From Launch to Series A: 10 Prios Before You Reach 10k MRR — SaaS SMBs Ed. (1/10)
Priority #1: Setting the Right Goals
As an early stage company, you’re working against the clock with few resources due to one undeniable fact — until you break even, you’re burning out money.
Therefore, it’s important to focus them where they might have the highest impact. But setting the right priorities early is difficult, because you are on a discovery phase and you don’t know where the highest impact might be.
In the world of SaaS, there are many ways to set those priorities. Following a top-down approach, at Point Nine we have “identified” at least 8 ways to build a billion dollar business.
A common playbook of our founders can be summarised as follows:
- Start selling to SMBs as soon as possible
- Learn and iterate to improve the product
- (Most of the time) go after larger accounts as the product matures
The benefit of that playbook is that it allows the company to show progress in the form of traction.
At the earliest stages of following that journey, we tend to observe two phases:
- Before (approximately) 10k MRR it’s about finding signs of product/market fit and setting some of the fundamentals for good growth. Those are the topics I will cover in this post.
- After 10k MRR it’s about executing on what you’ve learnt, so you can grow as fast and healthy as possible into more than 100k MRR which is one of the thresholds for a good series A. That would be part of a follow up series of posts.
In this series of articles, I will cover 10 priorities that guide companies who follow the SMB’s go-to-market approach. Note that those are relevant for companies at their very earliest stage and they are not ranked by order of importance, but from a higher-level to a more tactical one:
- Priority #1: Setting the Right Goals
- Priority #2: Having the Right Infrastructure & Monitoring in Place
- Priority #3: Get Your Finance Plan Right
- Priority #4: The Right Early Stage Functions & Team
- Priority #5: Invest in Sales and marketing
- Priority #6: Understand the Goal of Pricing
- Priority #7: Get the Right Customers
- Priority #8: Traction and Metrics
- Priority #9: Get Your Product Right
- Priority #10: Get Enough Funding
Intro: What Matters for a Good Series A in SaaS
Before moving into the priorities, since often the goal of a seed round is to finance the company to get into a good series A, it’s important to understand what it takes to get there.
Obviously, a lot of factors affect that, but we have seen at least 3 important ones for SaaS companies:
a) Growth in the last 6 months before the series A
There are many reasons why this is so important, but among others, high growth can point to product-market fit and helps understand how well the sales & marketing engine works.
If the company is growing fast, the new investors might think that the company will keep (or even accelerate!) that growth after the fundraise — something which, unfortunately, does not always happen ;-)
What’s the threshold? Table stakes in SaaS change every day, but more recently we see that companies at +100k MRR and growing 15% monthly in the last 6 months get investors excited.
b) Quality of the MRR
Great logos as customers give confidence to investors. We believe that those companies are diligent when they buy products, so it helps us believe that your product is superior to its competitors.
Another important factor can be the diversity of your customer base in terms of industries, company sizes, geographies, etc. A more diverse customer base can be understood as a potentially larger market size and more resilience against changes in industries.
c) Unit economics
Every SaaS investor knows that the unit economics will change over time, but it’s pretty hard to move any key metric — like ARPA, churn, CAC — by a factor of x10 in the short-term because they tend to reflect market and consumer behaviours.
Therefore, current unit economics are another good proxy on how the business will grow in the future after pumping more cash into it.
Obviously, apart from those 3 areas, the quality of the team and product, as well as the size of the opportunity, are key. But good performance in the previous areas speaks about the excellence of the team and the quality of their product. The market size question requires desktop research from the investors.
And now, let’s start with the first priority:
Priority #1: Setting the Right Goals
It might sound obvious, but the first step is to spend time and effort understanding your customers’ needs, building something that they love and setting some of the fundamentals for growth.
As a result of that, we believe that it’s important to:
a) Get *some* customers to *Love you* (#1!!)
As soon as you identify a relevant pain point, get a handful of great customers as early adopters who provide as much feedback as possible. That will help you to iterate and grow healthier (and probably faster).
b) Expose yourself to Serendipity (yes, luck is important!):
Experiment and iterate to see what clicks with potential customers and to get the unit economics right.
c) Invest in your Infrastructure:
Investing early into setting up the tools required to understand your customers’ behaviour and your unit economics will allow you to see how you progress and what’s working or not.
d) Get your Finance under control:
please, don’t run out of cash before you’re in good shape to raise your series A!
All those areas are going to be affected by how do you decide to spend your time, the members of your team, your sales/marketing/engineering processes, etc.
In the next posts I will try to cover some of those topics in more detail.
But basically, at this stage, it’s important to keep a (mental?) list of:
- What you want to FOCUS on NOW
- What you want to TEST
- What you DO NOT want to do (either now, or in the future)
In the first category, you should have very (very, very…) few items.
Did you like the post?
Please contact me at@DecodingVC.
The next one’s already published are:
2. Having the Right Infrastructure & Monitoring in Place
3. Get Your Finance Plan Right
