Your (Belated) SaaS New Year’s Resolution: Add a Layer

I basically agree with all Start-Up Truisms.  One of the best ones is Don’t Chase the Shiny Penny.  Double Down on What Works.

For sure this is true in SaaS.  If you’ve got a good thing in a certain vertical, double down there.  If you have mid-market customers but not many in the enterprise or low-end, focus there even more this year.  Etc., etc.

And yet …

What tends to happen for most SaaS businesses even as early as $2m ARR or so, is that they get a core engine that’s working.  At least at 20,000 feet.  It’s hard, yes.  But assuming you execute, and the leads continue to come in, etc. … you should grow say 100% over the next 12 months.  Based just on the velocity rate from the past X months.

I completely agree you should spend 90%+ of your time just doing what’s working, only better, if you are at $2m ARR or higher and growing 80% or more YoY.

But here’s the thing.  SaaS Compounds (more on that here).  Imagine if you just added one extra layer, one extra segment, one new way to sell, one product extension … that just might add another 10% growth this year.

Now, that won’t mean cr*p next year, and it may be distracting.  But look what happens as SaaS compounds:

Screen Shot 2014-01-09 at 3.37.31 PM

The difference is epic down the road, as you march toward the Big M&A offer or IPO.  Epic.  Just from one little new initiative. ;)  Imagine if you do this every year, and half of these initiatives work …

So the last thing I am suggesting for Your SaaS New Year’s Resolution is to get distracted, or take your eye off the ball.  But I am suggesting, as founders and execs, you think about doing (x) one new thing that (y) builds on your core, doesn’t fundamentally change what you’re doing but (z) could inflect the curve 10% and not be terribly distracting.

Let me suggest some ideas:

  • Add an Outbound Sales Team if You Don’t Have One.  I know in-bound is all the rage.  But let me tell you, if your ACV is high enough, outbound can work.  We’ll do a post on this soon.  Have you tried it?  It doesn’t have to make the company.  A small team just has to generate enough new business to add 10% to the top line.  Aaron Ross has been talking about this for years.
  • Add Professional Services, for Real.  Yuck, you say?  Professional services?  Well, enterprise customers are happy to pay for them.  You can pack another 20-30% of revenue onto any enterprise deal if you do it right here.  Yes, I know it’s not recurring.  But you’ll get it in new deals every year.  Hire a Head of Professional Services and charge for Pro Services.  It will work in any six figure deal, and many five figure deals.
  • Add a More Enterprise Edition.  Add a few more features, more security, more whatever, so you can make your product More Enterprise.  And charge for it.  It will probably work.
  • Add a Real VP Business Dev.  I know you have partners.  But are you taking them seriously enough?  Do you have someone whose full time job it is to make your partners successful?  It will probably pay off.
  • Add A VP Customer Success Earlier.  Your churn may be low.  But what if it were 10% lower?  It’s not that hard.  Hire a seasoned VP of Customer Success.  Your churn will go down, and your upsells will go up.
  • Add Someone to Own Upsells.  Even if the Customer Success thing is working, do you have someone, or a team, dedicated to maximizing land-and-expand and/or upsells?  No?  You can easily inflect the curve another 10% here.
  • Add Proactive Customer Success / Retention for Your Smallest Customers.  You probably shower your largest customers with love.  But do you do such a great job with the smallest ones?  Probably not, even if you have a Customer Success team.  Add someone to just focus on the very smallest of your customers.  Show them respect, and some love.  Churn will go way, way down here too.

None of these initiatives requires any sort of tilt, or in most cases, any really dramatic change.  And I bet at least a few of them might work at your company.

The key to all these potential initiatives is to just try to get $1 back for every $1 you spend.  It’s an investment.  Your core engine does need to have positive unit economics.  Your extra efforts at the incremental customer really should just cover costs (more on the incremental customer here).  Expecting profits here is being way too conservative.

I know you barely have time to service the leads and customers you already have.  I know you have a 3+ year feature backlog already.  I know.

But take a pause in the New Year.  Find a way to add a relatively low-stress, low-dilution layer to what you are doing now.  It won’t materially change your Dec ’14 ARR.  But it will have a magic effect on that Dec ’19 top line.

11 comments

  1. Awesome article, thanks!

  2. A number of excellent near-term options to consider to significantly impact future revenue.

  3. Kevin Murphy

    Great article!

  4. Great post with a really solid list. I agree with almost all of them (I choose outbound sales & customer success first) except for the professional services. With some products there may be a natural fit/upsell with it, but generally, I hate this option. I find it to be, by far, the most distracting of the bunch you listed.

    Thanks, JL!

  5. Well..I’m a ways away from that with my new company (still in beta until next month), but dealt with it in the past. Hopefully will have to face the question again in the not-too-distant future :)

    But …isn’t the point of this post to encourage ways to take advantage of the compounding effect of SaaS? Do something that seems small today that will pay off over time? Non-recurring, service revenue doesn’t really fit that bill, right?

    Anyway, I have no problem with services–in fact, the opposite–under the right circumstances:

    _If the services are ultimately very scalable (ie – a premium training/kick-off package that can be designed once and delivered consistently by more junior folks (5-10% of contract value?)).
    _If the services flow organically from your product. A little difficult to explain, but some services flow very nicely from certain products.
    _If the services will enhance & support the long-term (growing) use of your product (ie – we will help you integrate the data generated from your other systems so that our product becomes engrained in your processes).

    Admittedly, I have spent too much time surrounded by consultants in my past, which is the root of my initial ‘cringe’ when I hear about services. Also, I think the value of services is very much related to stage of the business. I have the biggest issue with services when they come too early.

    Anyway, not sure if you’ve done a post on professional services for SaaS companies, but I think it’s an interesting topic…

    • Good points. Look at Veeva, the hottest SaaS IPO of ’13 and the best venture return even in SaaS. 20%+ professional services. Yes, they aren’t recurring. But as long as they are <=20% of your revenue, you'll still get full credit in the multiples. And they do recur in the sense you get them every year when you close new customers ;)

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