David Cummings on Startups

Category: SaaS

  • Demonstrating Product Value in the Application

    One of the on-going challenges, and opportunities, for a SaaS application is to show the user the value they’ve received using the product. At Pardot, we worked hard to show the product value through revenue generated, marketing pipeline, and campaign ROI. Of course, demonstrating product value took time depending on the volume of leads, marketing activities, and length of the customer’s sales cycle.

    Here are a few thoughts on demonstrating product value in the application:

    • Revenue Generated – Connecting the product to revenue generated is the ultimate in showing value. If there’s ROI, prove it.
    • Time Saved – Most applications have a time saving element. Quantifying it can be hard but worthwhile.
    • Items/Objects Used – Reminding the users of the volume of product usage — invoices sent, contacts created, etc. — helps realize the value.
    • Email Updates – Sending product usage summary emails to the user keeps the value top-of-mind on a regular basis. Weekly emails are recommended.

    Entrepreneurs would do well to ensure that the product demonstrates its value to the end-user.

    What else? What are some other ways to demonstrate product value in the application?

  • Another Publicly-Traded SaaS Company Going Private

    Earlier today Vista Equity Partners announced they were acquiring Xactly Corp (NYSE:XTLY) and taking it private for $564 million. Vista has already bought several public SaaS companies including Marketo for $1.8 billion and Cvent for $1.65 billion, among other acquisitions. Public markets are supposed to price in all known information, yet Benjamin Graham’s famous quote still rings true today:

    In the short run, the market is a voting machine but in the long run, it is a weighing machine.

    The idea is that opinions on public companies fluctuate, along with their corresponding stock price, on a regular basis. Only, over an extended period of time, their value is based on the underlying substance.

    Let’s look at info on Xactly Corp from Google Finance:

    • Xactly Corporation is a provider of cloud-based incentive compensation solutions for employee and sales performance management.
    • 450 employees
    • Current annualized run rate $97.2 million
    • Annualized year-over-year growth rate of ~20% (hence slightly less than a 6x exit valuation on run rate not including cash on hand and debt)

    For more information on Xactly, read the notes from the S-1 IPO filing.

    For Vista Equity Partners, they must believe they can generate annualized double-digit returns on the investment. Here are a few ideas how they might do it:

    • Substantially Increase the growth rate through new strategies or direction
    • Roll up a number of smaller SaaS companies in the sales performance market grow much faster through an in-organic approach
    • Do nothing and believe that the momentum and potential for SaaS over the next 10 years is greater than what the public markets believe

    My guess is that it’s a general bet on SaaS and better long term potential than markets price in. I’m interested to see how it plays out over the next 5-7 years.

    What else? What are some more thoughts on another publicly-traded SaaS company going private?

  • Customer Success for Company Success

    Continuing with yesterday’s post on Second Order SaaS Revenue, it’s important to drill into the role of customer success and how it drives company success. There’s an excellent slide deck titled How to Drive Growth with Customer Success Metrics that covers the topic well. Here are a few notes from the slides:

    https://www.slideshare.net/GainsightHQ/how-to-drive-growth-with-customer-success-metrics

    • Customer success is a growth driver on par with sales and marketing
    • Show, don’t tell, how you make money
      • Renewals
      • Upsells
      • 90 day adoption
      • Product roadmap feedback
    • One customer success manager per $2 million (hired in advance, not in arrears)
    • Second order revenue – the key to long term success
    • Why customer success is critical
      • Happy customers, better product
      • Grow faster
      • Decrease capital needs
    • How much to spend on customer success?
      • Expected value =  Save rate x Value of extension
      • Example: 30% x 12 months x $83/month = $298 or about 30% of annual contract value

    Pre product/market fit, customer success is often ad hoc. As the company grows and finds a repeatable customer acquisition process, customer success is critical.

    Entrepreneurs need to understand how customer success drives company success.

    What else? What are some more thoughts on customer success?

  • Second Order SaaS Revenue

    Last week an entrepreneur shared how they just signed a large customer that was a referral from an existing customer. This got me thinking about the importance and power of second order SaaS revenue. Second order revenue is revenue that comes from existing customer referrals as well as customers changing jobs and bringing the product to their new company. This class of revenue should grow over time as the startup builds a brand and successful customer base.

    Here are a few thoughts on second order revenue:

    • Track customer referrals over time and look for patterns or trends (e.g. certain customer referrals are much more likely to be good fits)
    • Record customers that change jobs and bring the product to their new company (this happens a good bit and is an excellent source of revenue growth)
    • Facilitate customer referrals by asking for them automatically in the app (one successful technique is doing a net promoter score questionnaire and then asking for referrals from the promoters that give a 9 or 10)
    • Consider how second order revenue plays into the customer lifetime value (e.g. if a customer is worth $50,000 over four years but refers an average of $5,000 in new business and brings an average of $2,000 in new business when changing jobs, the value of signing a new customer is higher than just the lifetime value)

    Second order revenue is an important part of the SaaS business model and really shines for startups that have happy customers.

    What else? What are some more thoughts on second order revenue in SaaS?

  • Daily Active Users in B2B SaaS

    Continuing with assessing product/market fit, one of my favorite metrics is daily active users (DAUs). Now, DAUs are more commonly associated with B2C products like Twitter and Facebook, but they’re directly applicable to B2B SaaS products as well.

    Why are they so important for B2B SaaS? The best indicator of success for most SaaS products is the fact that the customer continually uses the application. In most applications, this is signing in and using the platform. In a limited number of applications, this is using the API programmatically on a regular basis (e.g. integrating it into another application or workflow). Regardless, product usage equals product value. And, product value is a key element of product market fit.

    Entrepreneurs should monitor their daily active users and understand the correlation between product usage and startup success.

    What else? What are some more thoughts on daily active users in B2B SaaS?

  • Software 2017

    Battery Ventures put out a great slide deck on the state of the software industry in 2017 as part of the recent CloudNY event.

    https://www.slideshare.net/Battery_Ventures/software-2017

    Here are a few notes from the slide deck:

    • 18.3% expected compounded annual growth for SaaS companies over the next four years (compared to 6.9% for general software)
    • Software industry in the United States supports 10 million jobs
    • The Five Forces of Software’s Accelerating Growth
      • Existing software markets are growing over time
      • Software is infiltrating what were once niche markets
      • Software is displacing hardware
      • Every company is becoming a software company
    • 60% of organizations to increase spending on cloud applications
    • The global software industry is $500 billion per year
    • Continuing at a 5% compounded annual growth rate, software will be $1 trillion/year by 2030
    • Category kings consistently captured more than 70% market share
    • Tactical considerations:
      • Software innovation is now global
      • There are competitors in all segments of the market
      • Product now drives software sales
      • Network effects and ecosystems build moats and drive stickiness
      • AI and machine learning are enabling applications
      • Microservices architectures and rapid product delivery are now must haves
      • Culture is paramount and employee feedback is public
      • Find a wedge and change the market dynamic
      • Grow fast or die slow

    Check out the slide deck on the state of the software industry in 2017.

  • SingleOps Announces $1M Seed Round

    Earlier today I closed on a $1M seed round in SingleOps (see the Atlanta Business Chronicle article on the SingleOps funding). SingleOps is a SaaS platform for mobile field workforces like tree care services, landscaping, pest control, healthcare — anyone who regularly coordinates employees in the field. The platform combines estimates, scheduling, time tracking, CRM, invoicing, and QuickBooks syncing with a mobile-first interface for teams on the go. Think of it as a cloud-ERP solution like NetSuite, but much easier to use and geared towards field service companies.

    Sean McCormick and his team have built the foundation of a great business over the last three years achieving product/market fit last year and a repeatable customer acquisition process this year (see the four stages of a B2B startup). Now, it’s time to accelerate the growth and build a category-winning company.

    I’m thankful to Sean for letting me be part of the journey and I’m looking forward to helping SingleOps realize its potential.

    Interested in learning more? Check out SingleOps.

  • Terminus Raises a $10M Series B

    Earlier today Terminus announced that they had closed their $10.3M Series B financing from Atlanta Ventures and Edison Partners. Terminus is the pioneer of account-based marketing (ABM), one of the fastest growing areas of marketing technology. Here’s how Terminus describes the value of ABM:

    ABM enables B2B marketers to target key accounts, engage decision-makers, and accelerate marketing and sales pipeline velocity at scale

    As marketers look beyond inbound lead generation and become more focused on the account, they need corresponding tools and systems to orchestrate engagement across multiple systems, trigger the right ads to the right people, track behaviors across the account, and understand account-level analytics.

    Terminus created the FlipMyFunnel movement and is building a large, category-defining ABM company. Now, they have the resources to grow even faster and help more companies achieve ABM at scale. Congratulations to Eric and the entire Terminus team on their next milestone in the journey.

    Want to learn more? Check out Terminus.

  • Feature Rich vs Feature Niche

    When building a software product, there’s a human tendency to go broad and add every feature a customer requests. Yet, some of the most successful products do a limited number of things well and eschew the bloat found in most applications.

    I call this the feature rich vs feature niche conundrum.

    Feature rich products have dozens of modules and hundreds of functions. Feature niche products have a select number of modules with only the most valuable functions.

    Pardot is very much a feature rich product with dozens of B2B marketing modules. Calendly is very much a feature niche product doing beautiful, simple scheduling.

    Entrepreneurs need to be intentional about their product strategy and consider the feature rich vs feature niche trade-offs.

    What else? What are some more thoughts on feature rich vs feature niche?

  • 3 Trends in Marketing Technology

    Earlier today I had a chance to talk at the Geek Out on Marketing Technology event and one of the topics was MarTech trends. With 4,000+ marketing technology companies, there are a number of excellent trends in the market.

    Here are three trends discussed:

    1. Machine Learning – Take large amounts of data and find patterns and actionable insights that just weren’t possible before. Machine learning is the ability for computers to learn without being explicitly programmed. Think of all the applications in marketing from improving campaigns to targeting the best-fit accounts.
    2. Account-Based Marketing – Target named accounts with the right message at the right time. With account-based marketing, marketers are able to proactively engage with accounts that haven’t come through the traditional channels.
    3. Customer Data Platforms – Marketing is more than campaigns to attract prospects. Marketers are now expected to help guide the entire customer experience from first touch to signing as a customer to renewing at a future date. Customer data platforms pull in data from all the customer facing functions — sales, marketing, support, customer success, etc. — and provide a holistic view of the account as well as next actions to take.

    It’s a great time to be in marketing technology and look for these three trends to grow in importance over the coming years.

    What else? What are some more trends in marketing technology?