The SaaS Pain Journey
The aim of this infographic is to help those starting off in SaaS to get a handle on time, money, pain, valuation, and growth steps.
As the saying goes, “Every man is unpredictable, but as a group they are totally predictable.” SaaS is quite like this, everyone is unique, yet there are certain paths that must be followed.
This is not a scientific study based on evaluating data sets, it is based on my time in the industry and what I have seen as patterns repeating again and again. Hopefully this information will provide a bit of a framework for you to evaluate your SaaS business on.
Staff: You always need more people than you think. If you are aiming to build a business that has revenue of 100M you won’t do it with 50 people. 250 People when you have CMRR of 1M may seem ridiculous, but if you are aiming big you need a lot of people to get the business there.
You have to employ people ahead of the demand curve, it is the growth exceeds profit problem that is common to volume based business models.
Location: This info is produced for my local network which is New Zealand, however the same lessons apply, before you try and sell overseas you have to learn to sell in your home market first and then the next country(State) that is closest to you. If you can’t sell well at home it is almost impossible you will sell easier in a foreign market.
You have time zone support issue, customer feedback slow down, etc, the list goes on.
Of course it’s possible to sell straight to a foreign market, but why would you, it is easier, cheaper and less risky to sell local. Get the sales machine working at home before moving out.
Product vs Platform: Platforms are expensive and take a long time to build, there are already existing players in nearly every conceivable market. It is much easier to build a big profitable SaaS company that can then invest in a platform and pivot. EG Slack could now pivot into CRM and Sales etc.
Build a SaaS company that works first, then look at building a platform. Don’t try and take on existing incumbents, more likely than not you will get beaten. Start small and build upon your successes. If you can’t make a SaaS company work you probably won’t make a platform work
Valuation of your Company: A very simple rule of thumb that can be used is your monthly growth rate (GR) over 12 months.
Eg, Company A grew new subscription revenue 8% month on month for the last 12 months.
The formula to work out your valuation is, GR x ARR. Eg, ARR of 1Million x GR of 8 = Company A is worth $8Million.
(This is a very simplistic way to value a business, but it is still a very useful guide as a ball park, there is complexity around where you are in your life cycle, but for a SaaS startup less than 10 Years old that has a large addressable market, it is good enough to start a conversation with an investor on.)