Progress in SaaS is never as linear as it looks years down the road. Everyone has rough quarters (often at least 1 in 5). And we almost all have a full Year of Hell, often during a tough transition. I certainly did (twice). More on that here:
But there’s one thing it is important to be honest about, to do a root cause analysis when times are tough:
After about $2m-$3m in ARR, your organic leads should always be growing, You may have trouble closing them without a great sales team. You may struggle to service them. But if you are doing things right on the product side, the organic leads should always grow after that.
Why? The simple fact is that once you have a mini-brand, often after just as few as 100 customers, you’ll start to get a viral loop going on referrals. I remember one of the first founder events I ever went to was with the founder of Intuit. He said, “Today, we get 80% of our leads from world-of-mouth. Just like at the end of Year 1.” His point was that happy customers combined with a strong brand create more leads. Social media just amplifies word-of-mouth, but it’s nothing new. Peers get together. They talk. They email. And they share their favorite vendors.
Now you won’t have a brand of any sort on Day 1, and probably not a mega-brand like Zendesk or Twilio for 5-6 years at best. But earlier, you’ll have what we’ve called a Mini-Brand. Not a brand all across the world, but enough folks in one segment, in one niche, will have good things to say about you. That can come as early as just 100 customers. More on that here:
So let’s look at what happens each quarter, even with just 100 Happy Customers:
- With, say, a 10% Quarterly Referral Rate (i.e.10% of your customers each quarter refers you to another customer that closes),
- and just a medium growth rate (20% a quarter),
- then over the course of 8 quarters, your Word-of-Mouth leads alone have grown 358%.
Let that sink in for a minute.
As you can see, the number of leads dramatically compounds over time if you have happy customers telling their friends:
In fact, second-order revenue and word-of-mouth is probably the only lead source that doesn’t hit a plateau. Well, someday it will, when you have, say, 50%+ market share. When I was a VP at Adobe, everyone was already a customer. There weren’t even really “leads”. At that point, there won’t be any raw new customers to spread the word to. But that takes a very long time. You aren’t there today.
So make sure that at least word-of-mouth leads are growing every quarter after 100 customers, at least after $2m-$3m in ARR. Even if you are stuck on how to grow other lead sources.
If they aren’t, something is off. Your customers aren’t happy enough. Or if they are, you aren’t bringing them together. You aren’t doing enough customer marketing.
Go fix that.
A great related SaaStr Annual session here:
