SaaS entrepreneur should read Bessemer’s 2017 State of the Cloud Report.